CRA International, Inc. (CRAI) - 10-Q Summary
Business Context and Reporting Period
CRA International, Inc. is a global consulting firm specializing in litigation, regulatory, financial, and management consulting. The company operates as a single business segment. This report covers the fiscal quarter and fiscal year-to-date (YTD) periods ended July 4, 2026, compared to the prior year periods ended June 28, 2025.
Key Financial Metrics
| Metric (in thousands) | Q2 2026 | Q2 2025 | YTD 2026 | YTD 2025 |
|---|---|---|---|---|
| Revenues | $210,815 | $186,878 | $411,790 | $368,729 |
| Net Income | $13,508 | $12,122 | $24,640 | $30,124 |
| Diluted EPS | $2.10 | $1.79 | $3.79 | $4.42 |
| Operating Margin | 11.2% | 10.6% | 10.1% | 12.3% |
| Effective Tax Rate | 32.9% | 29.2% | 34.3% | 27.9% |
| Cash & Equivalents | $21,442 | $19,448 | $21,442 | $19,448 |
| Revolving Credit Borrowed | $219,000 | $34,000 | $219,000 | $34,000 |
Liquidity & Cash Flow: Net cash used in operating activities was $118.3 million YTD 2026, driven by significant payments of fiscal 2025 performance bonuses and forgivable loan advances. Financing activities provided $126.2 million, primarily through net borrowings of $185.0 million under the revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenue increased 12.8% ($23.9M) and YTD revenue increased 11.7% ($43.1M). Growth was driven by higher utilization (77% vs. 76%) and increased consultant headcount (968 vs. 937).
- Profitability: While Q2 net income rose 11.4%, YTD net income declined 18.2% ($5.5M). The YTD decline was primarily due to a higher effective tax rate (34.3% vs. 27.9%) and increased costs of services.
- Cost Structure: Costs of services increased 15.7% in Q2 and 18.0% YTD. This was largely due to higher employee compensation and a significant increase in forgivable loan amortization ($4.7M in Q2; $14.8M YTD).
- Debt Levels: Borrowings under the revolving credit facility surged from $34.0 million to $219.0 million to fund operations, bonuses, and share repurchases.
Outlook, Risks, and Unusual Items
- Subsequent Event - Credit Facility: On July 31, 2026, the company entered into an Amended and Restated Credit Agreement increasing total facilities to $400 million ($325M revolver, $75M term loan). The company immediately borrowed $75M under the term loan and $213M under the revolver to refinance existing debt.
- Share Repurchases: The company repurchased 308,985 shares YTD 2026 for $49.3 million. Approximately $16.6 million remains available under the repurchase program.
- Dividends: A quarterly dividend of $0.57 per share was declared on August 6, 2026, payable September 14, 2026.
- Tax Rate Volatility: The elevated effective tax rate is attributed to nondeductible executive compensation, a valuation allowance in a foreign jurisdiction, and reduced tax benefits from share-based compensation.
- Risk Factors: No material changes to risk factors were reported. The company notes that future capital needs depend on profitability, market conditions, and potential acquisitions.
Investor Verification Checklist
- Debt Utilization: Verify the impact of the new $400M credit facility and the immediate drawdown of $288M on future interest expenses and covenant compliance.
- Compensation Costs: Monitor the sustainability of forgivable loan amortization and performance bonus payments, which significantly impacted YTD operating cash flow.
- Tax Rate Normalization: Assess whether the 34.3% YTD effective tax rate is a one-time anomaly or indicative of a structural increase due to nondeductible compensation.
- Fixed-Price Exposure: Review the shift in revenue mix toward fixed-price contracts (23% of Q2 revenue vs. 16% prior year) and associated margin risks.
- Share Count Reduction: Confirm the trajectory of share repurchases and their impact on future EPS given the reduced share count (6.26M shares outstanding).