Exponent(EXPO) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For fiscal year 2022, total revenues increased by 10.1% to $513.3 million, while net revenues rose by 6.7% to$ 463.8 million compared to 2021 [11] - Net income for the year increased by 1.1% to $102.3 million, maintaining earnings per diluted share at$ 1.96 [11] - EBITDA for the year increased by 3.8% to $137.2 million, resulting in an EBITDA margin of 29.6% of net revenues [11] Business Line Data and Key Metrics Changes - The engineering and other scientific segments accounted for 83% of net revenues, with a 10% increase in Q4 and an 8% increase for the full year [6] - The environmental and health segment represented 17% of net revenues, with a 2% decrease in Q4 and flat growth for the full year [6] - Proactive services saw strong demand in user experience research and machine learning studies, while reactive services experienced robust demand in litigation and product safety [5] Market Data and Key Metrics Changes - Billable hours for 2022 were approximately 1,465,000, an increase of 4.2% year-over-year [12] - Utilization for the full year was 73.8%, down from 75.1% in 2021, reflecting increased headcount [12] - The realized rate increase was approximately 2.5% for the year 2022 [12] Company Strategy and Development Direction - The company aims to evolve its service portfolio to meet rising societal expectations for safety, health, and sustainability [6] - Exponent is focused on capitalizing on disruptive trends and enhancing its capabilities in response to complex innovations [6] - The company plans to continue investing in talent and client relationships, particularly in the digital health and life sciences sectors [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow profitably despite macroeconomic challenges, citing the critical nature of their work [21] - For 2023, the company expects revenue growth in the high single to low double digits, with an EBITDA margin of 28% to 28.5% [13] - The anticipated headcount growth for 2023 is 6% to 8%, with a slight decrease in utilization expected [13] Other Important Information - The company generated$ 93.8 million in cash from operations in 2022 and had $161.5 million in cash at year-end [12] - G&A expenses increased by 54.8% to$ 23.7 million in 2022, primarily due to in-person meetings and increased marketing efforts [12] - The tax benefit associated with share-based awards for 2023 is expected to be approximately $3 million, impacting net income [15] Q&A Session Summary Question: Margin guidance assumptions for 2023 - Management confirmed that the guidance for other operating and G&A costs reflects a return to normalized levels in 2023 [18] Question: Consultant compensation rates and realized rate gains - Management expects stronger pricing increases compared to the previous year, anticipating growth in compensation for consulting staff [20] Question: Impact of economic conditions on proactive business - Management noted that the critical nature of their work continues to support demand, despite potential client spending pullbacks [21] Question: Growth algorithm for headcount and pricing - Management indicated that a growth expectation of 6% to 8% in headcount and 3% to 4% in pricing is reasonable for the medium to long term [26] Question: Update on digital health and pharma focus - Management reported increased traction in the digital health space, with ongoing investments in talent and client relationships [31]