Exponent(EXPO) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited financial statements for Q3 2019, reflecting revenue growth and the adoption of a new lease standard Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | September 27, 2019 | December 28, 2018 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $132,843 | $127,059 | +$5,784 | | Accounts receivable, net | $128,333 | $105,814 | +$22,519 | | Total current assets | $351,532 | $326,612 | +$24,920 | | Operating lease right-of-use assets | $23,715 | $0 | +$23,715 | | Total assets | $544,491 | $468,936 | +$75,555 | | Total current liabilities | $101,034 | $98,304 | +$2,730 | | Total liabilities | $187,212 | $155,027 | +$32,185 | | Total stockholders' equity | $357,279 | $313,909 | +$43,370 | - The company adopted a new lease accounting standard in 2019, resulting in the recognition of $23.7 million in Operating lease right-of-use assets and corresponding lease liabilities on the balance sheet[11][30] Condensed Consolidated Statements of Income Statement of Income Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YoY Change | Nine Months 2019 | Nine Months 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $101,548 | $95,302 | +6.6% | $307,085 | $287,380 | +6.9% | | Operating Income | $23,184 | $20,594 | +12.6% | $63,761 | $64,670 | -1.4% | | Net Income | $19,633 | $17,453 | +12.5% | $63,339 | $56,218 | +12.7% | | Diluted EPS | $0.36 | $0.32 | +12.5% | $1.17 | $1.04 | +12.5% | | Dividends per share | $0.160 | $0.130 | +23.1% | $0.480 | $0.390 | +23.1% | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended (in thousands) | Cash Flow Activity | September 27, 2019 | September 28, 2018 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $52,293 | $46,826 | +$5,467 | | Net cash used in investing activities | ($11,717) | ($21,958) | +$10,241 | | Net cash used in financing activities | ($34,437) | ($28,271) | -$6,166 | | Net increase (decrease) in cash | $5,784 | ($3,817) | +$9,601 | | Cash and cash equivalents at end of period | $132,843 | $120,977 | +$11,866 | - The increase in cash from operating activities was primarily driven by higher net income, while financing cash usage grew due to higher dividend payments[24][119][120] Notes to Unaudited Condensed Consolidated Financial Statements - The company adopted the new lease accounting standard (Topic 842), which materially impacted the balance sheet by recognizing right-of-use (ROU) assets and lease liabilities[30][32][34] - Time and materials contracts constituted 84.9% of total revenues for the first nine months of 2019, up from 83.3% in the prior year period[35] Segment Revenues for Nine Months Ended (in thousands) | Segment | September 27, 2019 | September 28, 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Engineering and Other Scientific | $250,134 | $231,980 | +7.8% | | Environmental and Health | $56,951 | $55,400 | +2.8% | | Total Revenues | $307,085 | $287,380 | +6.9% | - On October 17, 2019, the Board of Directors declared a quarterly cash dividend of $0.16 per share[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2019 financial results, highlighting revenue drivers, net income growth, and key client projects Results of Operations - Three Months Ended Q3 2019 vs Q3 2018 Performance (in thousands) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $101,548 | $95,302 | +6.6% | | Revenues before reimbursements | $95,506 | $88,714 | +8.0% | | Net Income | $19,633 | $17,453 | +12.0% | - Growth was driven by strong demand in biomedical engineering, chemical regulation, construction consulting, and other scientific practices[90] - A project for an electric utility client, focused on infrastructure integrity and wildfire risk mitigation, contributed approximately 4% of revenues before reimbursements in Q3 2019[90] - The effective tax rate decreased from 27.2% to 22.1% year-over-year, primarily due to a significant increase in the excess tax benefit from stock-based awards[104] Results of Operations - Nine Months Ended Nine Months 2019 vs 2018 Performance (in thousands) | Metric | Nine Months 2019 | Nine Months 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $307,085 | $287,380 | +6.9% | | Engineering & Other Scientific Revenue | $250,134 | $231,980 | +7.8% | | Environmental & Health Revenue | $56,951 | $55,400 | +2.8% | - Compensation and related expenses increased by 10.0% primarily due to higher payroll from an increased number of employees and salary adjustments[108] - The effective tax rate for the nine-month period decreased to 18.1% from 21.2% in the prior year, driven by a larger excess tax benefit from stock-based awards[117] Liquidity and Capital Resources - As of September 27, 2019, the company held $210.0 million in cash, cash equivalents, and short-term investments, deemed sufficient for near-term liquidity needs[118] - Net cash from operations increased to $52.3 million for the first nine months of 2019, up from $46.8 million in the prior year, mainly due to higher net income[118][119] - Capital expenditures increased due to construction costs for a new office and laboratory facility in Natick, Massachusetts[120] Non-GAAP Financial Measures - The company uses EBITDA and EBITDAS as key non-GAAP measures to evaluate operating performance[127] Reconciliation of Net Income to EBITDA and EBITDAS (in thousands) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $19,633 | $17,453 | $63,339 | $56,218 | | EBITDA | $25,968 | $24,810 | $79,394 | $74,255 | | EBITDAS | $29,812 | $28,382 | $92,979 | $87,860 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations on its investment portfolio and foreign currency exchange rates - Primary market risks are interest rate fluctuations on its portfolio of cash and investments, and foreign currency exchange rate changes[132][133] - The main foreign currency exposures are to the British Pound, the Euro, and the Chinese Yuan, which the company does not hedge[133][136] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 27, 2019[138] - No material changes in internal control over financial reporting occurred during the third quarter of 2019[139] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reports no involvement in any material legal proceedings - Exponent is not currently involved in any material legal proceedings[141] Item 1A. Risk Factors Details key business risks including client dependency, talent retention, cybersecurity, and international operations - The business is unpredictable as it is primarily reactive to client requests, making backlog an unreliable indicator of future revenue[143] - Success is highly dependent on attracting and retaining qualified technical and managerial personnel in a competitive market[145] - A client's inability to pay for services poses a risk, with $3.0 million in pre-bankruptcy accounts receivable from PG&E Corp outstanding[149][150] - The company faces risks from potential security breaches of its operating systems, which could disrupt operations and lead to data disclosure[160] - International operations create special risks, including currency fluctuations, regulatory hurdles, and compliance with laws like the FCPA and GDPR[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company provides an update on its stock repurchase program, noting no shares were repurchased in Q3 2019 - The company did not repurchase any of its common stock during the third quarter of 2019[179] - As of September 27, 2019, the company had $92,462,000 remaining under its authorized stock repurchase programs[179] Item 6. Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications - Exhibits filed include certifications from the Chief Executive Officer and Chief Financial Officer[184][185]