CRA INTERNATIONAL, INC. 10-Q

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 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Revenues $ 147,553 $ 148,441 $ 462,363 $ 445,925 Costs of services (exclusive of depreciation and amortization) 105,894 102,267 327,064 309,403 Selling, general and administrative expenses 27,919 28,246 86,137 82,026 Depreciation and amortization 2,947 3,034 8,762 9,060 Income from operations 10,793 14,894 40,400 45,436 Interest expense, net ( 1,025 ) ( 667 ) ( 3,212 ) ( 1,343 ) Foreign currency gains (losses), net 755 1,667 ( 459 ) 3,566 Income before provision for income taxes 10,523 15,894 36,729 47,659 Provision for income taxes 1,927 4,017 9,707 12,713 Net income $ 8,596 $ 11,877 $ 27,022 $ 34,946 Net income per share: Basic $ 1.22 $ 1.66 $ 3.83 $ 4.81 Diluted $ 1.21 $ 1.63 $ 3.78 $ 4.72 Weighted average number of shares outstanding: Basic 6,977 7,119 7,026 7,247 Diluted 7,083 7,246 7,138 7,376 See accompanying notes to the condensed consolidated financial statements. 3 Table of Contents CRA INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (in thousands) Fiscal Quarter Ended Fiscal Year-to-Date Period Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net income $ 8,596 $ 11,877 $ 27,022 $ 34,946 Other comprehensive income (loss) Foreign currency translation adjustments, net of tax ( 1,755 ) ( 3,806 ) 371 ( 8,838 ) Comprehensive income $ 6,841 $ 8,071 $ 27,393 $ 26,108 See accompanying notes to the condensed consolidated financial statements. 4 Table of Contents CRA INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share data) September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 27,604 $ 31,447 Accounts receivable, net of allowances of $ 3,920 and $ 2,640 , respectively 124,876 143,644 Unbilled services, net of allowances of $ 975 and $ 1,120 , respectively 68,445 51,343 Prepaid expenses and other current assets 17,349 12,760 Forgivable loans 10,428 9,666 Total current assets 248,702 248,860 Property and equipment, net 39,963 45,582 Goodwill 93,467 92,922 Intangible assets, net 7,541 8,588 Right-of-use assets 88,871 96,725 Deferred income taxes 10,412 9,163 Forgivable loans, net of current portion 47,216 46,790 Other assets 2,873 2,287 Total assets $ 539,045 $ 550,917 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,711 $ 27,584 Accrued expenses 137,920 155,864 Deferred revenue and other liabilities 7,871 12,016 Current portion of lease liabilities 16,193 15,972 Current portion of deferred compensation 5,553 5,689 Revolving line of credit 32,000 — Total current liabilities 224,248 217,125 Non-current liabilities: Deferred compensation and other non-current liabilities 10,467 15,677 Non-current portion of lease liabilities 95,406 106,008 Deferred income taxes 966 953 Total non-current liabilities 106,839 122,638 Commitments and contingencies (Note 11) 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; 6,978,941 and 7,149,884 shares issued and outstanding, respectively 1,363 1,743 Retained earnings 221,205 224,392 Accumulated other comprehensive loss ( 14,610 ) ( 14,981 ) Total shareholders’ equity 207,958 211,154 Total liabilities and shareholders’ equity $ 539,045 $ 550,917 See accompanying notes to the condensed consolidated financial statements. 5 Table of Contents CRA INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Fiscal Year-to-Date Period Ended September 30, 2023 October 1, 2022 OPERATING ACTIVITIES: Net income $ 27,022 $ 34,946 Adjustments to reconcile net income to net cash used in operating activities, net of effect of acquired businesses: Depreciation and amortization 8,762 9,060 Right-of-use asset amortization 10,602 10,260 Deferred income taxes ( 1,257 ) ( 157 ) Share-based compensation expense 3,024 3,567 Bad debt expense (recovery) 523 ( 345 ) Unrealized foreign currency remeasurement (gains) losses, net ( 112 ) ( 662 ) Changes in operating assets and liabilities: Accounts receivable 18,785 ( 17,989 ) Unbilled services ( 17,226 ) ( 30,864 ) Prepaid expenses and other current assets, and other assets ( 4,006 ) ( 1,883 ) Forgivable loans ( 2,306 ) ( 7,361 ) Incentive cash awards 6,110 4,863 Accounts payable, accrued expenses, and other liabilities ( 36,786 ) ( 26,336 ) Lease liabilities ( 13,162 ) ( 12,114 ) Net cash used in operating activities ( 27 ) ( 35,015 ) INVESTING ACTIVITIES: Purchases of property and equipment ( 2,008 ) ( 2,999 ) Consideration paid for acquisition, net ( 577 ) ( 10,185 ) Net cash used in investing activities ( 2,585 ) ( 13,184 ) FINANCING ACTIVITIES: Issuance of common stock, principally stock option exercises — 760 Borrowings under revolving line of credit 105,000 124,000 Repayments under revolving line of credit ( 73,000 ) ( 79,000 ) Payments for debt issuance costs — ( 1,008 ) Tax withholding payments reimbursed by shares ( 2,040 ) ( 1,002 ) Cash dividends paid ( 7,773 ) ( 6,860 ) Repurchase of common stock ( 23,577 ) ( 27,630 ) Net cash provided by (used in) financing activities ( 1,390 ) 9,260 Effect of foreign exchange rates on cash and cash equivalents 159 ( 3,098 ) Net decrease in cash and cash equivalents ( 3,843 ) ( 42,037 ) Cash and cash equivalents at beginning of period 31,447 66,130 Cash and cash equivalents at end of period $ 27,604 $ 24,093 Noncash investing and financing activities: Increase (decrease) in accounts payable and accrued expenses for property and equipment $ ( 129 ) $ ( 201 ) Excise tax on share repurchases $ ( 190 ) $ — Right-of-use assets obtained in exchange for lease obligations $ 2,503 $ 2,146 Supplemental cash flow information: Cash paid for taxes $ 9,953 $ 11,407 Cash paid for interest $ 2,904 $ 1,026 Cash paid for amounts included in operating lease liabilities $ 16,660 $ 15,864 See accompanying notes to the condensed consolidated financial statements. 6 Table of Contents 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 Exercise of stock options — — — — — 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 Exercise of stock options — — — — — 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 ) Issuance of common stock — — — — — Exercise of stock options — — — — — Share-based compensation expense — 926 — — 926 Restricted shares vesting 10,004 — — — — Redemption of vested employee restricted shares for tax withholding ( 299 ) ( 31 ) — — ( 31 ) Shares repurchased — — — — — 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. 7 Table of Contents CRA INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED October 1, 2022 (unaudited) (in thousands, except share data) Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Issued Amount BALANCE AT JANUARY 1, 2022 7,362,703 $ — $ 215,784 $ ( 9,950 ) $ 205,834 Net income — — 11,426 — 11,426 Foreign currency translation adjustment — — — ( 1,172 ) ( 1,172 ) Exercise of stock options 14,552 341 — — 341 Share-based compensation expense — 1,037 — — 1,037 Restricted shares vesting 29,558 — — — — Redemption of vested employee restricted shares for tax withholding ( 10,163 ) ( 897 ) — — ( 897 ) Shares repurchased ( 56,665 ) ( 481 ) ( 4,475 ) — ( 4,956 ) Accrued dividends on unvested shares — — ( 11 ) — ( 11 ) Cash dividends paid ($ 0.31 per share) — — ( 2,377 ) — ( 2,377 ) BALANCE AT APRIL 2, 2022 7,339,985 $ — $ 220,347 $ ( 11,122 ) $ 209,225 Net income — — 11,643 — 11,643 Foreign currency translation adjustment — — — ( 3,860 ) ( 3,860 ) Share-based compensation expense — 1,041 — — 1,041 Restricted shares vesting 3,630 — — — — Redemption of vested employee restricted shares for tax withholding ( 921 ) ( 78 ) — — ( 78 ) Shares repurchased ( 211,345 ) ( 963 ) ( 16,711 ) — ( 17,674 ) Accrued dividends on unvested shares — — ( 52 ) — ( 52 ) Cash dividends paid ($ 0.31 per share) — — ( 2,259 ) — ( 2,259 ) BALANCE AT JULY 2, 2022 7,131,349 $ — $ 212,968 $ ( 14,982 ) $ 197,986 Net income — — 11,877 — 11,877 Foreign currency translation adjustment — — — ( 3,806 ) ( 3,806 ) Exercise of stock options 19,476 419 — — 419 Share-based compensation expense — 1,489 — — 1,489 Restricted shares vesting 9,843 — — — — Redemption of vested employee restricted shares for tax withholding ( 291 ) ( 27 ) — — ( 27 ) Shares repurchased ( 51,524 ) ( 852 ) ( 4,148 ) — ( 5,000 ) Accrued dividends on unvested shares — — ( 39 ) — ( 39 ) Cash dividends paid ($ 0.31 per share) — — ( 2,224 ) — ( 2,224 ) BALANCE AT OCTOBER 1, 2022 7,108,853 $ 1,029 $ 218,434 $ ( 18,788 ) $ 200,675 See accompanying notes to the condensed consolidated financial statements. 8 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies Description of Business CRA International, Inc. (together with its wholly-owned subsidiaries, “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 International, Inc. and its wholly-owned subsidiaries, 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 (“GAAP”) for annual financial statements. 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 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 31, 2022 included in CRA’s Annual Report on Form 10-K filed with the SEC on March 2, 2023 (the “2022 Form 10-K”). Estimates The preparation of financial statements in conformity with GAAP requires management to make significant estimates and judgments that affect the reported amounts of assets and liabilities, as well as the related disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of consolidated revenues and expenses during the reporting period. Estimates in these condensed consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed-price contracts, variable consideration to be included in the transaction price of revenue contracts, the useful life of long-lived assets, measurement of operating lease right-of-use assets and liabilities, share-based compensation, valuation of acquired intangible assets, valuation of contingent consideration liabilities, goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued incentive compensation, and certain other accrued expenses. These items are monitored and analyzed by CRA for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. CRA bases its estimates on historical experience and various other assumptions that CRA believes to be reasonable under the circumstances. Actual results may differ from those estimates if CRA’s assumptions based on past experience or other assumptions do not turn out to be substantially accurate . 2. Business Acquisitions On February 28, 2022, CRA acquired substantially all business assets and assumed certain liabilities of Welch Consulting, Ltd. (“Welch Consulting”), a Texas limited partnership. Welch Consulting provided economic, business, and strategic consulting services principally involving labor and employment issues. The acquisition expanded CRA’s business opportunities, expertise, and market presence with the addition of 45 colleagues and offices in Bryan, Texas; Los Angeles, California; and Washington, D.C. A non-employee expert of CRA served as an agent and attorney-in-fact on behalf of Welch Consulting. The non-employee expert did not and will not receive compensation or a portion of the purchase price as part of the transaction. 9 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The acquisition has been accounted for as a business combination, and the results of operations have been included in the accompanying condensed consolidated financial statements from the date of acquisition. On the date of acquisition, right-of-use assets and lease liabilities were recorded in accordance with ASC Topic 842, Leases . In addition, contract assets and contract liabilities were recorded in accordance with ASC 606, as CRA adopted ASU 2021-08 on the first day of fiscal 2022. All other tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at their fair value as of the date of acquisition. Welch Consulting's results of operations have been included in the accompanying condensed consolidated statements of operations from the date of acquisition. The following table is the final allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed (in thousands): Assets Acquired Current assets: Accounts receivable $ 3,742 Unbilled services 1,382 Prepaid expenses and other current assets 100 Total current assets 5,224 Property and equipment 141 Goodwill 2,409 Intangible assets 4,150 Right-of-use assets 1,210 Other assets 41 Total assets acquired $ 13,175 Liabilities Assumed Current liabilities: Accrued expenses $ 1,245 Deferred revenue and other liabilities 161 Current portion of lease liabilities 549 Total current liabilities 1,955 Non-current portion of lease liabilities 661 Total liabilities assumed $ 2,616 Net assets acquired $ 10,559 For the acquired assets and assumed liabilities, CRA paid $ 10.6 million, net, the amount of which was based on adjusted estimates of certain net working capital items. In addition, CRA issued $ 7.9 million of forgivable loans and agreed to provide other deferred compensation to key employees and a non-employee expert, which is treated as post-transaction compensation expense over the term of the loan. The intangible assets acquired are comprised of customer relationships, the fair value of which was determined using a multi-period excess earnings method. The customer relationships intangible is being amortized over a ten-year life on a straight-line basis, which approximates the expected pattern of economic benefit from this asset. The Company also recorded $ 2.4 million of goodwill, all of which is expected to be deductible for tax purposes. 10 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) On November 29, 2022, CRA acquired substantially all of the business assets and assumed certain liabilities of bioStrategies Group, Inc. (“bSG”), a Chicago-based consulting firm focused on developing commercial strategies for healthcare products and technologies. The acquisition expanded CRA’s business opportunities, expertise, and market presence with the addition of 17 colleagues with an office in Chicago, Illinois. The acquisition has been accounted for as a business combination, and the results of operations have been included in the accompanying condensed consolidated financial statements from the date of acquisition. The acquisition of bSG is not significant to the Company's overall results presented in its condensed consolidated financial statements. 3. 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 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Consulting services revenues: Fixed-price $ 26,783 $ 24,201 $ 81,642 $ 80,515 Time-and-materials 120,770 124,240 380,721 365,410 Total $ 147,553 $ 148,441 $ 462,363 $ 445,925 Fiscal Quarter Ended Fiscal Year-to-Date Period Ended Geographic Breakdown September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Consulting services revenues: United States $ 117,420 $ 121,496 $ 362,186 $ 358,583 United Kingdom 21,227 20,069 73,272 63,322 Other 8,906 6,876 26,905 24,020 Total $ 147,553 $ 148,441 $ 462,363 $ 445,925 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. 11 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) CRA also maintains allowances for accounts receivable and unbilled services for estimated losses resulting from clients’ failure to make required payments. 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 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Bad debt expense (recovery), net $ 131 $ ( 83 ) $ 523 $ ( 345 ) 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 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Reimbursable expenses $ 17,932 $ 15,009 $ 49,165 $ 47,654 Contract Balances from Contracts with Customers 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 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 30, 2023 December 31, 2022 Contract liabilities $ 2,197 $ 6,977 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 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Amounts included in contract liabilities at the beginning of the period $ 2,580 $ 1,831 $ 6,619 $ 8,101 Performance obligations satisfied in previous periods $ 3,658 $ 3,495 $ 2,816 $ 2,193 12 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 4. 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 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 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. The following table presents forgivable loan activity for the respective periods (in thousands): Fiscal Year-to-Date Period Ended Fiscal Year Ended September 30, 2023 December 31, 2022 Beginning balance $ 56,456 $ 48,591 Advances 21,342 34,984 Repayments ( 616 ) ( 25 ) Reclassifications from accrued expenses or to other assets (1) ( 1,200 ) ( 2,192 ) Amortization ( 18,419 ) ( 24,403 ) Effects of foreign currency translation 81 ( 499 ) Ending balance $ 57,644 $ 56,456 Current portion of forgivable loans $ 10,428 $ 9,666 Non-current portion of forgivable loans $ 47,216 $ 46,790 _______________________________ (1) Relates to the reclassification of performance awards previously recorded as accrued expenses or forgivable loans that have been reclassified to other receivables. 5. Goodwill and Intangible Assets The changes in the carrying amount of goodwill for the fiscal year-to-date period ended September 30, 2023 are summarized as follows (in thousands): Goodwill, at December 31, 2022 $ 164,815 Accumulated goodwill impairment ( 71,893 ) Goodwill, net at December 31, 2022 92,922 Additions due to acquisitions 415 Foreign currency translation adjustment 130 Goodwill, net at September 30, 2023 $ 93,467 Goodwill at September 30, 2023, is comprised of goodwill of $ 165.4 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 30, 2023 or during the fiscal year ended December 31, 2022. 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): 13 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) September 30, 2023 December 31, 2022 Useful Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 10 $ 13,800 $ ( 6,259 ) $ 7,541 $ 13,800 $ ( 5,212 ) $ 8,588 There were no impairment losses related to intangible assets during the fiscal year-to-date period ended September 30, 2023 or during the fiscal year ended December 31, 2022. As a result of the Welch Consulting acquisition, CRA recognized approximately $ 4.2 million of intangible assets related to customer relationships in the first quarter of fiscal 2022. As a result of the bSG acquisition, CRA recognized approximately $ 1.4 million of intangible assets related to customer relationships in the fourth quarter of fiscal 2022. Amortization expense related to intangible assets was $ 0.3 million and $ 1.0 million for the fiscal quarter and fiscal year-to-date period ended September 30, 2023, respectively, and $ 0.3 million and $ 0.9 million for the fiscal quarter and fiscal year-to-date period ended October 1, 2022, respectively. 6. Accrued Expenses Accrued expenses consist of the following (in thousands): September 30, 2023 December 31, 2022 Compensation and related expenses $ 111,174 $ 138,728 Performance awards 14,891 9,359 Direct project accruals 4,060 1,783 Other 7,795 5,994 Total accrued expenses $ 137,920 $ 155,864 As of September 30, 2023 and December 31, 2022, approximately $ 86.7 million and $ 116.1 million, respectively, of accrued bonuses were included above in “Compensation and related expenses.” 7. Income Taxes For the fiscal quarters ended September 30, 2023 and October 1, 2022, CRA’s effective income tax rate (“ETR”) was 18.3 % and 25.3 %, respectively. The ETR for the third quarter of fiscal 2023 was lower than the third quarter of fiscal 2022 primarily due to the release of a valuation allowance in a foreign jurisdiction coupled with the revaluation of the deferred tax asset, partially offset by a decrease in the tax benefit related to share-based compensation, an increase in nondeductible meals and entertainment expenses, and an increase in the U.K. statutory rate from 19% to 25% effective April 1, 2023 with a blended rate of 23.5% for the fiscal year. The increase in the tax impact of the meals expense is a result of the expiration of the relief provided by The Consolidated Appropriations Act, 2021, whereby the deduction for business meals from restaurants was 100% during 2021 and 2022 and reverted back to 50% in 2023. The change in the total valuation allowance for the current fiscal quarter was a decrease of approximately $ 0.7 million compared to the same fiscal quarter of the prior year. The $ 0.7 million decrease is comprised primarily of foreign net operating loss carryforwards that have an indefinite life and are forecasted to be utilized over approximately a forty-year period. The change in assessment was prompted by the enactment of new legislation in the foreign jurisdiction, and as a result, the foreign entity will be profitable in the current and future years. For the fiscal year-to-date periods ended September 30, 2023 and October 1, 2022, CRA's ETR was 26.4 % and 26.7 %, respectively. The ETR for the current fiscal year-to-date period was slightly lower than the prior year-to-date period primarily due to the same items noted above. In fiscal 2020, as a result of both a qualitative and quantitative analysis, certain amounts of previously taxed and untaxed post fiscal 2018 U.K. earnings were no longer considered permanently reinvested. Deferred taxes that are a consequence of foreign exchange translation resulting from earnings that are no longer considered permanently reinvested are recorded as a 14 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) component of foreign currency translation adjustments on the condensed consolidated statements of comprehensive income. During the fiscal quarter ended September 30, 2023, deferred taxes have been assessed as immaterial related to foreign exchange translation and not recorded. Deferred income taxes or foreign withholding taxes, estimated to be $ 0.4 million, have not been recorded for other jurisdictions as those earnings are considered to be permanently reinvested. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income,” and a one percent excise tax on net repurchases of stock after December 31, 2022. For the fiscal quarter ended September 30, 2023, net share repurchases were immaterial. As the Company's issued and outstanding common stock on the condensed consolidated balance sheet is classified as permanent equity, the excise tax is treated as a specific incremental cost directly attributable to the repurchase. As such, the excise tax is charged against the gross proceeds and recorded within equity with an offsetting excise tax liability recognized. 8. 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 30, 2023 and October 1, 2022. 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 30, 2023 and October 1, 2022. 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 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Numerator: Net income — basic $ 8,596 $ 11,877 $ 27,022 $ 34,946 Less: net income attributable to participating shares 29 42 98 130 Net income — diluted $ 8,567 $ 11,835 $ 26,924 $ 34,816 Denominator: Weighted average shares outstanding — basic 6,977 7,119 $ 7,026 $ 7,247 Effect of dilutive stock options and restricted stock units 106 127 112 129 Weighted average shares outstanding — diluted 7,083 7,246 7,138 7,376 Net income per share: Basic $ 1.22 $ 1.66 $ 3.83 $ 4.81 Diluted $ 1.21 $ 1.63 $ 3.78 $ 4.72 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. For the fiscal quarter and fiscal year-to-date period ended October 1, 2022, 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 997 and 249 shares, respectively. 15 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 9. 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): September 30, 2023 Level 1 Level 2 Level 3 Assets: Money market mutual funds $ — $ — $ — Total Assets $ — $ — $ — Liabilities: Contingent consideration liability $ — $ — $ 1,108 Total Liabilities $ — $ — $ 1,108 December 31, 2022 Level 1 Level 2 Level 3 Assets: Money market mutual funds $ — $ — $ — Total Assets $ — $ — $ — Liabilities: Contingent consideration liability $ — $ — $ 1,056 Total Liabilities $ — $ — $ 1,056 The contingent consideration liability pertains to estimated future contingent consideration payments related to the acquisition of bSG, an independent consulting firm. The following table summarizes the changes in the contingent consideration liability (in thousands): Fiscal Year-to-Date Period Ended Fiscal Year Ended September 30, 2023 December 31, 2022 Beginning balance $ 1,056 $ — Acquisition-related contingent consideration — 1,056 Accretion 52 — Ending balance $ 1,108 $ 1,056 10. Credit Agreement CRA is party to a Credit Agreement, dated as of August 19, 2022 (the "Credit Agreement") with Bank of America, N.A., as swingline lender, a letter of credit issuing bank and administrative agent, and with Citizens Bank, N.A., as a letter of credit issuing bank. The Credit Agreement provides CRA with a $ 250.0 million revolving credit facility, which may be decreased at CRA's option to $ 200.0 million during the period from July 16th in a year through January 15th in the next year. Additionally, for the period from January 16th to July 15th of each calendar year, CRA may elect to not increase the revolving credit facility to $ 250.0 million. The revolving credit facility includes a $ 25.0 million sublimit for the issuance of letters of credit. 16 Table of Contents CRA INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) There were $ 32.0 million in borrowings outstanding under the revolving credit facility as of September 30, 2023 and no borrowings outstanding as of December 31, 2022. As of September 30, 2023, the amount available under the revolving credit facility was reduced by certain letters of credit outstanding, which amounted to $ 4.5 million. Under the Credit Agreement, CRA must comply with various financial and non-financial covenants. The primary financial covenants consist of a maximum consolidated net leverage ratio of 3.0 to 1 and a minimum consolidated interest coverage ratio of 2.5 to 1. The primary non-financial covenants include, but are not limited to, restrictions on CRA's ability to incur future indebtedness, engage in acquisitions or dispositions, pay dividends or repurchase capital stock, and enter into business combinations. Any indebtedness outstanding under the revolving credit facility may become immediately due upon the occurrence of stated events of default, including CRA's failure to pay principal, interest or fees, or upon the breach of any covenant. As of September 30, 2023, CRA was in compliance with the covenants of the Credit Agreement. 11. Commitments and Contingencies As described in the previous note, CRA is party to standby letters of credit with its lenders in support of minimum future lease payments under certain operating leases for office space. CRA is subject to legal actions arising in the ordinary course of business. In management’s opinion, based on current knowledge, CRA believes it has adequate legal defenses or insurance coverage, or both, with respect to the eventuality of such actions. CRA does not believe any settlement or judgment relating to any pending legal action would materially affect its financial position or results of operations . However, the outcome of such legal actions is inherently unpredictable and subject to inherent uncertainties. 12. Subsequent Events On November 2, 2023, CRA announced that its Board of Directors declared a quarterly cash dividend of $ 0.42 per common share, payable on December 8, 2023 to shareholders of record as of November 28, 2023. 17 Table of Contents