Exponent, Inc. — Form 10-Q Summary
Period: Quarter and six months ended July 2, 2021; filed August 6, 2021. The request metadata says 2020 Q2, but the supplied filing is for 2021 Q2. Dollar amounts below are in millions unless otherwise stated.
Business context and results
Exponent is an engineering and scientific consulting firm with Engineering and Other Scientific and Environmental and Health segments. Management attributed stronger activity to broad-based demand and easing pandemic-related restrictions.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $119.9 (+30%) | $92.0 | $236.4 (+19%) | $198.0 |
| Revenue before reimbursements | $112.5 (+28%) | $87.9 | $222.0 (+18%) | $187.6 |
| Operating income | $29.4 | $9.1 | $53.4 | $45.1 |
| Net income | $25.4 | $16.3 | $56.2 | $42.6 |
| Diluted EPS | $0.48 | $0.31 | $1.06 | $0.80 |
| Operating cash flow | Not separately provided | Not separately provided | $45.5 | $34.2 |
Q2 net income rose 55%; the filing attributes the improvement mainly to higher revenue before reimbursements and slower growth in other operating and general and administrative expenses. Reported EBITDA margin on revenue before reimbursements was 32.3% in Q2 (26.0% prior year) and 30.6% for the six months (25.5% prior year). The filing does not present a gross margin.
Segments and operating trends
- Q2 Engineering and Other Scientific revenue increased 36% to $98.1 million; Environmental and Health revenue increased 9% to $21.7 million. For the first half, segment revenue rose 22% and 9%, respectively.
- Q2 billable hours increased 22% overall to 365,000, and utilization rose to 79% from 64%. Technical FTEs declined 1% to 888.
- Management cited strength in litigation support, human participant studies, battery and energy-storage work, international arbitration, integrity advisory, chemical regulation and food safety.
Cash, liquidity and capital allocation
Cash and cash equivalents were $240.0 million at July 2, 2021, versus $197.5 million at January 1; short-term investments were zero, compared with $45.0 million. Cash, cash equivalents and short-term investments together were $240.0 million, down from $242.5 million. First-half investing cash flow was $40.8 million, including $55.0 million of investment maturities and $4.2 million of capital expenditures; financing cash flow was negative $44.0 million, including $22.4 million of dividends, $15.7 million of payroll taxes on restricted stock units and $7.0 million of repurchases.
No borrowings or funded debt are reported. Current assets were $397.8 million and current liabilities $123.0 million. Lease liabilities totaled $17.5 million; the filing lists no finance leases. Management said available cash and operating cash generation should cover working capital, capital expenditures, commitments, repurchases, dividends and other liquidity needs for at least 12 months.
The company paid declared dividends of $0.40 per share in the first half. On July 31, the board declared a further $0.20 per share dividend, payable September 24, subject to the stated record date. The company repurchased $7.0 million of stock in Q2 and had $68.5 million remaining under its programs at July 2.
Management outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management expects compensation costs, other operating expenses and general and administrative expenses to rise with selective hiring, market compensation, infrastructure spending, return to offices, and increased travel and business development.
- Deferred compensation plan asset value changes affect both compensation expense and other income. Q2 2021 included a $4.7 million increase in plan asset value, versus an $11.0 million increase in Q2 2020, creating corresponding expense and income effects. These offsetting movements materially affect comparisons of operating and other income.
- First-half effective tax rate was 13.2%, versus 6.2%; management said rates excluding excess tax benefits on stock awards were 26.8% and 27.5%, respectively. The Q2 effective tax rate was 26.7% versus 23.7%.
- One client accounted for 14% of Q2 revenue and 12% of first-half revenue, creating customer concentration exposure. The filing also identifies COVID-19 impacts, economic and client-demand uncertainty, hiring and retention, competition, timing of engagements, regulation and litigation as risks.
- Foreign currency exposure includes net assets denominated in British pounds, Chinese yuan and Hong Kong dollars; the company does not hedge foreign currency exposure. Management reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the period: this is the 2021 Q2 filing, not 2020 Q2.
- Assess whether the substantial revenue and utilization rebound persists as pandemic restrictions and client activity evolve.
- Review receivables and collection risk: net accounts receivable rose to $142.7 million from $111.6 million, including higher unbilled receivables; the allowance rose to $4.6 million.
- Separate recurring operating performance from deferred-compensation valuation effects and stock-based compensation when evaluating earnings.
- Monitor the 14% major-client concentration, expense increases as offices and travel resume, and the sustainability of dividends and repurchases.