CRA INTERNATIONAL, INC. 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
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
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.
COVID-19 Assessment
While the COVID-19 pandemic did not materially adversely affect the
Company's financial results and business operations in the Company's first
fiscal quarter ended
As of
Please see "Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.
Critical Accounting Policies and Significant Estimates
Our critical accounting policies involving the more significant estimates
and judgments used in the preparation of our financial statements as of
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2019. 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
Recent Accounting Standards
Please refer to the sections captioned "Recent Accounting Standards Adopted" and "Recent Accounting Standards Not Yet Adopted" included in Note 1, "Summary of Significant Accounting Policies" in Part I, Item I, "Financial Statements" of this report.
Results of Operations-For the Fiscal Quarter Ended
The following table provides operating information as a percentage of revenues for the periods indicated:
Fiscal Quarter
Ended
March 28, March 30,
2020 2019
Revenues 100.0 % 100.0 %
Costs of services (exclusive of depreciation and
amortization) 72.1 69.6
Selling, general and administrative expenses 19.1 21.5
Depreciation and amortization 2.3 2.5
Income from operations 6.4 6.5
Interest expense, net (0.3 ) -
Foreign currency gains (losses), net 1.1 (0.7 )
Income before provision for income taxes 7.3 5.8
Provision for income taxes 2.1 1.4
Net income 5.1 % 4.4 %
Fiscal Quarter Ended
Revenues. Revenues increased by
Overall, revenues outside of the
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Costs of Services (exclusive of depreciation and amortization). Costs of
services (exclusive of depreciation and amortization) increased by
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by
As a percentage of revenues, selling, general and administrative expenses decreased to 19.1% for the first quarter of fiscal 2020 from 21.5% for the first quarter of fiscal 2019. Commissions to our nonemployee experts decreased to 2.2% of revenues for the first quarter of fiscal 2020 compared to 3.2% of revenues for the first quarter of fiscal 2019.
Provision for Income Taxes. The income tax provision was
Net Income. Net income increased by
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Liquidity and Capital Resources
We believe that our current cash, 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
During the fiscal quarter ended
Of the total cash and cash equivalents held at
Sources and Uses of Cash. During the fiscal quarter ended
During the fiscal quarter ended
During the fiscal quarter ended
Indebtedness
We are party to a credit agreement that provides us with a
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The amount available under this revolving credit facility is reduced by
certain letters of credit outstanding, which amounted to
Under the credit agreement, we must comply with various financial and non-financial covenants. Compliance with these financial covenants is tested on a fiscal quarterly basis. Any indebtedness outstanding under the revolving credit facility may become immediately due and payable upon the occurrence of stated events of default, including our failure to pay principal, interest or fees or a violation of any financial covenant. The financial covenants require us to maintain an adjusted consolidated EBITDA to consolidated interest expense ratio of more than 2.5:1.0 and to comply with a consolidated debt to adjusted consolidated EBITDA ratio of not more than 3.0:1.0. The non-financial covenant restrictions of the credit agreement include, but are not limited to, our ability to incur additional indebtedness, engage in acquisitions or dispositions, and enter into business combinations.
Forgivable Loans and Term 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 eight 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 incentive performance awards to certain of our employees and non-employee experts if specific performance targets are met. The amounts of the awards to be paid under these compensation arrangements could fluctuate depending on future performance through the respective measurement periods. Increases in estimated awards are expensed prospectively over the remaining service period. Decreases in estimated awards are recorded in the period incurred. We believe that we will have sufficient funds to satisfy any obligations related to the incentive performance awards. We expect to fund these payments, if any, from existing cash resources, cash generated from operations, or borrowings on 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 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 will depend on several factors,
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including our future profitability, the levels of our debt and equity, restrictions under our revolving credit facility, and the overall credit and equity market environments.
Share Repurchases
In
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 under our revolving credit facility. Although we
anticipate paying regular quarterly dividends on our common stock for the
foreseeable future, the declaration of any future dividends is subject to the
discretion of our Board of Directors. During the fiscal quarters ended
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.
We anticipate that our future capital and liquidity needs will principally consist of funds required for:
º •
º 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;
º •
º the hiring of individuals to replenish and expand our employee base;
º •
º capital expenditures, primarily for information technology equipment,
office furniture and leasehold improvements;
º •
º debt service and repayments, including interest payments on borrowings
under our revolving credit facility;
º •
º share repurchases, under programs that we may have in effect from time
to time;
º •
º dividends to shareholders;
º •
º potential acquisitions of businesses that would allow us to diversify
or expand our service offerings;
º •
º contingent obligations related to our acquisitions; and
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º •
º 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 (including in connection with the COVID-19 pandemic), 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 or the length and severity of the COVID-19 pandemic, could involve or result in 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 over the next 12 months, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:
º •
º our future profitability;
º •
º the quality of our accounts receivable;
º •
º our relative levels of debt and equity;
º •
º the volatility and overall condition of the capital markets; and
º •
º 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 Quarterly Report on
Form 10-Q, 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 the 2019 Form 10-
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