EXPONENT INC - 10-Q Filing Summary
Business Context and Reporting Period
Company: Exponent, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 28, 2001 (Third Quarter of Fiscal 2001)
Business Overview: A science and engineering consulting firm providing solutions in environmental/health risk analysis and technical consulting (litigation support, technology development). The company operates on a 52-53 week fiscal year.
Key Financial Metrics
| Metric (in thousands) | Q3 2001 | Q3 2000 | 9 Months 2001 | 9 Months 2000 |
|---|---|---|---|---|
| Revenues | $26,446 | $25,474 | $79,633 | $77,219 |
| Operating Income | $2,620 | $2,906 | $7,789 | $9,041 |
| Net Income | $1,613 | $1,966 | $4,991 | $6,440 |
| Diluted EPS | $0.23 | $0.28 | $0.69 | $0.91 |
| Cash & Equivalents (End of Period) | $0 | $6,379 | $0 | $0 |
| Long-Term Debt | $1,799 | $227 | $1,799 | $227 |
| Operating Cash Flow (9 Mo) | ($5,021) vs $9,154 |
Margins (Q3 2001): Operating margin was 9.9% (down from 11.4% in Q3 2000). Compensation expenses rose to 63.7% of revenue.
Material Changes vs. Prior Period
- Revenue Growth: Q3 revenue increased 3.8% and 9-month revenue increased 3.1%, driven by staff growth and bill rate increases in both segments.
- Profitability Decline: Net income decreased 18% in Q3 and 22% for the nine months compared to the prior year. Operating income declined due to higher compensation and operating expenses.
- Cash Position: Cash and cash equivalents dropped to zero from $6.4 million at the end of fiscal 2000. The company utilized excess cash to pay down debt and fund operations.
- Segment Performance:
- Environmental & Health: Revenue grew 5.8% (Q3) and 9.5% (9 months).
- Other Scientific & Engineering: Revenue grew 3.2% (Q3) and 1.3% (9 months). This segment saw a $1.9M (Q3) and $3.3M (9 months) decline in technology development/vehicle analysis revenues due to smaller U.S. Army contracts and automotive industry declines.
- Expense Increases: Compensation rose due to salary increases and insurance costs. Other operating expenses increased due to occupancy costs (new offices in Irvine, Bellevue, San Diego) and computer expenses.
Guidance, Outlook, and Risks
- Liquidity: Management believes the revolving mortgage note (with $25.7M available) and operating cash flows are sufficient for the next 12 months. However, future acquisitions may require additional funding.
- Discontinued Operations: The company sold BCS Wireless, Inc. in May 2000; results are reported as discontinued operations.
- Accounting Changes: The company anticipates adopting SFAS No. 142 (Goodwill) in fiscal 2002, which will cease goodwill amortization and require impairment testing. Existing goodwill of approx. $6.9M will be subject to testing.
- Risks:
- Customer Concentration: Significant reliance on transportation industry and government sector clients.
- Backlog: No significant backlog; revenues are event-driven and terminable at any time.
- Real Estate: Loss of rental income from a 24,000 sq. ft. lease in Silicon Valley that was not renewed in Q1 2001.
- Macroeconomic: Potential impact of the September 11, 2001 terrorist attacks and subsequent military campaigns on long-term demand, though no significant current impact was noted.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of operations with zero cash on hand and negative operating cash flow for the nine-month period.
- Debt Covenants: Review the terms of the $30M revolving mortgage note, specifically the automatic annual reductions in borrowing availability.
- Revenue Concentration: Assess the risk associated with the decline in U.S. Army Land Warrior program contracts and the automotive sector.
- Real Estate Exposure: Confirm the status of leasing the vacant 24,000 sq. ft. space in Menlo Park to mitigate the loss of rental income.
- Goodwill Impairment: Monitor the upcoming adoption of SFAS No. 142 and potential future impairment charges on the $6.6M goodwill balance.