Exponent, Inc. — Form 10-Q Summary
Period: Quarter and six months ended June 28, 2013, compared with periods ended June 29, 2012. The request metadata says “2012 Q2,” but the filing itself reports 2013 Q2.
Business and financial performance
Exponent is an engineering and scientific consulting firm. Its two operating segments are Engineering and Other Scientific, and Environmental and Health. Unless noted otherwise, amounts below are in millions of dollars.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $75.5 | $74.5 | $148.2 | $146.4 |
| Revenue before reimbursements | $71.9 | $68.3 | $140.9 | $134.8 |
| Operating income | $17.6 | $17.4 | $28.4 | $29.2 |
| Net income | $10.8 | $10.3 | $18.8 | $18.5 |
| Diluted EPS | $0.77 | $0.72 | $1.34 | $1.29 |
| Operating margin on reported revenue | 23.3% | 23.3% | 19.2% | 19.9% |
- Q2 revenue increased 1.4%; revenue before reimbursements rose 5.3%. For the first half, revenue rose 1.2% and revenue before reimbursements increased 4.5%.
- Q2 operating income increased 1.3% and net income increased 5.0%. First-half operating income declined 2.5%, while net income increased 1.6%.
- Q2 segment revenue: Engineering and Other Scientific $53.6 million, down 0.7%; Environmental and Health $21.9 million, up 6.7%. First-half revenue was up 1.2% and 1.3%, respectively.
- Compensation expense increased 6.2% in Q2 and 5.6% in the first half. General and administrative expense rose 17.1% and 17.4%, respectively. Reimbursable expenses fell 41.8% in Q2 and 37.6% in the first half.
Cash, liquidity, and capital allocation
- Operating cash flow was $16.4 million for the first half, down from $19.4 million. The filing attributes the decline mainly to payment timing to vendors, partly offset by slower accounts-receivable growth.
- Cash and cash equivalents were $116.6 million and short-term investments were $6.4 million at June 28, 2013, totaling $123.1 million, versus $134.1 million at December 28, 2012. Current assets were $228.1 million and current liabilities $58.3 million.
- The balance sheet reports no borrowings. Management said available cash, investments, and expected operating cash flows should cover working capital and other liquidity needs for at least 12 months.
- First-half capital expenditures were $3.7 million. Financing cash use was $23.0 million, including $17.6 million of share repurchases, $4.0 million of dividends, and payroll taxes on restricted stock units.
- The company paid a $0.15-per-share dividend in June and declared another $0.15 dividend for September, subject to board declaration. It had $38.9 million remaining under repurchase authorizations at quarter-end.
Outlook, commentary, and risks
- No numerical revenue or earnings guidance was provided. Management expects activity on some major investigations to step down as projects progress and anticipates lower activity in defense technology development amid constrained defense spending and U.S. force reductions in Afghanistan.
- Management cited demand across a diverse client base, while noting continued selective hiring. Q2 utilization was 75%, versus 76% a year earlier; technical full-time-equivalent employees increased 4% to 714.
- Q2 included $1.75 million of revenue for prior-period services to a foreign client, recognized upon receipt of payment. Management said this added $1.176 million to operating income, $0.698 million to net income, and $0.05 to diluted EPS. First-half disclosure cites $1.4 million of this revenue.
- A lawsuit related to hiring employees from another consulting firm alleges, among other things, trade-secret misappropriation and breach of a software license. Damages were not specified; the case was in discovery, and management said it did not expect a material adverse financial effect. Other ordinary-course claims were also disclosed.
- Other risks identified include demand and economic conditions, engagement timing, competition and pricing, lack of backlog, recruiting and retention, regulation and tort reform, and claims against the company. The filing reported no material change to previously disclosed risk factors.
Most important facts to verify
- Confirm the period intended: this filing covers Q2 and the first half of 2013, not 2012.
- Assess the sustainability and cash collection of the foreign-client revenue recognized upon payment and its impact on reported earnings.
- Track utilization, hiring, and project step-downs, particularly in major investigations and defense-related work.
- Review the legal proceeding’s development and any updates to management’s assessment of potential exposure.
- Monitor operating cash flow, receivables, repurchases, dividends, and planned spending against management’s liquidity assessment.