CRA International, Inc. — Form 10-Q Summary
Business context and reporting period
CRA provides litigation, regulatory and financial consulting, and management consulting services through one operating segment. This filing covers the fiscal quarter ended April 4, 2015, compared with the quarter ended March 29, 2014; the filing period is 2015 Q1, notwithstanding the request metadata.
Key financial metrics
| Metric | Q1 2015 | Comparable period | Change |
|---|---|---|---|
| Revenue | $78.0 million | $76.2 million | +2.4% |
| Gross profit / margin | $24.2 million / 31.0% | $24.4 million / 32.0% | Profit down $0.2 million |
| Operating income / margin | $4.5 million / 5.7% | $5.6 million / 7.4% | Down $1.2 million |
| Net income attributable to CRA | $2.8 million | $3.4 million | Down $0.6 million |
| Diluted EPS | $0.30 | $0.34 | Down $0.04 |
| Operating cash flow | $(24.2) million | $(14.5) million | Greater cash use |
Revenue growth came from both consulting businesses; Antitrust & Competition Economics, Finance and Life Sciences were highlighted. Utilization was 78% in both periods. Costs of services rose 3.8%, faster than revenue, with compensation and a $0.8 million increase in estimated acquisition-related contingent consideration contributing. SG&A increased 5.4%, mainly from commissions and compensation.
Cash and cash equivalents were $17.2 million at April 4, down from $48.2 million at January 3, 2015. Working capital was $72.3 million. The operating cash outflow primarily reflected payment of most fiscal 2014 performance bonuses and increased unbilled services. Investing cash outflow was $0.9 million, including $2.4 million of capital expenditures and $1.5 million of net note-receivable collections. Financing cash outflow was $4.9 million, including $4.5 million of share repurchases.
There were no borrowings under the $125 million revolving credit facility; $1.3 million of letters of credit reduced availability. CRA reported compliance with facility covenants. NeuCo’s remaining note payment was $75,000, due in 2016 under a debt settlement. Total assets were $290.5 million and shareholders’ equity was $212.2 million at quarter-end.
Material changes and unusual items
- NeuCo settled a note payable of approximately $981,000 for $375,000, recording a $606,000 gain on debt extinguishment. The gain supported pretax income but did not offset lower operating income.
- Foreign-currency translation produced a $2.3 million comprehensive loss. Foreign operations generated approximately 19% of revenue, versus 25% a year earlier.
- CRA repurchased and retired 144,900 shares at an average $31.33 per share; approximately $16.4 million remained authorized for future repurchases.
- CRA issued approximately $5.4 million in forgivable loans to employees and non-employee experts during the quarter.
- The fair value of contingent acquisition consideration rose to $1.1 million from $0.3 million, with the increase charged to costs of services.
Outlook, risks and controls
Management stated that cash, operating cash generation and available credit should be sufficient for anticipated working capital and capital expenditures for at least 12 months. CRA expected to continue its share repurchases. No numerical revenue or earnings guidance was provided.
Key risks include retaining and recruiting consultants and non-employee experts, maintaining utilization and billing rates, engagement variability and client payment, fixed-price project estimation, foreign-exchange exposure, and competition. A hypothetical 10% foreign-exchange movement would have affected quarterly pretax income by approximately $0.7 million; CRA had no outstanding derivatives. Cash was substantially concentrated at one financial institution. The filing also describes new lease commitments for additional Boston office space.
Disclosure controls were deemed ineffective at quarter-end because of an ongoing material weakness in accounting and reporting for non-routine compensation arrangements, including share-based compensation. Management nevertheless concluded the financial statements fairly presented the company’s financial position, results and cash flows. No legal proceedings were reported.
Investor verification points
- Assess whether revenue growth can translate into improved margins after the quarter’s higher compensation, commissions and contingent-consideration costs.
- Verify the timing and sustainability of operating cash flow, particularly bonus payments, unbilled services and receivable collections.
- Monitor remediation of the material weakness in compensation-related financial reporting controls.
- Review the assumptions and potential payments underlying the $1.1 million contingent acquisition liability and employee forgivable loans.
- Track remaining repurchase authorization, cash levels, lease commitments and compliance with credit-facility covenants.