Business context and reporting period
Exponent, Inc. (Nasdaq: EXPO) provides multidisciplinary science and engineering consulting, including litigation support, product safety, regulatory advice, and environmental and health services. This filing is the Form 10-K for the fiscal year ended January 1, 2021—not a 2019 Q4 filing as indicated in the request metadata. Fiscal 2020 comprised 52 weeks; fiscal 2019 comprised 53 weeks.
Revenue came primarily from two segments: Engineering and Other Scientific, and Environmental and Health. No single client exceeded 10% of revenue in 2020 or 2019.
Financial performance and liquidity
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $399.9 | $417.2 | (4.1%) |
| Revenue before reimbursements | $378.4 | $391.4 | (3.3%) |
| Operating income | $83.2 | $85.1 | (2.2%) |
| Operating margin | 20.8% | 20.4% | +0.4 percentage points |
| Net income | $82.6 | $82.5 | Approximately flat |
| Diluted EPS | $1.55 | $1.53 | +1.3% |
| Cash from operating activities | $103.3 | $108.1 | (4.4%) |
| Cash, cash equivalents and short-term investments | $242.5 | $231.6 | +$10.9 |
Net margin was 20.6% in 2020 versus 19.8% in 2019. EBITDA, a non-GAAP measure defined by the company, was $102.1 million, or 27.0% of revenue before reimbursements, compared with $107.1 million, or 27.4%, in 2019.
At year-end, working capital was $249.5 million and total assets were $580.1 million. The balance sheet lists no borrowings or debt; reported liabilities included $20.3 million of operating lease liabilities and $89.0 million of deferred compensation plan liabilities. The company 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.
Cash used in financing activities was $88.4 million, including $40.0 million of stock repurchases and $39.8 million of dividends and dividend equivalents. The company declared dividends of $0.76 per share for 2020, up from $0.64 in 2019. It reported $75.5 million remaining under repurchase authorizations at year-end.
Material changes versus the prior comparable period
- COVID-19 restrictions and court delays reduced billable hours and postponed litigation projects, site inspections, and human-participant studies. Billable hours fell 7% and utilization declined to 67% from 72%; technical full-time-equivalent employees rose 1% to 912.
- Engineering and Other Scientific revenue declined 6.0% to $319.3 million, with segment operating income down 9.2% to $100.6 million. Environmental and Health revenue increased 4.1% to $80.6 million, and segment operating income edged up 0.5% to $26.7 million.
- General and administrative expense fell 37.2% to $12.9 million, primarily reflecting lower travel and meals during pandemic restrictions. Compensation expense declined slightly, but rose as a proportion of revenue to 62.5% from 60.5%.
- The effective tax rate decreased to 14.8% from 20.9%, mainly due to higher excess tax benefits from stock-based awards and a prior-year tax charge related to the German subsidiary divestiture. The lower rate helped keep net income and EPS slightly higher despite lower revenue and operating income.
- Quarterly results were uneven. In the final quarter, revenue was $103.2 million versus $110.1 million in the comparable 2019 quarter, operating income was $17.7 million versus $21.4 million, and net income was $21.8 million versus $19.1 million.
Outlook, management commentary, risks and unusual items
Management provided no numerical revenue or earnings guidance. It expected compensation expense, excluding deferred-compensation asset value changes, and other operating expense to rise as it hires selectively and invests in infrastructure. Management emphasized talent development, emerging growth areas, cost management, cash generation, dividends, and repurchases.
Management described continued demand in utilities integrity management and chemical regulation and food safety, as well as client work related to COVID-19 testing, disinfectants, contact tracing, and occupational safety. It also noted that litigation work and field activity remained subject to delays and restrictions. Because engagements may be postponed or terminated and backlog is small relative to annual revenue, management cautioned that backlog is not a reliable revenue indicator.
Principal risks include the uncertain ongoing effects of COVID-19 on client demand, project timing and collections; economic cyclicality; competition and pricing pressure; reliance on attracting and retaining specialized staff; client concentration by industry; professional liability and reputational risk; cybersecurity and data privacy; and foreign currency exposure. The company reported no material legal proceedings. The auditor identified collectibility of accounts receivable as a critical audit matter; net receivables were $111.6 million and the allowance for contract losses and doubtful accounts was $4.0 million.
A subsequent event: on February 4, 2021, the board declared a quarterly dividend of $0.20 per share, payable March 26, 2021. The company reported effective disclosure controls and internal control over financial reporting, and the auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the intended period: the supplied filing covers FY2020, with a final quarter ended January 1, 2021, rather than 2019 Q4.
- Assess whether billable hours and utilization recover from pandemic-related declines, particularly in litigation support and Engineering and Other Scientific.
- Review receivables collection and the adequacy of the $4.0 million allowance, given the auditor’s critical audit matter and pandemic-related credit risks.
- Separate underlying operating performance from tax benefits and deferred-compensation investment gains or losses when assessing earnings quality.
- Monitor dividend and repurchase decisions against cash generation, planned investment, and the company’s stated liquidity needs.