CRA INTERNATIONAL, INC. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 Securities and Exchange Commission ("SEC"). You can read these documents at www.sec.gov. 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 SEC. We do not maintain or provide any information directly to the third-party website, and we do not check its accuracy. 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. Critical Accounting Policies and Estimates Our critical accounting policies involving the more significant estimates and judgments used in the preparation of our financial statements as of July 2, 2022 remain unchanged from January 1, 2022, except for the accounting policies related to business combinations as described below. 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 January 1, 2022, filed with the SEC on March 3, 2022 (the "2021 Form 10-K") for details on these critical accounting policies. Business Combinations . We account for business acquisitions using the acquisition method of accounting, which requires assets acquired and liabilities assumed to be measured and recorded at their estimated fair values as of the acquisition date, with certain exceptions. Right-of-use assets and lease liabilities are recorded on the date of acquisition in accordance with ASC Topic 842, Leases . In addition, contract assets and contract liabilities are recorded in accordance with ASC 606, as we adopted Accounting Standards Update No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers on the first day of fiscal 2022. All other tangible assets and identifiable intangible assets acquired and liabilities assumed are recorded at their fair value as of the date of acquisition. The purchase price is determined as the fair value of consideration transferred. Goodwill is recognized for the excess of consideration transferred over the net value of assets acquired and liabilities assumed. Intangible assets that are separate from goodwill and have determinable useful lives are valued separately. Fair value measurements require extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets, discount rates that we believe reflect the risk factors associated with the related cash flows, and estimates of useful lives. The useful lives of identifiable intangible assets acquired in a business acquisition are estimated based on the expected period that we will receive substantially all of the projected future benefits from the intangible asset. Recent Accounting Standards Please refer to the sections captioned “Recent Accounting Standards” included in Note 1, “Summary of Significant Accounting Policies” in Part I, Item I, “Financial Statements” of this Quarterly Report on Form 10-Q (this "report"). Results of Operations—For the Fiscal Quarter and Fiscal Year-to-Date Period Ended July 2, 2022, Compared to the Fiscal Quarter and Fiscal Year-to-Date Period Ended July 3, 2021 The following table provides operating information as a percentage of revenues for the periods indicated: 18 Table of Contents Fiscal Quarter Ended Fiscal Year-to-Date Period Ended July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Costs of services (exclusive of depreciation and amortization) 69.1 70.9 69.6 71.4 Selling, general and administrative expenses 18.8 16.2 18.1 16.0 Depreciation and amortization 2.0 2.2 2.0 2.2 Income from operations 10.1 10.8 10.3 10.4 Interest expense, net (0.3) (0.3) (0.2) (0.2) Foreign currency gains (losses), net 1.1 — 0.6 (0.2) Income before provision for income taxes 10.9 10.5 10.7 10.0 Provision for income taxes 3.1 2.7 2.9 2.5 Net income 7.8 % 7.8 % 7.8 % 7.5 % Fiscal Quarter Ended July 2, 2022, Compared to the Fiscal Quarter Ended July 3, 2021 Revenues. Revenues increased by $0.9 million, or 0.6%, to $149.1 million for the second quarter of fiscal 2022 from $148.2 million for the second quarter of fiscal 2021. Utilization increased to 77% for the second quarter of fiscal 2022 from 75% for the second quarter of fiscal 2021, while consultant headcount grew 3.6% from 833 at the end of the second quarter of fiscal 2021 to 863 at the end of the second quarter of fiscal 2022. The primary driver of consultant headcount growth was the addition of 37 consultants resulting from the acquisition of Welch Consulting, Ltd. (“Welch Consulting”) in the first quarter of fiscal 2022. Overall, revenues outside of the U.S. represented approximately 19% of net revenues for each of the second quarters of fiscal 2022 and fiscal 2021. Revenues derived from fixed-price projects decreased to 18% of net revenues for the second quarter of fiscal 2022 compared with 24% of net revenue for the second quarter of fiscal 2021. The percentage of revenue derived from fixed-price projects depends largely on the proportion of our revenues derived from our management consulting business, which typically has a higher concentration of fixed-price service contracts. Costs of Services (exclusive of depreciation and amortization). Costs of services (exclusive of depreciation and amortization) decreased by $1.9 million, or 1.9%, to $103.1 million for the second quarter of fiscal 2022 from $105.0 million for the second quarter of fiscal 2021. The decrease in costs of services was due to a decrease in employee compensation and fringe benefit costs of $2.3 million primarily as a result of a lower bonus accrual, a decrease in client reimbursable expenses of $0.8 million, partially offset by an increase in forgivable loan amortization of $1.2 million. As a percentage of revenues, costs of services (exclusive of depreciation and amortization) decreased to 69.1% for the second quarter of fiscal 2022 from 70.9% for the second quarter of fiscal 2021. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $4.0 million, or 16.3%, to $28.0 million for the second quarter of fiscal 2022 from $24.0 million for the second quarter of fiscal 2021. Within this category of expenses, there was a $0.4 million increase in commissions to our non-employee experts, a $0.6 million increase in employee compensation and fringe benefit costs, a $1.0 million increase in travel and entertainment, a $0.6 million increase in rent expense, a $0.6 million increase in legal and other professional services fees, and a $0.9 million increase in miscellaneous and other costs. Partially offsetting the increase in these expenses was a $0.1 million decrease in bad debt expense for the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021. As a percentage of revenues, selling, general and administrative expenses increased to 18.8% for the second quarter of fiscal 2022 from 16.2% for the second quarter of fiscal 2021. Commissions to our non-employee experts increased to 3.5% of revenues for the second quarter of fiscal 2022 compared to 3.2% of revenues for the second quarter of fiscal 2021. Provision for Income Taxes. The income tax provision was $4.6 million and the effective tax rate ("ETR") was 28.3% for the second quarter of fiscal 2022 compared to $4.0 million and 25.8% for the second quarter of fiscal 2021. The ETR for the current fiscal quarter was higher than the prior year primarily due to a decrease in the tax benefit related to share-based compensation, an increase in the valuation allowance, and higher nondeductible compensation paid to executive officers, partially offset by the remeasurement of the U.K.'s long-term deferred tax liabilities in the second quarter of fiscal 2021 19 Table of Contents stemming from the enactment of U.K.’s statutory rate increase. The ETR for the second quarter of fiscal 2022 was higher than the combined federal and state statutory tax rate due to nondeductible items including compensation paid to executive officers and entertainment expenses, along with an increase in the valuation allowance, partially offset by the U.S. benefit from foreign-derived intangible income ("FDII"). The ETR for the second quarter of fiscal 2021 was lower than the combined federal and state statutory tax rate primarily due to the tax benefit related to share-based compensation, partially offset by non-deductible compensation paid to executive officers and the impact of the U.K. statutory tax rate change. Net Income. Net income remained flat at $11.6 million for the second quarter of fiscal 2022 from the second quarter of fiscal 2021. The net income per diluted share was $1.57 per share for the second quarter of fiscal 2022, compared to $1.53 of net income per diluted share for the second quarter of fiscal 2021. Weighted average diluted shares outstanding decreased by approximately 159,000 shares to approximately 7,380,000 shares for the second quarter of fiscal 2022 from approximately 7,539,000 shares for the second quarter of fiscal 2021. The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since July 3, 2021, offset in part by the vesting of shares of restricted stock and time-vesting restricted stock units and the exercise of stock options since July 3, 2021. Fiscal Year-to-Date Period Ended July 2, 2022, Compared to the Fiscal Year-to-Date Period Ended July 3, 2021 Revenues. Revenues increased by $2.7 million, or 0.9%, to $297.5 million for the fiscal year-to-date period ended July 2, 2022 from $294.8 million for the fiscal year-to-date period ended July 3, 2021. Utilization decreased to 75% for the fiscal year-to-date period ended July 2, 2022 from 76% for the fiscal year-to-date period ended July 3, 2021, while consultant headcount grew 3.6% from 833 at the end of the second quarter of fiscal 2021 to 863 at the end of the second quarter of fiscal 2022. The primary driver of consultant headcount growth was the addition of 37 consultants resulting from the acquisition of Welch Consulting in the first quarter of fiscal 2022. Overall, revenues outside of the U.S. represented approximately 20% and 19% of net revenues for the fiscal year-to-date periods ended July 2, 2022 and July 3, 2021, respectively. Revenues derived from fixed-price projects decreased to 19% of net revenues for the fiscal year-to-date period ended July 2, 2022 compared with 24% of net revenue for the year-to-date period ended July 3, 2021. The percentage of revenue derived from fixed-price projects depends largely on the proportion of our revenues derived from our management consulting business, which typically has a higher concentration of fixed-price service contracts. Costs of Services (exclusive of depreciation and amortization). Costs of services (exclusive of depreciation and amortization) decreased by $3.3 million, or 1.6%, to $207.1 million for the fiscal year-to-date period ended July 2, 2022 from $210.4 million for the fiscal year-to-date period ended July 3, 2021. The decrease in costs of services was due to a decrease of $2.8 million in employee compensation and fringe benefit costs primarily as a result of a lower bonus accrual, a decrease in the valuation expense of the contingent consideration of $0.4 million, and a decrease in client reimbursable expenses of $1.1 million, partially offset by an increase in forgivable loan amortization of $1.0 million. As a percentage of revenues, costs of services (exclusive of depreciation and amortization) decreased to 69.6% for the fiscal year-to-date period ended July 2, 2022 from 71.4% for the fiscal year-to-date period ended July 3, 2021. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $6.5 million, or 13.8%, to $53.8 million for the fiscal year-to-date period ended July 2, 2022 from $47.3 million for the fiscal year-to-date period ended July 3, 2021. Within this category of expenses, there was a $1.5 million increase in travel and entertainment, a $1.1 million increase in commissions to our non-employee experts, a $1.3 million increase in employee compensation and fringe benefit costs, a $0.5 million increase in legal and other professional services fees, a $0.8 million increase in rent expense, and a $1.6 million increase in miscellaneous and other costs. Partially offsetting the increase in these expenses was a $0.3 million decrease in bad debt expense for the fiscal year-to-date period ended July 2, 2022 as compared to the fiscal year-to-date period ended July 3, 2021. As a percentage of revenues, selling, general and administrative expenses increased to 18.1% for the fiscal year-to-date period ended July 2, 2022 from 16.0% for the fiscal year-to-date period ended July 3, 2021. Commissions to our non-employee experts increased to 3.3% of revenues for the fiscal year-to-date period ended July 2, 2022 compared to 2.9% of revenues for the fiscal year-to-date period ended July 3, 2021. Provision for Income Taxes. The income tax provision was $8.7 million and the ETR was 27.4% for the fiscal year-to-date period ended July 2, 2022, compared to $7.4 million and 25.1% for the fiscal year-to-date period ended July 3, 2021. The ETR for the current fiscal year-to-date period was higher than the prior year-to-date period primarily due to a decrease in the tax benefit related to share-based compensation, an increase in the valuation allowance, and higher nondeductible compensation paid to executive officers, partially offset by the impact of the U.K. statutory rate increase in the second quarter of fiscal 2021. 20 Table of Contents The ETR for the current fiscal year-to-date period was approximately the same as the combined federal and state statutory tax rate and included offsetting items primarily related to the tax benefit for share-based compensation and nondeductible compensation paid to executive officers. The ETR for the fiscal year-to-date period ended July 3, 2021 was lower than the combined federal and state statutory tax rate primarily due to the tax benefit related to share-based compensation, partially offset by non-deductible compensation paid to executive officers and the impact of the U.K. statutory tax rate change. Net Income. Net income increased by $1.0 million to $23.1 million for the fiscal year-to-date period ended July 2, 2022 from $22.1 million for the fiscal year-to-date period ended July 3, 2021. The diluted net income per share was $3.09 for the fiscal year-to-date period ended July 2, 2022, compared to diluted net income per share of $2.86 for the fiscal year-to-date period ended July 3, 2021. Weighted average diluted shares outstanding decreased by approximately 243,000 to approximately 7,442,000 shares for the fiscal year-to-date period ended July 2, 2022 from approximately 7,685,000 shares for the fiscal year-to-date period ended July 3, 2021. The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since July 3, 2021, offset in part by the vesting of restricted stock and time-vesting restricted stock units, and the exercise of stock options since July 3, 2021. Liquidity and Capital Resources Fiscal Year-to-Date Period Ended July 2, 2022 We believe that our current cash and cash equivalents, cash generated from operations, and amounts available under our revolving credit facility through maturity will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. General. During the fiscal year-to-date period ended July 2, 2022, cash and cash equivalents decreased by $50.5 million. We completed the period with cash and cash equivalents of $15.6 million. The principal drivers of the reduction of cash and cash equivalents were payment of a significant portion of our fiscal 2021 performance bonuses in the first and second quarters of fiscal 2022, the consideration paid for the acquisition of Welch Consulting, the repurchase of shares, and the payment of dividends, offset by net borrowings of $70.0 million. During the fiscal year-to-date period ended July 2, 2022, working capital (defined as current assets less current liabilities) decreased by $17.6 million to $18.6 million. The decrease in working capital was principally due to a decrease in cash and cash equivalents of $50.5 million and an increase in borrowings of $70.0 million. Partially offsetting these decreases to working capital was an increase in accounts receivable and unbilled services of $37.7 million, a decrease in accrued expenses of $54.2 million, a decrease in deferred revenue and other liabilities of $6.0 million, and a decrease in the current portion of deferred compensation of $3.4 million. At July 2, 2022, $5.0 million of our cash and cash equivalents was held within the U.S. We have sufficient sources of liquidity in the U.S., including cash flow from operations and availability on our revolving credit facility through maturity to fund U.S. operations for the next 12 months without the need to repatriate funds from our foreign subsidiaries. Sources and Uses of Cash. During the fiscal year-to-date period ended July 2, 2022, net cash used in operating activities was $78.8 million. Net income was $23.1 million for the fiscal year-to-date period ended July 2, 2022. Uses of cash for operating activities included a $8.1 million decrease in lease liabilities, a net increase of $36.5 million in accounts receivable and unbilled receivables, and a $1.6 million increase in prepaid expenses and other current assets primarily related to the timing of renewing annual subscriptions. Other uses of cash included a decrease in accounts payable, accrued expenses, and other liabilities of $63.1 million, primarily due to the payment of a significant portion of our fiscal 2021 performance bonuses and performance awards, and an increase in forgivable loans for the period of $10.0 million, which was primarily driven by $22.1 million of forgivable loan issuances offset by $12.1 million of forgivable loan amortization. Cash used in operations included incentive cash award expense of $3.3 million, non-cash depreciation and amortization expense of $6.0 million, right-of-use amortization of $6.8 million, share-based compensation expenses of $2.1 million, and other non-cash gains and benefits of $0.8 million. During the fiscal year-to-date period ended July 2, 2022, net cash used in investing activities was $12.3 million, which included $10.2 million of net consideration paid for the acquisition of Welch Consulting and $2.1 million for capital expenditures, primarily related to purchases of office equipment. During the fiscal year-to-date period ended July 2, 2022, net cash provided by financing activities was $42.1 million, primarily as a result of borrowings under the revolving credit facility of $70.0 million and $0.3 million received upon the 21 Table of Contents issuance of shares of common stock related to the exercise of stock options. Offsetting these increases in cash provided by financing activities were $22.6 million of repurchases of common stock, payment of $4.6 million of cash for dividends and dividend equivalents, and tax withholding payments reimbursed by restricted shares on vesting of $1.0 million. Lease Commitments We are a lessee under certain operating leases for office space and equipment. Certain of our operating leases have terms that impose asset retirement obligations due to office modifications or the periodic redecoration of the premises, which are included in other liabilities on our consolidated balance sheets and are recorded at a value based on their estimated discounted cash flows. We do not expect to incur asset retirement obligation or redecoration obligation costs over the next twelve months. At July 2, 2022, the remainder of our asset retirement obligations and redecoration obligations are approximately $2.7 million and are expected to be paid between fiscal 2026 and fiscal 2031 when the underlying leases terminate or when the respective lease agreement requires redecoration. We expect to satisfy these lease and related obligations as they become due from cash generated from operations. Indebtedness We are party to a $175.0 million revolving credit facility that includes a $15.0 million sublimit for the issuance of letters of credit. We may use the proceeds of the revolving credit facility for working capital and for other general corporate purposes. Generally, we may repay borrowings under the revolving credit facility at any time, but we must repay all borrowings no later than October 24, 2022, the maturity date. There was $70.0 million in borrowings outstanding under the revolving credit facility as of July 2, 2022. The amount available under this revolving credit facility was reduced by $4.4 million of letters of credit outstanding as of July 2, 2022. Borrowings under the revolving credit facility bear interest at a rate per annum, at our election, of either (i) the Base Rate, as defined in the credit agreement, plus an applicable margin, which varies between 0.25% and 1.25% depending on our total leverage ratio as determined under the credit agreement, or (ii) the Adjusted Eurocurrency Rate, as defined in the credit agreement, plus an applicable margin, which varies between 1.25% and 2.25% depending on our total leverage ratio. We are required to pay a fee on the unused portion of the revolving credit facility at a rate per annum that varies between 0.20% and 0.35% depending on our total leverage ratio. Borrowings under the revolving credit facility are secured by 100% of the stock of certain of our U.S. subsidiaries and 65% of the stock of certain of our foreign subsidiaries, which represent approximately $35.6 million in net assets as of July 2, 2022. 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, as defined in the credit agreement, 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 senior credit agreement include, but are not limited to, our ability to incur additional indebtedness, engage in acquisitions or dispositions, and enter into business combinations. At July 2, 2022 and currently, we are in compliance with all such tests under the credit agreement. Forgivable 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 six 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 performance awards to certain of our employees and non-employee experts that are payable if specific performance targets are met. The financial targets may include a measure of revenue generation, profitability, or both. The amounts of the awards to be paid under these compensation arrangements could fluctuate depending on future performance during the applicable measurement periods. Changes in the estimated awards are expensed prospectively over the remaining service period. We believe that we will have sufficient funds to satisfy any cash 22 Table of Contents obligations related to the performance awards. We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings available on our revolving credit facility. Our Amended and Restated 2006 Equity Incentive Plan, as amended (the "2006 Equity Plan"), authorizes the grant of a variety of incentive and performance equity awards to our directors, employees and non-employee experts, including stock options, shares of restricted stock, restricted stock units, and other equity awards. In 2009, the compensation committee of our Board of Directors adopted our long-term incentive program, or "LTIP," as a framework for equity grants made under our 2006 equity incentive plan to our senior corporate leaders, practice leaders, and key revenue generators. The equity awards granted under the LTIP include stock options, time-vesting restricted stock units, and performance-vesting restricted stock units. In December 2016, our compensation committee modified the long-term incentive program, or "LTIP," to allow grants of service- and performance-based cash awards in lieu of, or in addition to, equity awards to our senior corporate leaders, practice leaders, and key revenue generators. The compensation committee of our Board of Directors is responsible for approving all cash and equity awards under the LTIP. We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings available 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 available 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, including our ability to refinance our credit agreement, will depend on several factors, including our future profitability, the levels of our debt and equity, restrictions under our existing revolving credit facility, and the overall credit and equity market environments. We completed a business acquisition during the first quarter of fiscal 2022, which is further described in Note 2, "Business Acquisition” in Part I, Item I, “Financial Statements” of this report. Share Repurchases In February 2022, our Board of Directors authorized an expansion of our existing share repurchase program, authorizing the purchase of an additional $20.0 million of our common stock. We may repurchase shares under this program in open market purchases (including through any Rule 10b5-1 plan adopted by us) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations. During the fiscal quarter and fiscal year-to-date period ended July 2, 2022, we repurchased and retired 211,345 shares and 268,010 shares, respectively, under our share repurchase program at an average price per share of $83.63 and $84.44, respectively. During the fiscal quarter ended July 3, 2021, we did not repurchase any shares under this share repurchase program; however, we did purchase 337,837 shares at a purchase price of $74.00 under a modified "Dutch auction" self-tender offer, as further described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K. For the fiscal year-to-date period ended July 3, 2021, we repurchased and retired 166,552 shares under our share repurchase program at an average price per share of $57.93. As of July 2, 2022, we had approximately $27.9 million available for future repurchases under our share repurchase program. We plan to finance future repurchases with available cash, cash from future operations, and available funds from our revolving credit facility. We expect to continue to repurchase shares under our share repurchase program. 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 available borrowings under our revolving credit facility. Although we anticipate paying regular quarterly dividends on our common stock for the foreseeable future, the declaration, timing and amounts of any such dividends remain subject to the discretion of our Board of Directors. During the fiscal quarter and fiscal year-to-date period ended July 2, 2022, we paid dividends and dividend equivalents of $2.3 million and $4.6 million, respectively. During the fiscal quarter and fiscal year-to-date period ended July 3, 2021, we paid dividends and dividend equivalents of $1.9 million and $4.0 million, respectively. 23 Table of Contents 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. Future Capital and Liquidity Needs We anticipate that our future capital and liquidity needs will principally consist of funds required for: • 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; • the hiring of individuals to replenish and expand our employee base; • capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements; • debt service and repayments, including interest payments on borrowings from our revolving credit facility and any principal due at maturity in October 2022; • share repurchases under programs that we may have in effect from time to time; • dividends to shareholders; • potential acquisitions of businesses that would allow us to diversify or expand our service offerings; • potential contingent obligations related to our acquisitions; and • 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 from our revolving credit facility through maturity (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, 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, could involve 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, if necessary, is subject to a variety of factors that we cannot predict with certainty, including: • our future profitability; • the quality of our accounts receivable; • our relative levels of debt and equity; • the volatility and overall condition of the capital markets; and • 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 report, 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 our 2021 Form 10-K. If any of these risks, or any risks not presently known to us or that 24 Table of Contents we currently believe are not significant, develops into an actual event, then our business, financial condition, and results of operations could be adversely affected. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding our exposure to certain market risks, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk” of our 2021 Form 10-K.