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.
Significant 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 October 1,
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 entitled “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 the fiscal period to date ended October 1, 2022Compared to the Fiscal quarter and the fiscal period to date ended October 2, 2021
The following table presents operating information as a percentage of revenue for the periods indicated:
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Fiscal Quarter Fiscal Year-to-Date
Ended Period Ended
October 1, October 2, October 1, October 2,
2022 2021 2022 2021
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Costs of services (exclusive of depreciation
and amortization) 68.9 70.4 69.4 71.1
Selling, general and administrative expenses 19.0 18.0 18.4 16.6
Depreciation and amortization 2.0 2.3 2.0 2.2
Income from operations 10.0 9.4 10.2 10.1
Interest expense, net (0.4) (0.1) (0.3) (0.2)
Foreign currency gains (losses), net 1.1 0.2 0.8 (0.1)
Income before provision for income taxes 10.7 9.4 10.7 9.8
Provision for income taxes 2.7 1.4 2.9 2.2
Net income 8.0 % 8.0 % 7.8 % 7.7 %
Financial quarter ended October 1, 2022Compared to the Financial Quarter Ended
October 2, 2021
Revenues. Revenues increased by $12.0 million, or 8.8%, to $148.4 million for
the third quarter of fiscal 2022 from $136.4 million for the third quarter of
fiscal 2021. Utilization increased to 74% for the third quarter of fiscal 2022
from 73% for the third quarter of fiscal 2021, while consultant headcount grew
3.3% from 882 at the end of the third quarter of fiscal 2021 to 911 at the end
of the third 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 18% and 20% of
net revenues for the third quarters of fiscal 2022 and fiscal 2021,
respectively. Revenues derived from fixed-price projects decreased to 16% of net
revenues for the third quarter of fiscal 2022 compared with 23% of net revenue
for the third 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) increased by $6.3 million,
or 6.6%, to $102.3 million for the third quarter of fiscal 2022 from $96.0
million for the third quarter of fiscal 2021. The increase in costs of services
was due to an increase in employee compensation and fringe benefit costs of $6.6
million primarily as a result of a higher headcount and an increase in
forgivable loan amortization of $0.4 million, partially offset by a decrease in
client reimbursable expenses of $0.7 million. As a percentage of revenues, costs
of services (exclusive of depreciation and amortization) decreased to 68.9% for
the third quarter of fiscal 2022 from 70.4% for the third quarter of fiscal
2021.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $3.7 million, or 15.3%, to $28.2 million
for the third quarter of fiscal 2022 from $24.5 million for the third quarter of
fiscal 2021. Within this category of expenses, there was a $1.2 million increase
in travel and entertainment, a $1.0 million increase in employee compensation
and fringe benefit costs, a $0.7 million increase in miscellaneous and other
costs, a $0.6 million increase in software subscription and data services, and a
$0.4 million increase in commissions to our non-employee experts. Partially
offsetting the increase in these expenses was a $0.2 million decrease in bad
debt expense for the third quarter of fiscal 2022 as compared to the third
quarter of fiscal 2021.
As a percentage of revenues, selling, general and administrative expenses
increased to 19.0% for the third quarter of fiscal 2022 from 18.0% for the third
quarter of fiscal 2021. Commissions to our non-employee experts remained flat at
3.2% of revenues for the third quarter of fiscal 2022 and the third quarter of
fiscal 2021.
Provision for Income Taxes. The income tax provision was $4.0 million and the
effective tax rate ("ETR") was 25.3% for the third quarter of fiscal 2022
compared to $1.9 million and 14.8% for the third 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 and
foreign-derived intangible income, and higher nondeductible compensation paid to
executive officers. The ETR for the third quarter of both fiscal 2022 and fiscal
2021 were lower than the combined federal and state statutory tax rate primarily
due
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the tax benefit related to share-based compensation, partially offset by non-deductible compensation paid to executive corporate officers.
Net Income. Net income increased to $11.9 million for the third quarter of
fiscal 2022 from $10.9 million for the third quarter of fiscal 2021. The net
income per diluted share was $1.63 per share for the third quarter of fiscal
2022, compared to $1.44 of net income per diluted share for the third quarter of
fiscal 2021. Weighted average diluted shares outstanding decreased by
approximately 314,000 shares to approximately 7,246,000 shares for the third
quarter of fiscal 2022 from approximately 7,560,000 shares for the third 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 October 2,
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
October 2, 2021.
Year-to-date ended October 1, 2022compared to the total of the financial year ended October 2, 2021
Revenues. Revenues increased by $14.7 million, or 3.4%, to $445.9 million for
the fiscal year-to-date period ended October 1, 2022 from $431.2 million for the
fiscal year-to-date period ended October 2, 2021. Utilization was 75% for the
fiscal year-to-date periods ended October 1, 2022 and October 2, 2021, while
consultant headcount grew 3.3% from 882 at the end of the third quarter of
fiscal 2021 to 911 at the end of the third 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 October 1, 2022 and
October 2, 2021, respectively. Revenues derived from fixed-price projects
decreased to 18% of net revenues for the fiscal year-to-date period ended
October 1, 2022 compared with 24% of net revenue for the year-to-date period
ended October 2, 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) increased by $3.0 million,
or 1.0%, to $309.4 million for the fiscal year-to-date period ended October 1,
2022 from $306.4 million for the fiscal year-to-date period ended October 2,
2021. The increase in costs of services was due to an increase of $3.8 million
in employee compensation and fringe benefit costs primarily as a result of a
higher headcount and an increase in forgivable loan amortization of $1.3
million, partially offset by a decrease in client reimbursable expenses of $1.7
million and a decrease in the valuation expense of the contingent consideration
of $0.4 million. As a percentage of revenues, costs of services (exclusive of
depreciation and amortization) decreased to 69.4% for the fiscal year-to-date
period ended October 1, 2022 from 71.1% for the fiscal year-to-date period ended
October 2, 2021.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $10.3 million, or 14.3%, to $82.0 million
for the fiscal year-to-date period ended October 1, 2022 from $71.7 million for
the fiscal year-to-date period ended October 2, 2021. Within this category of
expenses, there was a $2.7 million increase in travel and entertainment, a $2.2
million increase in employee compensation and fringe benefit costs, a $1.6
million increase in commissions to our non-employee experts, a $1.2 million
increase in software subscription and data services, a $1.1 million increase in
miscellaneous and other costs, a $0.9 million increase in legal and other
professional services fees, and a $0.9 million increase in rent expense.
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 October 1, 2022 as
compared to the fiscal year-to-date period ended October 2, 2021.
As a percentage of revenues, selling, general and administrative expenses
increased to 18.4% for the fiscal year-to-date period ended October 1, 2022 from
16.6% for the fiscal year-to-date period ended October 2, 2021. Commissions to
our non-employee experts increased to 3.3% of revenues for the fiscal
year-to-date period ended October 1, 2022 compared to 3.0% of revenues for the
fiscal year-to-date period ended October 2, 2021.
Provision for Income Taxes. The income tax provision was $12.7 million and the
ETR was 26.7% for the fiscal year-to-date period ended October 1, 2022, compared
to $9.3 million and 22.0% for the fiscal year-to-date period ended October 2,
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 and foreign-derived intangible income, 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
that did not recur in the current period. 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
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year-to-date period ended October 2, 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 $1.9 million to $34.9 million for the fiscal
year-to-date period ended October 1, 2022 from $33.0 million for the fiscal
year-to-date period ended October 2, 2021. The diluted net income per share was
$4.72 for the fiscal year-to-date period ended October 1, 2022, compared to
diluted net income per share of $4.31 for the fiscal year-to-date period ended
October 2, 2021. Weighted average diluted shares outstanding decreased by
approximately 267,000 to approximately 7,376,000 shares for the fiscal
year-to-date period ended October 1, 2022 from approximately 7,643,000 shares
for the fiscal year-to-date period ended October 2, 2021. The decrease in
weighted average diluted shares outstanding was primarily due to the repurchase
of shares of our common stock since October 2, 2021, offset in part by the
vesting of restricted stock and time-vesting restricted stock units, and the
exercise of stock options since October 2, 2021.
Cash and capital resources
Year-to-date ended October 1, 2022
We estimate that our current cash and cash equivalents, cash flow generated from operations and amounts available under our revolving credit facility 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 October 1, 2022, cash and
cash equivalents decreased by $42.0 million. We completed the period with cash
and cash equivalents of $24.1 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 $45.0 million.
During the fiscal year-to-date period ended October 1, 2022, working capital
(defined as current assets less current liabilities) decreased by $9.9 million
to $26.4 million. The decrease in working capital was principally due to a
decrease in cash and cash equivalents of $42.0 million and an increase in
borrowings of $45.0 million. Partially offsetting these decreases to working
capital was an increase in accounts receivable and unbilled services of $46.8
million, an increase in prepaid expenses and other current assets of $3.4
million, a decrease in accrued expenses of $23.7 million, and a decrease in
deferred revenue and other liabilities of $5.5 million.
At October 1, 2022, $9.7 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 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 October 1,
2022, net cash used in operating activities was $35.0 million. Net income was
$34.9 million for the fiscal year-to-date period ended October 1, 2022. Uses of
cash for operating activities included a $12.1 million decrease in lease
liabilities, a net increase of $48.9 million in accounts receivable and unbilled
receivables, and a $1.9 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 $26.3 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 $7.4 million,
which was primarily driven by $25.5 million of forgivable loan issuances, net of
repayments, offset by $18.1 million of forgivable loan amortization.
Cash used in operations included incentive cash award expense of $4.9 million,
non-cash depreciation and amortization expense of $9.1 million, right-of-use
amortization of $10.3 million, share-based compensation expenses of $3.6
million, and other non-cash gains and benefits of $1.2 million.
During the fiscal year-to-date period ended October 1, 2022, net cash used in
investing activities was $13.2 million, which included $10.2 million of net
consideration paid for the acquisition of Welch Consulting and $3.0 million for
capital expenditures, primarily related to purchases of office equipment.
During the fiscal year-to-date period ended October 1, 2022, net cash provided
by financing activities was $9.3 million, primarily as a result of net
borrowings under the revolving credit facility of $45.0 million and $0.8 million
received upon the issuance of shares of common stock related to the exercise of
stock options. Offsetting these increases in cash provided by
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financing activities were repurchases of common stock of $27.6 million, payment
of cash dividends of $6.9 million, payment of $1.0 million for debt issuance
costs, 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 October 1, 2022, the remainder
of our asset retirement obligations and redecoration obligations are
approximately $2.5 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.
Debt
We were a party to an amended and restated credit agreement (the "Initial Credit
Agreement") that provided us with a $175.0 million revolving credit facility
that included a $15.0 million sublimit for the issuance of letters of credit.
The Initial Credit Agreement was scheduled to mature on October 24, 2022; we
were permitted to repay any borrowings at any time prior to the maturity date.
On August 19, 2022, we refinanced our revolving credit facility under the
Initial Credit Agreement by entering into a Credit Agreement (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 us a $250.0 million
revolving credit facility, which may be decreased at our 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, we 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.
Concurrent with our entry into the Credit Agreement, we terminated the Initial
Credit Agreement and repaid in full all outstanding indebtedness under the
Initial Credit Agreement of approximately $50.0 million. Also, letters of credit
in the aggregate amount of approximately $4.4 million that had been issued under
the Initial Credit Agreement were deemed to be issued and outstanding under the
new revolving credit facility. In connection with the Credit Agreement, we
incurred debt issuance costs from the lenders and third-parties of $1.0 million.
We may use the proceeds of the revolving credit loans under the Credit Agreement
for general corporate purposes and may repay any borrowings under the revolving
credit facility at any time, but any borrowings must be repaid no later than
August 19, 2027. Borrowings under the revolving credit facility bear interest at
a rate per annum equal to one of the following rates, at our election, plus an
applicable margin as described below: (i) in the case of borrowings in U.S.
dollars by us, the Base Rate (as defined in the Credit Agreement), (ii) in the
case of borrowings in U.S. dollars, a rate based on Term SOFR (as defined in the
Credit Agreement) for the applicable interest period, (iii) in the case of
borrowings in Euros, EURIBOR (as defined in the Credit Agreement) for the
applicable interest period, (iv) in the case of borrowings in Pounds Sterling, a
daily rate based on SONIA (as defined in the Credit Agreement), (v) in the case
of borrowings in Canadian Dollars, CDOR (as defined in the Credit Agreement) for
the applicable interest period, (vi) in the case of borrowings in Swiss Francs,
a daily rate based on SARON (as defined in the Credit Agreement), or (vii) in
the case of borrowings in any other Alternate Currency (as defined in the Credit
Agreement), the relevant daily or term rate determined as provided in the Credit
Agreement. The applicable margin on borrowings based on the Base Rate varies
within a range of 0.25% to 1.00% depending on our consolidated net leverage
ratio, and the applicable margin on borrowings based on any of the other rates
described above varies within a range of 1.25% to 2.00% depending on our
consolidated net leverage ratio.
We are required to pay a fee on the amount available to be drawn under any
letter of credit issued under the revolving credit facility at a rate per annum
that varies between 1.25% and 2.00% depending on our consolidated net leverage
ratio. In addition, we are required to pay a fee on the unused portion of the
revolving credit facility at a rate per annum that varies between 0.175% and
0.250% depending on our consolidated net leverage ratio.
Under the Credit Agreement, we must comply with various financial and
non-financial covenants. The primary financial covenants consist of a maximum
consolidated net leverage ratio and a minimum consolidated interest coverage
ratio. The primary non-financial covenants include, but are not limited to,
restrictions on our ability to incur future indebtedness, engage in acquisitions
or dispositions, pay dividends or repurchase capital stock, and enter into
business combinations. Any
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indebtedness outstanding under the revolving credit facility may become
immediately due upon the occurrence of stated events of default, including our
failure to pay principal, interest or fees, or upon the breach of any covenant.
As of October 1, 2022, we were in compliance with the covenants of the Credit
Agreement.
There was $45.0 million in borrowings outstanding under the revolving credit
facility as of October 1, 2022. As of October 1, 2022, the amount available
under the revolving credit facility was reduced by certain letters of credit
outstanding, which amounted to $4.4 million.
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.
Remuneration methods
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 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 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 buybacks
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
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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 October 1, 2022,
we repurchased and retired 51,524 shares and 319,534 shares, respectively, under
our share repurchase program at an average price per share of $97.04 and $86.47,
respectively. During the fiscal quarter and fiscal year-to-date period ended
October 2, 2021, we repurchased and retired 53,012 shares and 219,564 shares,
respectively, under our share repurchase program at an average price per share
of $94.32 and $66.72, respectively. In addition, during the second quarter of
fiscal 2021, we repurchased 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.
As of October 1, 2022, we had approximately $22.9 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 October 1, 2022, we paid dividends
and dividend equivalents of $2.2 million and $6.9 million, respectively. During
the fiscal quarter and fiscal year-to-date period ended October 2, 2021, we paid
dividends and dividend equivalents of $1.9 million and $5.9 million,
respectively.
Impact of inflation
To date, inflation has not had a material impact on our financial results. However, there can be no assurance 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 consist primarily of funds needed to:
•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;
•hiring people to rebuild and expand our employee base;
• capital expenditures, mainly for computer equipment, office furniture and leasehold improvements;
•debt service and repayments, including interest payments on borrowings from our revolving credit facility;
• share buybacks under programs which we may have in effect from time to time;
•dividends to shareholders;
•possible business acquisitions that would enable us to diversify or expand our service offerings;
•any potential 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 (as necessary), will provide
adequate cash to fund our long-term cash needs from normal operations for at
least the next twelve months.
25
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Contents
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 customer accounts;
•our relative levels of debt and equity;
•the volatility and general state of the capital markets; and
•the market prices of our shares.
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 we currently believe
are not significant, develops into an actual event, then our business, financial
condition, and results of operations could be adversely affected.
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