crai-20210703

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-24049

________________________________________________________________________________________

CRA International, Inc.

(Exact name of registrant as specified in its charter)


Massachusetts			04-2372210
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
200 Clarendon Street, Boston, MA			02116-5092
(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

Name of Each Exchange on Which Registered

Common Stock, no par value

CRAI

Nasdaq Global Select Market

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

☐

Accelerated filer

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 x

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 July 30, 2021

Common Stock, no par value per share

7,381,781 shares

Table of Contents

CRA International, Inc.

INDEX


PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations (unaudited)—Fiscal Quart ers and Fiscal Year-to-Date Periods Ended July 3, 202 1 and June 27, 2020	3
	Condensed Consolidated Statements of Comprehensive Income (unaudited)—Fiscal Quarters and Fiscal Year-to-Date Periods Ended July 3, 2021 and June 27, 2020	4
	Condensed Consolidated Balance Sheets (unaudited)— July 3, 2021 and January 2, 2021	5
	Condensed Consolidated Statements of Cash Flows (unaudited)—Fiscal Year-to-Date Periods Ended July 3, 2 021 and June 27, 2020	6
	Condensed Consolidated Statements of Shareholders’ Equity (unaudited)—Fiscal Year-to-Date Periods Ended July 3, 2021 and June 27, 2020	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	23
ITEM 4.	Controls and Procedures	23

PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	24
ITEM 1A.	Risk Factors	24
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
ITEM 3.	Defaults Upon Senior Securities	25
ITEM 4.	Mine Safety Disclosures	25
ITEM 5.	Other Information	25
ITEM 6.	Exhibits	26
Signatures		27

Table of Contents

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				Fiscal Year-to-Date Period Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Revenues	$	148,237	$	123,031	$	294,755	$	249,189
Costs of services (exclusive of depreciation and amortization)	105,042		90,168		210,416		181,165
Selling, general and administrative expenses	24,043		21,418		47,250		45,541
Depreciation and amortization	3,215		3,106		6,516		6,049
Income from operations	15,937		8,339		30,573		16,434
Interest expense, net	(409)		(372)		(608)		(734)
Foreign currency gains (losses), net	63		(102)		(488)		1,320
Income before provision for income taxes	15,591		7,865		29,477		17,020
Provision for income taxes	4,025		1,934		7,410		4,621
Net income	$	11,566	$	5,931	$	22,067	$	12,399
Net income per share:
Basic	$	1.57	$	0.76	$	2.94	$	1.59
Diluted	$	1.53	$	0.75	$	2.86	$	1.55
Weighted average number of shares outstanding:
Basic	7,320		7,764		7,473		7,784
Diluted	7,539		7,920		7,685		7,979

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in thousands)


	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income	$	11,566	$	5,931	$	22,067	$	12,399
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax	(136)		536		(247)		(1,891)
Comprehensive income	$	11,430	$	6,467	$	21,820	$	10,508

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)


	July 3, 2021		January 2, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	13,977	$	45,677
Accounts receivable, net of allowances of $3,959 at July 3, 2021 and $3,595 at January 2, 2021	113,105		111,595
Unbilled services, net of allowances of $1,430 at July 3, 2021 and $1,000 at January 2, 2021	60,789		40,881
Prepaid expenses and other current assets	11,549		7,068
Forgivable loans	8,654		14,749
Total current assets	208,074		219,970
Property and equipment, net	57,997		62,878
Goodwill	89,243		89,187
Intangible assets, net	4,620		5,108
Right-of-use assets	116,868		122,144
Deferred income taxes	10,980		9,667
Forgivable loans, net of current portion	44,940		46,864
Other assets	2,243		2,692
Total assets	$	534,965	$	558,510
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	23,880	$	19,430
Accrued expenses	99,443		136,376
Deferred revenue and other liabilities	6,044		9,866
Current portion of lease liabilities	14,088		13,557
Current portion of deferred compensation	2,773		20,902
Revolving line of credit	45,000		—
Total current liabilities	191,228		200,131
Non-current liabilities:
Deferred compensation and other non-current liabilities	12,487		9,188
Non-current portion of lease liabilities	132,488		139,447
Deferred income taxes	931		725
Total non-current liabilities	145,906		149,360
Commitments and contingencies (Note 10)
Shareholders’ equity:
Preferred stock, no par value; 1,000,000 shares authorized; none issued and outstanding	—		—
Common stock, no par value; 25,000,000 shares authorized; 7,339,322 and 7,693,497 shares issued and outstanding at July 3, 2021 and January 2, 2021, respectively	1,985		503
Retained earnings	204,576		216,999
Accumulated other comprehensive loss	(8,730)		(8,483)
Total shareholders’ equity	197,831		209,019
Total liabilities and shareholders’ equity	$	534,965	$	558,510

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)


	Fiscal Year-to-Date Period Ended
	July 3, 2021		June 27, 2020
OPERATING ACTIVITIES:
Net income	$	22,067	$	12,399
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	6,516		6,049
Right-of-use asset amortization	6,437		5,894
Deferred income taxes	(1,203)		(842)
Share-based compensation expense	1,822		1,451
Accounts receivable allowances	351		(311)
Unrealized foreign currency remeasurement (gains) losses, net	(160)		34
Changes in operating assets and liabilities:
Accounts receivable	(1,735)		5,000
Unbilled services, net	(19,913)		(13,962)
Prepaid expenses and other current assets, and other assets	(4,061)		(2,766)
Forgivable loans	8,133		(25,499)
Incentive cash awards	3,329		3,028
Accounts payable, accrued expenses, and other liabilities	(50,181)		(31,623)
Lease liabilities	(7,625)		(3,152)
Net cash used in operating activities	(36,223)		(44,300)
INVESTING ACTIVITIES:
Purchases of property and equipment	(1,170)		(13,517)
Net cash used in investing activities	(1,170)		(13,517)
FINANCING ACTIVITIES:
Issuance of common stock, principally stock option exercises	2,500		569
Borrowings under revolving line of credit	70,000		77,000
Repayments under revolving line of credit	(25,000)		(18,000)
Tax withholding payments reimbursed by shares	(588)		(390)
Cash paid for contingent consideration	(2,357)		—
Cash dividends paid	(3,970)		(3,624)
Repurchase of common stock	(34,977)		(3,810)
Net cash provided by financing activities	5,608		51,745
Effect of foreign exchange rates on cash and cash equivalents	85		(760)
Net decrease in cash and cash equivalents	(31,700)		(6,832)
Cash and cash equivalents at beginning of period	45,677		25,639
Cash and cash equivalents at end of period	$	13,977	$	18,807
Noncash investing and financing activities:
Purchases of property and equipment not yet paid for	$	124	$	3,784
Asset retirement obligations	$	—	$	155
Right-of-use assets obtained in exchange for lease obligations	$	1,070	$	—
Restricted common stock issued for contingent consideration	$	2,250	$	—
Supplemental cash flow information:
Cash paid for taxes	$	10,494	$	2,057
Cash paid for interest	$	379	$	676
Cash paid for amounts included in operating lease liabilities	$	10,325	$	9,243

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED JULY 3, 2021 (unaudited)

(in thousands, except share data)


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares Issued	Amount
BALANCE AT JANUARY 2, 2021	7,693,497	$	503	$	216,999	$	(8,483)	$	209,019
Net income	—	—		10,501		—		10,501
Foreign currency translation adjustment	—	—		—		(111)		(111)
Issuance of restricted common stock for contingent consideration	40,039	2,250		—		—		2,250
Exercise of stock options	41,008	1,113		—		—		1,113
Share-based compensation expense	—	842		—		—		842
Restricted shares vestings	29,494	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(9,895)	(588)		—		—		(588)
Shares repurchased	(166,552)	(4,120)		(5,522)		—		(9,642)
Accrued dividends on unvested shares	—	—		5		—		5
Cash dividends paid ($0.26 per share)	—	—		(2,061)		—		(2,061)
BALANCE AT APRIL 3, 2021	7,627,591	$	—	$	219,922	$	(8,594)	$	211,328
Net income	—	—		11,566		—		11,566
Foreign currency translation adjustment	—	—		—		(136)		(136)
Exercise of stock options	48,562	1,387		—		—		1,387
Share-based compensation expense	—	980		—		—		980
Restricted shares vestings	1,006	—		—		—		—
Shares repurchased	(337,837)	(382)		(24,953)		—		(25,335)
Accrued dividends on unvested shares	—	—		(50)		—		(50)
Cash dividends paid ($0.26 per share)	—	—		(1,909)		—		(1,909)
BALANCE AT JULY 3, 2021	7,339,322	$	1,985	$	204,576	$	(8,730)	$	197,831

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED JUNE 27, 2020 (unaudited)

(in thousands, except share data)


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares Issued	Amount
BALANCE AT DECEMBER 28, 2019	7,814,797	$	9,265	$	200,249	$	(11,763)	$	197,751
Balance at December 29, 2019, as previously reported	7,814,797	$	9,265	$	200,249	(11,763)		$	197,751
Cumulative effect of a change in accounting principle related to ASC 326	—	—		(203)		—		(203)
Balance at December 29, 2019, as adjusted	7,814,797	$	9,265	$	200,046	(11,763)		$	197,548
Net income	—	—		6,468		—		6,468
Foreign currency translation adjustment	—	—		—		(2,427)		(2,427)
Exercise of stock options	8,200	151		—		—		151
Share-based compensation expense	—	655		—		—		655
Restricted shares vestings	23,884	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(7,843)	(390)		—		—		(390)
Shares repurchased	(82,613)	(3,810)		—		—		(3,810)
Accrued dividends on unvested shares	—	—		1		—		1
Cash dividends paid ($0.23 per share)	—	—		(1,836)		—		(1,836)
BALANCE AT MARCH 28, 2020	7,756,425	$	5,871	$	204,679	(14,190)		$	196,360
Net income	—	—		5,931		—		5,931
Foreign currency translation adjustment	—	—		—		536		536
Exercise of stock options	22,611	418		—		—		418
Share-based compensation expense	—	796		—		—		796
Restricted shares vestings	513	—		—		—		—
Accrued dividends on unvested shares	—	—		(38)		—		(38)
Cash dividends paid ($0.23 per share)	—	—		(1,788)		—		(1,788)
BALANCE AT JUNE 27, 2020	7,779,549	$	7,085	$	208,784	$	(13,654)	$	202,215

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Description of Business

CRA International, Inc. (“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.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of CRA International, Inc. and its wholly-owned subsidiaries (collectively the “Company”), which require consolidation after the elimination of intercompany accounts and transactions. These financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Quarterly Reports on Form 10-Q. Accordingly, these financial statements do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements. In the opinion of management, these financial statements reflect all adjustments of a normal, recurring nature necessary for the fair presentation of CRA’s results of operations, financial position, cash flows, and shareholders’ equity for the interim periods presented in conformity with GAAP. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended January 2, 2021 included in CRA’s Annual Report on Form 10-K filed with the SEC on March 4, 2021 (the “2020 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on previously reported results of operations, financial position, or cash flows.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and judgments that affect the reported amounts of assets and liabilities, as well as the related disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of consolidated revenues and expenses during the reporting period. Estimates in these condensed consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed price contracts, variable consideration to be included in the transaction price of revenue contracts, depreciation of property and equipment, measurement of operating lease right-of-use (“ROU”) assets and liabilities, share-based compensation, valuation of contingent consideration liabilities, valuation of acquired intangible assets, impairment of long-lived assets, goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued incentive compensation, and certain other accrued expenses. These items are monitored and analyzed by CRA for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. CRA bases its estimates on historical experience and various other assumptions that CRA believes to be reasonable under the circumstances. Actual results may differ from those estimates if CRA’s assumptions based on past experience or other assumptions do not turn out to be substantially accurate.

Common Stock and Equity

Equity transactions consist primarily of the repurchase by CRA of its common stock under its share repurchase program and the recognition of compensation expense and issuance of common stock under CRA’s 2006 Equity Incentive Plan. The Company repurchases its common stock under its share repurchase program in open market purchases (including through any Rule 10b5-1 plan adopted by CRA) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations. During the fiscal quarter ended July 3, 2021, CRA repurchased shares of its common stock through a modified "Dutch auction" self-tender offer, as further described in Note 11.

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The purchase price of repurchases is first charged against available paid-in capital (“PIC”) until PIC is exhausted, wherein purchases will be charged to retained earnings. CRA’s common stock has no par value. All shares repurchased have been retired.

Recent Accounting Standards Adopted

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

CRA adopted Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) on the first day of fiscal 2021. ASU 2019-12 simplifies or clarifies accounting for income taxes by changing prior guidance related to accounting for year-to-date losses in interim periods, accounting for tax law changes in interim periods, determining when a deferred tax liability is recognized for foreign subsidiaries that transition to or from being accounted for as equity method investments, application of income tax guidance to franchise taxes that are partially based on income, and making an intra-period allocation in situations where there is a loss in continuing operations and income or gain from other items. ASU 2019-12 also introduces new guidance to evaluate whether a step up in the tax basis of goodwill relates to a business combination or a separate transaction and provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax. The adoption of the new standard did not have a material impact on CRA's financial position, results of operations, cash flows, or disclosures on the date of transition.

2. Revenue Recognition

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				Fiscal Year-to-Date Period Ended
Type of Contract	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Consulting services revenues
Fixed-price	$	36,245	$	30,783	$	69,678	$	59,771
Time-and-materials	111,992		92,248		225,077		189,418
Total	$	148,237	$	123,031	$	294,755	$	249,189


	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended
Geographic Breakdown	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Consulting services revenues
United States	$	120,810	$	99,416	$	238,057	$	200,156
United Kingdom	19,740		17,931		43,026		36,997
Other	7,687		5,684		13,672		12,036
Total	$	148,237	$	123,031	$	294,755	$	249,189

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

SEC Form 10-Q filed by CRA International,Inc.