CRAI — Q2 2026 Financial Report Analysis

Overview

Charles River Associates (CRA), the Boston consulting firm best known for the economists and financial experts it supplies to antitrust cases, litigation and regulators, grew fiscal second-quarter revenue 12.8% to a record $210.8 million for the quarter ended July 4, 2026. Net income rose 11.4% to $13.5 million and diluted earnings per share (EPS, profit divided by shares) rose faster, 17.3% to $2.10, because the company has been buying back stock. Management raised its full-year revenue guidance to $805–820 million from $785–805 million. The less flattering part of the quarter is in the cash-flow statement: CRA is paying heavily, in cash and up front, to recruit and keep senior consultants, and it is funding that plus buybacks with borrowed money.

At a glance

• Revenue +12.8% to $210.8M, with eight practices growing and international revenue up 32.9%. Demand, not just pricing, is doing the work: utilization (the share of consultants' available hours billed to clients) edged up to 77% from 76% and consultant headcount rose 3.3% to 968.
• Operating margin 11.2% vs 10.6%, but the improvement came from paying outside experts less in commissions, while the cost of recruiting-related "forgivable loans" climbed to 7.0% of revenue from 5.5%.
• $185M of net borrowing in the first half brought the revolving credit line to $219M (from $120M a year earlier). The money covered bonus payouts, $80.4M of new forgivable loans to staff, $49.3M of buybacks and $7.4M of dividends.

Key Metrics

Fiscal Q2 2026 ran from April 5 to July 4, 2026; fiscal Q2 2025 ended June 28, 2025. Currency barely mattered: at last year's exchange rates, revenue would have been $0.4 million lower and EPS unchanged.

Takeaway: CRA is growing faster than a year ago, but it is paying for that growth up front: it lends senior consultants money and forgives the loans as long as they stay. That spending pushed operating cash flow to −$118M in the first half and the revolving credit line to $219M while the company was also buying back stock. Earnings will show the cost gradually, as about $15M more of loan forgiveness expense this year. The cash has already gone out.

Where the growth came from

CEO Paul Maleh said in the earnings release that eight practices grew year over year, six of them by double digits: Energy, Finance, Forensic Services, Intellectual Property, Life Sciences, and Risk, Investigations & Analytics. Antitrust & Competition Economics, CRA's best-known practice, set a new quarterly revenue record. Across the two business lines:

• Legal & Regulatory (expert testimony and economic analysis for lawsuits, mergers and regulators) grew 10.1%.
• Management Consulting (strategy and operations work for companies) grew 25.5%.
• North America grew 8.7%; international operations grew 32.9%, lifting their share of revenue to about 22% from 19%.

The faster management-consulting growth changes how CRA gets paid. The 10-Q says revenue from fixed-price projects rose to 23% of the total from 16%, because that business uses fixed-fee contracts more often than litigation work, which is mostly billed by the hour. Fixed-price work exposes CRA to cost overruns that hourly billing would pass on to the client.

The growth came from more people working more of their hours: headcount rose 3.3% and utilization one point, so revenue per consultant also increased. Growing revenue 12.8% on 3.3% more staff points to higher rates, more senior staffing on projects, or both. The filing doesn't break that out.

Margins: one tailwind covers a growing cost

Costs of services, mostly consultant pay, rose 15.7%, faster than revenue, and reached 70.6% of revenue against 68.8% a year ago. According to the 10-Q, the $20.2 million increase came from $15.1 million more employee and incentive pay and $4.7 million more forgivable loan amortization. Forgivable loans are a recruiting and retention tool that is common in consulting: CRA advances cash to a senior hire or a non-employee expert and forgives the loan over two to eight years as long as the person stays, recording the forgiven portion as compensation each period. The CFO's prepared remarks put that expense at $14.9 million, or 7.0% of revenue, up from $10.2 million (5.5%).

Selling, general and administrative costs (SG&A) were nearly flat at $35.3 million, so they fell to 16.7% of revenue from 18.8%. The main reason was a $1.9 million drop in commissions paid to non-employee experts, the outside academics and specialists who work on CRA engagements. Those commissions fell to 1.3% of revenue from 2.4%. Excluding commissions, SG&A was 15.5% of revenue against 16.3%, so ordinary overhead also grew more slowly than sales.

In round numbers, the drop in commissions added about 1.1 points to margin and the rise in loan amortization took away about 1.5 points. The 0.6-point overall improvement depended on the commission mix, which changes with which engagements happen to involve outside experts, and on overhead growing slowly. Smaller expert commissions are not something CRA can count on in every quarter.

What the headline numbers hide

• Cash flow is far weaker than earnings, mostly by design. Operating cash flow for the first half was −$118.3 million against net income of $24.6 million, worse than the −$74.1 million a year earlier. Part of this happens every year: CRA pays most of the prior year's bonuses in the first quarter. The year-over-year gap comes from forgivable loans. The company issued $80.4 million of them, net of repayments, in the first half, and its own reconciliation shows $128.9 million of advances over the last twelve months. CRA's non-GAAP "adjusted" cash flow adds those advances back and shows +$13.8 million for Q2, roughly equal to net income. Treat that adjusted figure with care: the advances are real cash spent on hiring and keeping staff, and they are expensed only gradually over the following years.
• Buybacks and dividends were funded with debt. CRA borrowed $185 million net on its revolving credit line in the first half and spent $49.3 million on buybacks plus $7.4 million on dividends. Cash ended the period at only $21.4 million, and shareholders' equity fell to $181.8 million from $213.6 million at fiscal year-end. Net interest expense rose 64% to $3.0 million in the quarter.
• Buybacks did a lot of the EPS growth. Diluted share count fell 5.1% to about 6.41 million. That is why EPS rose 17.3% while net income rose 11.4%. Pre-tax income rose 17.5%, but a higher tax rate took part of that away: the effective tax rate rose to 32.9% from 29.2%, which the 10-Q mainly attributes to more non-deductible executive pay.
• Receivables are growing faster than revenue. Billed and unbilled receivables rose 15.6% year over year to $271.7 million, against 12.8% revenue growth. Days sales outstanding (how long, on average, it takes to collect a dollar of sales) rose to 113 days from 110. Unbilled work, done but not yet invoiced, rose to 45 days from 37, while billed receivables actually fell to 68 days from 73. The extra unbilled time is consistent with more fixed-price project work, which is often invoiced at milestones. The filing doesn't confirm that link.
• The first half looks weaker than the quarter. First-half net income fell 18.2% to $24.6 million and diluted EPS fell to $3.79 from $4.42. Most of that gap is about the prior year rather than this one: first-half 2025 included a $5.4 million reversal of a previously recorded performance award, which lowered costs that year, and first-half 2026 carried $1.6 million of severance and $1.0 million of non-cash charges for "portfolio optimization" (in other words, restructuring). Excluding these items and currency effects, non-GAAP EPS for the half was $4.14 against $4.10, roughly flat. The second quarter itself had no restructuring items. The only non-GAAP adjustment was $0.5 million of currency losses.

Balance sheet and financing

After the quarter ended, CRA replaced its $300 million revolving credit facility, which was due in August 2027, with a five-year, $400 million facility from six banks: a $75 million term loan and a $325 million revolver. The revolver can be cut to $250 million from mid-July to mid-January, the part of the year when CRA needs less working capital. That removes the 2027 maturity and adds borrowing room, which mattered because only $77.3 million of capacity was left under the old facility on July 4. The board also raised the quarterly dividend to $0.57 a share from $0.49 a year ago. About $16.6 million remained under the share repurchase authorization at quarter-end. CRA bought back roughly 193,000 shares in the quarter at an average of about $144, compared with $187 a share in the same quarter last year.

Outlook

For fiscal 2026, at fiscal 2025's exchange rates, management now expects:

• Revenue of $805–820 million (up from $785–805 million)
• Non-GAAP EBITDA margin of 12.0–13.0% (unchanged)

First-half revenue at constant currency was $408.8 million with a 12.2% EBITDA margin, so the guidance implies roughly $396–411 million for the second half. That compares with $382.9 million reported for the second half of fiscal 2025, or growth of roughly 3–7%. The comparison understates underlying growth somewhat, because fiscal 2025 had an extra (53rd) week in its fourth quarter and fiscal 2026 has the usual 52. Even allowing for that, the guidance assumes growth cools from the first half's 11.7%. On the profit side, management expects forgivable loan amortization to rise about $15 million this year; the unchanged 12.0–13.0% margin range already absorbs that cost. Management pointed to "supportive market trends" and "a continued replenishing" of its sales pipeline, a reason to think the range could be raised again, though it also says it is watching geopolitical and macroeconomic conditions.

Our view: The operating picture is good: demand is broad, utilization is steady at 77%, and management consulting and international work are growing quickly. The balance-sheet picture needs watching. CRA is spending cash on recruitment loans and buybacks faster than the business produces it, and covering the difference with a larger credit line. That works while revenue keeps growing to justify the new hires. If a large litigation or merger-review cycle winds down, the forgivable-loan expense stays on the books for years. In the next few quarters, watch whether operating cash flow turns strongly positive in the second half as it usually does (the third and fourth quarters of fiscal 2025 produced $36.5 million and $60.0 million), whether the revolver balance comes down, and whether margins hold if expert commissions go back to more normal levels.

Fiscal Q3 2026 (ending around early October) results are expected in early November 2026.