Exponent(EXPO) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period Financial Statements (unaudited) Exponent, Inc. reported a 9.2% increase in total revenues to $140.3 million, while operating income decreased by 20.7% to $29.1 million, primarily due to higher compensation expenses Condensed Consolidated Balance Sheets The balance sheet shows total assets of $566.4 million and stockholders' equity of $341.9 million as of March 31, 2023 Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $566,427 | $586,662 | ($20,235) | | Cash and cash equivalents | $125,649 | $161,458 | ($35,809) | | Accounts receivable, net | $173,064 | $170,114 | $2,950 | | Total Liabilities | $224,571 | $265,910 | ($41,339) | | Accrued payroll and employee benefits | $63,390 | $105,822 | ($42,432) | | Total Stockholders' Equity | $341,856 | $320,752 | $21,104 | Condensed Consolidated Statements of Income Revenues increased by 9.2% year-over-year, but operating income declined by 20.7% and net income by 1.6% Income Statement Summary (in thousands, except per share data) | Metric | Q1 2023 (Three Months Ended Mar 31) | Q1 2022 (Three Months Ended Apr 1) | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $140,309 | $128,478 | +9.2% | | Revenues before reimbursements | $128,705 | $117,870 | +9.2% | | Operating Income | $29,120 | $36,717 | -20.7% | | Net Income | $29,124 | $29,609 | -1.6% | | Diluted EPS | $0.56 | $0.56 | 0.0% | | Cash dividends declared per share | $0.26 | $0.24 | +8.3% | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was negative, a typical seasonal pattern, while financing activities saw a significant decrease in cash usage due to no stock repurchases Cash Flow Summary (in thousands) | Activity | Three Months Ended Mar 31, 2023 | Three Months Ended Apr 1, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,703) | ($6,352) | | Net cash used in investing activities | ($5,668) | ($2,606) | | Net cash used in financing activities | ($23,740) | ($73,408) | | Net decrease in cash | ($35,809) | ($82,637) | | Cash at end of period | $125,649 | $215,050 | - The primary use of cash in financing activities for Q1 2023 was for dividends ($14.5M) and payroll taxes for restricted stock units ($9.9M)[20] - Unlike Q1 2022, there were no common stock repurchases in Q1 2023[20] Notes to Unaudited Condensed Consolidated Financial Statements Revenue is primarily derived from time and materials contracts, with the Engineering and Other Scientific segment showing strong growth - Revenue is primarily generated from time and materials contracts (80% in Q1 2023), with the remainder from fixed-price contracts (20%)[27][30] Segment Revenues (in thousands) | Segment | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Engineering and Other Scientific | $117,048 | $104,615 | +11.9% | | Environmental and Health | $23,261 | $23,863 | -2.5% | | Total Revenues | $140,309 | $128,478 | +9.2% | Segment Operating Income (in thousands) | Segment | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Engineering and Other Scientific | $43,619 | $38,490 | +13.3% | | Environmental and Health | $7,554 | $7,835 | -3.6% | | Total Segment Operating Income | $51,173 | $46,325 | +10.5% | - One client accounted for 13% of total revenues in Q1 2023, consistent with the same period in 2022[57] - On April 27, 2023, the Board of Directors declared a quarterly cash dividend of $0.26 per share[66] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue growth to strong demand for reactive and proactive services, while operating income decreased due to higher compensation and G&A expenses Results of Consolidated Operations Revenue growth was driven by increased demand for reactive and proactive services, despite a decrease in utilization due to increased technical headcount - Revenue growth was driven by increased demand for reactive services (litigation, product safety/recall) and proactive engagements in consumer products, chemicals, utilities, automotive, and life sciences[73] Key Operational Metrics | Metric | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Billable Hours (thousands) | 385 | 374 | +3% | | Utilization | 70% | 77% | -7 p.p. | | Technical FTEs | 1,052 | 939 | +12% | - The decrease in net income was primarily due to a smaller excess tax benefit from stock-based awards, which fell to $3.6 million in Q1 2023 from $6.0 million in Q1 2022[76] - Compensation and related expenses increased by 22.4%, largely due to an $8.6 million increase in deferred compensation expense resulting from changes in the market value of plan assets[83][92] - This had a corresponding offset in 'Other income, net'[83][92] - General and administrative expenses rose 38.1% due to increased travel, marketing, and recruiting as pandemic-related restrictions eased and hiring efforts grew[88] Liquidity and Capital Resources Cash and cash equivalents decreased due to seasonal bonus payments and increased capital expenditures, but the company maintains sufficient liquidity for future needs - Cash and cash equivalents decreased by $35.8 million during the quarter to $125.6 million, primarily due to the payment of annual bonuses accrued in the prior year[96][97] - Net cash used in investing activities increased to $5.7 million from $2.6 million YoY, driven by higher capital expenditures for corporate infrastructure[98] - Net cash used in financing activities decreased significantly to $23.7 million from $73.4 million YoY, as the company did not repurchase any common stock in Q1 2023, compared to $48.6 million in repurchases in Q1 2022[99][20] - The company believes existing cash balances and cash from operations will be sufficient to fund working capital, capital expenditures, stock repurchases, and dividends for at least the next twelve months[95] Non-GAAP Financial Measures The company uses non-GAAP measures like EBITDA and EBITDAS to evaluate operating performance, with EBITDA margin decreasing due to lower utilization and higher expenses - The company uses non-GAAP measures EBITDA and EBITDAS to evaluate operating performance[103] - EBITDA is defined as net income before interest, taxes, depreciation, and amortization[103] - EBITDAS further excludes stock-based compensation[103] EBITDA Performance | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | EBITDA (in thousands) | $35,756 | $34,475 | | EBITDA as a % of revenues before reimbursements | 27.8% | 29.2% | - The decrease in EBITDA margin was attributed to lower utilization and increases in other operating and general & administrative expenses[105] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency risks but does not use derivative instruments to hedge these exposures - The company manages interest rate risk by maintaining a portfolio of high-credit-quality debt instruments with short average maturities[107] - Foreign currency risk exists for revenues and expenses denominated in currencies other than the U.S. dollar[108] - As of March 31, 2023, net assets exposed to functional currency translation were approximately $9.9 million (British Pound), $1.6 million (Chinese Yuan), and $2.2 million (Hong Kong Dollar)[108][109] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[112] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[113] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and exhibits Legal Proceedings The company is not currently involved in any material legal proceedings - Exponent is not engaged in any material legal proceedings[115] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There have been no material changes from risk factors as previously discussed in the Company's 2022 Annual Report[116] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the quarter, with approximately $62.6 million remaining available for future repurchases Share Repurchase Activity (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares That May Yet Be Purchased | | :--- | :--- | :--- | :--- | | Dec 31 to Mar 31 | 0 | $ - | $62,598,000 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350, as well as Inline XBRL documents[122]