Exponent, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2021 Q3, but the supplied filing is for the quarter ended September 30, 2022, with comparisons to the quarter ended October 1, 2021. Amounts below are in millions of dollars unless noted.
Business context and reporting period
Exponent is an engineering and scientific consulting firm. Its two reportable segments are Engineering and Other Scientific, and Environmental and Health. This unaudited filing covers the three and nine months ended September 30, 2022.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $127.2 | $116.4 | $385.9 | $352.8 |
| Revenue before reimbursements | $115.1 | $108.5 | $351.2 | $330.5 |
| Operating income | $36.8 | $32.1 | $118.8 | $85.5 |
| Net income | $24.4 | $24.6 | $79.8 | $80.8 |
| Diluted EPS | $0.47 | $0.46 | $1.52 | $1.52 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $53.2 | $70.4 |
Q3 revenue rose 9.3%, while revenue before reimbursements increased 6.2%. Operating margin on reported revenue was approximately 28.9% versus 27.6% in Q3 2021. Nine-month reported operating margin was approximately 30.8% versus 24.3%. The company’s non-GAAP EBITDA margin on revenue before reimbursements was 30.0% in Q3 (31.4% prior year) and 30.2% for nine months (30.9% prior year). Reimbursements are included in both revenue and operating expense.
At September 30, cash and cash equivalents were $148.4, down from $297.7 at December 31, 2021. Current assets were $332.5 and current liabilities $137.9. The filing reports no debt balance. Nine-month capital expenditures were $9.1. Financing cash outflows were $190.6, including $142.2 of share repurchases and $37.1 of dividends and dividend equivalents.
Material changes versus comparable periods
- Q3 Engineering and Other Scientific revenue increased 10.6% to $107.4; Environmental and Health revenue rose 2.4% to $19.8. Nine-month segment revenue increased 11.2% and 1.3%, respectively.
- Q3 billable hours rose 5%, but utilization fell to 73% from 76%; technical FTEs increased 8% to 958. Management attributed growth to demand across consumer products, transportation, utilities, energy storage, litigation support, and health data science.
- Q3 net income declined slightly despite higher operating income. Nine-month net income was also slightly lower, reflecting a $29.5 million year-over-year deterioration in net other income, principally due to deferred-compensation plan investment value changes.
- General and administrative expense increased 60.5% in Q3 and 57.2% for nine months, driven in part by travel, consulting, recruiting, and business development. Reimbursable expenses also rose as project travel increased.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said cash, cash generated from operations, and existing resources should meet liquidity needs for at least the next 12 months. It expects compensation, operating, and administrative costs to rise as it hires, invests in infrastructure, and resumes office, travel, and business-development activity.
- Deferred-compensation market movements materially affected reported expense and other income: for nine months, compensation expense decreased by $20.9 million while a corresponding loss was recorded in other income. These offsetting effects complicate period-to-period comparisons.
- One client represented 16% of Q3 revenue and 15% of nine-month revenue. Accounts receivable rose to $166.0 million from $139.9 million, and the allowance for contract losses and doubtful accounts increased to $6.2 million from $4.4 million.
- The company identifies economic conditions, demand and timing of engagements, employee retention, client credit and collections, and foreign-exchange movements as risks. It does not hedge foreign-currency exposures. Management reported no material change in previously disclosed risk factors.
- Exponent said it was not engaged in material legal proceedings; ordinary-course claims are not expected to materially affect its financial condition, results, or liquidity, though outcomes remain uncertain. No material changes to internal control over financial reporting were reported.
- The board declared a $0.24-per-share dividend payable December 23, 2022. The company repurchased $142.2 million of shares during the first nine months; $75.8 million remained authorized under its repurchase programs at September 30.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is 2022 Q3, not 2021 Q3.
- Assess whether revenue growth can be sustained if utilization remains below the prior-year level, and monitor hiring and compensation costs.
- Review cash conversion, receivables and collections, and the effect of buybacks and dividends on the reduced cash balance.
- Separate recurring operating performance from deferred-compensation valuation effects and other non-operating items.
- Monitor customer concentration, foreign-currency exposure, and management’s cost and demand outlook.