CRA International, Inc. — Form 10-Q Summary
Period: The filing covers the quarter ended October 1, 2016 and fiscal year to date, compared with periods ended October 3, 2015. The request metadata says “2015 Q3,” but the filing itself is for fiscal 2016 Q3.
Business and financial performance
CRA provides legal, regulatory and financial consulting, and management consulting services. Amounts below are in millions of dollars except per-share data.
| Metric | Q3 2016 | Q3 2015 | FYTD 2016 | FYTD 2015 |
|---|---|---|---|---|
| Revenue | $81.7 | $76.5 | $245.2 | $231.1 |
| Gross profit / margin | $23.9 / 29.2% | $24.5 / 32.0% | $73.9 / 30.1% | $74.6 / 32.3% |
| Operating income / margin | $5.3 / 6.5% | $4.6 / 6.0% | $15.3 / 6.2% | $14.7 / 6.4% |
| Net income attributable to CRA | $3.2 | $2.9 | $10.8 | $9.0 |
| Diluted EPS | $0.38 | $0.31 | $1.24 | $0.97 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $16.2 | $(4.9) |
- Quarterly revenue rose 6.8%; year-to-date revenue rose 6.1%. Management attributed growth principally to higher consulting headcount, while utilization was flat at 73% for Q3 and 75% year to date.
- Profitability was mixed: operating income improved, but gross margin declined as costs of services grew faster than revenue. Higher employee compensation, incentive and retention costs, and forgivable-loan amortization contributed to cost increases; lower expert commissions helped reduce SG&A.
- YTD net income attributable to CRA included the effects of a $3.8 million GNU asset-sale gain, of which $2.1 million was attributed to CRA. YTD 2015 included a $0.6 million GNU debt-extinguishment gain. These items affect comparability.
Cash, debt and liquidity
- At October 1, 2016, cash was $25.2 million, current assets $143.1 million, and current liabilities $80.2 million; working capital was $62.8 million. Cash had declined $13.0 million from fiscal year-end.
- YTD operating cash flow was $16.2 million, versus cash used of $4.9 million in the prior-year period. Receivables and unbilled services together used $15.5 million of cash. Capital expenditure purchases were $11.8 million; cash proceeds from the GNU asset sale were $1.1 million.
- No borrowings were outstanding under the $125 million revolving credit facility. Letters of credit of $2.2 million reduced availability. CRA reported covenant compliance. Current notes payable were nil.
- CRA repurchased 783,703 shares YTD for $19.3 million. About $9.0 million remained authorized for repurchases at October 1.
Outlook, risks and notable items
- Management said available cash, operating cash generation and the revolving facility should fund anticipated working capital and capital expenditures for at least 12 months. No numerical earnings or revenue guidance is provided.
- On October 26, 2016, the board declared the first quarterly dividend, $0.14 per share, payable December 16, 2016. Future dividends remain subject to board discretion and may be reduced or suspended.
- Management identified estimates—including revenue recognition on fixed-price work, receivable allowances, compensation and tax estimates—as areas where actual results may differ. Unbilled services rose to $36.7 million from $25.5 million at fiscal year-end.
- Disclosure controls were reported ineffective as of October 1 because of an ongoing material weakness involving allocation of GNU results to noncontrolling interest and other financial-close deficiencies. Management nevertheless stated the financial statements fairly present results in all material respects; remediation was ongoing.
- Other items to monitor include concentration of a substantial portion of cash at one financial institution, foreign-currency exposure, the contingent portion of GNU sale proceeds, and new 15-year London office leases. CRA reported no pending legal proceedings in Part II and said it did not expect ordinary-course legal actions to materially affect results.
Key facts for investors to verify
- Confirm the period: the filing is fiscal 2016 Q3, despite the “2015 Q3” request metadata.
- Assess whether revenue growth can offset the decline in gross margin and higher personnel-related costs.
- Review cash conversion and collection trends, particularly the increase in unbilled services and receivables.
- Separate the GNU sale gain and prior-year debt gain from recurring operating performance; check collection of the contingent sale consideration.
- Track remediation of the material weakness and the reliability of financial-close controls.
- Evaluate cash deployment through repurchases and dividends against liquidity, capital spending and contractual commitments.