Cra International (CRAI) Risk Analysis

Our revenues and profitability are largely based on the bill rates charged to our clients, compensation costs and the utilization of our consultants. We calculate utilization by dividing the total hours worked by our employee consultants on engagements during the measurement period by the total number of hours that our employee consultants were available to work during that period. If we are not able to maintain adequate bill rates for our services, maintain compensation costs or obtain appropriate utilization rates from our consultants, our results of operations may be adversely impacted. Bill rates, compensation costs and consultant utilization rates are affected by a number of factors, including: - Our clients' perceptions of our ability to add value through our services;- The market demand for our services;- Our competitors' pricing of services and compensation levels;- The market rate for consultant compensation;- Our ability to redeploy consultants from completed client engagements to new client engagements; and - Our ability to predict future demand for our services and maintain the appropriate staffing levels without significantly underutilizing consultants.

The market for litigation, regulatory, financial, and management consulting services is intensely competitive, highly fragmented, and subject to rapid change. We may be unable to compete successfully with our existing competitors or with any new competitors. In general, there are few barriers to entry into our markets, and we expect to face additional competition from new entrants into the economic and management consulting industries. In the litigation, regulatory, and financial consulting markets, we compete primarily with other economic and financial consulting firms and individual academics. In the management consulting market, we compete primarily with other business and management consulting firms, specialized or industry-specific consulting firms, the consulting practices of large accounting firms, and the internal professional resources of existing and potential clients. Many of our competitors have national or international reputations, as well as significantly greater personnel, financial, managerial, technical, and marketing resources than we do, which could enhance their ability to respond more quickly to technological changes, finance acquisitions, and fund internal growth. Some of our competitors also have a significantly broader geographic presence and significantly more resources than we do.

We derive a portion of our revenues from a limited number of large engagements. If we do not obtain a significant number of new large engagements each year, our business, financial condition, and results of operations could suffer. In general, the volume of work we perform for any particular client varies from year to year, and due to the specific engagement nature of our practice, a major client in one year may not hire us in the following year.

Our ability to secure new engagements and hire qualified consultants as employees depends heavily on our overall reputation as well as the individual reputations of our employee consultants and principal non-employee experts. Additionally, failure to comply with governmental, regulatory and legal requirements or with our company-wide policies could lead to governmental or legal proceedings that could expose us to significant liabilities and damage our reputation. Because we obtain a majority of our revenues from new engagements with existing clients, any client that is dissatisfied with our performance on a single matter could seriously impair our ability to secure new engagements. Given the frequently high-profile nature of the matters on which we work, any factor that diminishes our reputation or the reputations of any of our employee consultants or non-employee experts could make it substantially more difficult for us to compete successfully for both new engagements and qualified consultants.

Our services typically involve difficult analytical assignments and carry risks of professional and other liability. Many of our engagements involve matters that could have a severe impact on a client's business, and cause the client to lose significant amounts of money, or prevent the client from pursuing desirable business opportunities. Accordingly, if a client is dissatisfied with our performance, the client could threaten or bring litigation in order to recover damages or to contest its obligation to pay our fees. Litigation alleging that we performed negligently, disclosed client confidential information, or otherwise breached our obligations to the client could expose us to significant liabilities to our clients and other third parties and tarnish our reputation. Despite our efforts to prevent litigation, from time to time we are party to various lawsuits, claims, or assessments in the ordinary course of business. Disputes may arise, for example, from business acquisitions, employment issues, regulatory actions, and other business transactions. The costs and outcome of any lawsuits or claims could have a material adverse effect on our business and results of operations.

We are subject to income and other taxes in the U.S. at the state and federal level and also in foreign jurisdictions. Changes in applicable U.S. state, federal or foreign tax laws and regulations, or their interpretation and application, could materially affect our tax expense and profitability. Future changes in tax laws, treaties or regulations, and their interpretation or enforcement, may be unpredictable, particularly as taxing jurisdictions face an increasing number of political, budgetary and other fiscal challenges. Tax rates in the jurisdictions in which we operate may change as a result of macroeconomic and other factors outside of our control, making it increasingly difficult for multinational corporations like ourselves to operate with certainty about taxation in many jurisdictions. As a result, we could be materially adversely affected by future changes in tax law or policy (or in their interpretation or enforcement) in the jurisdictions where we operate, including the United States, which could have a material adverse effect on our business, cash flow, results of operations, financial condition, as well as our effective income tax rate.

There is varied regulation and focus on ESG matters across different jurisdictions, and stakeholder views and priorities regarding these matters continue to evolve and sometimes diverge. The European Union's Corporate Sustainability Reporting Directive and from other governmental organizations, and our investors, clients and employees, maintain interest in ESG issues such as environmental stewardship, climate change, and workforce development. How these various stakeholders evaluate and prioritize different ESG initiatives may shift over time in ways that are difficult to predict. We continue to evaluate existing, new and proposed governmental requirements, and to monitor, report and assess policies and practices that we believe will align with our client, investor and other third-party imposed ESG-related standards and expectations. For example, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters, and their evolving methodologies and assessments may lead to negative investor sentiment, stock price fluctuations and the diversion of investment to other companies. If our ESG practices do not meet evolving rules and regulations or investor or other stakeholder expectations and standards (or if we are viewed in a negative light based on positions we do or do not take or work we do or do not perform for certain clients or industries), then our reputation, our ability to attract or retain employee consultants and non-employee experts, and our ability to attract new engagements and clients could be negatively impacted, as could our attractiveness as an investment, service provider, business partner or acquirer. Additionally, the relative importance that different stakeholders place on various ESG initiatives may conflict, making it difficult to satisfy all stakeholder expectations. Similarly, our failure or perceived failure to pursue or fulfill our current or future goals, targets and objectives or to satisfy various reporting standards within the timelines we announce, or at all, could also have similar negative impacts.

Overall global economic, business, health and political conditions, as well as conditions specific to the industries we or our clients serve, can affect our clients' businesses and financial condition, their demand or ability to pay for our services, and the market for our services. These conditions, all of which are outside of our control, include but are not limited to merger and acquisition activity levels, the availability, cost and terms of credit, the state of the United States and global financial markets, including the impact of rising inflation rates, the levels of litigation and regulatory and administrative investigations and proceedings, global health crises and pandemics, political developments, geopolitical unrest or other conflicts in foreign nations, natural disasters and the potential impact such developments, uncertainties or further unrest could have on our clients, on the markets in which we operate and on general economic and business conditions. In addition, many of our clients are in highly regulated industries, and regulatory and legislative changes affecting these industries could impact the market for our service offerings, render our current service offerings obsolete, or increase the competition among providers of these services. Although we are not able to predict the positive or negative effects that general changes in global economic, business and political conditions will have on our individual practice areas or our business as a whole, any specific changes in these conditions could have a material adverse impact on our revenues, results of operations and financial condition.

Our international operations carry financial and business risks, including: - adverse social, political and economic conditions, such as inflation, rising interest rates and risk of global or regional recession;- unexpected changes in trading policies, regulatory requirements, tariffs, and other barriers;- restrictions on the repatriation of earnings;- potentially adverse tax consequences, such as changes in tax laws and statutory tax rates;- the impact of differences in the governmental, legal and regulatory environment in foreign jurisdictions, as well as U.S. laws and regulations related to our foreign operations;- political developments, geopolitical unrest or other conflicts or natural disasters in foreign nations; and - civil disturbances or other catastrophic events that reduce business activity. If our international revenues increase relative to our total revenues, the above listed factors could have a more pronounced effect on our operating results.

We conduct our business in the Americas, Europe, and Australia, and the global scope of our business exposes us to risk of fluctuations in foreign currency markets. Specifically, our results of operations are subject to fluctuations primarily in the British Pound and Euro against the U.S. Dollar as well as the Euro against the British Pound. The fluctuation in foreign currency markets can both increase and decrease our overall revenue and expenses for any fiscal period, and therefore has a resulting negative impact on our reported results of operations and on our ability to predict our future results and earnings accurately. Additionally, global economic events have caused and may continue to cause significant volatility in currency exchange rate fluctuations. Revenue generated from our U.K.-based operations was approximately 13% (which includes currency exchange effects) of our total revenues for the year ended December 28, 2024. We currently do not hedge our exposure to current foreign currency exchange risks by engaging in foreign exchange hedging transactions, though we may do so in the future.

As a professional services organization, we may rely on post-employment restrictions with some of our employees and non-employee experts to protect our proprietary rights. These agreements, however, may offer us only limited protection and may not be enforceable in every jurisdiction. In addition, we may incur substantial costs trying to enforce these agreements. Our services may involve the development of custom business processes or solutions for specific clients. In some cases, the clients retain ownership or impose restrictions on our ability to use the business processes or solutions developed from these projects. Issues relating to the ownership of business processes or solutions can be complicated, and disputes could arise that affect our ability to resell or reuse business processes or solutions we develop for clients. In recent years, there has been significant litigation in the U.S. involving patents and other intellectual property rights. We could incur substantial costs in prosecuting or defending any intellectual property litigation, which could adversely affect our operating results and financial condition. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our proprietary rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Any such resulting litigation could result in substantial costs and diversion of resources and could adversely affect our business, operating results and financial condition. Any failure by us to protect our proprietary rights, or any court determination that we have either infringed or lost ownership of proprietary rights, could adversely affect our business, operating results and financial condition.

We rely upon our information and technology infrastructure and systems, including from third parties, to operate, manage and run our business and to provide services to our clients. This includes infrastructure and systems for receiving, storing, hosting, analyzing, transmitting and securing our and our clients' sensitive, confidential or proprietary information, including, but not limited to, health and other personally-identifiable information and commercial, financial and consumer data. Our ability to secure and maintain the confidentiality, integrity and availability of both these systems and this information is critical to our reputation and the success of our businesses. Our information and technology systems may be affected by or subject to events that are out of our control, including, but not limited to, the possibility of disruptions or outages or cybersecurity incidents which continue to evolve (including from emerging technologies such as AI) and pose a constant risk. Examples of these events include malicious attacks, unauthorized system intrusions by unknown third parties, viruses, malicious software, ransomware, worms, insider threats, failures in our or our third party hosting sites' (whether hosted offsite or in the cloud) information and technology systems, unavailability of backup restoration, disruptions in the Internet or electricity grids, natural disasters, and terrorism. Any of these events could disrupt our or our client's business operations or cause us or our clients to incur unanticipated losses, including the costs of investigating and remediating any such event and any fines/settlements related thereto, as well as reputational damage, any of which could have a material adverse effect on our business and results of operations. In the past we have experienced, and we anticipate we will continue to experience cybersecurity threats to our systems. In addition, our or our clients' sensitive, confidential or proprietary information could be compromised, corrupted, or lost whether intentionally or unintentionally, by various causes such as an inadvertent disclosure or cybersecurity incident (as described above). This client information could be compromised or corrupted because of groups that include without limitation our employees, outside consultants, vendors, or rogue third-party "hackers" or enterprises (including nation-state sponsored groups). Any unauthorized access, corruption, or loss of clients' information could result in our suffering claims, fines, damages, losses or reputational damage, any of which could have a material adverse effect on our business and results of operations. Further, we also must comply with applicable U.S. and foreign privacy laws and regulations, including the General Data Privacy Regulation ("GDPR") in the European Union and its United Kingdom equivalent, laws that adopt the GDPR as a model (such as Brazil's General Law for the Protection of Privacy), and U.S. state and federal laws such as the California Consumer Protection Act, and these laws are becoming increasingly complex and vary by jurisdiction. In addition to directly applying, our clients impose contractual obligations regarding compliance with these laws. The costs of complying with these laws and any fines resulting from lack of compliance, and the other costs of protecting our and our clients' confidential information, could have a material effect on our financial results. Although we have insurance intended to provide coverage for cybersecurity incidents, data protective violations, and similar concepts, the level of coverage may not be sufficient for the event or the event may be outside of the policy's coverage.