Exponent(EXPO) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Exponent, Inc., including the balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, revenue recognition, fair value measurements, stock-based compensation, deferred compensation, segment reporting, and leases Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 29, 2024 | December 29, 2023 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $168,665 | $187,150 | | Accounts receivable, net | $162,885 | $167,360 | | Total current assets | $352,323 | $379,532 | | Total assets | $629,405 | $646,777 | | Total current liabilities | $114,131 | $161,909 | | Total liabilities | $255,094 | $290,692 | | Total stockholders' equity | $374,311 | $356,085 | - Total assets decreased by $17.37 million, and total liabilities decreased by $35.60 million, while total stockholders' equity increased by $18.23 million from December 29, 2023, to March 29, 2024[7] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income Highlights (Three Months Ended, in thousands, except per share data) | Metric | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :-------------------------------- | :------------- | :------------- | :------------- | | Revenues before reimbursements | $137,207 | $128,705 | 6.6% | | Revenues | $144,933 | $140,309 | 3.3% | | Operating income | $30,713 | $29,120 | 5.5% | | Net income | $30,142 | $29,124 | 3.5% | | Basic EPS | $0.59 | $0.57 | 3.5% | | Diluted EPS | $0.59 | $0.56 | 5.4% | | Cash dividends declared per common share | $0.28 | $0.26 | 7.7% | - Revenues increased by 3.3% year-over-year, driven by a 6.6% increase in revenues before reimbursements. Net income and diluted EPS also saw positive growth[10] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended, in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :------------------------------------------ | :------------- | :------------- | | Net income | $30,142 | $29,124 | | Foreign currency translation adjustments, net of tax | $(210) | $460 | | Comprehensive income | $29,932 | $29,584 | - Comprehensive income increased slightly to $29.9 million in Q1 2024, despite a negative foreign currency translation adjustment, compared to $29.6 million in Q1 2023[14] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity Highlights (Three Months Ended March 29, 2024, in thousands) | Metric | Balance at December 29, 2023 | Balance at March 29, 2024 | | :-------------------------------- | :--------------------------- | :------------------------ | | Common Stock (Shares) | 65,707 | 65,707 | | Common Stock (Amount) | $66 | $66 | | Additional paid-in capital | $321,448 | $335,014 | | Accumulated other comprehensive loss | $(2,977) | $(3,187) | | Retained earnings | $574,082 | $588,570 | | Treasury Stock (Shares) | 15,134 | 15,033 | | Treasury Stock (Amount) | $(536,534) | $(546,152) | | Total Stockholders' Equity | $356,085 | $374,311 | - Key changes in stockholders' equity include an increase in additional paid-in capital by $13.57 million and retained earnings by $14.49 million, while treasury stock increased by $9.62 million due to repurchases[18] - Significant activities impacting equity included employee stock purchase plan ($450k), amortization of stock-based compensation ($4,026k), purchase of treasury shares ($(5,466)k), grant of restricted stock units ($10,846k), settlement of restricted stock units ($(6,796)k), and dividends ($(14,934)k)[18] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended, in thousands) | Cash Flow Activity | March 29, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Net cash provided by (used in) operating activities | $10,432 | $(6,703) | | Net cash used in investing activities | $(1,482) | $(5,668) | | Net cash used in financing activities | $(27,227) | $(23,740) | | Net decrease in cash and cash equivalents | $(18,485) | $(35,809) | | Cash and cash equivalents at end of period | $168,665 | $125,649 | - Net cash provided by operating activities significantly improved to $10.4 million in Q1 2024 from a net use of $6.7 million in Q1 2023. Net cash used in investing activities decreased, while net cash used in financing activities increased[21] Notes to Unaudited Condensed Consolidated Financial Statements - The company operates on a 52-53 week fiscal year and prepares interim financial statements in accordance with GAAP and SEC regulations, requiring management estimates for revenue recognition and allowance for contract losses[23][24][26] Revenue Recognition by Contract Type (Three Months Ended) | Contract Type | March 29, 2024 | March 31, 2023 | | :-------------------------- | :------------- | :------------- | | Time and materials revenues | 80% | 80% | | Fixed price revenues | 20% | 20% | - Deferred revenues recognized in Q1 2024 were $7,956,000, down from $8,566,000 in Q1 2023. Subcontractor fees not included in revenues decreased from $5,751,000 in Q1 2023 to $2,747,000 in Q1 2024[30][31] Fair Value Measurements of Financial Assets and Liabilities (March 29, 2024, in thousands) | Asset/Liability | Total | Level 1 | | :------------------------------------------ | :---- | :------ | | Money market securities | $55,402 | $55,402 | | Fixed income trading securities (deferred comp) | $44,669 | $44,669 | | Equity trading securities (deferred comp) | $83,466 | $83,466 | | Deferred compensation plan liability | $129,139 | $129,139 | Shares Used in Per Share Computations (Three Months Ended, in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Shares used in basic per share computation | 51,006 | 51,132 | | Shares used in diluted per share computation | 51,419 | 51,682 | - Stock-based compensation expense for Q1 2024 included $3,314,000 for accrued bonus awards, $3,707,000 for unvested restricted stock units, and $319,000 for stock options[42][43][44] - Deferred compensation plan assets increased to $128.1 million (March 29, 2024) from $115.2 million (December 29, 2023), with a corresponding increase in liabilities. The company recognized $6.27 million in compensation expense due to changes in market value of trust assets in Q1 2024[49][50] Accounts Receivable, Net (in thousands) | Metric | March 29, 2024 | December 29, 2023 | | :-------------------------------- | :------------- | :---------------- | | Billed accounts receivable | $106,582 | $128,052 | | Unbilled accounts receivable | $62,605 | $44,589 | | Allowance for contract losses and doubtful accounts | $(6,302) | $(5,281) | | Total accounts receivable, net | $162,885 | $167,360 | - The allowance for contract losses and doubtful accounts increased from $5,281,000 at December 29, 2023, to $6,302,000 at March 29, 2024, with a provision of $1,279,000[53] Segment Revenues (Three Months Ended, in thousands) | Segment | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :-------------------------------- | :------------- | :------------- | :------------- | | Engineering and Other Scientific | $121,471 | $117,048 | 3.8% | | Environmental and Health | $23,462 | $23,261 | 0.9% | | Total revenues | $144,933 | $140,309 | 3.3% | Segment Operating Income (Three Months Ended, in thousands) | Segment | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :-------------------------------- | :------------- | :------------- | :------------- | | Engineering and Other Scientific | $48,631 | $43,619 | 11.5% | | Environmental and Health | $8,236 | $7,554 | 9.0% | | Total segment operating income | $56,867 | $51,173 | 11.1% | | Corporate operating expense | $(26,154) | $(22,053) | 18.6% | | Total operating income | $30,713 | $29,120 | 5.5% | - The weighted average remaining lease term for operating leases is 5.9 years (March 29, 2024) with a weighted average discount rate of 5.2%. Total lease payments amount to $32,522,000[63] - On April 25, 2024, the Board of Directors declared a cash dividend of $0.28 per share, payable June 21, 2024[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance for Q1 2024, highlighting revenue growth driven by reactive work, increased utilization, and strategic investments. It also details changes in operating expenses, liquidity, and capital allocation strategies, including share repurchases and dividends. The company's Non-GAAP financial measures, EBITDA and EBITDAS, are also discussed Executive Summary Q1 2024 Financial Highlights (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | YoY Change (%) | | :----------------------------- | :------ | :------ | :------------- | | Revenues | $144,933 | $140,309 | 3% | | Revenues before reimbursements | $137,207 | $128,705 | 7% | | Net income | $30,142 | $29,124 | 3% | | Diluted EPS | $0.59 | $0.56 | 5.4% | - Growth in Q1 2024 was primarily driven by reactive work, including robust failure analysis and dispute-related services across various industries. Proactive business, excluding consumer electronics, increased due to strength in transportation and energy sectors[73][74] - The decrease in excess tax benefit associated with stock-based awards to $946,000 (Q1 2024) from $3,627,000 (Q1 2023) was due to a smaller increase in common stock value between grant and release dates for restricted stock units[75] - The company remains focused on selectively adding top talent, expanding market position, capitalizing on emerging growth areas, managing operating expenses, generating cash, maintaining a strong balance sheet, and enhancing shareholder value through share repurchases and dividends[76] Results of Consolidated Operations Operational Metrics (Three Months Ended) | Metric | March 29, 2024 | March 31, 2023 | YoY Change | | :-------------------------------- | :------------- | :------------- | :--------- | | Billable hours (in thousands) | 392 | 385 | 2% | | Utilization | 75% | 70% | 5 pp | | Technical full-time equivalent employees | 1,003 | 1,052 | -5% | - The company expects a small sequential decline in average technical full-time equivalent employees during Q2 2024, followed by sequential headcount growth in the second half of 2024[77] Segment Revenue Performance (Three Months Ended, in thousands) | Segment | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :-------------------------------- | :------------- | :------------- | :------------- | | Engineering and Other Scientific | $121,471 | $117,048 | 3.8% | | Environmental and Health | $23,462 | $23,261 | 0.9% | - The Engineering and Other Scientific segment's billable hours increased by 3% to 315,000, driven by strong demand from the energy, vehicle, and medical device industries. The Environmental and Health segment's billable hours decreased by 3% to 77,000, primarily driven by regulatory consulting in the chemical industry[78][79] Operating Expenses (Three Months Ended, in thousands) | Expense Category | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :----------------------------- | :------------- | :------------- | :------------- | | Compensation and related expenses | $90,327 | $84,181 | 7.3% | | Other operating expenses | $10,531 | $9,561 | 10.1% | | Reimbursable expenses | $7,726 | $11,604 | -33.4% | | General and administrative expenses | $5,636 | $5,843 | -3.5% | - Compensation and related expenses increased due to a $2.3 million change in deferred compensation plan assets, a $1.9 million increase in payroll, a $0.9 million increase in fringe benefits, and a $1.1 million increase in bonus expense. Other operating expenses increased due to higher occupancy and depreciation/amortization[81][82] - Reimbursable expenses decreased due to fewer proactive projects in the consumer electronics sector. General and administrative expenses decreased primarily due to a $212,000 reduction in recruiting expenses[84][85] Operating Income by Segment (Three Months Ended, in thousands) | Segment | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :-------------------------------- | :------------- | :------------- | :------------- | | Engineering and Other Scientific | $48,631 | $43,619 | 11.5% | | Environmental and Health | $8,236 | $7,554 | 9.0% | | Total operating income | $30,713 | $29,120 | 5.5% | - Corporate operating expenses increased by 18.6% to $26.15 million, primarily due to an increase in deferred compensation expense and higher costs associated with human resources, finance, information technology, and business development groups[89] Other Income, Net Other Income, Net (Three Months Ended, in thousands) | Metric | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :--------------------- | :------------- | :------------- | :------------- | | Other income, net | $9,710 | $6,418 | 51.3% | - The increase in other income, net, was primarily due to a $2.35 million change in the value of assets associated with the deferred compensation plan and an $856,000 increase in interest income due to higher interest rates[91] Income Taxes Income Taxes (Three Months Ended, in thousands) | Metric | March 29, 2024 | March 31, 2023 | YoY Change (%) | | :--------------------- | :------------- | :------------- | :------------- | | Income taxes | $10,281 | $6,414 | 60.3% | | Effective tax rate | 25.4% | 18.0% | 7.4 pp | - The excess tax benefit associated with stock-based awards decreased to $946,000 in Q1 2024 from $3,627,000 in Q1 2023, due to a smaller increase in common stock value between grant and release dates. Excluding this benefit, the effective tax rate would have been 27.8% in Q1 2024 compared to 28.3% in Q1 2023[92] Liquidity and Capital Resources - The company believes its existing balances of cash, cash equivalents, short-term investments, and cash generated from operations will be sufficient to satisfy its working capital needs, capital expenditures, outstanding commitments, stock repurchases, and dividends over at least the next twelve months[93] Cash Flow Summary (Three Months Ended, in thousands) | Cash Flow Activity | March 29, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Net cash provided by (used in) operating activities | $10,432 | $(6,703) | | Net cash used in investing activities | $(1,482) | $(5,668) | | Net cash used in financing activities | $(27,227) | $(23,740) | - Cash and cash equivalents decreased from $187.15 million at December 29, 2023, to $168.67 million at March 29, 2024[94] - The increase in net cash used in financing activities was due to an increase in common stock repurchases and dividends, partially offset by a decrease in payroll taxes for restricted stock units[97] - The company expects to finalize a 15-year extension of its Arizona land lease during Q2 2024, which will increase annual rent payments from $1 million to $6.2 million starting in 2028[98] - As of March 29, 2024, vested amounts due under the deferred compensation plan totaled $129.14 million ($13.13 million current, $116.01 million long-term), with corresponding invested assets of $128.14 million ($14.29 million current, $113.84 million long-term)[99] Non-GAAP Financial Measures - The company uses Non-GAAP financial measures, EBITDA (net income before income taxes, net interest income, depreciation, and amortization) and EBITDAS (EBITDA before stock-based compensation), to evaluate operating performance, develop budgets, and determine employee compensation[101] EBITDA as a % of Revenues Before Reimbursements (Three Months Ended, in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :----------------------------- | :------------- | :------------- | | Revenues before reimbursements | $137,207 | $128,705 | | EBITDA | $40,121 | $35,756 | | EBITDA as a % of revenues before reimbursements | 29.2% | 27.8% | - The increase in EBITDA as a percentage of revenues before reimbursements was primarily due to an increase in utilization (75% in Q1 2024 vs. 70% in Q1 2023) and a decrease in general and administrative expenses[103] Reconciliation of Net Income to EBITDA and EBITDAS (Three Months Ended, in thousands) | Metric | March 29, 2024 | March 31, 2023 | | :----------------------------- | :------------- | :------------- | | Net income | $30,142 | $29,124 | | Income taxes | $10,281 | $6,414 | | Interest income, net | $(2,626) | $(1,770) | | Depreciation and amortization | $2,324 | $1,988 | | EBITDA | $40,121 | $35,756 | | Stock-based compensation | $7,340 | $7,063 | | EBITDAS | $47,461 | $42,819 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, which is managed by investing in high-credit quality debt instruments with short average effective maturities. It also faces foreign currency risk due to revenues and expenses denominated in various foreign currencies, primarily the British Pound, Euro, Chinese Yuan, and Hong Kong Dollar. The company does not use derivative financial instruments for hedging, and while past impacts have been insignificant, continued international growth increases exposure to exchange rate fluctuations - Interest rate risk is managed by maintaining an investment portfolio primarily consisting of debt instruments with high credit quality and relatively short average effective maturities (maximum 3 years for any issue, maximum 12 months for portfolio average). No derivative financial instruments are used[105] - Foreign currency risk is related to revenues and expenses denominated in currencies other than the U.S. dollar, primarily the British Pound, Euro, Chinese Yuan, and Hong Kong Dollar[106] - As of March 29, 2024, net assets with foreign functional currencies included approximately $16.6 million (British Pound), $4.3 million (Hong Kong Dollar), $2.9 million (Singapore Dollar), and $1.5 million (Chinese Yuan)[107] - The company does not use foreign exchange contracts to hedge foreign currency exposures, and while past impacts have not been significant, continued international growth increases exposure to exchange rate fluctuations[109] Item 4. Controls and Procedures As of March 29, 2024, the company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the disclosure controls and procedures were effective. There were no material changes in the company's internal control over financial reporting during the three-month period ended March 29, 2024 - The company's disclosure controls and procedures were effective as of March 29, 2024, based on an evaluation performed under the supervision and with the participation of management, including the CEO and CFO[110] - There were no changes in internal control over financial reporting during the three-month period ended March 29, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[111] PART II – OTHER INFORMATION Item 1. Legal Proceedings Exponent, Inc. is not currently engaged in any material legal proceedings - Exponent is not engaged in any material legal proceedings[112] Item 1A. Risk Factors There have been no material changes to the risk factors previously discussed in the company's 2023 Annual Report on Form 10-K - There have been no material changes from risk factors as previously discussed under the heading "Risk Factors" in the Company's 2023 Annual Report[113] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended March 29, 2024, the company repurchased 71,000 shares of its common stock at an average price of $77.13 per share. As of March 29, 2024, approximately $94.5 million remained authorized for repurchases under the company's programs, which have no expiration dates Common Stock Repurchases (Three Months Ended March 29, 2024, in thousands, except price per share) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs | | :------------------------ | :----------------------------- | :--------------------------- | :---------------------------------------------------------------------------- | | December 30 to January 26 | - | $- | $38,390 | | January 27 to February 23 | 10 | $73.62 | $99,290 | | February 24 to March 29 | 61 | $77.69 | $94,534 | | Total | 71 | $77.13 | $94,534 | - On February 1, 2024, the Board of Directors authorized an additional $61,610,000 for common stock repurchases, supplementing the existing $150,000,000 program, both without expiration dates[114] Item 3. Defaults Upon Senior Securities This item is not applicable to Exponent, Inc - Not applicable[115] Item 4. Mine Safety Disclosures This item is not applicable to Exponent, Inc - Not applicable[116] Item 5. Other Information Director Paul Johnston adopted a Rule 10b5-1 trading plan on February 22, 2024, to sell 48,000 securities by September 27, 2024. No other pre-existing trading plans were modified or terminated by the company's directors and officers during the quarter Rule 10b5-1 Trading Plans Adopted (Three Months Ended March 29, 2024) | Name and Title | Adoption Date | Expiration Date | Aggregate Number of Securities to be Sold | | :------------------- | :-------------- | :---------------- | :---------------------------------------- | | Paul Johnston, Director | February 22, 2024 | September 27, 2024 | 48,000 | - No pre-existing trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were modified or terminated by the Company's directors and officers during the three months ended March 29, 2024[118] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, as well as various Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.2), along with Inline XBRL Instance Document (101.INS) and related taxonomy extension documents (101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[120] Signatures The report is duly signed on behalf of Exponent, Inc. by Catherine Ford Corrigan, Ph.D., Chief Executive Officer, and Richard L. Schlenker, Chief Financial Officer, on May 3, 2024 - The report was signed by Catherine Ford Corrigan, Ph.D., Chief Executive Officer, and Richard L. Schlenker, Chief Financial Officer, on May 3, 2024[123]