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| EXPO > SEC Filings for EXPO > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements and notes thereto for the fiscal year ended January 2, 2009, which are contained in our fiscal 2008 Annual Report on Form 10-K.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995, and the rules promulgated pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended thereto) that are based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company's management. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. When used in this document and in the documents incorporated herein by reference, the words "anticipate," "believe," "estimate," "expect" and similar expressions, as they relate to the Company or its management, identify such forward-looking statements. Such statements reflect the current views of the Company or its management with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, the absence of backlog related to our business, our ability to attract and retain key employees, the effect of tort reform and government regulation on our business and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our 2008 Annual Report on Form 10-K under the heading "Risk Factors" and elsewhere in the report. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans, or expectations contemplated by the Company will be achieved. Due to such uncertainties and risks, you are warned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. The Company does not intend to release publicly any updates or revisions to any such forward-looking statements.
Business Overview
Exponent, Inc. is an engineering and scientific consulting firm that provides solutions to complex problems. Our multidisciplinary team of scientists, physicians, engineers and business consultants brings together more than 90 different technical disciplines to solve complicated issues facing industry and business today. Our services include analysis of product development, product recall, regulatory compliance, and discovery of potential problems related to products, people or property and impending litigation, as well as the development of highly technical new products.
CRITICAL ACCOUNTING ESTIMATES
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition and estimating the allowance for doubtful accounts have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. Policies covering revenue recognition and estimating the allowance for doubtful accounts are described in our fiscal 2008 Annual Report on Form 10-K under "Critical Accounting Estimates" and Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated Financial Statements.
RESULTS OF CONSOLIDATED OPERATIONS
Overview of the Three Months Ended July 3, 2009
During the second quarter of 2009, we had a 10.7% increase in revenues and a 3.2% increase in revenues before reimbursements as compared to the same period last year. Our consolidated revenue growth was primarily driven by higher billing rates and an increase in product sales to the United States Army in our technology development practice. Billable hours for the second quarter of 2009 decreased 1.1% to 218,092 as compared to 220,608 during the same period last year. Technical full-time equivalents increased 2.4% to 629 during the second quarter of 2009 as compared to 614 during the same period last year. This increase in technical full-time equivalents was due to our recruiting and retention efforts. Utilization decreased to 67% for the second quarter of 2009 as compared to 69% during the same period last year. The decrease in billable hours and utilization was due in part to one more holiday during the second quarter of 2009 as compared to the second quarter of 2008. Product sales in our technology development practice increased 250% to $6,901,000 for the second quarter of 2009 as compared to $1,972,000 during the same period last year. This increase in product sales was primarily due to an increase in sales of surveillance systems to the United States Army. Due to the management of our operating expenses, we were able to leverage the growth in revenues before reimbursements to improve net income by 4.0% as compared to the same period last year.
Three Months Ended July 3, 2009 compared to Three Months Ended June 27, 2008
Revenues
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Engineering and other scientific $ 46,611 $ 42,138 10.6 %
Percentage of total revenues 76.6 % 76.7 %
Environmental and health 14,251 12,818 11.2 %
Percentage of total revenues 23.4 % 23.3 %
Total revenues $ 60,862 $ 54,956 10.7 %
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The increase in revenues for our engineering and other scientific segment was driven by higher billing rates and an increase in product sales in our technology development practice. During the second quarter of 2009, billable hours for this segment decreased by 2.9% to 160,501 as compared to 165,364 during the same period last year. Technical full-time equivalents increased 0.4% to 456 from 454 for the same period last year. Utilization decreased to 68% for the second quarter of 2009 as compared to 70% for the same period last year. The decrease in billable hours and utilization was due in part to one more holiday during the second quarter of 2009 as compared to the second quarter of 2008. Product sales in our technology development practice increased 250% to $6,901,000 for the second quarter of 2009 as compared to $1,972,000 during the same period last year. This increase in product sales was primarily due to an increase in sales of surveillance systems to the United States Army.
The increase in revenues for our environmental and health segment was driven by an increase in billable hours and higher billing rates. The increase in billable hours was primarily due to an increase in activity in our center for chemical registration and food safety. During the second quarter of 2009, billable hours for this segment increased by 4.2% to 57,591 as compared to 55,244 during the same period last year. Technical full-time equivalents increased by 8.1% to 173 from 160 for the same period last year due to our recruiting and retention efforts. Utilization decreased to 64% for the second quarter of 2009 as compared to 66% during the same period last year due in part to one more holiday during the second quarter of 2009 as compared to the second quarter of 2008.
Compensation and Related Expenses
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Compensation and related expenses $ 34,954 $ 33,197 5.3 %
Percentage of total revenues 57.4 % 60.4 %
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The increase in compensation and related expenses during the second quarter of 2009 was due to an increase in payroll, fringe benefits and the change in value of assets associated with our deferred compensation plan. Payroll increased by $879,000 and fringe benefits increased by $126,000 due to an increase in technical full-time equivalent employees and the impact of our annual salary increase. During the second quarter of 2009, the value of assets in our deferred compensation plan increased $564,000, resulting in a corresponding increase to compensation expense. During the second quarter of 2008, the value of assets in our deferred compensation plan decreased $83,000, resulting in a corresponding decrease in compensation expense.
Other Operating Expenses
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Other operating expenses $ 5,309 $ 5,588 (5.0 )%
Percentage of total revenues 8.7 % 10.2 %
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Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The decrease in other operating expenses was primarily due to a decrease in technical materials of $154,000 and a decrease in occupancy expenses of $137,000 as part of our continuing efforts to manage our cost structure.
Reimbursable Expenses
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Reimbursable expenses $ 8,433 $ 4,155 103.0 %
Percentage of total revenues 13.9 % 7.6 %
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The increase in reimbursable expenses was primarily due to an increase in project related costs in our technology development practice. The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects.
General and Administrative Expenses
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
General and administrative expenses $ 3,227 $ 3,207 0.6 %
Percentage of total revenues 5.3 % 5.8 %
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The increase in general and administrative expenses during the second quarter of 2009 was due to an increase in bad debt expense of $641,000 and an increase in legal fees of $113,000, partially offset by a decrease in travel and meals of $683,000. The increase in bad debt expense was primarily due to the second quarter bankruptcy filings of Chrysler and General Motors, which resulted in bad debt expense of $349,000 and $134,000, respectively. The increase in legal fees was due to costs related to a proposal to provide consulting services to the United States government. The decrease in travel and meals was due to our continuing efforts to manage our cost structure.
Other Income, Net
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Other income, net $ 1,098 $ 818 34.2 %
Percentage of total revenues 1.8 % 1.5 %
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Other income, net, consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing space in our Silicon Valley facility. The increase in other income, net, was due to a change in value of assets associated with our deferred compensation plan partially offset by a decrease in interest income. During the second quarter of 2009, we recorded an increase to other income, net, of $564,000 due to an increase in the value of assets in our deferred compensation plan. During the second quarter of 2008, we recorded a decrease to other income, net, of $83,000 due to a decrease in the value of assets in our deferred compensation plan. The decrease in interest income of $263,000 was due to a decrease in average balances of our cash equivalents and short-term investments, and lower interest rates.
Income Taxes
Three Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Income taxes $ 4,012 $ 3,834 4.6 %
Percentage of total revenues 6.6 % 7.0 %
Effective tax rate 40.0 % 39.8 %
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The increase in income tax expense was due to a corresponding increase in pre-tax income.
Six Months Ended July 3, 2009 compared to Six Months Ended June 27, 2008
Revenues
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Engineering and other scientific $ 91,866 $ 85,733 7.2 %
Percentage of total revenues 76.1 % 77.1 %
Environmental and health 28,792 25,483 13.0 %
Percentage of total revenues 23.9 % 22.9 %
Total revenues $ 120,658 $ 111,216 8.5 %
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The increase in revenues for our engineering and other scientific segment was driven by an increase in billable hours, higher billing rates and an increase in product sales in our technology development practice. During the first six months of 2009, billable hours for this segment increased by 0.7% to 334,916 as compared to 332,551 during the same period last year. Technical full-time equivalents increased 2.7% to 464 from 452 for the same period last year due to our recruiting and retention efforts. Utilization decreased to 69% for the first six months of 2009 as compared to 71% for the same period last year due to technical full-time equivalents growing faster than demand for our services. Product sales in our technology development practice increased 51.0% to $7,887,000 for the first six months of 2009 as compared to $5,223,000 during the same period last year.
The increase in revenues for our environmental and health segment was driven by an increase in billable hours and higher billing rates. The increase in billable hours was primarily due to an increase in activity in our center for chemical registration and food safety. During the first six months of 2009, billable hours for this segment increased by 8.6% to 117,181 as compared to 107,931 during the same period last year. Technical full-time equivalents increased by 8.9% to 172 from 158 for the same period last year due to our recruiting and retention efforts. Utilization was 66% for the first six months of 2009 and 2008.
Compensation and Related Expenses
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Compensation and related expenses $ 72,800 $ 66,707 9.1 %
Percentage of total revenues 60.3 % 60.0 %
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The increase in compensation and related expenses during the first six months of 2009 was due to an increase in payroll, fringe benefits, and the change in value of assets associated with our deferred compensation plan. Payroll increased by $3,683,000 and fringe benefits increased by $550,000 due to an increase in technical full-time equivalent employees and the impact of our annual salary increase. During the first six months of 2009, the value of assets in our deferred compensation plan increased $455,000, resulting in a corresponding increase to compensation expense. During the first six months of 2008, the value of assets in our deferred compensation plan decreased $506,000, resulting in a corresponding decrease to compensation expense.
Other Operating Expenses
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Other operating expenses $ 10,586 $ 11,016 (3.9 )%
Percentage of total revenues 8.8 % 9.9 %
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Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The decrease in other operating expenses was primarily due to a decrease in technical materials of $246,000 and a decrease in occupancy expenses of $156,000 as part of our continuing efforts to manage our cost structure.
Reimbursable Expenses
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Reimbursable expenses $ 13,298 $ 8,393 58.4 %
Percentage of total revenues 11.0 % 7.5 %
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The increase in reimbursable expenses was primarily due to an increase in project related costs in our technology development practice. The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects.
General and Administrative Expenses
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
General and administrative expenses $ 5,859 $ 6,196 (5.4 )%
Percentage of total revenues 4.9 % 5.6 %
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The decrease in general and administrative expenses during the first six months of 2009 was due to decreases in travel and meals of $876,000, professional development of $131,000 and recruiting and relocation of $117,000 partially offset by an increase in bad debt of $662,000. The decreases in travel and meals, professional development, and recruiting and relocation were due to our continuing efforts to manage our cost structure. The increase in bad debt expense was primarily due to the second quarter bankruptcy filings of Chrysler and General Motors, which resulted in bad debt expense of $349,000 and $134,000, respectively.
Other Income, Net
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Other income, net $ 1,490 $ 1,255 18.7 %
Percentage of total revenues 1.2 % 1.1 %
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Other income, net, consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing space in our Silicon Valley facility. The increase in other income, net, was due to the change in value of assets associated with our deferred compensation plan partially offset by a decrease in interest income. During the first six months of 2009, we recorded an increase to other income, net, of $455,000 due to an increase in the value of assets in our deferred compensation plan. During the first six months of 2008, we recorded a decrease to other income, net, of $506,000 due to a decrease in the value of assets in our deferred compensation plan. The decrease in interest income of $531,000 was due to a decrease in average balances of our cash equivalents and short-term investments, and lower interest rates.
Income Taxes
Six Months Ended
July 3, June 27, Percent
(In thousands) 2009 2008 Change
Income taxes $ 7,822 $ 8,019 (2.5 )%
Percentage of total revenues 6.5 % 7.2 %
Effective tax rate 39.9 % 39.8 %
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The decrease in income tax expense was due to a corresponding decrease in pre-tax income.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 168 ("SFAS No. 168"), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162. The FASB Accounting Standards Codification ("Codification") will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The Codification does not change GAAP and will not have a material impact on the Company's consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
As of July 3, 2009, our cash, cash equivalents and short-term investments were
$52.1 million compared to $57.4 million at January 2, 2009.
Six Months Ended
July 3, June 27,
(In thousands) 2009 2008
Net cash (used in) provided by operating activities $ (856 ) $ 10,451
Net cash provided by (used in) investing activities 11,614 (3,836 )
Net cash used in financing activities (4,326 ) (10,164 )
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The change in net cash used in operating activities during the first six months of 2009 as compared to the same period last year was due to a larger increase in accounts receivable and a decrease in accounts payable and accrued liabilities, net of the tax benefit for stock plans. The larger increase in accounts receivable was due to an increase in days sales outstanding. Days sales outstanding increased to 101 days during the first six months of 2009 as compared to 96 days during the same period last year. The decrease in accounts payable and accrued liabilities during the first six months of 2009 was due to the timing of payments to vendors.
The change in net cash provided by investing activities during the first six months of 2009 was due to an increase of $13,846,000 in net sales and maturities of short-term investments and a decrease in capital expenditures of $1,604,000.
The decrease in net cash used in financing activities during the first six months of 2009 was primarily due to a decrease in treasury repurchases of $9,707,000 partially offset by a decrease in the tax benefit for stock award plans of $2,429,000.
We expect to continue our investing activities, including purchases of short-term investments and capital expenditures. Furthermore, cash reserves may be used to repurchase common stock under our stock repurchase program or strategically acquire professional services firms that are complementary to our business.
The following schedule summarizes our principal contractual commitments as of July 3, 2009 (in thousands):
Operating
lease Capital Purchase
Fiscal year commitments leases obligations Total
2009 $ 2,781 $ 3 $ 865 $ 3,649
2010 4,351 6 - 4,357
2011 3,592 6 - 3,598
2012 3,355 3 - 3,358
2013 1,564 2 - 1,566
Thereafter 3,924 - - 3,924
$ 19,567 $ 20 $ 865 $ 20,452
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