crai-20240928

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 September 28, 2024

☐ 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(s)

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 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 ☒

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 October 25, 2024

Common Stock, no par value per share

6,779,710 shares

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CRA International, Inc.

INDEX


PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations (unaudited)—Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2024 and September 30, 2023	3
	Condensed Consolidated Statements of Comprehensive Income (unaudited)—Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2024 and September 30, 2023	4
	Condensed Consolidated Balance Sheets (unaudited)—September 28, 2024 and December 30, 2023	5
	Condensed Consolidated Statements of Cash Flows (unaudited)—Fiscal Year-to-Date Periods Ended September 28, 2024 and September 30, 2023	6
	Condensed Consolidated Statements of Shareholders’ Equity (unaudited)—Fiscal Year-to-Date Periods Ended September 28, 2024 and September 30, 2023	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

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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
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Revenues	$	167,748	$	147,553	$	510,979	$	462,363
Costs of services (exclusive of depreciation and amortization)	115,188		105,894		359,394		327,064
Selling, general and administrative expenses	31,269		27,919		93,784		86,137
Depreciation and amortization	2,900		2,947		8,503		8,762
Income from operations	18,391		10,793		49,298		40,400
Interest expense, net	(1,457)		(1,025)		(3,405)		(3,212)
Foreign currency gains (losses), net	(904)		755		(1,236)		(459)
Income before provision for income taxes	16,030		10,523		44,657		36,729
Provision for income taxes	4,593		1,927		12,991		9,707
Net income	$	11,437	$	8,596	$	31,666	$	27,022
Net income per share:
Basic	$	1.68	$	1.22	$	4.62	$	3.83
Diluted	$	1.67	$	1.21	$	4.57	$	3.78
Weighted average number of shares outstanding:
Basic	6,760		6,977		6,840		7,026
Diluted	6,843		7,083		6,922		7,138

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
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Net income	$	11,437	$	8,596	$	31,666	$	27,022
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax	2,895		(1,755)		1,475		371
Comprehensive income	$	14,332	$	6,841	$	33,141	$	27,393

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)


	September 28, 2024		December 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	24,481	$	45,586
Accounts receivable, net of allowances of $5,490 and $4,335, respectively	152,116		142,729
Unbilled services, net of allowances of $1,026 and $1,629, respectively	80,739		56,827
Prepaid expenses and other current assets	17,726		11,575
Forgivable loans	10,478		8,759
Total current assets	285,540		265,476
Property and equipment, net	38,496		38,176
Goodwill	94,577		93,989
Intangible assets, net	7,599		7,196
Right-of-use assets	87,032		86,887
Deferred income taxes	13,350		13,885
Forgivable loans, net of current portion	48,501		45,182
Other assets	7,248		2,420
Total assets	$	582,343	$	553,211
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	28,430	$	28,701
Accrued expenses	146,284		171,040
Deferred revenue and other liabilities	8,451		12,289
Current portion of lease liabilities	18,626		16,475
Current portion of deferred compensation	6,466		7,582
Revolving line of credit	60,000		—
Total current liabilities	268,257		236,087
Non-current liabilities:
Deferred compensation and other non-current liabilities	19,045		11,681
Non-current portion of lease liabilities	89,412		92,280
Deferred income taxes	1,116		1,062
Total non-current liabilities	109,573		105,023
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; 6,761,582 and 6,934,265 shares issued and outstanding, respectively	1,311		—
Retained earnings	213,909		224,283
Accumulated other comprehensive loss	(10,707)		(12,182)
Total shareholders’ equity	204,513		212,101
Total liabilities and shareholders’ equity	$	582,343	$	553,211

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
	September 28, 2024		September 30, 2023
OPERATING ACTIVITIES:
Net income	$	31,666	$	27,022
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	8,503		8,762
Right-of-use asset amortization	11,309		10,602
Deferred income taxes	418		(1,257)
Share-based compensation expense	3,760		3,024
Bad debt expense (recovery)	587		523
Unrealized foreign currency remeasurement (gains) losses, net	(152)		(112)
Changes in operating assets and liabilities:
Accounts receivable	(9,018)		18,785
Unbilled services	(23,303)		(17,226)
Prepaid expenses and other current assets, and other assets	(10,342)		(4,006)
Forgivable loans	(13,958)		(2,306)
Incentive cash awards payable	7,262		6,110
Accounts payable, accrued expenses, and other liabilities	(24,174)		(36,786)
Lease liabilities	(12,247)		(13,162)
Net cash used in operating activities	(29,689)		(27)
INVESTING ACTIVITIES:
Purchases of property and equipment	(6,032)		(2,008)
Consideration paid for acquisition	(1,500)		(577)
Net cash used in investing activities	(7,532)		(2,585)
FINANCING ACTIVITIES:

Borrowings under revolving line of credit	95,000		105,000
Repayments under revolving line of credit	(35,000)		(73,000)

Tax withholding payments reimbursed by shares	(2,030)		(2,040)

Cash dividends paid	(8,850)		(7,773)
Repurchase of common stock	(33,348)		(23,577)
Net cash provided by (used in) financing activities	15,772		(1,390)
Effect of foreign exchange rates on cash and cash equivalents	344		159
Net decrease in cash and cash equivalents	(21,105)		(3,843)
Cash and cash equivalents at beginning of period	45,586		31,447
Cash and cash equivalents at end of period	$	24,481	$	27,604

Noncash investing and financing activities:
Increase (decrease) in accounts payable and accrued expenses for property and equipment	$	1,228	$	(129)
Asset retirement obligations	$	191	$	—
Excise tax on share repurchases	$	(284)	$	(190)
Right-of-use assets obtained in exchange for lease obligations	$	10,627	$	2,503


Supplemental cash flow information:
Cash paid for taxes	$	17,085	$	9,953
Cash paid for interest	$	3,086	$	2,904
Cash paid for amounts included in operating lease liabilities	$	15,008	$	16,660

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 SEPTEMBER 28, 2024 (unaudited)

(in thousands, except share data)


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares Issued	Amount
BALANCE AT DECEMBER 30, 2023	6,934,265	$	—	$	224,283	$	(12,182)	$	212,101
Net income	—	—		13,691		—		13,691
Foreign currency translation adjustment	—	—		—		(1,105)		(1,105)


Share-based compensation expense	—	1,039		—		—		1,039
Restricted shares vesting	33,441	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(12,526)	(1,631)		—		—		(1,631)
Shares repurchased	(65,882)	592		(9,834)		—		(9,242)
Accrued excise tax on shares repurchased	—	—		(65)		—		(65)
Accrued dividends on unvested shares	—	—		77		—		77
Cash dividends paid ($0.42 per share)	—	—		(3,075)		—		(3,075)
BALANCE AT MARCH 30, 2024	6,889,298	—		$	225,077	$	(13,287)	$	211,790
Net income	—	—		6,538		—		6,538
Foreign currency translation adjustment	—	—		—		(315)		(315)


Share-based compensation expense	—	1,357		—		—		1,357
Restricted shares vesting	6,143	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(2,340)	(346)		—		—		(346)
Shares repurchased	(140,497)	(1,011)		(23,095)		—		(24,106)
Accrued excise tax on shares repurchased	—	—		(235)		—		(235)
Accrued dividends on unvested shares	—	—		(33)		—		(33)
Cash dividends paid ($0.42 per share)	—	—		(2,901)		—		(2,901)
BALANCE AT JUNE 29, 2024	6,752,604	—		$	205,351	$	(13,602)	$	191,749
Net income	—	—		11,437		—		11,437
Foreign currency translation adjustment	—	—		—		2,895		2,895


Share-based compensation expense	—	1,364		—		—		1,364
Restricted shares vesting	9,272	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(294)	(53)		—		—		(53)

Accrued excise tax on shares repurchased	—	—		16		—		16
Accrued dividends on unvested shares	—	—		(21)		—		(21)
Cash dividends paid ($0.42 per share)	—	—		(2,874)		—		(2,874)
BALANCE AT SEPTEMBER 28, 2024	6,761,582	1,311		$	213,909	$	(10,707)	$	204,513

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 September 30, 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	7,149,884	$	1,743	$	224,392	$	(14,981)	$	211,154
Net income	—	—		8,918		—		8,918
Foreign currency translation adjustment	—	—		—		1,052		1,052


Share-based compensation expense	—	940		—		—		940
Restricted shares vesting	45,544	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(16,614)	(1,873)		—		—		(1,873)
Shares repurchased	(180,881)	(810)		(19,767)		—		(20,577)
Accrued excise tax on shares repurchased	—	—		(173)		—		(173)
Accrued dividends on unvested shares	—	—		45		—		45
Cash dividends paid ($0.36 per share)	—	—		(2,702)		—		(2,702)
BALANCE AT APRIL 1, 2023	6,997,933	$	—	$	210,713	$	(13,929)	$	196,784
Net income	—	—		9,508		—		9,508
Foreign currency translation adjustment	—	—		—		1,074		1,074

Share-based compensation expense	—	1,158		—		—		1,158
Restricted shares vesting	3,630	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(1,237)	(136)		—		—		(136)
Shares repurchased	(31,090)	(554)		(2,446)		—		(3,000)
Accrued excise tax on shares repurchased	—	—		(27)		—		(27)
Accrued dividends on unvested shares	—	—		(47)		—		(47)
Cash dividends paid ($0.36 per share)	—	—		(2,528)		—		(2,528)
BALANCE AT JULY 1, 2023	6,969,236	$	468	$	215,173	$	(12,855)	$	202,786
Net income	—	—		8,596		—		8,596
Foreign currency translation adjustment	—	—		—		(1,755)		(1,755)


Share-based compensation expense	—	926		—		—		926
Restricted shares vesting	10,004	—		—		—		—
Redemption of vested employee restricted shares for tax withholding	(299)	(31)		—		—		(31)

Accrued excise tax on shares repurchased	—	—		10		—		10
Accrued dividends on unvested shares	—	—		(31)		—		(31)
Cash dividends paid ($0.36 per share)	—	—		(2,543)		—		(2,543)
BALANCE AT SEPTEMBER 30, 2023	6,978,941	$	1,363	$	221,205	$	(14,610)	$	207,958

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. and its wholly-owned subsidiaries (collectively, "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 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 (“U.S. GAAP”) for annual financial statements. 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. 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 U.S. 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 December 30, 2023 included in CRA’s Annual Report on Form 10-K filed with the SEC on February 29, 2024 (the “2023 Form 10-K”).

Note 1 to the Consolidated Financial Statements included in Part II, Item 8, on the 2023 Form 10-K describes the significant accounting policies and methods used in preparation of the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Recent Accounting Standards Not Yet Adopted

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 also requires that a public entity that has a single reportable segment provide all disclosures required by these amendments and all existing segment disclosures in Topic 280.

ASU 2023-07 is effective for CRA for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. CRA plans to adopt the amendment during the fourth fiscal quarter of 2024. CRA expects the adoption of this ASU will impact its disclosures, but will not have a material effect on its consolidated financial statements.

Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The ASU requires disclosure of specific categories in the rate reconciliation, provides additional information for reconciling items that meet a quantitative threshold, and discloses the amount of income taxes paid disaggregated by federal, state, foreign taxes, and individual jurisdiction. ASU 2023-09 also requires income (or loss) from

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign.

ASU 2023-09 is effective for CRA for annual periods beginning after December 15, 2024. CRA plans to adopt the amendment during the annual reporting for fiscal year 2025. CRA has begun to assess the impact of the amendment and has modeled out the changes to its income tax disclosures. As the amendment relates solely to disclosures, the adoption is not expected to have an effect on CRA's financial results.

2. 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 (exclusive of depreciation and amortization) 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	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Consulting services revenues:
Fixed-price	$	30,670	$	26,856	$	90,043	$	81,585
Time-and-materials	137,078		120,697		420,936		380,778
Total	$	167,748	$	147,553	$	510,979	$	462,363

Revenues have been attributed to locations based on the location of the legal entity generating the revenues.


	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended
Geographic Breakdown	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Consulting services revenues:
United States	$	136,223	$	117,420	$	417,029	$	362,186
United Kingdom	20,821		21,227		64,136		73,272
Other	10,704		8,906		29,814		26,905
Total	$	167,748	$	147,553	$	510,979	$	462,363

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.

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table presents CRA's bad debt expense, net of recoveries of previously written off allowances (in thousands):


	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Bad debt expense (recovery), net	$	(94)	$	131	$	587	$	523

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				Fiscal Year-to-Date Period Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Reimbursable expenses	$	16,107	$	17,932	$	49,530	$	49,165

Contract Balances from Contracts with Customers

The timing of revenue recognition, billings, and cash collections results in accounts receivables, unbilled services, and contract liabilities on the consolidated balance sheets. Revenues recognized for services performed, but not yet billed to clients, are recorded as unbilled services. The following table presents the open and closing balances of CRA's accounts receivable, net and unbilled services, net (in thousands):


	September 28, 2024		December 30, 2023		December 31, 2022
Accounts receivable, net	$	152,116	$	142,729	$	143,644
Unbilled services, net	$	80,739	$	56,827	$	51,343

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 September 28, 2024, December 30, 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):


	September 28, 2024		December 30, 2023		December 31, 2022
Contract liabilities	$	2,141	$	6,037	$	6,977

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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				Fiscal Year-to-Date Period Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Amounts included in contract liabilities at the beginning of the period	$	1,656	$	2,580	$	5,686	$	6,619
Performance obligations satisfied in previous periods	$	2,650	$	3,658	$	3,557	$	2,816

3. 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 forgivable loans have terms that are generally between two and six years with interest rates currently ranging up to 5.12%. 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 forgiveness of the principal amount of the loans is recorded as compensation over the service period, which is consistent with the term of the loans.

The following table presents forgivable loan activity for the respective periods (in thousands):


	September 28, 2024		December 30, 2023
Beginning balance	$	53,941	$	56,456
Advances	38,388		23,342
Repayments	(288)		(1,816)
Reclassifications from accrued expenses or to other assets (1)	(8,965)		—
Amortization (2)	(24,141)		(24,198)
Effects of foreign currency translation	44		157
Ending balance	$	58,979	$	53,941
Current portion of forgivable loans	$	10,478	$	8,759
Non-current portion of forgivable loans	$	48,501	$	45,182

_______________________________

(1)Relates to the reclassification of performance awards previously recorded as accrued expenses or forgivable loans that have been reclassified to other receivables.

(2)During the quarter ended June 29, 2024, approximately $5.7 million of amortization was accelerated due to involuntary terminations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the fiscal year-to-date period ended September 28, 2024 are summarized as follows (in thousands):


Goodwill, at December 30, 2023	$	165,882
Accumulated goodwill impairment	(71,893)
Goodwill, net at December 30, 2023	93,989

Foreign currency translation adjustment	588
Goodwill, net at September 28, 2024	$	94,577

Goodwill, net at September 28, 2024 of $94.6 million, is comprised of goodwill of $166.5 million and accumulated impairment of $71.9 million. There were no impairment losses related to goodwill during the fiscal-year-to-date period ended September 28, 2024 or during the fiscal year ended December 30, 2023.

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):


		September 28, 2024						December 30, 2023
	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Customer relationships	10	$	15,300	$	(7,701)	$	7,599	$	13,800	$	(6,604)	$	7,196

There were no impairment losses related to intangible assets during the fiscal year-to-date period ended September 28, 2024 or during the fiscal year ended December 30, 2023. Amortization expense related to intangible assets was $0.4 million and $1.1 million for the fiscal quarter and fiscal year-to-date period ended September 28, 2024, respectively, and $0.3 million and $1.0 million for the fiscal quarter and fiscal year-to-date period ended September 30, 2023, respectively.

5. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	September 28, 2024		December 30, 2023
Compensation and related expenses	$	134,762	$	143,647
Performance awards	165		16,556
Direct project accruals	3,171		1,704
Other	8,186		9,133
Total accrued expenses	$	146,284	$	171,040

As of September 28, 2024 and December 30, 2023, approximately $109.5 million and $121.2 million, respectively, of accrued bonuses were included above in “Compensation and related expenses.”

6. Income Taxes

For the fiscal quarters ended September 28, 2024 and September 30, 2023, CRA’s effective income tax rate (“ETR”) was 28.7% and 18.3%, respectively. The ETR for the third quarter of fiscal 2024 was higher than the third quarter of fiscal 2023

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(Unaudited)

primarily due to the release of a valuation allowance in the third quarter of fiscal 2023, partially offset by an increase in the tax benefit related to share-based compensation.

For the fiscal year-to-date periods ended September 28, 2024 and September 30, 2023, CRA's ETR was 29.1% and 26.4%. respectively. The ETR for the fiscal year-to-date period ended September 28, 2024 was higher than the fiscal year-to-date period ended September 30, 2023, primarily due to the same items noted above.

7. 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 and fiscal year-to-date periods ended September 28, 2024 and September 30, 2023.

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 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 and fiscal year-to-date periods ended September 28, 2024 and September 30, 2023.

The following table presents the calculation of basic and diluted net income per share (in thousands, except per share data):


	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Numerator:
Net income — basic	$	11,437	$	8,596	$	31,666	$	27,022
Less: net income attributable to participating shares	25		29		94		98
Net income — diluted	$	11,412	$	8,567	$	31,572	$	26,924
Denominator:
Weighted average shares outstanding — basic	6,760		6,977		$	6,840	$	7,026
Effect of dilutive stock options and restricted stock units	83		106		82		112
Weighted average shares outstanding — diluted	6,843		7,083		6,922		7,138
Net income per share:
Basic	$	1.68	$	1.22	$	4.62	$	3.83
Diluted	$	1.67	$	1.21	$	4.57	$	3.78

For the fiscal quarter and fiscal year-to-date period ended September 28, 2024, the anti-dilutive share-based awards that were excluded from the calculation of common stock equivalents for purposes of computing diluted weighted average outstanding shares amounted to 4,900 and 1,225 shares, respectively. For the fiscal quarter and fiscal-year-to-date period ended September 30, 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 6,185 and 5,875 shares, respectively.

8. Fair Value of Financial Instruments

The following tables show CRA's financial instruments recorded in the condensed consolidated financial statements which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	September 28, 2024
	Level 1		Level 2		Level 3
Assets:
Money market mutual funds	$	—	$	—	$	—
Total Assets	$	—	$	—	$	—
Liabilities:
Contingent consideration liability	$	—	$	—	$	190
Total Liabilities	$	—	$	—	$	190


	December 30, 2023
	Level 1		Level 2		Level 3
Assets:
Money market mutual funds	$	—	$	—	$	—
Total Assets	$	—	$	—	$	—
Liabilities:
Contingent consideration liability	$	—	$	—	$	190
Total Liabilities	$	—	$	—	$	190

The contingent consideration liability pertains to estimated future contingent consideration payments related to the acquisition of bioStrategies Group, Inc. during fiscal 2022. The following table summarizes the changes in the contingent consideration liability (in thousands):


	Fiscal Year-to-Date Period Ended		Fiscal Year Ended
	September 28, 2024		December 30, 2023
Beginning balance	$	190	$	1,056
Remeasurement of acquisition-related contingent consideration	—		(934)
Accretion	—		68

Ending balance	$

SEC Form 10-Q filed by CRA International Inc.