Exponent Inc (EXPO) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Exponent second quarter of FY16 results conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Whitney Kukulka. Please go ahead, ma'am.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's second quarter of FY16 financial results conference call. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website at www.Exponent.com/investors. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent.

Joining me on the call today are Paul Johnston, President and Chief Executive Officer, and Rich Schlenker, Executive Vice President and Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements, including but not limited to Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption factors affecting operating results and market price stock, and Exponent's most recent Form 10-K. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise.

And now, I will turn the call over to Paul Johnston, President and Chief Executive Officer. Paul?

Thank you for joining us today for our discussion of Exponent's second quarter 2016 results. Our second-quarter results reflect the impact that recent softening in a few industry sectors has had on our business. Tempered demand from the weakness in the oil and gas industry and a slowdown in a few other industry sectors, which I will describe shortly, drove a larger than expected decrease in utilization rates, which in turn led to revenues and margins being lower than expected.

These recent market conditions, combined with the challenging year-over-year comparison created by the completion of the major project in the third quarter of 2015, are reflected in our results. For the quarter, net revenues were $77.3 million, a 3% decrease from the same period last year. Net income was $10.5 million, or $0.38 per diluted share, in the second quarter of 2016.

Net revenues in our Engineering and Other Scientific segment grew 4% in the quarter and 6% in the first half of the year. This is the largest part of our business, and represents approximately 78% of Exponent's second-quarter net revenues. Although this is not the level of growth that we have seen in this segment in the recent past, we are encouraged by our ability to generate growth in our largest segment amid softer market conditions.

During the quarter, we experienced reduced spending from the oil and gas industry. Also, recent rulings in the intellectual property cases have resulted in clients pausing to evaluate alternatives, reducing the demand for expert witnesses. Additionally, after several years of growth, revenues from the automotive industry were flat in the second quarter.

The balance, or 22% of the Exponent's second-quarter net revenue, was from our Environmental and Health segment. Net revenues for this segment declined 20% in the second quarter and 15% year to date, as compared to last year. The reduced spending in the oil and gas industry also affected our Environmental and Health segment. In addition, consolidation in the industrial chemicals industry negatively impacted this segment, as companies go through the integration process following mergers.

Our health group has felt the greatest impact from the stagnant industrial chemicals market, as well as less asbestos litigation. That said, while in the short term we've not been able to replace as much of the revenues as we expected following the completion of a major project in 2015, we were pleased that during the first half of 2016 the environmental group replaced approximately one-third of the lost revenues.

I'll add that we do not believe that these market challenges are unique to Exponent, and we're not seeing any significant changes to the competitive environment. While we do not expect an immediate reversal, we believe that we are well positioned for long-term growth.

Year to date, Exponent paid $9.3 million in dividends, repurchased $4.5 million of common stock, and ended the second quarter with $162 million in cash, cash equivalents and short-term investments. Our stock repurchase program has $42.3 million currently authorized and available. We announced an $0.18 quarterly dividend payment today, and reiterated our intent to continue to pay quarterly dividends. The combination of stock repurchases and dividend payments reflects both our commitment to delivering shareholder value and our confidence in the long-term financial health of the Company.

Now I'll turn the call over to Rich for a more detailed review of our financial performance and business outlook.

Thanks, Paul. For the second quarter of 2016, revenues before reimbursements, or net revenues as I will refer to them from here on, were $73.3 million, down 3% from $75.3 million in the second quarter of 2015. Total revenues for the second quarter were $77.3 million, down 3% from $79.8 million one year ago. Our underlying growth in the second quarter was in the low single digits, but was offset by the impact of a major project, which ended in the third quarter of 2015.

Net income for the second quarter declined 11%, to $10.5 million or $0.38 per diluted share, as compared to $11.7 million or $0.43 per diluted share in the same quarter last year. EBITDA for the second quarter was $18 million, down from $20.6 million in the same period of 2015. For the first half of 2016, net revenues increased 1% to $152.3 million, and total revenues increased slightly to $160.5 million.

As a reminder, in the first quarter of 2016, Exponent early adopted a new accounting standard for the classification of tax adjustments associated with share-based awards, which was applied prospectively. While this was primarily a first-quarter event, there was a nominal impact in the second quarter.

In the first half of the year, the realized tax benefit was $4.8 million, or $0.18 per diluted share. Including the tax benefit, net income was $25.8 million, an increase of 17% as compared to $22 million in the same period of 2015. For comparison purposes, excluding the tax benefit, net income would have been $21 million in the first half, representing a decrease of 5% year over year.

Earnings per diluted share increased to $0.95, inclusive of the $0.18 per share benefit, as compared to $0.80 in the first half of last year. For the first half of 2016, EBITDA declined 5% to $37 million over the same period last year.

For the second quarter, billable hours declined 5% to 273,000, as compared to the same period in 2015. For the first half of the year, billable hours declined 2% to 568,000, as compared to the same period last year. Utilization in the second quarter declined to 69%, from 74% one year ago. As Paul discussed, the decrease in utilization was in part due to the impact of the major project which ended in the third quarter of 2015, but was also impacted by the recent softening in a few industry sectors. For the first half of the year, utilization was 71%, down from 75% in the same period one year ago.

As a reminder, we have seasonality in our business related to sequential increases from quarter to quarter in holidays and vacations. The first quarter of the year is typically our strongest, followed by the second, then the third, which has an additional holiday and more vacation taken. And finally, the fourth, which is our lowest UT quarter. This increase in holidays and vacations will result in a 2% to 3% decline in utilization from Q2 to Q3, and then an additional 3% decline in Q4.

Based on the current level of activity and the additional holidays and vacations, we expect utilization in the third quarter to be 66% to 68%, and the fourth-quarter utilization to be in the mid 60%s. This will result in the full year's utilization being 68% to 69%, as compared to 72% in 2015. We want to reiterate that our long-term expectations for utilization continue to be in the mid 70%s.

Technical full time equivalent employees in the second quarter were 765, which is an increase of 2% as compared to last year. We have made staffing adjustments to better align our capacity with the business. As a result, we expect FTEs to sequentially decline approximately 2% in each of the next two quarters. We will continue to selectively recruit top talent in many of our disciplines to position the Company for future growth.

In the second quarter, the realized bill rate increase was approximately 3% year over year, but was partially offset by 0.3% from the translating foreign currency for consolidated financial statements. For the remainder of 2016, we expect year-over-year realized bill rate increase to continue to be approximately 3%, and the impact of translating foreign currency for consolidated financial statements to be approximately 0.7%.

EBITDA margin for the quarter was 24.6% of net revenue, as compared to 27.3% in the same period last year. For the first half, EBITDA margin was 24.3%, as compared to 25.8% in the same period one year ago. We expect EBITDA margin in the third quarter to decline 300 to 400 basis points, as compared to the same period last year.

For the second quarter, compensation expense, after adjusting for gains and losses and deferred compensation, increased by 0.5%. Included in total compensation expense as a gain in deferred compensation of $940,000, as compared to a loss of $72,000 in the same quarter one year ago. As a reminder, gains and losses in deferred compensation are offset in miscellaneous income, and have no impact on the bottom line.

Compensation expense, after adjusting for gains and losses and deferred compensation, are expected to be flat to down approximately 2% in each of the next two quarters, as compared to the prior year. Stock-based compensation expense was $2.7 million in the second quarter, which is flat with last year. For the full year of 2016, we expect stock-based compensation to be approximately $13 million.

Other operating expenses increased 8% to $7.2 million in the second quarter. Included in other operating expenses is depreciation expense of $1.5 million. Other operating expenses are expected to remain in the range of $7.3 million to $7.5 million per quarter throughout 2016. G&A expenses were $4.1 million in the second quarter, a 1% increase from the one year ago period. For the remainder of 2016, G&A expenses are expected to be $4.2 million to $4.4 million per quarter.

Our second-quarter tax rate was 37.3%, as compared to 39.4% in the second quarter of last year. Our tax rate in the first half was 25%, compared to 39.4% in the same period last year. The tax rate was impacted significantly by the adoption of the new accounting standard, which was primarily a first-quarter event for Exponent. For comparison purposes, exclusive of the tax benefit, our tax rate would have been 38.9% in the first half. We expect a tax rate of approximately 38.6% during the remainder of 2016.

For the second quarter, operating cash flow were approximately $14 million, and capital expenditures were $1.9 million. We purchased $1 million in common stock in the second quarter. Year to date, we have repurchased $4.5 million of common stock, for a total of 91,000 shares at an average price of $49.27. We will -- we still have $42.3 million authorized and available for repurchases under our current repurchase program.

We distributed $4.7 million to shareholders through dividend payments in the second quarter, and $9.3 million so far this year. Today, we also announced another quarterly dividend payment of $0.18 per share for the third quarter of 2016, and reiterated our intent to continue to pay quarterly dividends. After repurchases and dividends, we ended the quarter with $162 million of cash and short-term investments.

Based on our performance in the first half of the year and the near-term market trends, we are reducing our 2016 expectations. Revenues before reimbursements are expected to be down 1% to 2% for the year as compared to 2015. Underlying growth is expected to be in the low single digits, excluding the impact of the major project completion in the third quarter of 2015. 2016 EBITDA margin is expected to decline approximately 200 to 250 basis points as compared to 2015, as a result of the lower utilization.

We remain confident in our long-term expectations for revenue growth in the high single digits to low double digits. Based on current level of inflation, it would more likely be in the high single digits in the near term. I will now turn the call back to Paul for closing remarks.

Thank you, Rich. While our first-half results and recent market condition caused us to reduce our outlook for the year, we remain confident in our business and long-term strategy. Along with making the staffing adjustments necessary to improve utilization, we're increasing our outreach to clients and marketing efforts in our proactive services to stimulate our business. We remain confident about our opportunity to leverage our unique market position to generate long-term growth.

Exponent is a leader in its business, with a world-class team of highly skilled professionals who are retained to investigate some of the most significant accidents and product recalls. We're called upon to evaluate reliability, safety and environmental impacts of increasingly complex technologies, products and processes in a global environment that is rapidly changing. We intend to leverage our experience and reputation in reactive services to continue the growth and development of our proactive services, such as design evaluations, risk management and regulatory consulting.

Our long-term financial goals remain the same. Produce organic revenue growth, improve profitability, and maintain a solid balance sheet. Despite near-term challenges, Exponent has driven strong results for many years, and we expect that to continue. Our healthy capital structure demonstrates the resilience of our model, and our ongoing stock repurchases and dividend payments reflect our commitment to delivering long-term shareholder value. Operator, we are now ready for questions.

(Operator Instructions)

Tobey Sommer, SunTrust.

Thank you. A question for you about the timing of the oil and gas intellectual property impacts that you saw on demand. Did those emerge within the quarter? Or -- and have you seen them stabilize? Or are they still -- are those particular pockets still in sequential decline?

So the two are a little bit different. Let me talk about oil and gas first.

I think from our standpoint, we've previously reported that revenues from the oil and gas industry have been affected by the lower oil prices. We've talked about that in the past. We continue to see that this trend in the initiation -- in both the initiation of new projects and in the spending on litigation projects.

So this is not something that I would call emerged in this quarter. It has been going on for some time. What we've continued to see is when you don't initiate projects and you bring other projects to completion, it continues to have a downward effect.

However, having said that, I am really quite confident about this as being a relatively -- this isn't a long-term problem for us. The oil and gas industry continues to be a huge industry, with highly complex infrastructure to extract and refine its products.

It's going to continue to need consulting help to address environmental health and safety issues, and we expect it to be important industry for our firm for the foreseeable future. So I do think this is one of those things. We're continuing to see a bit of a decline.

I would like to think that the decline is stabilized, but you never quite know what's going to happen down the road. But certainly there was further decline in this quarter, from where we were before.

Intellectual property is different. First of all, Rich will -- may comment here in a minute on the size of this. But for us, oil and gas is bigger -- is a lot bigger. It's a major industry for us.

Intellectual property is more of a smaller niche market for us in that sense. So it doesn't have quite the same broad flow of activity.

We had some matters -- so -- and to give you an idea, in intellectual property, at any one time, we don't have a huge number of matters going at any one time. What we have found this quarter was, things that ended this quarter, we weren't getting new cases the way we would normally get. And as we talked to our clients in that -- and our clients in that space are attorneys -- and as we talked to the clients in that space, there's clearly been somewhat of a change in the IP marketplace recently. And that has to do with the way in which intellectual property cases are pursued from a litigation standpoint.

Most intellectual property cases have two parts to it. There's an issue with regard to the validity of an existing patent, and there is also issues associated with whether there is infringement as well. And typically what happens is, both the infringement and the validity are both being challenged.

It turns out that the validity, more and more, is being processed by an internal US patent and trademark office procedure called inter partes review, or IPR. And that led to some decrease, as people are getting more used to using that approach. The Supreme Court, in just an earlier decision this year, upheld that as being an approved approach going forward. So what we saw in the intellectual property was much more this quarter, as opposed to the comparison with oil and gas, which had clearly started before then as oil prices had declined.

Thank you for that. And then within the third quarter, the large project that you had roll off a year ago, how much -- have you identified what the discrete impact is from that, on comparisons?

What I will tell you generally, and then Rich can take this further, look, we have identified this project, in the past, as being the activities in the Gulf associated with the oil spill, in that we have described that as being -- running at about 5% of the Company's revenues. And it was running at that level up through the second quarter of 2015. It spilled over a little bit into the third quarter, but not a lot.

And so that is what we've identified, and that truly did go away. It didn't just step down. This was the -- it was reported extensively in the press, about how BP had reached a global settlement. And that's what we are talking about there.

Okay. I had a question, prospectively, about a political election year. To the extent that government investigation by different agencies stimulates your work, have you noticed any change in the initiation of new investigations towards a presidential election in which top regulators may go back into private industry and those regulators may be without a titular head?

Wondering if anything around the election cycle has impacted the initiation of new engagements? Thanks.

So we haven't seen that. The question we're normally asked at this sort of time is whether, if there is a change in the White House or a change in the Senate or whatever, are we likely to see more work or less work, depending on who is in power? And what we have normally said is that there is a balance here.

Regulation, on the one hand, is good for our business as long as it doesn't get so extreme that it depresses economic activity. So there is a balance there.

But in the short term, to address your specific question, no, we have not seen any issues with regard to that. Clearly, a lot of the issues that come out of the regulatory areas, for example with Consumer Product Safety Commission and NHTSA, the National Highway Traffic Safety Administration -- what we see there are these investigations and recalls and so forth.

We can't say that we have seen any difference in that as we approach the election cycle here. In fact, I think NHTSA has been pretty active. There have been quite a lot of reasonably high profile recall issues and so forth that we've talked about.

So I don't see any real change in that. The government activity that you read a lot about, in terms of their suits toward the banking industry and things like that, those tend not to have any impact on us. They may end up getting economic -- economist consulting firms involved, but they typically don't involve us. So we are involved in recalls and environmental and health issues and so forth.

Thanks. Last question for me, and I'll get back in the queue. Given the little bit of softness, at least relative to your long history of growth, do you think you will be a little bit more aggressive in share repurchase over the near term? Thanks.

Yes. We definitely have said that in the past, that we will definitely -- if there is a pullback in the stock, we hope it's not severe, but that clearly we will take that as an opportunity to repurchase.

Thank you very much.

Thanks, Tobey.

Tim McHugh, William Blair & Company.

Hi, thanks. Just a couple of quick questions.

One, I guess, you've identified a couple of different factors. Can you give us a sense of, I guess, magnitude in terms of each of those factors? What the bigger impacts were versus the smaller ones?

Yes. The -- for us, obviously, a year ago, we had approximately -- we had about 5% of our revenues, as Paul said, in the large major project. But at that time, we also had an additional probably approximately 7% of our business that was in the oil and gas area.

Today, that is now down in the -- it's 4% or less. So I think that we have seen the impact there of that continuing to step down. So you've got the impact across that.

In our industrial chemicals area, this is -- the industrial chemicals part is a -- not a huge part of the business overall, but it is very important to our environmental and health area. In particular, we do about -- we were doing about 4% to 5%. We have seen a company-level decline in that of 1% to 2% of our revenues. So these are not only some areas that we are seeing growth before, but now we did see some decline in those areas.

The automotive sector for us, that was flat, has been one -- on the pure automotive side, not off-road type things -- is a high-single-digit percentage of our business, as it flows there. Intellectual property is -- we don't have the exact number, but approximately a couple of percent of our revenues, somewhere in the 2% to 4% range. That has probably halved itself over the last year.

Okay. That's helpful.

I guess -- let me just ask you, the headcount changes you are describing, correct me if I am wrong, but you said 2% sequential decline for each in the next two quarters. And it seems like you already started that, as well, in 2Q. It seems like you don't expect, while you're saying some of this is temporary, it feels like you are adjusting headcount a fair amount.

And if this is -- it feels like you're making a -- you expect these to be more permanent, I guess, changes in the demand curve. Can you just reconcile the headcount changes versus the comment that they should be temporary -- or hopefully temporary?

Yes, first of all, the headcount changes are certainly not -- when you think about numbers of people, it is not a huge number of people. It's not across the board.

We are always focused on looking at our businesses, where the strength is, where the weakness is. We have some areas of weakness. The headcount adjustments are very focused in those areas, and so we think that they are clearly warranted in those areas.

This is -- there's clearly a difference between the segments, and even within the segments. As we break it down to our practice level, there are significant differences. There are parts of the firm that are going to hire and grow more people, and there are parts of the firm that we need to adjust based on where we are.

Obviously, if you look at the environmental and health segment, clearly, based on where things are -- remember that all of the 5% that was in this major project was in that segment. And so that was 5% of the firm's revenues in that segment. And so we made an adjustment in that segment, in the third quarter of last year, following the completion of that project.

As I say, we hope to fill in more of the revenues than we did. We have filled in some of those revenues, but as a result, we felt that the additional adjustments were warranted.

Okay. And then I guess just lastly, you made a comment that you don't feel like these are unique to Exponent. Is that just you feel like these are -- can you elaborate, I guess, on what you're trying to say with that?

Is that just that it's a marketing thing? Or are you -- what's behind that statement?

Yes, so a couple of different things. So I think if you look at the things that are affecting, for example, the engineering and other segment, I think in those areas, what we've got is something where, in oil and gas, as it affects that, there is just clearly reduced spending.

We are talking with our clients. It's just clear that they have put projects on hold, and it is not a competitive issue. It's just that that's where the industry is, and that's kind of happened.

As we look at this from the standpoint of the environmental and health space, where we have seen slower market for litigation in the health and environmental areas, including asbestos litigation, this is a space where we have relatively few what I will call major competitors. We know them well.

Our colleagues meet up with their colleagues at professional meetings. There's been a number of people who have moved between these firms.

We know each other pretty well. And I think from that standpoint, what we can say is that some of the challenges we have experienced, we know they are experiencing as well. And so that's part of the reason that we make that comment.

In addition to that, there have been a number of articles, in the legal journals or legal magazines, that have talked about a near-term reduction in the spending in litigation, and how it's affecting our client community. So we've followed that, as well. So we feel like we're in touch with the market well enough to understand where we are from a competitive standpoint.

We have always been -- we are a high-end firm, and so we have always been in a mode where somebody who really wants to find the lowest price for something is probably not going to come to us. That hasn't changed. That's still the case.

We are a premier firm. But we don't think that that competitive environment has changed, and we don't -- and we think what our higher level competitors are seeing, we think is the same as what we're seeing.

Okay. Thank you.

Randy Reece, Avondale Partners.

Good afternoon. I have -- looking at the utilization by segment, do you have the utilization rates for each segment in the second quarter?

Yes, I do. I can provide that. So the utilization for the environmental and health segment in the quarter was 60%, and the utilization for engineering and other science segment was 72%.

The sequential changes there were roughly the same in each one. I was trying to get an impression of what surprised you the most. But in both cases, it looks like you -- the difficulty was equal in managing utilization, although I'm sure you never expected to get to 60% for environmental and health. Is that accurate?

Yes, I think the situations are a little -- yes, the adjustments have been similar. But from a management standpoint, I guess the way I look at it is, environmental health was the part that we clearly lost this large chunk of revenue. We got a year-over-year comparisons. We're trying to fill that in. We've got that activity going on.

Even under what I will call a stable environment, we expect environmental and health to produce a lower utilization. And I think the main reason for that is because of our UK operations, which operate with clearly a lower utilization rate. And they are all in the environmental and health segment. They operate with a lower utilization rate, but with the same level of profitability as the firm, because they have higher multipliers.

It's just that in the UK, frankly, the number of billable hours you get per person is a little different over there than it is over here. So there is that issue of why it's always good to be somewhat different. So our surprise there was more in just, we just weren't able to back in or refill as much of the lost revenue that we had from the major project as we had hoped.

At the same time -- and that was in the environmental group and in the health group -- the reality is that the litigation levels were lower. As I've described, we feel that our competitors are seeing the same thing. So -- but that certainly was not something we had anticipated ahead of time. So that, I think, is the effect there.

I think another way of looking at it, Randy, is when we talk about the overall growth in the quarter, in the engineering and other segment, as being 4%, this is an area of the firm that had been growing at a much higher rate than that. So we've clearly had an impact in both segments. This is not a case where we only had an impact in one segment.

Do you have a feel for how much could be macro-economically driven versus very industry-specific situations?

I think we've talked about this macro-economically, from the standpoint of our long-term goals of 8% to 12%. High-single- to low-double-digit growth is what we've talked about for the last decade and a half, from a top line growth expectation.

And in more recent years, we have been, I think, pretty clear with the market that in a time period with low inflation and lackluster economic activity -- I'm not saying horrible, but 2% growth in the economy is kind of lackluster -- I think it's pretty clear that that has some effect on our operations. But the changes that we saw this quarter, that really started becoming -- came to light in the middle of the quarter, in May, that's much more industry sector orientated.

Other sectors are different. We've got other major sectors that are important to us, and some of which we haven't talked about here specifically. But some of which, I would say, are still growing but maybe not growing quite at the rate that were growing before. So you can look at consumer electronics, which is a very good sector for us and something that we think is continuing to grow, but probably not at the rate that it has grown in some recent quarters.

Okay. Very good. Thank you very much.

Marc Riddick, Sidoti & Company.

Hi, good evening everyone. I wanted to touch on -- you made a comment on the marketing and the increase in marketing efforts. So can you elaborate on what those are? And how those plans are different than what you may have expected to do at the beginning of the year?

I think there are several things. I think that we have actually been increasing our spending in -- on the marketing side of things, not just as a result of this quarter. We have been doing that for some time.

We just launched a new website. Our website had gotten old. We had been spending money on doing that. We've hired a marketing manager to get more activity there.

I think one of the things to understand about our firm is that we are a seller/doer firm. 90% -- I don't know, more than 95% of the work of the firm comes in through our consulting staff, largely led by -- the majority of it all comes in through our principles who are out in the market, who have a reputation and who attract work.

We also have a business development team, and we've grown the business development team, and we've just added another person to the business development team. So there has been an increase in expenditures there. We've also been spending a little bit more money, in the past year, on business development training and assisting our staff as they develop from entry-level consultants up through becoming principles in the firm.

So there's a number of different things, from spending to staffing to the emphasis that we put on our principles, in terms of how they spend the day between consulting, business development, recruiting and so forth. And it's clear that we are very much focused on trying to get more client face time, from the standpoint of increasing our business development opportunities.

Okay. And I was wondering if you could give an update. I know we've talked about -- in multiple ways about the headcount reduction.

But I was wondering if you could give an update on the general recruiting efforts, as far as entry-level versus senior talent? What we may see there, going forward? I would imagine the headcount decline is both positive and negative. So I was wondering if you could give it a bit of an update on what you are looking for, going forward?

Yes, our normal feed stock that I've talked about before is our university recruiting program, where we bring in, basically, primarily PhD level talent out of top schools, and we're continuing that program. Obviously, we need to hire those people, or be recruiting those people, pretty far in advance. So that's why this is not something you turn on and off. It's -- we're going to continue our university recruiting program.

We'll be -- as we talk to people in -- for example in the fall of this year, many of those won't be out until early, mid, late next year. Because we're recruiting mostly PhD talent, not everybody comes out of school in June, July. It's a little different than the undergraduate recruiting. But nevertheless, you make commitments quite far in advance.

We are not changing any of those commitments. We haven't turned away any of the people that we are thinking of hiring. This is a long-term program, and we're in this for the long term. We're going to continue that program. So that's our main feed stock.

We also have a focus on trying to bring in principal level talent. Either people who have got a book of business who, for whatever reason, it is not working in their company, or people who are going to help us strategically grow and expand beyond our current bounds, by bringing in well-known people in their fields.

And we've been actually quite successful this year, and we brought in a very senior person in the utility consulting environment that -- we've brought in a principal in our Hong Kong office to expand beyond the consumer electronics things that we are doing there, and into some of the other areas like international arbitrations on construction projects and various things like that. We have brought in another principal who is going to help us with a lot of -- not vehicle but a lot of product stewardship and product recall type issues. Previously, he was a leader at Intertek.

We've brought in a person who is going to take over our environmental group, Bob Haddad, who worked at the -- at NOAA. And so we think we've made some pretty strategic hires.

We can't point to them today and show that the revenue stream is there at this point. These were people who are really helping us expand into parts of the business that we are not as well known for. But we are really actually quite excited about those hires.

Okay. And one other thing to touch on. I think you've mentioned, in the past, some interest in the food safety area, and seeing that as a in area for growth.

I was wondering if you could share a little bit where you view that area as an opportunity? And how that may or may not have changed from the beginning of the year?

Yes, I don't think there's been much change in that. Other than -- I think from a revenue standpoint, other than that we still see it as being an important part of our food and chem -- what we call our food and chem practice, which is a part of the environmental and health segment. We are continuing to invest in growing that in Europe, and we think that that's a good direction.

The person we brought in from Intertec has got some background in that area, as well. We think he will assist us in growing that part. So food is something that we are investing in, and we think is a growth opportunity for us.

And that's something that you would need, I guess, more senior people as opposed to junior in that area?

Absolutely. I think the challenge, of course, in growing a new area or expanding into new niches within an area we're in, is you need that thought leadership. You've got to grow it from the top. Once you've got the thought leadership there, and you have established the kinds of projects you can take on, then you can certainly hire many, many more people at a more junior level to help staff those projects.

Okay. Thank you very much.

Thanks, Marc.

And with no additional questions in the queue, that does conclude today's conference call. Thank you all again for your participation.