Cra International, Inc 10-Q for FY2023 Q1
Cra International, Inc. (CRAI)
10-Q
2023-05-04
For: 2023-04-01
View Original
Added on
April 08, 2026
About this 10-Q
Cra International, Inc filed this 10-Q on May 4, 2023, covering the quarter ended April 1, 2023 (FY2023 Q1).
Headline figures
Quarter ended April 1, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $152.85M
- up 3.0% from $148.38M a year earlier
- Net income
- $8.92M
- down 21.9% from net income of $11.43M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________
For the quarterly period ended April 1, 2023
OR
For the transition period from to
Commission file number: 000-24049
________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(617 ) 425-3000
(Registrant’s telephone number, including area code)
_____________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | x | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at April 28, 2023 | |||||||||||||
| Common Stock, no par value per share | ||||||||||||||
CRA International, Inc.
INDEX
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CRA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
| Fiscal Quarter Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| Revenues | $ | $ | |||||||||
| Costs of services (exclusive of depreciation and amortization) | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Depreciation and amortization | |||||||||||
| Income from operations | |||||||||||
| Interest expense, net | ( | ( | |||||||||
| Foreign currency gains (losses), net | ( | ||||||||||
| Income before provision for income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | $ | $ | |||||||||
| Net income per share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted average number of shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
3
CRA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(in thousands)
| Fiscal Quarter Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income (loss) | |||||||||||
| Foreign currency translation adjustments, net of tax | ( | ||||||||||
| Comprehensive income | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
4
CRA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
| April 1, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ | |||||||||||
Unbilled services, net of allowances of $ | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Forgivable loans | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Right-of-use assets | |||||||||||
| Deferred income taxes | |||||||||||
| Forgivable loans, net of current portion | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Deferred revenue and other liabilities | |||||||||||
| Current portion of lease liabilities | |||||||||||
| Current portion of deferred compensation | |||||||||||
| Revolving line of credit | |||||||||||
| Total current liabilities | |||||||||||
| Non-current liabilities: | |||||||||||
| Deferred compensation and other non-current liabilities | |||||||||||
| Non-current portion of lease liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Total non-current liabilities | |||||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred stock, | |||||||||||
Common stock, | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
5
CRA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
| Fiscal Quarter Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash used in operating activities, net of effect of acquired businesses: | |||||||||||
| Depreciation and amortization | |||||||||||
| Right-of-use asset amortization | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Share-based compensation expense | |||||||||||
| Bad debt expense (recovery) | ( | ||||||||||
| Unrealized foreign currency remeasurement (gains) losses, net | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Unbilled services | ( | ( | |||||||||
| Prepaid expenses and other current assets, and other assets | ( | ||||||||||
| Forgivable loans | ( | ( | |||||||||
| Incentive cash awards | |||||||||||
| Accounts payable, accrued expenses, and other liabilities | ( | ( | |||||||||
| Lease liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Consideration paid for acquisition, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Issuance of common stock, principally stock option exercises | |||||||||||
| Borrowings under revolving line of credit | |||||||||||
| Repayments under revolving line of credit | ( | ||||||||||
| Tax withholding payments reimbursed by shares | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of foreign exchange rates on cash and cash equivalents | ( | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Noncash investing and financing activities: | |||||||||||
| Increase (decrease) in accounts payable and accrued expenses for property and equipment | $ | $ | ( | ||||||||
| Excise tax on share repurchases | $ | ( | $ | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for amounts included in operating lease liabilities | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
6
CRA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE FISCAL QUARTER ENDED APRIL 1, 2023 (unaudited)
(in thousands, except share data)
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||||
| Shares Issued | Amount | ||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | ||||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | ||||||||||||||||||||||||||
| Restricted shares vesting | — | — | — | — | |||||||||||||||||||||||||
| Redemption of vested employee restricted shares for tax withholding | ( | ( | — | — | ( | ||||||||||||||||||||||||
| Shares repurchased | ( | ( | ( | — | ( | ||||||||||||||||||||||||
| Accrued excise tax on shares repurchased | — | — | ( | — | ( | ||||||||||||||||||||||||
| Accrued dividends on unvested shares | — | — | — | ||||||||||||||||||||||||||
Cash dividends paid ($ | — | — | ( | — | ( | ||||||||||||||||||||||||
| BALANCE AT APRIL 1, 2023 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
7
CRA INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE FISCAL QUARTER ENDED April 2, 2022 (unaudited)
(in thousands, except share data)
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||||||||||||||
| Shares Issued | Amount | ||||||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2022 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | ( | ( | ||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | ||||||||||||||||||||||||||
| Restricted shares vesting | — | — | — | — | |||||||||||||||||||||||||
| Redemption of vested employee restricted shares for tax withholding | ( | ( | — | — | ( | ||||||||||||||||||||||||
| Shares repurchased | ( | ( | ( | — | ( | ||||||||||||||||||||||||
| Accrued dividends on unvested shares | — | — | ( | — | ( | ||||||||||||||||||||||||
Cash dividends paid ($ | — | — | ( | — | ( | ||||||||||||||||||||||||
| BALANCE AT APRIL 2, 2022 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
8
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Description of Business
CRA International, Inc. (together with its wholly-owned subsidiaries, “CRA” or the “Company”) is a worldwide leading consulting services firm that applies advanced analytic techniques and in-depth industry knowledge to complex engagements for a broad range of clients. CRA offers services in two broad areas: litigation, regulatory, and financial consulting and management consulting. CRA operates in one business segment. CRA operates its business under its registered trade name, Charles River Associates.
2. Business Acquisition
9
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The acquisition has been accounted for as a business combination, and the results of operations have been included in the accompanying condensed consolidated financial statements from the date of acquisition. On the date of acquisition, right-of-use assets and lease liabilities were recorded in accordance with ASC Topic 842, Leases. In addition, contract assets and contract liabilities were recorded in accordance with ASC 606, as CRA adopted ASU 2021-08 on the first day of fiscal 2022. All other tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at their fair value as of the date of acquisition.
Welch Consulting's results of operations have been included in the accompanying condensed consolidated statements of operations from the date of acquisition. The following table is the final allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed (in thousands):
| Assets Acquired | |||||
| Current assets: | |||||
| Accounts receivable | $ | ||||
| Unbilled services | |||||
| Prepaid expenses and other current assets | |||||
| Total current assets | |||||
| Property and equipment | |||||
| Goodwill | |||||
| Intangible assets | |||||
| Right-of-use assets | |||||
| Other assets | |||||
| Total assets acquired | $ | ||||
| Liabilities Assumed | |||||
| Current liabilities: | |||||
| Accrued expenses | $ | ||||
| Deferred revenue and other liabilities | |||||
| Current portion of lease liabilities | |||||
| Total current liabilities | |||||
| Non-current portion of lease liabilities | |||||
| Total liabilities assumed | $ | ||||
| Net assets acquired | $ | ||||
For the acquired assets and assumed liabilities, CRA has paid $10.6 million, net, as of April 1, 2023, the amount of which was based on adjusted estimates of certain net working capital items. In addition, CRA issued $7.9 million of forgivable loans and agreed to provide other deferred compensation to key employees and a non-employee expert, which is treated as post-transaction compensation expense over the term of the loan.
The intangible assets acquired are comprised of customer relationships, the fair value of which was determined using a multi-period excess earnings method. The customer relationships intangible is being amortized over a ten-year life on a straight-line basis, which approximates the expected pattern of economic benefit from this asset. The Company also recorded $2.4 million of goodwill, all of which is expected to be deductible for tax purposes.
10
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Revenues and Allowances
The contracts CRA enters into and operates under specify whether the projects are billed on a time-and-materials or a fixed-price basis. Time-and-materials contracts are typically used for litigation, regulatory, and financial consulting projects while fixed-price contracts are principally used for management consulting projects. In general, project costs are classified in costs of services and are based on the direct salary of CRA’s employee consultants on the engagement, plus all direct expenses incurred to complete the project, including any amounts billed to CRA by its non-employee experts.
Disaggregation of Revenue
The following tables disaggregate CRA’s revenue by type of contract and geographic location (in thousands):
| Fiscal Quarter Ended | ||||||||||||||
| Type of Contract | April 1, 2023 | April 2, 2022 | ||||||||||||
| Consulting services revenues: | ||||||||||||||
| Fixed-price | $ | $ | ||||||||||||
| Time-and-materials | ||||||||||||||
| Total | $ | $ | ||||||||||||
| Fiscal Quarter Ended | ||||||||||||||
| Geographic Breakdown | April 1, 2023 | April 2, 2022 | ||||||||||||
| Consulting services revenues: | ||||||||||||||
| United States | $ | $ | ||||||||||||
| United Kingdom | ||||||||||||||
| Other | ||||||||||||||
| Total | $ | $ | ||||||||||||
Reserves for Variable Consideration and Credit Risk
Revenues from CRA's consulting services are recorded at the net transaction price, which includes estimates of variable consideration for which reserves are established. Variable consideration reserves are based on specific price concessions and those expected to be extended to CRA customers estimated by CRA's historical realization rates. Reserves for variable consideration are recorded as a component of the allowances for accounts receivable and unbilled services on the condensed consolidated balance sheets. Adjustments to the reserves for variable consideration are included in revenues on the condensed consolidated statements of operations.
CRA also maintains allowances for accounts receivable and unbilled services for estimated losses resulting from clients’ failure to make required payments. The following table presents CRA's bad debt expense, net of recoveries of previously written off allowances (in thousands):
11
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Fiscal Quarter Ended | ||||||||||||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| Bad debt expense (recovery), net | $ | $ | ( | |||||||||||
Reimbursable Expenses
Revenues also include reimbursements for costs incurred by CRA in fulfilling its performance obligations, including travel and other out-of-pocket expenses, fees for outside consultants, and other reimbursable expenses. CRA recovers substantially all of these costs. The following expenses are subject to reimbursement (in thousands):
| Fiscal Quarter Ended | ||||||||||||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| Reimbursable expenses | $ | $ | ||||||||||||
Contract Balances from Contracts with Customers
CRA defines contract assets as assets for which it has recorded revenue because it determines that it is probable that it will earn a performance-based or contingent fee, but is not yet entitled to receive a fee because certain events, such as completion of the measurement period or client approval, must occur. The contract assets balance was immaterial as of April 1, 2023 and December 31, 2022.
When consideration is received, or such consideration is unconditionally due from a customer prior to transferring consulting services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after performance obligations have been satisfied and all revenue recognition criteria have been met. The following table presents the closing balances of CRA's contract liabilities (in thousands):
| April 1, 2023 | December 31, 2022 | |||||||||||||
| Contract liabilities | $ | $ | ||||||||||||
CRA recognized the following revenue that was included in the contract liabilities balance as of the opening of the respective period or for performance obligations satisfied in previous periods (in thousands):
| Fiscal Quarter Ended | ||||||||||||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| Amounts included in contract liabilities at the beginning of the period | $ | $ | ||||||||||||
| Performance obligations satisfied in previous periods | $ | $ | ||||||||||||
4. Forgivable Loans
In order to attract and retain highly skilled professionals, CRA may issue forgivable loans to employees and non-employee experts, certain of which may be denominated in local currencies. A portion of these loans is collateralized. The principal amount of forgivable loans and accrued interest is forgiven by CRA over the term of the loans, so long as the employee or non-employee expert continues employment or affiliation with CRA and complies with certain contractual requirements. The expense associated with the forgiveness of the principal amount of the loans is recorded as compensation expense over the service period, which is consistent with the term of the loans.
12
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||||
| April 1, 2023 | December 31, 2022 | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||
| Advances | ||||||||||||||
| Repayments | ( | ( | ||||||||||||
| Reclassifications from accrued expenses or to other assets (1) | ( | |||||||||||||
| Amortization | ( | ( | ||||||||||||
| Effects of foreign currency translation | ( | |||||||||||||
| Ending balance | $ | $ | ||||||||||||
| Current portion of forgivable loans | $ | $ | ||||||||||||
| Non-current portion of forgivable loans | $ | $ | ||||||||||||
_______________________________
5. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the fiscal quarter ended April 1, 2023 are summarized as follows (in thousands):
| Goodwill | $ | |||||||
| Accumulated goodwill impairment | ( | |||||||
| Goodwill, net at December 31, 2022 | ||||||||
| Additions due to acquisitions | ||||||||
| Foreign currency translation adjustment | ||||||||
| Goodwill, net at April 1, 2023 | $ | |||||||
Goodwill at April 1, 2023, is comprised of goodwill of $165.5 million and accumulated impairment of $71.9 million. There were no
Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and amortized using the straight-line method over their expected useful lives. The components of acquired identifiable intangible assets are as follows (in thousands):
| April 1, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||||||||
There were no 4.2 million of intangible assets related to customer relationships in the first quarter of fiscal 2022. As a result of the bSG acquisition, CRA recognized approximately $1.4 million of intangible assets related to customer relationships in the fourth
13
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
| April 1, 2023 | December 31, 2022 | ||||||||||
| Compensation and related expenses | $ | $ | |||||||||
| Performance awards | |||||||||||
| Direct project accruals | |||||||||||
| Other | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
As of April 1, 2023 and December 31, 2022, approximately $49.5 million and $116.1 million, respectively, of accrued bonuses were included above in “Compensation and related expenses.”
7. Income Taxes
For the fiscal quarters ended April 1, 2023 and April 2, 2022, CRA’s effective income tax rate (“ETR”) was 29.2 % and 26.4 %, respectively. The ETR for the first quarter of fiscal 2023 was higher than the first quarter of fiscal 2022 primarily due to a decrease in the tax benefit related to share-based compensation, an increase in nondeductible meals and entertainment expenses, and an increase in the UK statutory rate from 19% to 25% effective April 1, 2023, with a blended rate of 23.5% for the fiscal year. The increase in the tax impact of the meals expense is a result of the expiration of the relief provided by The Consolidated Appropriations Act, 2021, whereby the deduction for business meals from restaurants was 100% during 2021 and 2022 and reverted back to 50% in 2023.
In fiscal 2020, as a result of both a qualitative and quantitative analysis, certain amounts of previously taxed and untaxed post fiscal 2018 U.K. earnings were no longer considered permanently reinvested. Deferred taxes that are a consequence of foreign exchange translation resulting from earnings that are no longer considered permanently reinvested are recorded as a component of foreign currency translation adjustments on the condensed consolidated statements of comprehensive income. During the fiscal quarter ended April 1, 2023, deferred taxes have been assessed as immaterial related to foreign exchange translation and not recorded. Deferred income taxes or foreign withholding taxes, estimated to be $0.4 million, have not been recorded for other jurisdictions as those earnings are considered to be permanently reinvested.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income,” and a one percent excise tax on net repurchases of stock after December 31, 2022. The Company had net share repurchases of $17.3 million for the fiscal quarter ended April 1, 2023 resulting in a tax payable of $0.2 million. As the Company's issued and outstanding common stock on the condensed consolidated balance sheet is classified as permanent equity, the excise tax is treated as a specific incremental cost directly attributable to the repurchase. As such, the excise tax is charged against the gross proceeds and recorded within equity with an offsetting excise tax liability recognized.
8. Net Income Per Share
CRA calculates basic earnings per share using the two-class method. CRA calculates diluted earnings per share using the more dilutive of either the two-class method or treasury stock method. The two-class method was more dilutive for the fiscal quarters ended April 1, 2023 and April 2, 2022.
Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all the net earnings for the period had been distributed. CRA's participating securities consist of unvested share-based payment
14
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
awards that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Net earnings allocable to these participating securities were not material for the fiscal quarters ended April 1, 2023 and April 2, 2022.
The following table presents the calculation of basic and diluted net income per share (in thousands, except per share data):
| Fiscal Quarter Ended | ||||||||||||||
| April 1, 2023 | April 2, 2022 | |||||||||||||
| Numerator: | ||||||||||||||
| Net income — basic | $ | $ | ||||||||||||
| Less: net income attributable to participating shares | ||||||||||||||
| Net income — diluted | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||
| Weighted average shares outstanding — basic | ||||||||||||||
| Effect of dilutive stock options and restricted stock units | ||||||||||||||
| Weighted average shares outstanding — diluted | ||||||||||||||
| Net income per share: | ||||||||||||||
| Basic | $ | $ | ||||||||||||
| Diluted | $ | $ | ||||||||||||
For the fiscal quarter ended April 1, 2023, the anti-dilutive share-based awards that were excluded from the calculation of common stock equivalents for purposes of computing diluted weighted average shares outstanding amounted to 196 shares. There were no
9. Fair Value of Financial Instruments
The following tables show CRA's financial instruments recorded in the condensed consolidated financial statements as of April 1, 2023 and the consolidated financial statements as of December 31, 2022, which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
| April 1, 2023 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| Assets: | |||||||||||||||||
| Money market mutual funds | $ | $ | $ | ||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||
| Liabilities: | |||||||||||||||||
| Contingent consideration liability | $ | $ | $ | ||||||||||||||
| Total Liabilities | $ | $ | $ | ||||||||||||||
15
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| December 31, 2022 | |||||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| Assets: | |||||||||||||||||
| Money market mutual funds | $ | $ | $ | ||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||
| Liabilities: | |||||||||||||||||
| Contingent consideration liability | $ | $ | $ | ||||||||||||||
| Total Liabilities | $ | $ | $ | ||||||||||||||
The contingent consideration liability pertains to estimated future contingent consideration payments related to the acquisition of bSG, an independent consulting firm. The following table summarizes the changes in the contingent consideration liability (in thousands):
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||||
| April 1, 2023 | December 31, 2022 | |||||||||||||
| Beginning balance | $ | $ | ||||||||||||
| Acquisition-related contingent consideration | ||||||||||||||
| Accretion | ||||||||||||||
| Payment of contingent consideration | ||||||||||||||
| Ending balance | $ | $ | ||||||||||||
10. Credit Agreement
CRA is party to a Credit Agreement, dated as of August 19, 2022 (the "Credit Agreement") with Bank of America, N.A., as swingline lender, a letter of credit issuing bank and administrative agent, and with Citizens Bank, N.A., as a letter of credit issuing bank. The Credit Agreement provides CRA with a $250.0 million revolving credit facility, which may be decreased at CRA's option to $200.0 million during the period from July 16th in a year through January 15th in the next year. Additionally, for the period from January 16th to July 15th of each calendar year, CRA may elect to not increase the revolving credit facility to $250.0 million. The revolving credit facility includes a $25.0 million sublimit for the issuance of letters of credit.
There was $100.0 million in borrowings outstanding under the revolving credit facility as of April 1, 2023 and no borrowings outstanding as of December 31, 2022. As of April 1, 2023, the amount available under the revolving credit facility was reduced by certain letters of credit outstanding, which amounted to $5.7 million.
Under the Credit Agreement, CRA must comply with various financial and non-financial covenants. The primary financial covenants consist of a maximum consolidated net leverage ratio of 3.0 to 1 and a minimum consolidated interest coverage ratio of 2.5 to 1. The primary non-financial covenants include, but are not limited to, restrictions on CRA's ability to incur future indebtedness, engage in acquisitions or dispositions, pay dividends or repurchase capital stock, and enter into business combinations. Any indebtedness outstanding under the revolving credit facility may become immediately due upon
the occurrence of stated events of default, including CRA's failure to pay principal, interest or fees, or upon the breach of any covenant. As of April 1, 2023, CRA was in compliance with the covenants of the Credit Agreement.
11. Commitments and Contingencies
16
CRA INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
12. Subsequent Events
17
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Except for historical facts, the statements in this quarterly report are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. Important factors that could cause actual events to vary from our predictions include those discussed below under the heading “Risk Factors.” We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in the other documents that we file with the Securities and Exchange Commission ("SEC"). You can read these documents at www.sec.gov.
Our principal Internet address is www.crai.com. Our website provides a link to a third-party website through which our annual, quarterly, and current reports, and amendments to those reports, are available free of charge. We believe these reports are made available as soon as reasonably practicable after we file them electronically with, or furnish them to, the SEC. We do not maintain or provide any information directly to the third-party website, and we do not check its accuracy.
Our website also includes information about our corporate governance practices. The Investor Relations page of our website provides a link to a web page where you can obtain a copy of our code of business conduct and ethics applicable to our principal executive officer, principal financial officer, and principal accounting officer.
Critical Accounting Policies and Estimates
Our critical accounting policies involving the more significant estimates and judgments used in the preparation of our financial statements as of April 1, 2023 remain unchanged from December 31, 2022. Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 2, 2023 (the "2022 Form 10-K") for details on these critical accounting policies.
Recent Accounting Standards
There are no recent accounting standards that impact the unaudited condensed consolidated financial statements.
Results of Operations—For the Fiscal Quarter Ended April 1, 2023, Compared to the Fiscal Quarter Ended April 2, 2022
The following table provides operating information as a percentage of revenues for the periods indicated:
| Fiscal Quarter Ended | |||||||||||
| April 1, 2023 | April 2, 2022 | ||||||||||
| Revenues | 100.0 | % | 100.0 | % | |||||||
| Costs of services (exclusive of depreciation and amortization) | 70.6 | 70.1 | |||||||||
| Selling, general and administrative expenses | 18.6 | 17.4 | |||||||||
| Depreciation and amortization | 1.9 | 2.0 | |||||||||
| Income from operations | 9.0 | 10.5 | |||||||||
| Interest expense, net | (0.4) | (0.1) | |||||||||
| Foreign currency gains (losses), net | (0.3) | 0.1 | |||||||||
| Income before provision for income taxes | 8.2 | 10.5 | |||||||||
| Provision for income taxes | 2.4 | 2.8 | |||||||||
| Net income | 5.8 | % | 7.7 | % | |||||||
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Fiscal Quarter Ended April 1, 2023, Compared to the Fiscal Quarter Ended April 2, 2022
Revenues. Revenues increased by $4.4 million, or 3.0%, to $152.8 million for the first quarter of fiscal 2023 from $148.4 million for the first quarter of fiscal 2022. Utilization decreased to 70% for the first quarter of fiscal 2023 from 74% for the first quarter of fiscal 2022, while consultant headcount grew 10.7% from 878 at the end of the first quarter of fiscal 2022 to 972 at the end of the first quarter of fiscal 2023.
Overall, revenues outside of the U.S. represented approximately 23% and 21% of net revenues for the first quarters of fiscal 2023 and fiscal 2022, respectively. Revenues derived from fixed-price projects decreased to 18% of net revenues for the first quarter of fiscal 2023 compared with 19% of net revenue for the first quarter of fiscal 2022. The percentage of revenue derived from fixed-price projects depends largely on the proportion of our revenues derived from our management consulting business, which typically has a higher concentration of fixed-price service contracts.
Costs of Services (exclusive of depreciation and amortization). Costs of services (exclusive of depreciation and amortization) increased by $3.7 million, or 3.6%, to $107.8 million for the first quarter of fiscal 2023 from $104.1 million for the first quarter of fiscal 2022. The increase in costs of services was due to an increase in employee compensation and fringe benefit costs of $4.3 million primarily as a result of a higher headcount and an increase in forgivable loan amortization of $1.6 million, partially offset by a decrease in client reimbursable expenses of $2.2 million. As a percentage of revenues, costs of services (exclusive of depreciation and amortization) increased slightly to 70.6% for the first quarter of fiscal 2023 from 70.1% for the first quarter of fiscal 2022.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $2.6 million, or 9.9%, to $28.4 million for the first quarter of fiscal 2023 from $25.8 million for the first quarter of fiscal 2022. Within this category of expenses, there was a $1.3 million increase in travel and entertainment, a $0.4 million increase in employee compensation and fringe benefit costs, a $0.6 million increase in miscellaneous and other costs, a $0.6 million increase in software subscription and data services, and a $0.5 million increase in rent expense. Partially offsetting the increase in these expenses was a $0.9 million decrease in commissions to our non-employee experts for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022.
As a percentage of revenues, selling, general and administrative expenses increased to 18.6% for the first quarter of fiscal 2023 from 17.4% for the first quarter of fiscal 2022. Commissions to our non-employee experts decreased to 2.3% of revenues for the first quarter of fiscal 2023 compared to 3.0% of revenues the first quarter of fiscal 2022.
Provision for Income Taxes. The income tax provision was $3.7 million and the effective tax rate ("ETR") was 29.2% for the first quarter of fiscal 2023 compared to $4.1 million and 26.4% for the first quarter of fiscal 2022. The ETR for the current fiscal quarter was higher than the prior year primarily due to a decrease in the tax benefit related to share-based compensation, an increase in nondeductible meals and entertainment expenses, and an increase in the U.K. statutory rate from 19% to 25% effective April 1, 2023, with a blended rate of 23.5% for the fiscal year. The increase in the tax impact of the meals expense is as result of the expiration of the relief provided by The Consolidated Appropriations Act, 2021, whereby the deduction for business meals from restaurants was 100% during 2021 and 2022 and reverted back to 50% in 2023. The ETR for the first quarter of fiscal 2023 was higher than the combined federal and state statutory tax rate primarily due to nondeductible compensation paid to executive officers and nondeductible meals and entertainment expenses, partially offset by the tax benefit for share-based compensation. The ETR for the first quarter of fiscal 2022 was approximately the same as the combined federal and state statutory tax rate and included offsetting items primarily related to the tax benefit for share-based compensation and nondeductible compensation paid to executive officers.
Net Income. Net income decreased to $8.9 million for the first quarter of fiscal 2023 from $11.4 million for the first quarter of fiscal 2022. The net income per diluted share was $1.23 per share for the first quarter of fiscal 2023, compared to $1.52 of net income per diluted share for the first quarter of fiscal 2022. Weighted average diluted shares outstanding decreased by approximately 251,000 shares to approximately 7,252,000 shares for the first quarter of fiscal 2023 from approximately 7,503,000 shares for the first quarter of fiscal 2022. The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since April 2, 2022, offset in part by the vesting of shares of restricted stock and time-vesting restricted stock units and the exercise of stock options since April 2, 2022.
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Liquidity and Capital Resources
Fiscal Quarter Ended April 1, 2023
We believe that our current cash and cash equivalents, cash generated from operations, and amounts available under our revolving credit facility will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.
General. During the fiscal quarter ended April 1, 2023, cash and cash equivalents increased by $4.1 million. We completed the period with cash and cash equivalents of $35.5 million. The principal drivers of the increase of cash and cash equivalents was net borrowings of $100.0 million offset by payment of a significant portion of our fiscal 2022 performance bonuses in the first quarter of fiscal 2023, the repurchase of shares, and the payment of dividends.
During the fiscal quarter ended April 1, 2023, working capital (defined as current assets less current liabilities) decreased by $27.2 million to $4.5 million. The decrease in working capital was principally due to an increase in borrowings of $100.0 million and a decrease in prepaid expenses and other current assets of $1.0 million. Partially offsetting these decreases to working capital was an increase in cash and cash equivalents of $4.1 million, an increase in accounts receivable and unbilled services of $2.2 million, an increase in the current portion of our forgivable loans of $4.1 million, a decrease in accounts payable of $4.7 million, a decrease in the current portion of deferred compensation of $4.2 million, a decrease in accrued expenses of $51.5 million, and a decrease in deferred revenue and other liabilities of $3.1 million.
At April 1, 2023, $10.4 million of our cash and cash equivalents was held within the U.S. We have sufficient sources of liquidity in the U.S., including cash flow from operations and availability on our revolving credit facility to fund U.S. operations for the next 12 months without the need to repatriate funds from our foreign subsidiaries.
Sources and Uses of Cash. During the fiscal quarter ended April 1, 2023, net cash used in operating activities was $70.0 million. Net income was $8.9 million for the fiscal quarter ended April 1, 2023. Uses of cash for operating activities included a $4.4 million decrease in lease liabilities, a net increase of $1.3 million in accounts receivable and unbilled receivables, and a $0.9 million decrease in prepaid expenses and other current assets primarily related to the timing of renewing annual subscriptions. Other uses of cash included a decrease in accounts payable, accrued expenses, and other liabilities of $73.2 million, primarily due to the payment of a significant portion of our fiscal 2022 performance bonuses and performance awards, and an increase in forgivable loans for the period of $10.0 million, which was primarily driven by $16.2 million of forgivable loan issuances, net of repayments, offset by $6.2 million of forgivable loan amortization.
Cash used in operations included incentive cash award expense of $1.9 million, non-cash depreciation and amortization expense of $2.9 million, right-of-use amortization of $3.6 million, share-based compensation expenses of $0.9 million, and other non-cash gains and benefits of $0.2 million.
During the fiscal quarter ended April 1, 2023, net cash used in investing activities was $1.1 million, which included $0.6 million of net consideration paid for the acquisitions of Welch Consulting and bSG and $0.5 million for capital expenditures, primarily related to purchases of office equipment.
During the fiscal quarter ended April 1, 2023, net cash provided by financing activities was $74.8 million, primarily as a result of net borrowings under the revolving credit facility of $100.0 million. Offsetting these increases in cash provided by financing activities were repurchases of common stock of $20.6 million, payment of cash dividends of $2.7 million, and tax withholding payments reimbursed by restricted shares on vesting of $1.9 million.
Lease Commitments
We are a lessee under certain operating leases for office space and equipment. Certain of our operating leases have terms that impose asset retirement obligations due to office modifications or the periodic redecoration of the premises, which are included in other liabilities on our condensed consolidated balance sheets and are recorded at a value based on their estimated discounted cash flows. We do not expect to incur asset retirement obligation or redecoration obligation costs over the next twelve months. At April 1, 2023, the remainder of our asset retirement obligations and redecoration obligations are approximately $2.7 million and are expected to be paid between fiscal 2026 and fiscal 2031 when the underlying leases terminate or when the respective lease agreement requires redecoration. We expect to satisfy these lease and related obligations as they become due from cash generated from operations.
20
Indebtedness
CRA is party to a Credit Agreement, dated as of August 19, 2022 (the "Credit Agreement") with Bank of America, N.A., as swingline lender, a letter of credit issuing bank and administrative agent, and with Citizens Bank, N.A., as a letter of credit issuing bank. The Credit Agreement provides CRA with a $250.0 million revolving credit facility, which may be decreased at CRA's option to $200.0 million during the period from July 16th in a year through January 15th in the next year. Additionally, for the period from January 16th to July 15th of each calendar year, CRA may elect to not increase the revolving credit facility to $250.0 million. The revolving credit facility includes a $25.0 million sublimit for the issuance of letters of credit.
There was $100.0 million in borrowings outstanding under the revolving credit facility as of April 1, 2023 and no borrowings outstanding as of December 31, 2022. As of April 1, 2023, the amount available under the revolving credit facility was reduced by certain letters of credit outstanding, which amounted to $5.7 million.
We may use the proceeds of the revolving credit loans under the Credit Agreement for general corporate purposes and may repay any borrowings under the revolving credit facility at any time, but any borrowings must be repaid no later than August 19, 2027. Borrowings under the revolving credit facility bear interest at a rate per annum equal to one of the following rates, at our election, plus an applicable margin as described below: (i) in the case of borrowings in U.S. dollars by us, the Base Rate (as defined in the Credit Agreement), (ii) in the case of borrowings in U.S. dollars, a rate based on Term SOFR (as defined in the Credit Agreement) for the applicable interest period, (iii) in the case of borrowings in Euros, EURIBOR (as defined in the Credit Agreement) for the applicable interest period, (iv) in the case of borrowings in Pounds Sterling, a daily rate based on SONIA (as defined in the Credit Agreement), (v) in the case of borrowings in Canadian Dollars, CDOR (as defined in the Credit Agreement) for the applicable interest period, (vi) in the case of borrowings in Swiss Francs, a daily rate based on SARON (as defined in the Credit Agreement), or (vii) in the case of borrowings in any other Alternate Currency (as defined in the Credit Agreement), the relevant daily or term rate determined as provided in the Credit Agreement. The applicable margin on borrowings based on the Base Rate varies within a range of 0.25% to 1.00% depending on our consolidated net leverage ratio, and the applicable margin on borrowings based on any of the other rates described above varies within a range of 1.25% to 2.00% depending on our consolidated net leverage ratio.
We are required to pay a fee on the amount available to be drawn under any letter of credit issued under the revolving credit facility at a rate per annum that varies between 1.25% and 2.00% depending on our consolidated net leverage ratio. In
addition, we are required to pay a fee on the unused portion of the revolving credit facility at a rate per annum that varies
between 0.175% and 0.250% depending on our consolidated net leverage ratio.
Under the Credit Agreement, CRA must comply with various financial and non-financial covenants. The primary financial covenants consist of a maximum consolidated net leverage ratio of 3.0 to 1 and a minimum consolidated interest coverage ratio of 2.5 to 1. The primary non-financial covenants include, but are not limited to, restrictions on CRA's ability to incur future indebtedness, engage in acquisitions or dispositions, pay dividends or repurchase capital stock, and enter into business combinations. Any indebtedness outstanding under the revolving credit facility may become immediately due upon
the occurrence of stated events of default, including CRA's failure to pay principal, interest or fees, or upon the breach of any covenant. As of April 1, 2023, CRA was in compliance with the covenants of the Credit Agreement.
Forgivable Loans
In order to attract and retain highly skilled professionals, we may issue forgivable loans or term loans to employees and non-employee experts. A portion of these loans is collateralized by key person life insurance. The forgivable loans have terms that are generally between two and six years. The principal amount of forgivable loans and accrued interest is forgiven by us over the term of the loans, so long as the employee or non-employee expert continues employment or affiliation with us and complies with certain contractual requirements. The expense associated with the forgiveness of the principal amount of the loans is recorded as compensation expense over the service period, which is consistent with the term of the loans.
Compensation Arrangements
We have entered into compensation arrangements for the payment of performance awards to certain of our employees and non-employee experts that are payable if specific performance targets are met. The financial targets may include a measure of revenue generation, profitability, or both. The amounts of the awards to be paid under these compensation arrangements could fluctuate depending on future performance during the applicable measurement periods. Changes in the estimated awards are expensed prospectively over the remaining service period. We believe that we will have sufficient funds to satisfy any cash obligations related to the performance awards. We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings available on our revolving credit facility.
21
Our Amended and Restated 2006 Equity Incentive Plan, as amended (the "2006 Equity Plan"), authorizes the grant of a variety of incentive and performance equity awards to our directors, employees and non-employee experts, including stock options, shares of restricted stock, restricted stock units, and other equity awards.
In 2009, the compensation committee of our Board of Directors adopted our long-term incentive program, or "LTIP," as a framework for equity grants made under our 2006 equity incentive plan to our senior corporate leaders, practice leaders, and key revenue generators. The equity awards granted under the LTIP include stock options, time-vesting restricted stock units, and performance-vesting restricted stock units.
In December 2016, our compensation committee modified the LTIP to allow grants of service- and performance-based cash awards in lieu of, or in addition to, equity awards to our senior corporate leaders, practice leaders, and key revenue generators. The compensation committee of our Board of Directors is responsible for approving all cash and equity awards under the LTIP. We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings available under our revolving credit facility.
Business and Talent Acquisitions
As part of our business, we regularly evaluate opportunities to acquire other consulting firms, practices or groups, or other businesses. In recent years, we have typically paid for acquisitions with cash, or a combination of cash and our common stock, and we may continue to do so in the future. To pay for an acquisition, we may use cash on hand, cash generated from our operations, borrowings available under our revolving credit facility, or we may pursue other forms of financing. Our ability to secure short-term and long-term debt or equity financing in the future, including our ability to refinance our credit agreement, will depend on several factors, including our future profitability, the levels of our debt and equity, restrictions under our existing revolving credit facility, and the overall credit and equity market environments. We completed two business acquisitions during the first and fourth quarters of fiscal 2022, which is further described in Note 2, "Business Acquisition” in Part I, Item I, “Financial Statements” of this report.
Share Repurchases
In March 2023, we announced that our Board of Directors authorized an expansion of our existing share repurchase program of an additional $20.0 million of our common stock. We may repurchase shares under this program in open market purchases (including through any Rule 10b5-1 plan adopted by us) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations.
During the fiscal quarter ended April 1, 2023, we repurchased and retired 180,881 shares under our share repurchase program at an average price per share of $113.76. During the fiscal quarter ended April 2, 2022, we repurchased and retired 56,665 shares under our share repurchase program at an average price per share of $87.46.
As of April 1, 2023, we had approximately $22.3 million available for future repurchases under our share repurchase program. We plan to finance future repurchases with available cash, cash from future operations, and borrowings available under our revolving credit facility. We expect to continue to repurchase shares under our share repurchase program.
Dividends to Shareholders
We anticipate paying regular quarterly dividends each year. These dividends are anticipated to be funded through cash flow from operations, available cash on hand, and/or borrowings available under our revolving credit facility. Although we anticipate paying regular quarterly dividends on our common stock for the foreseeable future, the declaration, timing and amounts of any such dividends remain subject to the discretion of our Board of Directors. During the fiscal quarter ended April 1, 2023, we paid dividends and dividend equivalents of $2.7 million. During the fiscal quarter ended April 2, 2022, we paid dividends and dividend equivalents of $2.4 million.
Impact of Inflation
To date, inflation has not had a material impact on our financial results. There can be no assurance, however, that inflation will not adversely affect our financial results in the future.
Future Capital and Liquidity Needs
We anticipate that our future capital and liquidity needs will principally consist of funds required for:
22
•operating and general corporate expenses relating to the operation of our business, including the compensation of our employees under various annual bonus or long-term incentive compensation programs;
•the hiring of individuals to replenish and expand our employee base;
•capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements;
•debt service and repayments, including interest payments on borrowings from our revolving credit facility;
•share repurchases under programs that we may have in effect from time to time;
•dividends to shareholders;
•potential acquisitions of businesses that would allow us to diversify or expand our service offerings;
•contingent obligations related to our acquisitions; and
•other known future contractual obligations.
The hiring of individuals to replenish and expand our employee base is an essential part of our business operations and has historically been funded principally from operations. Many of the other above activities are discretionary in nature. For example, capital expenditures can be deferred, acquisitions can be forgone, and share repurchase programs and regular dividends can be suspended. As such, our operating model provides flexibility with respect to the deployment of cash flow from operations. Given this flexibility, we believe that our cash flows from operations, supplemented by cash on hand and borrowings under our revolving credit facility (as necessary), will provide adequate cash to fund our long-term cash needs from normal operations for at least the next twelve months.
Our conclusion that we will be able to fund our cash requirements by using existing capital resources and cash generated from operations does not take into account the impact of any future acquisition transactions or any unexpected significant changes in the number of employees or other expenditures that are currently not contemplated. The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated, or if other unexpected circumstances arise that have a material effect on the cash flow or profitability of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs on terms that may be less favorable compared to our current sources of capital. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:
•our future profitability;
•the quality of our accounts receivable;
•our relative levels of debt and equity;
•the volatility and overall condition of the capital markets; and
•the market prices of our securities.
Factors Affecting Future Performance
Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this report, as well as a description of material risks we face, are set forth below under the heading “Risk Factors” and included in Part I, Item 1A, “Risk Factors” of our 2022 Form 10-K. If any of these risks, or any risks not presently known to us or that we currently believe are not significant, develops into an actual event, then our business, financial condition, and results of operations could be adversely affected.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our exposure to market risk during the three months ended April 1, 2023. For information regarding our exposure to certain market risks, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk” of our 2022 Form 10-K.
23
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. This is done in order to ensure that information we are required to disclose in the reports that are filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 1, 2023.
Management has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material aspects, our financial position at the end of, and the results of operations and cash flows for, the periods presented in conformity with accounting principles generally accepted in the United States.
Evaluation of Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, we evaluated whether there were any changes in our internal control over financial reporting during the first quarter of fiscal 2023. There were no changes in our internal control over financial reporting identified in connection with the above evaluation that occurred during the first quarter of fiscal 2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 1A. Risk Factors
There are many risks and uncertainties that can affect our future business, financial performance or results of operations. In addition to the other information set forth in this report, please review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I, Item 1A, “Risk Factors” in our 2022 Form 10-K. There have been no material changes to these risk factors during the quarter ended April 1, 2023.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Not applicable.
(b)Not applicable.
(c)The following provides information about our repurchases of shares of our common stock during the fiscal quarter ended April 1, 2023. During that period, we did not act in concert with any affiliate or any other person to acquire any of our common stock and, accordingly, we do not believe that purchases by any such affiliate or other person (if any) are reportable in the following table. For purposes of this table, we have divided the fiscal quarter into three periods of four weeks, four weeks, and five weeks, respectively, to coincide with our reporting periods during the first quarter of fiscal 2023.
24
Issuer Purchases of Equity Securities
| Period | (a) Total Number of Shares Purchased(1)(2) | (b) Average Price Paid per Share(1)(2) | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||||||||||||||
| January 1, 2023 to January 28, 2023 | — | $ | — | — | $ | 22,854,204 | ||||||||||||||||||||
| January 29, 2023 to February 25, 2023 | 3,745 | $ | 121.18 | — | $ | 22,854,204 | ||||||||||||||||||||
| February 26, 2023 to April 1, 2023 | 193,750 | $ | 113.53 | 180,881 | $ | 22,277,111 | ||||||||||||||||||||
_______________________________
(1)During the four weeks ended February 25, 2023, we accepted 3,745 shares of our common stock as a tax withholding from certain of our employees in connection with the vesting of shares of restricted stock that occurred during the indicated period, pursuant to the terms of our 2006 equity incentive plan, at the average price of $121.18. During the five weeks ended April 1, 2023, we accepted 12,869 shares of our common stock as a tax withholding from certain of our employees in connection with the vesting of shares of restricted stock and restricted stock units that occurred during the indicated period, pursuant to the terms of our 2006 equity incentive plan, at the average price per share of $110.27.
(2)On March 2, 2023, we announced that our Board of Directors authorized an expansion to our existing share repurchase program of an additional $20.0 million of outstanding shares of our common stock. We may repurchase shares under this program in open market purchases (including through any Rule 10b5-1 plan adopted by us) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations. During the five weeks ended April 1, 2023, we repurchased and retired 180,881 shares under this program at an average price per share of $113.76. Approximately $22.3 million was available for future repurchases under this program as of April 1, 2023. We expect to continue to repurchase shares under this program.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
None.
ITEM 5. Other Information
None.
25
ITEM 6. Exhibits
| Item No. | Filed with this Form 10-Q | Description | ||||||||||||
| 3.1 | ||||||||||||||
| 3.2 | ||||||||||||||
| 31.1 | X | |||||||||||||
| 31.2 | X | |||||||||||||
| 32.1 | X | |||||||||||||
| 32.2 | X | |||||||||||||
| 101 | X | The following financial statements from CRA International, Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language), as follows: (i) Condensed Consolidated Statements of Operations (unaudited) for the fiscal quarters ended April 1, 2023 and April 2, 2022, (ii) Condensed Consolidated Statements of Comprehensive Income (unaudited) for the fiscal quarters ended April 1, 2023 and April 2, 2022, (iii) Condensed Consolidated Balance Sheets (unaudited) at April 1, 2023 and December 31, 2022, (iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the fiscal quarters ended April 1, 2023 and April 2, 2022, (v) Condensed Consolidated Statement of Shareholders’ Equity (unaudited) for the fiscal quarters ended April 1, 2023 and April 2, 2022, and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited). | ||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||||||||
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CRA INTERNATIONAL, INC. | ||||||||
| Date: May 4, 2023 | By: | /s/ PAUL A. MALEH | ||||||
| Paul A. Maleh | ||||||||
| President and Chief Executive Officer | ||||||||
| Date: May 4, 2023 | By: | /s/ DANIEL K. MAHONEY | ||||||
| Daniel K. Mahoney | ||||||||
| Chief Financial Officer, Executive Vice President and Treasurer | ||||||||
27
Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul A. Maleh, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q (this "report") of CRA International, Inc. (the "registrant");
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect adversely the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 4, 2023 | By: | /s/ PAUL A. MALEH | ||||||
| Paul A. Maleh | ||||||||
| President and Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel K. Mahoney, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q (this "report") of CRA International, Inc. (the "registrant");
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect adversely the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 4, 2023 | By: | /s/ DANIEL K. MAHONEY | ||||||
| Daniel K. Mahoney | ||||||||
| Chief Financial Officer, Executive Vice President and Treasurer | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CRA International, Inc. (the “Company”) on Form 10-Q for the quarter ended April 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned President and Chief Executive Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| /s/ PAUL A. MALEH | |||||
| Paul A. Maleh | |||||
| President and Chief Executive Officer | |||||
| Date: May 4, 2023 | |||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CRA International, Inc. (the “Company”) on Form 10-Q for the quarter ended April 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Financial Officer, Executive Vice President and Treasurer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| /s/ DANIEL K. MAHONEY | |||||
| Daniel K. Mahoney | |||||
| Chief Financial Officer, Executive Vice President and Treasurer | |||||
| Date: May 4, 2023 | |||||