Exponent, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three months ended March 29, 2013, compared with the three months ended March 30, 2012. The request metadata says 2012 Q1, but the filing itself is for first-quarter 2013. Exponent is an engineering and scientific consulting firm; financial statements are unaudited.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue before reimbursements | $69.0 million | $66.5 million |
| Total revenue | $72.7 million | $71.9 million |
| Operating income | $10.9 million | $11.8 million |
| Net income | $8.0 million | $8.2 million |
| Diluted EPS | $0.56 | $0.57 |
| EBITDA / EBITDA as % of revenue before reimbursements | $14.6 million / 21.2% | $14.8 million / 22.3% |
| Net cash used in operating activities | $5.2 million | $1.4 million |
At March 29, 2013, cash and cash equivalents were $101.5 million and short-term investments were $9.5 million, totaling $111.0 million. Total assets were $295.0 million, current liabilities $42.8 million, and total liabilities $76.9 million. The balance sheet presents no debt balance. Management said available liquidity and expected operating cash flows should meet requirements for at least 12 months. The current quarter’s operating cash outflow reflected, in part, the seasonal payment of prior-year bonuses and timing of vendor payments.
Cash used in financing was $15.2 million, including $11.5 million of common-stock repurchases and $2.0 million of dividends paid. The company reported $44.3 million remaining under its repurchase authorizations. Capital expenditures were $2.0 million.
Changes versus prior comparable period
- Total revenue increased 1%; revenue before reimbursements increased 4%, attributed to higher billable hours and billing rates.
- Operating income decreased about 8% and net income decreased about 3%; diluted EPS fell from $0.57 to $0.56. Compensation, other operating, and general and administrative costs increased.
- EBITDA margin on revenue before reimbursements declined to 21.2% from 22.3%; utilization fell to 72% from 74%.
- Engineering and other scientific revenue rose 3% to $53.3 million; environmental and health revenue fell 4% to $19.3 million.
- Defense technology product sales declined to $0.5 million from $2.4 million, primarily due to lower surveillance-system sales to the U.S. Army.
Outlook, commentary, and risks
Management reported demand across a diverse set of clients and both reactive and proactive consulting work, while noting expected step-downs in activity on major investigations and in defense technology development. It expects defense surveillance-system sales to decrease significantly in fiscal 2013. Management also anticipates higher compensation costs from hiring and annual salary increases, alongside growth in operating and administrative expenses as it adds staff and invests in facilities and business development. The filing provides no quantified earnings or revenue guidance.
The company declared a $0.15-per-share dividend on April 16, 2013, payable June 28, 2013, and said it expects to continue quarterly dividends subject to board approval. Risks cited include weaker demand from economic or industry changes, engagement timing, competition and pricing, lack of backlog, employee retention, regulation and tort reform, and claims against the company.
Two legal matters are described: potential claims by a former client related to employee testimony, for which loss cannot be estimated, and litigation involving hiring employees from another consulting firm, currently in discovery. Exponent said it intends to defend itself and, after consulting counsel, does not expect either matter to have a material adverse effect on financial condition. Other income included gains on deferred-compensation-plan assets, with corresponding compensation expense; these amounts were $2.1 million in Q1 2013.
Important facts for investors to verify
- Whether utilization and project activity recover as major investigations step down, and whether hiring supports future revenue growth.
- The pace and earnings impact of declining defense technology product sales during fiscal 2013.
- Whether operating cash flow improves after the first-quarter bonus-payment season and how cash is allocated among repurchases, dividends, capital spending, and acquisitions.
- Developments in the two disclosed legal matters, particularly given that one potential loss cannot currently be estimated.
- The sustainability of margins amid higher compensation and other operating costs; first-quarter results may not represent future periods.