Market Overview

Charles River Associates (CRA) Reports Results for the Second Quarter of 2018

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Strength Across Services and Geographies Continues to Drive Growth in
Revenue and Profits;

Raises Revenue Guidance for Fiscal 2018

Charles
River Associates
(NASDAQ:CRAI), a worldwide leader in providing economic,
financial and management consulting services
, today announced
financial results and filed its Form 10-Q for the fiscal second quarter
ended June 30, 2018.

Key Second-Quarter Fiscal 2018 Highlights

  • Revenue grew 13% year over year to $105.5 million.
  • Utilization was 79%, while quarter-end headcount increased 4.7% year
    over year.
  • Net income increased 79% year over year to $6.8 million, or 6.5% of
    revenue, compared with $3.8 million, or 4.1% of revenue, in the second
    quarter of fiscal 2017; non-GAAP net income increased 40% year over
    year to $5.8 million, or 5.5% of revenue, compared with $4.1 million,
    or 4.4% of revenue, in the second quarter of fiscal 2017.
  • Earnings per diluted share increased 80% year over year to $0.79;
    non-GAAP earnings per diluted share increased 40% year over year to
    $0.67.
  • Non-GAAP EBITDA grew 21% year over year to $10.7 million, or 10.2% of
    revenue compared with $8.9 million, or 9.5% of revenue, in the second
    quarter of fiscal 2017.
  • On a constant currency basis relative to the second quarter of fiscal
    2017, revenue was benefited by $1.2 million, while GAAP and non-GAAP
    net income, earnings per diluted share and EBITDA were minimally
    impacted.
  • CRA returned $13.5 million of capital to its shareholders, consisting
    of $1.4 million of dividend payments and $12.1 million for share
    repurchases of approximately 216,000 shares, at an average price of
    $55.99 per share.

Management Commentary

"CRA delivered excellent results in the second quarter, driven by
continued broad-based, profitable growth," said Paul
Maleh
, CRA's President and Chief Executive Officer. "Capitalizing on
our strong top line performance and utilization, we expanded profit
margins and grew non-GAAP net income and non-GAAP EBITDA by 40% and 21%,
respectively, compared with the second quarter of last year."

"For the second quarter of fiscal 2018, revenue from legal and
regulatory services grew 26% year over year, with exceptional
performance from our Antitrust & Competition Economics, Finance,
Forensic Services, and Labor and Employment practices," Maleh continued.
"In management consulting, our Energy and Life Sciences practices had a
solid quarter, contributing to overall revenue growth. We continued to
demonstrate strength across geographies, with revenues from North
America and international operations growing 14% and 9% year over year,
respectively.

"Demonstrating the strength and quality of our portfolio, we have now
reported double-digit, year-over-year revenue growth for each of the
past seven quarters, and year-over-year revenue growth for 15 of the
past 18 quarters. Although not a guarantee of future performance, we are
proud of our accomplishments," Maleh said.

Outlook and Financial Guidance

"We are excited by our record first-half revenue and by trends in lead
flow and new project originations," Maleh said. "As a result, on a
constant currency basis relative to fiscal 2017, we are raising our
fiscal 2018 revenue guidance to the range of $398 million to $406
million from $380 million to $392 million and reaffirming our guidance
for non-GAAP EBITDA margin in the range of 8.8% to 9.8%. While we are
very pleased with our first-half performance, we remain mindful of the
uncertainties around global economic conditions and the short-term
challenges associated with the integration of incoming consultants as we
continue to grow headcount."

CRA does not provide reconciliations of its annual non-GAAP EBITDA
margin guidance to GAAP net income margin because CRA is unable to
estimate with reasonable certainty the revaluation of contingent
consideration liabilities, unusual gains or charges, foreign currency
exchange rates, and the resulting effect of these items, and of equity
awards, on CRA's taxes without unreasonable effort. These items are
uncertain, depend on various factors, and may have a material effect on
CRA's results computed in accordance with GAAP. A reconciliation between
the historical GAAP and non-GAAP financial measures presented in this
release is provided in the financial tables at the end of this release.

Quarterly Dividend

On August 2, 2018, CRA's Board of Directors announced a quarterly cash
dividend of $0.17 per common share, payable on September 21, 2018 to
shareholders of record as of August 28, 2018. CRA expects to continue
paying quarterly dividends, the declaration, timing and amounts of which
remain subject to the discretion of CRA's Board of Directors.

Conference Call Information and Prepared CFO Remarks

CRA will host a conference call today at 10:00 a.m. ET to discuss its
second-quarter 2018 financial results. To listen to the live call,
please visit the "Investor
Relations
" section of CRA's website at http://www.crai.com,
or dial (877) 709-8155 or (201) 689-8881. An archived
version of the webcast will be available on CRA's website for one year.

In combination with this press release, CRA has posted prepared remarks
by its CFO Chad Holmes under "Conference
Call Materials
" in the "Investor
Relations
" section on CRA's website at http://www.crai.com.
These remarks are offered to provide the investment community with
additional background on CRA's financial results prior to the start of
the conference call.

About Charles River Associates (CRA)

Charles River Associates® is a global consulting firm specializing in economic,
financial, and management consulting services
. CRA advises clients
on economic and financial matters pertaining to litigation and
regulatory proceedings, and guides corporations through critical
business strategy and performance-related issues. Since 1965, clients
have engaged CRA for its unique combination of functional expertise and
industry knowledge, and for its objective solutions to complex problems.
Headquartered in Boston, CRA has offices throughout the world. Detailed
information about Charles River Associates, a registered trade name of
CRA International, Inc., is available at www.crai.com.
Follow us on LinkedIn,
Twitter,
and Facebook.

NON-GAAP FINANCIAL MEASURES

In this release, CRA has supplemented the presentation of its financial
results calculated in accordance with U.S. generally accepted accounting
principles or "GAAP" with financial measures that were not calculated in
accordance with GAAP. CRA believes that the non-GAAP financial measures
described below are important to management and investors because these
measures are more indicative of CRA's ongoing operating results and
financial condition.

The adjustments made to the financial measures identified in this
release as "non-GAAP" are as follows: for all periods presented, CRA has
excluded certain non-cash adjustments relating principally to valuation
changes in contingent consideration; for the year to date period ending
June 30, 2018, CRA has also excluded net costs related to a lease
recapture; for the second quarter of fiscal 2018 and the year to date
period ended June 30, 2018, CRA has also excluded the impact of the Tax
Cuts and Jobs Act; and for the second quarter of fiscal 2017 and the
year to date period ended July 1, 2017, CRA has also excluded the
results of its GNU subsidiary which sold substantially all of its assets
in April 2016, and impairments on certain intangible assets. This
release also presents certain current fiscal period financial measures
on a "constant currency" basis in order to isolate the effect that
foreign currency exchange rate fluctuations can have on CRA's financial
results. These constant currency measures are determined by
recalculating the current fiscal period local currency financial measure
using the specified corresponding prior fiscal period's foreign exchange
rates. Finally, this release also presents the non-GAAP financial metric
EBITDA. In addition to supplementing its understanding and evaluation of
CRA's performance, these non-GAAP measures are used by CRA in its
budgeting process, and the non-GAAP adjustments described above are made
to the performance criteria for some of CRA's performance-based
compensation.

All of the non-GAAP financial measures referred to above should be
considered in conjunction with, and not as a substitute for, the GAAP
financial information presented in this release. EBITDA and the
financial measures identified in this release as "non-GAAP" are
reconciled to their GAAP comparable measures in the financial tables
appended to the end of this press release. In evaluating these non-GAAP
financial measures, note that the non-GAAP financial measures used by
CRA may be calculated differently from, and therefore may not be
comparable to, similarly titled measures used by other companies.

SAFE HARBOR STATEMENT

Statements in this press release concerning our future business,
operating results and financial condition, including those concerning
guidance on future revenue and non-GAAP EBITDA margin, the continuation
of any trend, our expectations regarding the payment of any future
quarterly dividends, and statements using the terms "expect,"
"encouraged," or similar expressions, are "forward-looking" statements
as defined in Section 21 of the Exchange Act. These statements are based
upon our current expectations and various underlying assumptions.
Although we believe there is a reasonable basis for these statements and
assumptions, and these statements are expressed in good faith, these
statements are subject to a number of additional factors and
uncertainties. Our actual revenue and non-GAAP EBITDA margin in fiscal
2018 on a constant currency basis relative to fiscal 2017 could differ
materially from the guidance presented herein, and our actual
performance and results may differ materially from the performance and
results contained in or implied by the other forward-looking statements
made herein, due to many important factors. These factors include, but
are not limited to, the possibility that the demand for our services may
decline as a result of changes in general and industry specific economic
conditions; the timing of engagements for our services; the effects of
competitive services and pricing; our ability to attract and retain key
employee or non-employee experts; the inability to integrate and utilize
existing consultants and personnel; the decline or reduction in project
work or activity; global economic conditions including less stable
political and economic environments; foreign currency exchange rate
fluctuations; unanticipated expenses and liabilities; risks inherent in
international operations; changes in tax law or accounting standards,
rules, and regulations; our ability to collect on forgivable loans
should any become due; and professional and other legal liability or
settlements. Additional risks and uncertainties are discussed in our
periodic filings with the Securities and Exchange Commission under the
heading "Risk Factors." The inclusion of such forward-looking
information should not be regarded as our representation that the future
events, plans, or expectations contemplated will be achieved. We
undertake no obligation to update any forward-looking statements after
the date of this press release, and we do not intend to do so.

 

CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDING A RECONCILIATION
TO NON-GAAP RESULTS

FOR THE QUARTER ENDED JUNE 30,
2018 COMPARED TO THE QUARTER ENDED JULY 1, 2017

(In
thousands, except per share data)

                                         
Quarter Ended June 30, 2018 Quarter Ended July 1, 2017

GAAP
Results

GAAP
% of
Revenues
Adjustments to
GAAP Results (1)
Non-GAAP
Results
Non-GAAP
% of
Revenues
GAAP
Results
GAAP
% of
Revenues
Adjustments to
GAAP Results (2)
Non-GAAP
Results
Non-GAAP
% of
Revenues
 
Revenues $ 105,538 100.0 % $ - $ 105,538 100.0 % $ 93,563 100.0 % $ - $ 93,563 100.0 %
Cost of services (exclusive of depreciation and amortization) 69,705 66.0 % (1,739 ) 71,444 67.7 % 65,220 69.7 % 297 64,923 69.4 %
Selling, general and administrative expenses 23,739 22.5 % - 23,739 22.5 % 20,259 21.7 % 562 19,697 21.1 %
Depreciation and amortization   2,433 2.3 %   -     2,433 2.3 %   2,236   2.4 %   -     2,236   2.4 %
Income (loss) from operations 9,661 9.2 % 1,739 7,922 7.5 % 5,848 6.3 % (859 ) 6,707 7.2 %
 
Interest and other income (expense), net   76 0.1 %   -     76 0.1 %   71   0.1 %   250     (179 ) -0.2 %

Income (loss) before provision for income taxes and noncontrolling
interest

9,737 9.2 % 1,739 7,998 7.6 % 5,919 6.3 % (609 ) 6,528 7.0 %
Provision for income taxes   2,898 2.7 %   (701 )   2,197 2.1 %   2,012   -2.2 %   383     2,395   -2.6 %
Net income (loss) 6,839 6.5 % 1,038 5,801 5.5 % 3,907 4.2 % (226 ) 4,133 4.4 %
Net (income) loss attributable to noncontrolling interests, net of
tax
  - 0.0 %   -     - 0.0 %   (94 ) -0.1 %   (94 )   -   0.0 %
Net income (loss) attributable to CRA International, Inc. $ 6,839 6.5 % $ 1,038   $ 5,801 5.5 % $ 3,813   4.1 % $ (320 ) $ 4,133   4.4 %
 
Net Income per share attributable to CRA International, Inc.:
Basic $ 0.84 $ 0.72 $ 0.45   $ 0.49  
Diluted $ 0.79 $ 0.67 $ 0.44   $ 0.48  
 
Weighted average number of shares outstanding:
Basic   8,053   8,053   8,428     8,428  
Diluted   8,550   8,550   8,618     8,618  
 
(1)     These adjustments relate principally to valuation changes in
contingent consideration and the additional transition effects in
connection with the Tax Cuts and Jobs Act ("Tax Act").
 
(2) These adjustments include activity related to GNU123 Liquidating
Corporation ("GNU"), formerly known as CRA's majority owned
subsidiary "NeuCo". In April 2016, substantially all of GNU's assets
were sold. In addition, these adjustments also include impairments
on certain intangible assets and revaluation changes of contingent
consideration liabilities associated with prior acquisitions.
 
                                         

CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDING A RECONCILIATION
TO NON-GAAP RESULTS

FOR THE YEAR-TO-DATE PERIOD ENDED
JUNE 30, 2018 COMPARED TO THE YEAR-TO-DATE PERIOD ENDED JULY 1,
2017

(In thousands, except per share data)

 
Year-to-Date Period Ended June 30, 2018 Year-to-Date Period Ended July 1, 2017
GAAP
Results
GAAP
% of
Revenues
Adjustments to
GAAP Results (1)
Non-GAAP
Results
Non-GAAP
% of
Revenues
GAAP
Results
GAAP
% of
Revenues
Adjustments to
GAAP Results (2)
Non-GAAP
Results
Non-GAAP
% of
Revenues
 
Revenues $ 205,014 100.0 % $ - $ 205,014 100.0 % $ 181,734 100.0 % $ - $ 181,734 100.0 %
Cost of services (exclusive of depreciation and amortization) 139,096 67.8 % (1,846 ) 140,942 68.7 % 127,801 70.3 % 297 127,504 70.2 %
Selling, general and administrative expenses 45,389 22.1 % 555 44,834 21.9 % 38,975 21.4 % 614 38,361 21.1 %
Depreciation and amortization   4,664   2.3 %   -     4,664   2.3 %   4,199   2.3 %   -     4,199   2.3 %
Income (loss) from operations 15,865 7.7 % 1,291 14,574 7.1 % 10,759 5.9 % (911 ) 11,670 6.4 %
 
Interest and other income (expense), net   (202 ) -0.1 %   -     (202 ) -0.1 %   (232 ) -0.1 %   250     (482 ) -0.3 %

Income (loss) before provision for income taxes and noncontrolling
interest

15,663 7.6 % 1,291 14,372 7.0 % 10,527 5.8 % (661 ) 11,188 6.2 %
Provision for income taxes   3,938   1.9 %   (633 )   3,305   1.6 %   3,790   -2.1 %   383     4,173   -2.3 %
Net income (loss) 11,725 5.7 % 658 11,067 5.4 % 6,737 3.7 % (278 ) 7,015 3.9 %
Net (income) loss attributable to noncontrolling interests, net of
tax
  -   0.0 %   -     -   0.0 %   (71 ) 0.0 %   (71 )   -   0.0 %
Net income (loss) attributable to CRA International, Inc. $ 11,725   5.7 % $ 658   $ 11,067   5.4 % $ 6,666   3.7 % $ (349 ) $ 7,015   3.9 %
 
Net Income per share attributable to CRA International, Inc.:
Basic $ 1.43   $ 1.35   $ 0.79   $ 0.83  
Diluted $ 1.35   $ 1.27   $ 0.77   $ 0.81  
 
Weighted average number of shares outstanding:
Basic   8,169     8,169     8,423     8,423  
Diluted   8,649     8,649     8,619     8,619  
 
(1)     These adjustments relate principally to valuation changes in
contingent consideration, net costs related to a lease recapture,
and the additional transition effects in connection with the Tax
Cuts and Jobs Act ("Tax Act").
 
(2) These adjustments include activity related to GNU123 Liquidating
Corporation ("GNU"), formerly known as CRA's majority owned
subsidiary "NeuCo". In April 2016, substantially all of GNU's assets
were sold. In addition, these adjustments also include impairments
on certain intangible assets and revaluation changes of contingent
consideration liabilities associated with prior acquisitions.
 
                             
CRA INTERNATIONAL, INC.
UNAUDITED NON-GAAP EBITDA AND
RECONCILIATION TO NET INCOME

FOR THE FISCAL QUARTER AND
YEAR-TO-DATE PERIOD ENDED JUNE 30, 2018 COMPARED TO THE FISCAL
QUARTER AND YEAR-TO-DATE PERIOD ENDED JULY 1, 2017

(In
thousands)
 
Quarter Ended June 30, 2018 Quarter Ended July 1, 2017
GAAP GAAP
% of
Revenues
Adjustments to
GAAP Results (1)
Non-GAAP Non-GAAP
% of
Revenues
GAAP GAAP
% of
Revenues
Adjustments to
GAAP Results (3)
Non-GAAP Non-GAAP
% of
Revenues
 
Revenues $ 105,538 100.0 % $ - $ 105,538 100.0 % $ 93,563 100.0 % $ -   $ 93,563 100.0 %
 
Net income (loss) attributable to CRA International, Inc. $ 6,839 6.5 % $ 1,038 $ 5,801 5.5 % $ 3,813 4.1 % $ (320 ) $ 4,133 4.4 %
Net income (loss) attributable to noncontrolling interests, net of
tax
  - 0.0 %   -   - 0.0 %   94 0.1 %   94     - 0.0 %
Net income (loss) 6,839 6.5 % 1,038 5,801 5.5 % 3,907 4.2 % (226 ) 4,133 4.4 %
Interest expense, net 301 0.3 % - 301 0.3 % 133 0.1 % - 133 0.1 %
Provision for income taxes 2,898 2.7 % 701 2,197 2.1 % 2,012 2.2 % (383 ) 2,395 2.6 %
Depreciation and amortization   2,433 2.3 %   -   2,433 2.3 %   2,236 2.4 %   -     2,236 2.4 %
EBITDA $ 12,471 11.8 % $ 1,739 $ 10,732 10.2 % $ 8,288 8.9 % $ (609 ) $ 8,897 9.5 %
 
 
Year-to-Date Period Ended June 30, 2018 Year-to-Date Period Ended July 1, 2017
GAAP GAAP
% of
Revenues
Adjustments to
GAAP Results (2)
Non-GAAP Non-GAAP
% of
Revenues
GAAP GAAP
% of
Revenues
Adjustments to
GAAP Results (3)
Non-GAAP Non-GAAP
% of
Revenues
 
Revenues $ 205,014 100.0 % $ - $ 205,014 100.0 % $ 181,734 100.0 % $ -   $ 181,734 100.0 %
 
Net income (loss) attributable to CRA International, Inc. $ 11,725 5.7 % $ 658 $ 11,067 5.4 % $ 6,666 3.7 % $ (349 ) $ 7,015 3.9 %
Net income (loss) attributable to noncontrolling interests, net of
tax
  - 0.0 %   -   - 0.0 %   71 0.0 %   71     - 0.0 %
Net income (loss) 11,725 5.7 % 658 11,067 5.4 % 6,737 3.7 % (278 ) 7,015 3.9 %
Interest expense, net 338 0.2 % - 338 0.2 % 245 0.1 % - 245 0.1 %
Provision for income taxes 3,938 1.9 % 633 3,305 1.6 % 3,790 2.1 % (383 ) 4,173 2.3 %
Depreciation and amortization   4,664 2.3 %   -   4,664 2.3 %   4,199 2.3 %   -     4,199 2.3 %
EBITDA   20,665 10.1 %   1,291   19,374 9.5 %   14,971 8.2 %   (661 )   15,632 8.6 %
 
(1)     These adjustments relate principally to valuation changes in
contingent consideration and the additional transition effects in
connection with the Tax Cuts and Jobs Act ("Tax Act").
 
(2) These adjustments relate principally to valuation changes in
contingent consideration, net costs related to a lease recapture,
and the additional transition effects in connection with the Tax
Cuts and Jobs Act ("Tax Act").
 
(3) These adjustments include activity related to GNU123 Liquidating
Corporation ("GNU"), formerly known as CRA's majority owned
subsidiary "NeuCo". In April 2016, substantially all of GNU's assets
were sold. In addition, these adjustments also include impairments
on certain intangible assets and revaluation changes of contingent
consideration liabilities associated with prior acquisitions.
 
 

CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS

(In thousands)

         

June 30,
2018

December 30,
2017

 
Assets
Cash and cash equivalents $ 9,025 $ 54,035
Accounts receivable and unbilled services, net 127,162 113,333
Other current assets   17,355   16,913
Total current assets 153,542 184,281
 
Property and equipment, net 50,780 44,643
Goodwill and intangible assets, net 97,187 98,208
Other assets   44,960   34,625
Total assets $ 346,469 $ 361,757
 
Liabilities and shareholders' equity
Accounts payable $ 22,141 $ 18,473
Accrued expenses 67,702 94,573
Borrowings on revolving line of credit 20,789
Other current liabilities   6,348   8,935
Total current liabilities 116,980 121,981
Non-current liabilities   32,931   32,547
Total liabilities 149,911 154,528
 
Total shareholders' equity   196,558   207,229
Total liabilities and shareholders' equity $ 346,469 $ 361,757
 
         
CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
 
Fiscal Year-to-Date Fiscal Year-to-Date
June 30, July 1,
2018 2017
Operating activities:
Net income $ 11,725 $ 6,737

Adjustments to reconcile net income to net cash used in operating
activities, net of effect of acquired businesses:

GNU gain on sale of business - (250 )
Non-cash items, net 11,744 11,112
Accounts receivable and unbilled services (14,833 ) (18,809 )
Working capital items, net   (41,437 )   (7,273 )
Net cash used in operating activities (32,801 ) (8,483 )
 
Investing activities:
Consideration relating to acquisitions, net - (16,163 )
Purchases of property and equipment (8,939 ) (2,650 )
GNU cash proceeds from sale of business assets   -     250  
Net cash used in investing activities (8,939 ) (18,563 )
 
Financing activities:
Issuance of common stock, principally stock option exercises 916 2,699
Borrowings under line of credit 30,161 11,500
Repayments under line of credit (8,802 ) (11,500 )
Tax withholding payments reimbursed by restricted shares (1,783 ) (703 )
Cash paid on dividend equivalents (98 ) (25 )
Cash dividend paid to shareholders (2,795 ) (2,377 )
Repurchases of common stock   (20,389 )   (12,417 )
Net cash used in financing activities (2,790 ) (12,823 )
 
Effect of foreign exchange rates on cash and cash equivalents   (480 )   1,007  
 
Net decrease in cash and cash equivalents (45,010 ) (38,862 )
Cash and cash equivalents at beginning of period   54,035     53,530  
 
Cash and cash equivalents at end of period $ 9,025   $ 14,668  
 
Noncash investing and financing activities:
Issuance of restricted common stock for acquired business $ -   $ 3,044  
Repurchases of common stock payable $ -   $ -  
Purchases of property and equipment not yet paid for $ 4,704   $ 841  
Purchases of property and equipment paid for by a third party $ -   $ 450  
Asset retirement obligations $ 220   $ -  
Supplemental cash flow information:
 
Cash paid for income taxes $ 1,158   $ 5,229  
Cash paid for interest $ 273   $ 170  

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