Charles River Associates (CRA) Reports Results for the Third Quarter of 2016

October 27, 2016

CRA Drives Revenue and Profitability While Delivering 7% Headcount Growth

Company Initiates Quarterly Cash Dividend

BOSTON--(BUSINESS WIRE)--Oct. 27, 2016-- Charles River Associates (NASDAQ: CRAI), a worldwide leader in providing economic, financial, and management consulting services, today announced financial results for the fiscal third quarter ended October 1, 2016 and the initiation of a quarterly cash dividend.

Key Financial Results

Revenue up 6.8% year over year to $81.7 million; non-GAAP revenue up 8.2% year over year to $81.7 million.
Net income up 11.6% year over year to $3.2 million; non-GAAP net income up 11.2% year over year to $3.2 million.
Earnings per diluted share increased 22.6% year over year to $0.38; non-GAAP earnings per diluted share increased 21.9% year over year to $0.39.
Non-GAAP Adjusted EBITDA grew 16.7% year over year to $13.8 million.
On a constant currency basis relative to the third quarter of fiscal 2015, GAAP and non-GAAP revenue would have increased by approximately $2.2 million, resulting in year-over-year growth of 9.6% and 11.2%, respectively, whereas foreign currency headwinds had a de minimis impact on GAAP and non-GAAP net income, earnings per diluted share, and Adjusted EBITDA.
On October 26, 2016, CRA’s Board of Directors declared a quarterly cash dividend of $0.14 per common share, payable on December 16, 2016 to shareholders of record as of November 20, 2016. The Company expects to continue paying quarterly dividends, the declaration, timing and amounts of which remain subject to the discretion of CRA’s Board of Directors.

Management Commentary

“Consistent with the first half of the year, CRA delivered strong financial results in the third quarter of fiscal 2016,” said Paul Maleh, CRA’s President and Chief Executive Officer. “Continued broad-based demand for our services provided CRA the opportunity to welcome more than 70 new colleagues, increasing quarter-end headcount by 7% compared with a year ago, while also achieving companywide quarterly utilization of 73%. We grew non-GAAP revenue by 8.2% to $81.7 million with double-digit revenue growth year over year in Energy; Finance, including legacy operations and our new colleagues in Forensic & Cyber Investigations; Labor & Employment; Life Sciences; and Marakon. International operations experienced more than 20% revenue growth year over year, led by our Antitrust & Competition Economics, Life Sciences, and Marakon practices, which would have been even stronger if adjusted for foreign currency headwinds.”

“Given the strength of our firm and its ability to generate strong cash flows, we can both invest in the business and return capital to shareholders,” said Maleh. “Our profitable growth and the initiation of a quarterly dividend, combined with our stock repurchase activity, demonstrate CRA’s continued commitment to deliver value to shareholders. During the third quarter, we repurchased approximately 111,000 shares of common stock for $2.9 million, bringing our year-to-date repurchases to approximately 784,000 shares for $19.1 million lowering our shares outstanding by 7.4% to 8.2 million shares.”

Outlook and Financial Guidance

“Looking ahead, we are positioned to build on the strong momentum seen year to date across our portfolio,” Maleh said. “On a constant currency basis relative to fiscal 2015, we expect to exceed our previously announced fiscal 2016 guidance for non-GAAP revenue of $312 million to $322 million and to be in the upper half of our non-GAAP Adjusted EBITDA margin range of 15.8% to 16.6%. While we are encouraged by CRA’s solid performance through the first three quarters of fiscal 2016, we remain mindful of short-term challenges arising from the integration of newly hired professionals, the potential impact of seasonality, and uncertainties around global economic conditions.”

CRA does not provide reconciliations of its non-GAAP revenue and Adjusted EBITDA margin guidance to the GAAP comparable financial measures because CRA is unable to estimate with reasonable certainty the financial results of its former NeuCo subsidiary, now known as GNU123 Liquidating Corporation (“GNU”), the timing and amount of forgivable loans issued for talent acquisition, share-based compensation expense, unusual gains or charges, foreign exchange rates, and the resulting effect of these items 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, and further information regarding the non-GAAP measures presented in this release is provided below under the heading “Non-GAAP Financial Measures.”

Conference Call Information and Prepared CFO Remarks

CRA will host a conference call this morning at 10:00 a.m. ET to discuss its third quarter 2016 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 and celebrated its 50^th anniversary in 2015. 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 addition to reporting its financial results in accordance with U.S. generally accepted accounting principles, or GAAP, CRA has also provided in this release non-GAAP financial information. CRA believes that the use of non-GAAP measures in addition to GAAP measures is a useful method of evaluating its results of operations. CRA believes that presenting its financial results excluding the results of GNU, certain non-cash and/or non-recurring charges, and the other items identified below, and including presentations of Adjusted EBITDA and comparisons on a constant currency basis, are important to investors and management because they are more indicative of CRA’s ongoing operating results and financial condition. These non-GAAP financial measures should be considered in conjunction with, but not as a substitute for, the financial information presented in accordance with GAAP, and the results calculated in accordance with GAAP and reconciliations to those results should be carefully evaluated. 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. Specifically, for the third quarter of fiscal 2016, the third quarter of fiscal 2015, the year-to-date period ended as of the third quarter of fiscal 2016, and its full 2016 fiscal year guidance, CRA has excluded GNU’sresults, and for the year-to-date period ended as of the third quarter of 2015, CRA has excluded GNU’s results and a non-cash charge relating to an increased liability for a future contingent consideration payment relating to a prior acquisition. Also, in calculating “Adjusted EBITDA” from net income (loss) attributable to CRA for these fiscal periods and for purposes of the full 2016 fiscal year guidance for Adjusted EBITDA margin, CRA has excluded net income (loss) attributable to noncontrolling interests (net of tax), interest expense, net; provision for income taxes, other income (expense), net; and the following non-cash expenses: depreciation and amortization, share-based compensation expenses, and amortization of forgivable loans.

Finally, CRA believes that fluctuations in foreign currency exchange rates can significantly affect its financial results. Therefore, CRA provides a constant currency presentation to supplement disclosures regarding its results of operations and performance. CRA calculates constant currency amounts by converting its applicable fiscal period local currency financial results using the prior fiscal year’s corresponding period exchange rates. CRA has presented in this press release its GAAP and non-GAAP revenue, net income, and earnings per diluted share, and its Adjusted EBITDA, for the third quarter of fiscal 2016 on a constant currency basis relative to the third quarter of fiscal 2015, and its guidance for fiscal 2016 non-GAAP revenue and Adjusted EBITDA margin on a constant currency basis relative to fiscal 2015.

SAFE HARBOR STATEMENT

Statements in this press release concerning our future business, operating results and financial condition, including guidance on future non-GAAP revenue and non-GAAP Adjusted EBITDA margin, and statements regarding undeclared dividend payments, our ability and commitment to invest in our business while returning capital to shareholders, the continuation of the current strength of our business, the demand for our services, or our ability to generate cash flows, and statements using the terms “looking ahead,” “expect,” “believe,” “can,” “positioned,” “should,” 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 non-GAAP revenue and non-GAAP Adjusted EBITDA margin in fiscal 2016 on a constant currency basis relative to fiscal 2015 could differ materially from the guidance presented herein, and our actual performance and results may differ materially from the performance and results contained 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 impact of a quarterly dividend and/or the failure to declare future dividends; the inability to integrate and utilize existing consultants and personnel; global economic conditions including less stable political and economic environments; foreign exchange rate fluctuations; unanticipated expenses and liabilities; risks inherent in international operations; changes in accounting standards, rules, and regulations; our ability to collect on forgivable loans should any become due; and professional and other legal liability. 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 OCTOBER 1, 2016 COMPARED TO THE QUARTER ENDED OCTOBER 3, 2015
(In thousands, except per share data)

	Quarter Ended October 1, 2016													Quarter Ended October 3, 2015
	GAAP Results			GAAP % of Revenues		Adjustments to GAAP Results (GNU) (1)			Non-GAAP Results			Non-GAAP % of Revenues		GAAP Results			GAAP % of Revenues		Adjustments to GAAP Results (GNU) (1)			Non-GAAP Results			Non-GAAP % of Revenues



Revenues	$	81,691		100.0	%	$	-		$	81,691		100.0	%	$	76,525		100.0	%	$	1,055		$	75,470		100.0	%
Costs of services		57,832		70.8	%		-			57,832		70.8	%		52,029		68.0	%		334			51,695		68.5	%
Gross profit		23,859		29.2	%		-			23,859		29.2	%		24,496		32.0	%		721			23,775		31.5	%

Selling, general and administrative expenses		16,671		20.4	%		95			16,576		20.3	%		18,355		24.0	%		772			17,583		23.3	%
Depreciation and amortization		1,891		2.3	%		-			1,891		2.3	%		1,560		2.0	%		-			1,560		2.1	%
Income (loss) from operations		5,297		6.5	%		(95	)		5,392		6.6	%		4,581		6.0	%		(51	)		4,632		6.1	%

Interest and other (expense), net		(237	)	-0.3	%		-			(237	)	-0.3	%		(235	)	-0.3	%		(14	)		(221	)	-0.3	%
Income (loss) before provision for income taxes and
noncontrolling interest		5,060		6.2	%		(95	)		5,155		6.3	%		4,346		5.7	%		(65	)		4,411		5.8	%
Provision for income taxes		(1,909	)	-2.3	%		-			(1,909	)	-2.3	%		(1,533	)	-2.0	%		(42	)		(1,491	)	-2.0	%
Net income (loss)		3,151		3.9	%		(95	)		3,246		4.0	%		2,813		3.7	%		(107	)		2,920		3.9	%
Net (income) loss attributable to noncontrolling interests, net of tax		42		0.1	%		42			-		0.0	%		47		0.1	%		47			-		0.0	%
Net income (loss) attributable to CRA International, Inc.	$	3,193		3.9	%	$	(53	)	$	3,246		4.0	%	$	2,860		3.7	%	$	(60	)	$	2,920		3.9	%

Net Income per share attributable to CRA International, Inc.:
Basic	$	0.39							$	0.39				$	0.32							$	0.33
Diluted	$	0.38							$	0.39				$	0.31							$	0.32

Weighted average number of shares outstanding:
Basic		8,177								8,177					8,940								8,940
Diluted		8,309								8,309					9,025								9,025

(1) These adjustments include activity related to GNU123 Liquidating Corporation (“GNU”), CRA’s majority owned subsidiary formerly known as “NeuCo”, in the Company's GAAP results. In April 2016, substantially all of GNU's assets were sold.


CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDING A RECONCILIATION TO NON-GAAP RESULTS
FOR THE YEAR-TO-DATE PERIOD ENDED OCTOBER 1, 2016 COMPARED TO THE YEAR-TO-DATE PERIOD ENDED OCTOBER 3, 2015
(In thousands, except per share data)

	Year-To-Date Period Ended October 1, 2016													Year-To-Date Period Ended October 3, 2015
	GAAP Results			GAAP % of Revenues		Adjustments to GAAP Results (GNU) (1)			Non-GAAP Results			Non-GAAP % of Revenues		GAAP Results			GAAP % of Revenues		Adjustments to GAAP Results (Contingent Liability) (2)			Adjustments to GAAP Results (GNU) (1)			Non-GAAP Results			Non-GAAP % of Revenues



Revenues	$	245,210		100.0	%	$	826		$	244,384		100.0	%	$	231,099		100.0	%	$	-		$	2,859		$	228,240		100.0	%
Costs of services		171,297		69.9	%		455			170,842		69.9	%		156,523		67.7	%		833			1,040			154,650		67.8	%
Gross profit		73,913		30.1	%		371			73,542		30.1	%		74,576		32.3	%		(833	)		1,819			73,590		32.2	%

Selling, general and administrative expenses		52,748		21.5	%		1,144			51,604		21.1	%		55,105		23.8	%		-			2,405			52,700		23.1	%
Depreciation and amortization		5,861		2.4	%		-			5,861		2.4	%		4,766		2.1	%		-			-			4,766		2.1	%
Income (loss) from operations		15,304		6.2	%		(773	)		16,077		6.6	%		14,705		6.4	%		(833	)		(586	)		16,124		7.1	%

Interest and other income (expense), net		3,210		1.3	%		3,828			(618	)	-0.3	%		(337	)	-0.1	%		-			570			(907	)	-0.4	%
Income (loss) before provision for income taxes and
noncontrolling interest		18,514		7.6	%		3,055			15,459		6.3	%		14,368		6.2	%		(833	)		(16	)		15,217		6.7	%
Provision for income taxes		(6,357	)	-2.6	%		(308	)		(6,049	)	-2.5	%		(5,454	)	-2.4	%		-			(97	)		(5,357	)	-2.3	%
Net income (loss)		12,157		5.0	%		2,747			9,410		3.9	%		8,914		3.9	%		(833	)		(113	)		9,860		4.3	%
Net (income) loss attributable to noncontrolling interests, net of tax		(1,327	)	-0.5	%		(1,327	)		-		0.0	%		50		0.0	%		-			50			-		0.0	%
Net income (loss) attributable to CRA International, Inc.	$	10,830		4.4	%	$	1,420		$	9,410		3.9	%	$	8,964		3.9	%	$	(833	)	$	(63	)	$	9,860		4.3	%

Net Income per share attributable to CRA International, Inc.:
Basic	$	1.25							$	1.09				$	0.98										$	1.08
Diluted	$	1.24							$	1.08				$	0.97										$	1.06

Weighted average number of shares outstanding:
Basic		8,581								8,581					9,055											9,055
Diluted		8,653								8,653					9,182											9,182

(2) This adjustment includes activity related to an increase in the liability for future contingent consideration payments in connection with a previous acquisition.

CRA INTERNATIONAL, INC.
UNAUDITED ADJUSTED EBITDA INCLUDING A RECONCILIATION TO NON-GAAP ADJUSTED EBITDA
FOR THE QUARTER AND YEAR-TO-DATE PERIOD ENDED OCTOBER 1, 2016 COMPARED TO THE QUARTER AND YEAR-TO-DATE PERIOD ENDED OCTOBER 3, 2015
(In thousands)

	GAAP Quarter Ended October 1, 2016			GAAP % of Revenues		Adjustments to GAAP Results (GNU) (1)			Non-GAAP Quarter Ended October 1, 2016		Non-GAAP % of Revenues		GAAP Quarter Ended October 3, 2015			GAAP % of Revenues		Adjustments to GAAP Results (Contingent Liability) (2)			Adjustments to GAAP Results (GNU) (1)			Non-GAAP Quarter Ended October 3, 2015		Non-GAAP % of Revenues



Revenues	$	81,691		100.0	%	$	-		$	81,691	100.0	%	$	76,525		100.0	%	$	-		$	1,055		$	75,470	100.0	%

Net income (loss) attributable to CRA International, Inc.	$	3,193		3.9	%	$	(53	)	$	3,246	4.0	%	$	2,860		3.7	%	$	-		$	(60	)	$	2,920	3.9	%
Net (loss) attributable to noncontrolling interest, net of tax		(42	)	0.1	%		(42	)		-	0.0	%		(47	)	-0.1	%		-			(47	)		-	0.0	%
Net income (loss)		3,151		3.9	%		(95	)		3,246	4.0	%		2,813		3.7	%		-			(107	)		2,920	3.9	%
Interest expense,net		129		0.2	%		-			129	0.2	%		140		0.2	%		-			14			126	0.2	%
Provision for income taxes		1,909		2.3	%		-			1,909	2.3	%		1,533		2.0	%		-			42			1,491	2.0	%
Depreciation and amortization		1,891		2.3	%		-			1,891	2.3	%		1,560		2.0	%		-			-			1,560	2.1	%
EBITDA		7,080		8.7	%		(95	)		7,175	8.8	%		6,044		7.9	%		-			(51	)		6,097	8.1	%
Share-based compensation expenses		1,687		2.1	%		-			1,687	2.1	%		1,405		1.8	%		-			-			1,405	1.9	%
Amortization of forgivable loans		4,784		5.9	%		-			4,784	5.9	%		4,190		5.5	%		-			-			4,190	5.6	%
Other expense, net		108		0.1	%		-			108	0.1	%		95		0.1	%		-			-			95	0.1	%
Adjusted EBITDA	$	13,659		16.7	%	$	(95	)	$	13,754	16.8	%	$	11,736		15.3	%	$	-		$	(51	)	$	11,787	15.6	%


	GAAP Year-to-Date Period Ended October 1, 2016			GAAP % of Revenues		Adjustments to GAAP Results (GNU) (1)			Non-GAAP Year-to-Date Period Ended October 1, 2016		Non-GAAP % of Revenues		GAAP Year-to-Date Period Ended October 3, 2015			GAAP % of Revenues		Adjustments to GAAP Results (Contingent Liability) (2)			Adjustments to GAAP Results (GNU) (1)			Non-GAAP Year-to-Date Period Ended October 3, 2015		Non-GAAP % of Revenues



Revenues	$	245,210		100.0	%	$	826		$	244,384	100.0	%	$	231,099		100.0	%	$	-		$	2,859		$	228,240	100.0	%

Net income (loss) attributable to CRA International, Inc.	$	10,830		4.4	%	$	1,420		$	9,410	3.9	%	$	8,964		3.9	%	$	(833	)	$	(63	)	$	9,860	4.3	%
Net income (loss) attributable to noncontrolling interest, net of tax		1,327		0.5	%		1,327			-	0.0	%		(50	)	0.0	%		-			(50	)		-	0.0	%
Net income (loss)		12,157		5.0	%		2,747			9,410	3.9	%		8,914		3.9	%		(833	)		(113	)		9,860	4.3	%
Interest expense,net		356		0.1	%		7			349	0.1	%		403		0.2	%		-			35			368	0.2	%
Provision for income taxes		6,357		2.6	%		308			6,049	2.5	%		5,454		2.4	%		-			97			5,357	2.3	%
Depreciation and amortization		5,861		2.4	%		-			5,861	2.4	%		4,766		2.1	%		-			-			4,766	2.1	%
EBITDA		24,731		10.1	%		3,062			21,669	8.9	%		19,537		8.5	%		(833	)		19			20,351	8.9	%
Share-based compensation expenses		4,786		2.0	%		-			4,786	2.0	%		4,403		1.9	%		-			-			4,403	1.9	%
Amortization of forgivable loans		14,024		5.7	%		-			14,024	5.7	%		11,690		5.1	%		-			-			11,690	5.1	%
Other income (expense),net		(3,566	)	-1.5	%		(3,836	)		270	0.1	%		(66	)	0.0	%		-			(605	)		539	0.2	%
Adjusted EBITDA	$	39,975		16.3	%	$	(774	)	$	40,749	16.7	%	$	35,564		15.4	%	$	(833	)	$	(586	)	$	36,983	16.2	%

(2) This adjustment includes activity related to an increase in the liability for future contingent consideration payments in connection with a previous acquisition.


CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)


	October 1,		January 2,
	2016		2016

Assets
Cash and cash equivalents	$	25,184	$	38,139
Accounts receivable and unbilled, net		99,995		86,377
Other current assets		17,895		16,278
Total current assets		143,074		140,794

Property and equipment, net		38,801		31,338
Goodwill and intangible assets, net		78,373		80,561
Other assets		49,325		61,024
Total assets	$	309,573	$	313,717

Liabilities and shareholders’ equity
Current liabilities	$	80,244	$	86,458
Long-term liabilities		22,107		16,191
Total liabilities		102,351		102,649

Total shareholders’ equity		207,222		211,068
Total liabilities and shareholders’ equity	$	309,573	$	313,717


CRA INTERNATIONAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Fiscal Year-to-Date			Fiscal Year-to-Date
	October 1,			October 3,
	2016			2015
Operating activities:
Net income	$	12,157		$	8,914
Adjustments to reconcile net income
to net cash provided by (used in) operating activities,
net of effect of acquired businesses:
GNU gain on sale of business (1)		(3,836	)		-
Non-cash items, net		14,476			13,707
Accounts receivable and unbilled services		(15,501	)		(11,765	)
Working capital items, net		8,917			(15,720	)
Net cash provided by (used in) operating activities		16,213			(4,864	)

Investing activities:
Purchase of property and equipment		(11,808	)		(12,696	)
GNU cash proceeds from sale of business assets		1,100			-
Collections on notes receivable		-			1,554
Payments on notes receivable		-			(77	)
Net cash used in investing activities		(10,708	)		(11,219	)

Financing activities:
Issuance of common stock, principally stock option exercises		1,448			602
Payments on notes payable		(75	)		(300	)
Borrowings under line of credit		7,500			4,000
Repayments under line of credit		(7,500	)		(4,000	)
Tax withholding payments reimbursed by restricted shares		(490	)		(127	)
Excess tax benefits from share-based compensation		55			87
Repurchase of common stock		(19,318	)		(10,810	)

Net cash used in financing activities		(18,380	)		(10,548	)

Effect of foreign exchange rates on cash and cash equivalents		(80	)		(565	)

Net decrease in cash and cash equivalents		(12,955	)		(27,196	)
Cash and cash equivalents at beginning of period		38,139			48,199

Cash and cash equivalents at end of period	$	25,184		$	21,003

Supplemental cash flow information:

Cash paid for income taxes	$	3,959		$	8,227
Cash paid for interest	$	327		$	240
Issuance of common stock for acquired business	$	44		$	42
Purchases of property and equipment not yet paid for	$	1,234		$	3,858
Asset retirement obligations	$	1,479		$	-

View source version on businesswire.com: http://www.businesswire.com/news/home/20161027005847/en/

Source: Charles River Associates

Charles River Associates
Chad Holmes, 312-377-2322
Chief Financial Officer
or
Sharon Merrill Associates, Inc.
Jamie Bernard, 617-542-5300
Senior Associate

News Release Details

Charles River Associates (CRA) Reports Results for the Third Quarter of 2016