EXPONENT INC. - 10-Q Filing Summary
Business Context and Reporting Period
Company: Exponent, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 26, 2008 (Third Quarter of Fiscal 2008)
Business Overview: Exponent is an engineering and scientific consulting firm providing solutions to complex problems across two primary segments: Engineering and Other Scientific, and Environmental and Health. The company operates on a 52-53 week fiscal year.
Key Financial Metrics
| Metric | Three Months Ended Sep 26, 2008 | Nine Months Ended Sep 26, 2008 |
|---|---|---|
| Total Revenues | $58.73 million | $169.95 million |
| Operating Income | $9.69 million | $28.59 million |
| Net Income | $5.94 million | $18.08 million |
| Diluted EPS | $0.38 | $1.13 |
| Cash & Equivalents | $18.66 million | (Balance Sheet) |
| Short-term Investments | $33.42 million | (Balance Sheet) |
| Total Current Assets | $130.60 million | (Balance Sheet) |
| Total Current Liabilities | $42.12 million | (Balance Sheet) |
| Operating Cash Flow (9mo) | N/A | $15.75 million |
| Debt | $0 outstanding | (Mortgage Note) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 20.1% in Q3 2008 compared to Q3 2007, and 14.5% for the nine-month period. Growth was driven by increased billable hours, higher billing rates, and a significant surge in product sales to the U.S. Army (surveillance systems) within the technology development practice.
- Profitability: Net income rose 18.0% in Q3 and 19.8% for the nine-month period compared to the prior year. Operating margins improved due to effective expense management and revenue leverage.
- Expense Trends: Compensation expenses increased 13.1% in Q3, primarily due to higher payroll, bonuses, and fringe benefits associated with increased headcount (technical FTEs up 7.4%). Reimbursable expenses surged 75.0% in Q3 due to project-related costs in the technology development practice.
- Cash Flow: Net cash provided by operating activities increased to $15.75 million for the nine months ended Sep 26, 2008, from $9.43 million in the prior year period. Days sales outstanding improved to 97 days from 105 days.
Outlook, Risks, and Unusual Items
- Stock Repurchases: The company repurchased 933,718 shares for $28.2 million during the first nine months of 2008. As of September 26, 2008, $23.0 million remained authorized for future repurchases.
- Investment Liquidity Risk: The company holds a $1.0 million AA-rated student loan secured auction rate security. The auction for this security failed in Q2 2008. While the issuer intends to restructure, the company will not have access to these funds until a future auction succeeds or restructuring occurs. No impairment charge has been recorded to date.
- Deferred Compensation Plan: Fluctuations in the market value of assets in the company's deferred compensation plan impacted other income and compensation expense. In Q3 2008, a decline in asset value reduced compensation expense by $442,000 and other income by the same amount.
- Risk Factors: Key risks include the absence of a reliable backlog, dependence on key employees, competition, customer concentration (transportation and government sectors), and economic uncertainty affecting demand for services.
Investor Verification Checklist
- Auction Rate Security Status: Verify the current status of the $1.0 million failed auction rate security and any potential impairment risks given market conditions.
- Product Sales Sustainability: Assess the sustainability of the 799% increase in product sales to the U.S. Army, which significantly boosted Q3 revenue.
- Utilization Rates: Monitor technical staff utilization rates (69% in Q3) to ensure they remain stable as headcount increases.
- Stock Repurchase Activity: Track the execution of the remaining $23.0 million stock repurchase authorization.
- Accounts Receivable: Review the allowance for doubtful accounts, which increased to $2.97 million, and the trend in days sales outstanding.