CRA International, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for CRA’s second fiscal quarter and year-to-date period ended July 3, 2021—not 2020 Q2. Comparatives are for periods ended June 27, 2020. Amounts below are in U.S. dollars.
Business context and reporting period
CRA is a global consulting firm providing litigation, regulatory and financial consulting, and management consulting. It reports one business segment. The unaudited filing covers the fiscal quarter and first half of fiscal 2021.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Year to date 2021 | Year to date 2020 |
|---|---|---|---|---|
| Revenue | $148.2 million | $123.0 million | $294.8 million | $249.2 million |
| Operating income | $15.9 million | $8.3 million | $30.6 million | $16.4 million |
| Operating margin | 10.8% | 6.8% | 10.4% | 6.6% |
| Net income | $11.6 million | $5.9 million | $22.1 million | $12.4 million |
| Diluted EPS | $1.53 | $0.75 | $2.86 | $1.55 |
| Operating cash flow | Not presented separately for the quarter | $(36.2) million | $(44.3) million |
Q2 revenue increased 20.5% year over year; year-to-date revenue rose 18.3%. Q2 utilization improved to 75% from 66%, and consultant headcount increased 3.9% to 833. U.S. revenue was $120.8 million in Q2; fixed-price work was 24% of revenue, with time-and-materials work comprising the balance.
Year-to-date operating cash outflow reflected, among other items, $50.2 million of reductions in accounts payable, accrued expenses and other liabilities, including payment of prior-year bonuses and contingent consideration, as well as growth in receivables and unbilled services. Investing cash outflow was $1.2 million, primarily for office equipment. Cash and equivalents fell to $14.0 million from $45.7 million at fiscal year-end.
Balance sheet, debt and liquidity
At July 3, 2021, CRA had $45.0 million drawn on its $175.0 million revolving facility, versus no borrowings at January 2, 2021. Letters of credit of $4.4 million reduced facility availability; approximately $125.6 million therefore remained available. The facility matures October 24, 2022. CRA reported compliance with its financial and other covenants. Current assets were $208.1 million and current liabilities $191.2 million; working capital was $16.8 million. Lease liabilities totaled approximately $146.6 million.
Management said cash, operating cash generation and available revolver capacity should meet anticipated working-capital and capital-expenditure needs for at least 12 months. That assessment excludes potential acquisitions and unexpected material changes in staffing, plans or economic conditions.
Material changes, outlook and risks
- Profitability improved year over year: Q2 cost of services fell to 70.9% of revenue from 73.3%, while SG&A declined to 16.2% from 17.4%. Higher incentive and retention compensation costs partly offset revenue growth.
- Year-to-date net income rose to $22.1 million from $12.4 million. The effective tax rate was 25.1%, down from 27.2% for the comparable period; Q2’s rate increased to 25.8% from 24.6%, reflecting differing prior-year tax effects and U.K. tax-rate changes, partly offset by stock-compensation tax benefits.
- CRA paid $25.3 million, including transaction costs, for 337,837 shares in an April modified Dutch-auction tender offer. It also paid $4.0 million in dividends year to date. A $0.26-per-share dividend was declared after quarter-end for payment in September 2021.
- Management expects regular dividends and share repurchases to continue, subject to the Board’s discretion and available resources; no specific earnings or revenue guidance is provided.
- CRA reported no material changes to the risk factors in its latest Form 10-K and no legal proceedings. It remains exposed to ordinary-course legal actions, variable client demand and utilization, talent retention and compensation costs, and uncertainty in collecting receivables and unbilled services. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended reporting period: the filing covers Q2 2021, despite the request metadata specifying 2020 Q2.
- Track whether higher utilization and consultant growth continue to support revenue and margins, and whether incentive and retention costs rise with performance.
- Monitor operating cash conversion, collections, unbilled services and accrued liabilities after substantial year-to-date operating cash outflow.
- Review revolver borrowings, covenant headroom, facility maturity and cash needs alongside repurchases, dividends and any acquisitions.
- Assess the sustainability of earnings and tax rates, including effects of U.K. tax changes and stock-based compensation.