CRA INTERNATIONAL, INC. quarterly report, Q3 FY2023

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CRA International, Inc. — Form 10-Q Summary

Period clarification: The filing covers the fiscal quarter ended September 30, 2023, and year-to-date results through that date. The request metadata says “2022 Q3,” but the filing itself is for 2023 Q3; comparisons are to the quarter and year-to-date period ended October 1, 2022. Amounts below are in U.S. dollars unless noted.

Business context and reporting period

CRA, operating as Charles River Associates, is a global consulting firm serving litigation, regulatory and financial matters, and management consulting. It reports as one business segment. The financial statements are unaudited.

Financial performance and position

  • Quarter revenue: $147.6 million, down 0.6% from $148.4 million. Operating income was $10.8 million versus $14.9 million; net income was $8.6 million versus $11.9 million. Diluted EPS was $1.21 versus $1.63.
  • Year-to-date revenue: $462.4 million, up 3.7% from $445.9 million. Operating income was $40.4 million versus $45.4 million; net income was $27.0 million versus $34.9 million. Diluted EPS was $3.78 versus $4.72.
  • Margins: Operating margin was 7.3% for the quarter (10.0% prior year) and 8.7% year to date (10.2% prior year). Net margin was 5.8% for the quarter (8.0%) and year to date (7.8%). Costs of services rose to 71.8% of quarterly revenue from 68.9%, and to 70.7% year to date from 69.4%.
  • Utilization and staffing: Utilization fell to 66% from 74% for the quarter and to 69% from 75% year to date. Consultant headcount increased 11.3% year over year, from 911 to 1,014.
  • Cash flow: Year-to-date cash used in operating activities was $0.03 million, compared with $35.0 million used in the prior-year period. Investing used $2.6 million, and financing used $1.4 million. Cash declined $3.8 million to $27.6 million.
  • Liquidity and debt: Working capital was $24.5 million, down $7.3 million from year-end 2022. Revolver borrowings were $32.0 million, versus none at year-end; $4.5 million of letters of credit reduced facility availability. The facility is $250 million, subject to specified seasonal reduction options. CRA reported compliance with its covenants.
  • Capital returns: Year-to-date share repurchases totaled $23.6 million in cash, and dividends paid were $7.8 million. Approximately $19.3 million remained under the repurchase authorization at quarter-end.

Material changes versus the prior comparable period

  • Quarterly revenue was essentially flat, but profit and EPS declined as service costs increased and utilization fell. Higher headcount and reimbursable expenses contributed to higher quarterly service costs.
  • Year-to-date revenue grew, but compensation and fringe costs increased $13.8 million and forgivable-loan amortization increased $2.3 million; service costs rose faster than revenue. SG&A also increased 5.0% year to date.
  • Interest expense increased to $3.2 million year to date from $1.3 million, reflecting the use of the revolving credit facility. Foreign currency results also weakened: a $0.5 million year-to-date loss versus a $3.6 million gain previously.
  • The quarterly effective tax rate decreased to 18.3% from 25.3%, primarily due to release of a foreign-jurisdiction valuation allowance. The year-to-date rate was 26.4% versus 26.7%.

Outlook, risks, contingencies and unusual items

  • CRA provided no specific numerical revenue or earnings guidance. Management said cash, operating cash generation and revolver availability should be sufficient for anticipated working capital and capital expenditures for at least 12 months.
  • Management identified bonus and performance-award payments, hiring, debt service, dividends, repurchases and potential acquisitions among cash needs. Future acquisitions, economic changes, unplanned expenses or weaker profitability could increase funding needs.
  • Management said inflation had not materially affected results to date, but could do so in the future. CRA reported no material changes to the risk factors in its 2022 Form 10-K and no material changes in market-risk exposure during the quarter.
  • CRA is subject to ordinary-course legal actions; management did not expect pending matters to materially affect financial position or results, while acknowledging outcomes are uncertain. Part II reports no legal proceedings.
  • After quarter-end, the board declared a $0.42-per-share quarterly dividend, payable December 8, 2023. A foreign tax valuation-allowance release benefited the quarter’s tax rate and may not represent a recurring operating improvement.

Important facts for investors to verify

  • Whether utilization stabilizes or recovers as consultant headcount has grown, and the effect on revenue and margins.
  • Whether the higher service-cost ratio and lower operating margin persist, particularly given compensation, forgivable-loan amortization and reimbursable expenses.
  • Working-capital and operating cash-flow trends, including the timing of incentive compensation payments and collections on receivables and unbilled services.
  • Revolver usage, borrowing costs, covenant headroom and liquidity available after letters of credit.
  • The extent to which the lower quarterly tax rate reflects nonrecurring valuation-allowance changes, and the sustainability of dividends and repurchases.