Exponent, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 30, 2022, compared with fiscal 2021 ended December 31, 2021. Although the request metadata says “2021 Q4,” the supplied filing is Exponent’s FY2022 Form 10-K.
Business context
Exponent is a science and engineering consulting firm with two reportable segments: Engineering and Other Scientific, and Environmental and Health. Its work includes proactive technical consulting and reactive investigations and litigation support. Revenue is primarily earned on time-and-materials or fixed-price engagements; clients may terminate or delay engagements, and backlog is not a reliable predictor of future revenue.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $513.3 million | $466.3 million | +10.1% |
| Revenue before reimbursements | $463.8 million | $434.9 million | +6.7% |
| Operating income | $140.8 million | $108.9 million | +29.3% |
| Operating margin | 27.4% | 23.4% | +4.0 percentage points |
| Net income | $102.3 million | $101.2 million | +1.1% |
| Diluted EPS | $1.96 | $1.90 | +3.2% |
| Net cash from operating activities | $93.8 million | $124.6 million | Down $30.8 million |
| Cash and cash equivalents, year-end | $161.5 million | $297.7 million | Down $136.2 million |
- Engineering and Other Scientific revenue rose 12.3% to $427.8 million; Environmental and Health revenue was nearly flat at $85.5 million.
- Operating cash flow was affected by a $33.3 million increase in accounts receivable. Year-end net accounts receivable was $170.1 million, including a $6.2 million allowance.
- Current assets were $349.2 million and current liabilities $159.0 million, or approximately 2.2 times current-liability coverage. No borrowings or conventional financial debt are shown in the supplied balance sheet; operating lease liabilities totaled $18.6 million.
- Investing activities used $12.0 million, principally for capital expenditures. Financing activities used $216.0 million, including $155.9 million of share repurchases and $49.2 million of dividends. Cash dividends declared were $0.96 per share.
- Non-GAAP EBITDA was $137.2 million; EBITDA as a percentage of revenue before reimbursements was 29.6%, down from 30.4%.
Material changes versus FY2021
- Revenue growth reflected higher billable hours and billing rates. Billable hours increased 4%, while technical full-time-equivalent employees increased 6% to 955; utilization declined to 74% from 75%.
- Operating margin improved, while net income grew only modestly. The effective tax rate increased to 22.6% from 19.6%, partly because the excess tax benefit from stock-based awards fell to $5.8 million from $10.0 million.
- Reimbursable expenses rose 57.5% as project travel and other costs recovered with easing pandemic-related restrictions. General and administrative expenses increased 54.8%, including higher travel, consulting, recruiting and business-development costs.
- Other income moved from $16.9 million to a loss of $8.6 million, mainly reflecting a $14.2 million loss on deferred-compensation investments versus a $14.7 million gain in FY2021. The investment movement had a corresponding effect on compensation expense, substantially offsetting its impact on operating results.
Outlook, risks and unusual items
- Management expects compensation costs, other operating expenses and general and administrative expenses to rise as it hires selectively, adjusts pay to market conditions, invests in infrastructure and expands business development. No quantified revenue or earnings guidance is provided.
- Management says demand remained strong in consumer products, electronics, automotive and life sciences, with battery-related work in electric vehicles and energy storage also active. It plans to pursue emerging growth areas while maintaining cash generation and shareholder returns.
- Key risks include volatile engagement timing and limited backlog visibility; client postponements or nonpayment; employee recruitment and retention; competition and pricing pressure; and dependence on reputation. The filing notes that one client accounted for 15% of FY2022 revenue.
- Other exposures include litigation and professional liability, regulatory or tort-reform changes that could reduce demand, cyber and data-privacy risks, international and foreign-exchange exposure, economic uncertainty, and the effects of pandemics or climate-related events.
- KPMG identified collectibility of accounts receivable as a critical audit matter, citing the estimation and judgment involved in customer-specific allowances. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective controls.
- The company reported no material legal proceedings and no goodwill impairment. It stated that cash balances should meet working-capital and other requirements for at least the next 12 months. A $0.26-per-share quarterly dividend declared in February 2023 is a subsequent event, not part of FY2022 dividends.
Important facts for investors to verify
- Whether receivables growth, the $6.2 million allowance and the identified collection risk translate into timely cash collection.
- Whether billable-hour growth and hiring can sustain revenue and margins despite lower utilization and higher planned costs.
- How much of reported revenue growth reflects reimbursable pass-through expenses rather than underlying revenue before reimbursements.
- The impact of deferred-compensation investment volatility and reduced stock-award tax benefits on future reported earnings and taxes.
- The pace of buybacks and dividends relative to operating cash flow, liquidity needs and the remaining $62.6 million repurchase authorization.
- Whether exposure to the largest client and the concentrated consumer-products, energy, transportation and chemical industries changes materially.