Exponent Inc (EXPO) 2016 Q3 法說會逐字稿

Good day and welcome to the Exponent third quarter 2016 earnings results conference call. Today's conference is being recorded.

At this time I'd 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 third quarter 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, Chief Executive Officer, and Rich Schlenker, Executive Vice President and Chief Financial Officer. Before we start I would like to remind you 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 in 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 the result of new developments or otherwise. And now I will turn the call over to Paul Johnston, Chief Executive Officer. Paul, go ahead.

Thank you. Thank you for joining us today for our discussion of Exponent's third quarter 2016 results. Exponent's third-quarter results were better than our prior outlook but continue to be impacted by softness in a few industry sectors which we discussed during our second-quarter conference call.

This softness which is primarily related to the oil and gas industry was partially offset by an increase in demand related to consumer products and construction. While the third quarter's utilization increased slightly to 70% from the second quarter it was still lower than the same period last year.

For the third quarter of 2016 net revenues were $74.2 million a nominal decrease from the same period last year. Net income was $11.3 million or $0.42 per diluted share in the third quarter of 2016. Net revenues in our engineering and other scientific segment grew in the low single digits both sequentially and year over year.

As compared to last year this segment grew 2% in the third quarter and 5% in the first nine months. This is the largest part of our business and represents approximately 78% of Exponent's third-quarter net revenues.

Although this is not the level of growth that we have seen in this segment in the past we remain optimistic about the future as Exponent continues to be called upon to investigate high-profile accidents and product recalls as well as for its design consulting services. As products continue to become more technologically complex and the Consumer Product Safety Commission increases enforcements we are more frequently called upon to assist clients in evaluating their products for potential recalls.

We're also seeing an increased amount related to construction disputes from major capital projects in the United States and Asia. Revenue growth was partially offset by recent shifts in market conditions such as reduced spending in the oil and gas industry and the slowdown in intellectual property cases.

Additionally after several years of growth revenues from the automotive industry remained flat in the third quarter. That said we are encouraged by our ability to generate growth in our largest segment amid softer market conditions.

The balance or 22% of Exponent's third-quarter net revenue was from our environmental and health segment. Net revenue for this segment grew sequentially but declined by 8% in the third quarter and 13% year-to-date as compared to last year.

Year-over-year net revenue comparisons continue to be impacted by the completion of a major project in the third quarter of 2015 and an unfavorable exchange rate for nearly 20% of the segment, which is based in the United Kingdom. In addition we continue to have lower revenues from oil and gas and the industrial chemicals industry.

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, Exponent's highly skilled professionals and multidisciplinary teams are uniquely positioned to capitalize on the increasing technological complexity of products as well as society's heightened focus on product safety, human health, and environmental issues.

Given the challenge we had in the second quarter we're pleased that we were able to make the necessary stop and adjustments in a few selected areas to rebalance capacity with client needs so that we can restore utilization to 70% in the third quarter. However the resulting lower headcount creates a headwind for year-over-year growth while delivering continued strong profitability.

We have seen modest improvements in the third quarter and we are confident that we remained well-positioned for long-term growth. Turning to our dividend and repurchase activity year-to-date Exponent paid $14 million in dividends, repurchased $24.5 million of common stock and ended the third quarter with $150 million in cash.

Today we announced that our Board of Directors authorized an additional $35 million in share repurchases, increasing the current authorization to approximately $57 million. We also announced an $0.18 quarterly dividend payment and reiterated our intent to continue to pay quarterly dividends.

We believe that a combination of stock repurchases and dividend payments are strong indicators of our confidence in the Company, the strength and stability of our long-term financial position and our commitment to delivering shareholder value. 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 third quarter of 2016 revenues before reimbursements or net revenues as I will refer to them from here on, were $74.2 million, down 46 basis points from $74.5 million in the third quarter of 2015. Total revenues for the third quarter were $77.6 million down 2% from $78.9 million one year ago.

Our underlying net revenue growth in the third quarter was a little more than 1% but was offset by the impact of a major project ending in the third quarter of 2015 and translating foreign currency for consolidated financial statements. Net income for the third quarter declined 4% to $11.3 million or $0.42 per diluted share as compared to $11.7 million or $0.43 per diluted share in the same quarter last year. EBITDA for the third quarter was $19.3 million down from $20.1 million in the same period of 2015.

For the first nine months of 2016 revenues before reimbursements were $226.4 million a marginal improvement as compared to $225.9 million in the same period of 2015. Total revenues declined slightly to $238.1 million from $239.2 million in the prior year.

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 subsequent quarters.

In the first nine months of the year the realized tax benefit was $4.8 million or $0.18 per diluted share. Including the tax benefit net income was $37.1 million an increase of 10% as compared to $33.7 million in the same period of 2015.

For comparison purposes excluding the tax benefit net income would have been $32.3 million in the first nine months representing a decrease of 4% year over year. Earnings per diluted share increased to $1.36 inclusive of the $0.18 per share benefit as compared to $1.23 in the first nine months of last year.

In the first nine months EBITDA was $56.4 million down 4.5% over the same period last year. For the third quarter billable hours declined 2.5% to 278,000 as compared to the same period in 2015. For the first nine months of the year billable hours declined 2% to 848,000 as compared to the same period last year.

Utilization for the third quarter was 70% which was better than we expected and an improvement over the second quarter but down from the 73% one year ago. As Paul discussed the decrease in utilization was in part due to the impact of the major project which ended at the third quarter of 2015 but more so due to the recent softening in a few industry sectors.

For the first nine months of the year utilization was 71% down from 74% 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 and the fourth quarter is typically our lowest UT order.

The increase in holidays and vacations in the fourth quarter will result in a 3% to 4% percentage point decline in utilization from Q3 to Q4. Based on the current level of activity and the additional holidays and vacations we expect utilization in the fourth quarter to be 66% to 68%. This will result in the full year's utilization being approximately 70%, as compared to 72% in 2015.

Technical full time equivalent employees in the third quarter were 761, which is an increase of the 2% as compared to last year but down sequentially. We have made staffing adjustments in certain areas to better align our capacity with the business.

Recognizing that we have lower hiring in the fourth quarter we expect FTEs to sequentially decline approximately 1% in the quarter. We ended the third quarter at 759 FTEs and expect to end the year at approximately 750. We will continue to selectively recruit top talent in many of our disciplines to meet current demand and position the Company for future growth.

In the third quarter the realized bill rate increase was approximately 3% year over year, partially offset by 7/10 of a percent from the translation of foreign currency for consolidated financial statements. For the fourth quarter we expect the year-over-year realized bill rate increase to be approximately 3% and the impact from translating foreign currency for totality of financial statements to be approximately 7/10 of a percent.

EBITDA margin for the quarter was 26.1% of net revenue, as compared to 26.9% in the same period last year. For the first nine months EBITDA margin was 24.9% as compared to 26.1% in the same period one year ago.

The full-year 2016 EBITDA margin is expected to decline approximately 125 to 150 basis points as compared to 2015. Primarily as a result of a lower utilization.

For the third quarter compensation expense after adjusting for gains and losses and deferred compensation increased by approximately 2%. Included in total compensation expense is a gain in deferred compensation of $1.5 million as compared to a loss of $2.7 million 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. Stock-based compensation expense was $2.7 million in the third quarter which is up approximately 4% as compared to last year.

For the full year of 2016 we expect stock-based compensation to be approximately $13 million. Other operating expenses increased 4% to $7 million in the third quarter. Included in other operating expenses is depreciation expense of $1.5 million.

Other operating expenses are expected to be in the range of $7.3 million to $7.5 million in the fourth quarter of 2016 and $28.5 million to $20.7 million for the full year. G&A expenses were $3.7 million in the third quarter a 5% decrease from the one year ago period.

G&A expenses are expected to be $3.9 million to $4.1 million in the fourth quarter and $15.3 million to $15.5 million for the full year. Our third-quarter tax rate was 37% as compared to 37.6% in the third quarter of last year. Our tax rate in the first nine months of 2016 was 29.1% compared to 38.8% 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 38.3% in the first nine months.

For the fourth-quarter we expect the tax rate to be approximately 38.5%. For the third quarter operating cash flow was approximately $22.7 million and capital expenditures were $9.7 million.

The capital expenditures included the purchase of a warehouse which we previously leased and is adjacent to our headquarters. We purchased $20 million in common stock in the third quarter.

Year-to-date we have purchased $24.5 million of common stock for a total of 491,000 shares at an average price of $49.78. As Paul noted our Board of Directors once again authorized a $35 million increase to our share repurchase plan. In total we now have approximately $57 million available for repurchases.

We distributed $4.7 million to shareholders through dividend payments in the third quarter and $14 million so far this year. Today we also announced another quarterly dividend payment of $0.18 per share for the fourth quarter of 2016 and reiterated our intent to continue to pay quarterly dividends.

After repurchases and dividends we ended the quarter with $150 million of cash in short-term investments. Based on our performance in the third quarter we are increasing our 2016 expectations but remain cautious in the near term due to the softness in a few industry sectors.

Revenues before reimbursements are expected to be approximately flat 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 completed in the third quarter of 2015.

2016 EBITDA margin is expected to decline 125 to 150 basis points as compared to 2015 as the result of lower utilization. We expect our results to continue to be impacted by the current market trends in the near-term but remain confident in our long-term expectations for revenue growth. I will now turn the call back to Paul for closing remarks.

Thank you Rich. I'd like to update you on some recent leadership changes. Exponent announced on July 29 the appointment of Dr. Catherine Corrigan to the position of President reporting to me.

I am pleased that the Board accepted my recommendation to transition the position of President to Catherine, as well planned leadership succession over time is vital to our long-term future. Please let me recap Catherine's background.

Catherine obtained her PhD in medical engineering and medical physics and her Masters in mechanical engineering from MIT and her Bachelors and bioengineering from the University of Pennsylvania. She joined Exponent's Philadelphia office in 1996 was promoted to Principal in 2002 and to Corporate Vice President in 2005.

She was promoted to group Vice President to lead the transportation group and joined the Company's operating committee in 2012. She relocated to our Menlo Park office in July.

Catherine has demonstrated strong leadership as Group Vice President and I'm confident that she will have a successful transition into managing all of our operating groups. While Catherine has consulted on issues affecting many industries, her deep experience related to vehicle safety is a valuable asset as Exponent continues to expand its transportation consulting services.

She is highly respected by clients and employees for her expertise and leadership. I am excited to partner with Catherine in her new role.

As a result of this change Catherine's former role of Vice President of our transportation group has been taken over by Dr. John Pye. In addition we made two other planned changes. Dr. Harry Kytomaa has been appointed Vice President of our electrical and civil sciences group and Dr. Robert Haddad has been appointed Vice President of our environmental sciences group.

Dr. Robert Caligiuri and Dr. Paul Boehm, who previously led these two groups, will continue their practices with the firm on a full-time basis providing consultation to clients. We think we have a great Leadership Team that is well-suited to lead Exponent into the future.

In closing, we remain confident in our Business and the opportunity to leverage our unique market position to generate long-term growth. Exponent is a leader in this business with a diversified portfolio of clients and a world-class team of highly skilled professionals who are retained to investigate many of the most significant accidents and product recalls.

We're also called upon to evaluate reliability, safety, human health, and environmental impacts of increasingly complex technologies, products and processes in a global environment that is rapidly changing. In fact we are often involved with many of the high profile complex product safety issues that you may see on the nightly news.

We intend to leverage our experience and reputation in reactive services to drive the growth and development of our proactive services such as design evaluations, risk management, and regulatory consulting. Our third-quarter results were impacted by broad market issues and while we do not expect an immediate reversal our long-term value proposition remains strong.

Our long-term financial goals remain the same. Produce organic revenue growth, improve profitability and maintain a solid balance sheet. 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're now ready for questions.

(Operator Instructions)

Tim McHugh, William Blair and Company.

Thank you. Hello guys. First just, I guess this is maybe overly specific, but I think, Rich, you said underlying growth if we look through the BP case in foreign exchange was just over 1%. I think you had said low single digits, which wasn't quite as precise last quarter, but on a year-over-year basis is at about the same or did it get slower? I'm trying to reconcile that versus, I know you said it was better than expected but just looking at the year-over-year growth on an underlying basis?

I think it was, last quarter it was probably in that same range. It might have been around in the 2% or 3%. I don't have the number right off the top of my head here, but yes it probably was right around 1% to 2%.

Okay, and you said growth obviously slower than you normally look at it on an underlying basis, and you had talked about oil and gas before and I think there was a comment in the prepared remarks this quarter about most of this or a substantial part of the slowdown -- I forgot the exact wording -- was because of the oil and gas sector. Can you update us on the size of the impact oil and gas had on you this quarter and on the year-over-year growth rate?

A year ago that sector was approximately 7% or 8%, about 8% of our revenues and now it's less than 5%, sort of around 4%.

Okay and does that include the impact of the large case?

In the quarter that includes about 1% of that approximately 4% changes from the large major project.

Okay. And then lastly the strength in the consumer electronics area that you talked about, is that broad-based or are there any particularly large projects that are responsible I guess for the better outlook or performance there?

Tim, I think that's pretty broad-based. There's always a mix in that. The topic that's currently under CPSC review is usually larger than things that are developing or are that we are reacting to later in that cycle, so there's always kind of a mixture of that. But the comments we are making or not based on one project.

Okay. Thank you.

Joseph Foresi, Cantor Fitzgerald.

Hello, I wonder if we could just look at utilization. Maybe if you could give us some idea, I know you talked about 4Q, but what does the trajectory of utilization look like as we head into next year? Maybe you could talk about the seasonality in 2017?

First of all we're just in the beginning or middle of our planning for 2017, so we don't really have -- we haven't completed that process so we haven't sat down with our leadership team to dial that in. I would say what we're seeing right now is something that has put us again back at approximately 70% utilization for the full year.

And I think that at least the trend off of that is about at that level. It might be somewhere between right now on a run rate basis running between 70% and 71% utilization at this point in time.

Got it. And in the environment and health business what gets back to sort of steady state in that business? Do we wait for the compares to get better or do you feel like there might be something to offset some of the declines?

I think that we're still in the process of what I would call a little bit of a shakeout following the large case. Initially when we came off of that large case in whatever it was, sort of early third quarter last year, there was a little bit of pent up demand from other matters that carried us through a little bit more maybe than we had anticipated through Q1 of this year. I think we are now really sorting out exactly what that underlying demand level is. I think we have now hit what that level is.

But that's why I think there was a little bit -- it's almost like there was an extended tail, but the BP project which is the larger project that sort of referred to in the calls, that ended in the beginning of third quarter of last year, while it ended there was still excess work that hadn't gotten done because that project was so large. I think we now see what that initial steady-state is like where we are today or where we've been in the last quarter. I think the challenge from here going forward of course is to continue to develop further business and attract additional staff in those areas to grow those practices.

Got it. And from a resourcing perspective or additions to headcount, where were you focused on maybe trimming versus the additions? If you could just give some idea of where you are looking to add versus where you have taken some reductions? Thanks.

We took really reductions, it was really focused in three areas. It was focused in environmental and health were two of them and the third was in technology development.

Technology development was something we took a fairly significant step down at the end of 2014 because of the end of our contracts with the rapid equipping force of the US Army that was providing the work to us while we had combat troops in Afghanistan. And so there was a follow-on adjustment we needed to make there and then health and environment. Those are the three areas that we made some reductions in the headcount.

The areas that are going in the other direction have been focused a lot around various aspects of consumer products, consumer electronics, medical devices and the regulatory side of food and chem in our health practice. So those include some regulatory people, they include human factors people, they include polymer science and chemists and materials scientists and biomedical engineers. So those are the areas that are stronger, and the areas that obviously we made the reductions in where the areas that were weaker.

Thank you.

Tobey Sommer, SunTrust.

Hello, this is Kwan Kim on for Tobey, thanks for taking my questions. First off could you talk about the growth in your proactive side of the business? To what extent has the recent recall from Samsung contributed to the demand environment in the customer product for proactive services? Thank you.

I think, Kwan, as you may be aware we're in a position where our retention with clients is confidential until such time as they choose to disclose our environment. So I'm not in a position to discuss the specific matter you raised, but what I will say is that major recalls like the one that has been announced do send somewhat of a shockwave through the industry, and I think it's certainly helpful to us in terms of those kinds of companies spending more money and wanting to be more focused to make sure they have successful launches of their products because the consequences of a poor launch are pretty damaging.

I do think it creates an environment where I will say the willingness of, for example consumer electronics companies, to spend more proactively before they have a litigation matter or recall matter as a way of doing third-party reviews, testing different concepts and the various kinds of things that we get involved in. While it's an unfortunate event that happened we do think it actually does help our business.

Thank you. And my next question is for the longer-term. How should we think about Exponent's opportunity for margin expansion in 2017 and beyond? What are the internal levers you might pull to drive up utilization other than head count adjustments? And is increasing scale through office consolidations an option on the table?

Over the long-term we continue to believe that on average as we look out over the next four to five years we would think that on average annually we would improve margins 30 to 50 basis points on average annually. That would be driven by improved utilization.

I don't see utilization becoming from reducing staff. I view that if we are going to achieve that level of margin improvement we need to do that in an environment where we are growing. I think it will come from growing and as we continue to build out our work in the proactive side, I think it continues our ability to leverage our more junior staff. I mean clients who are looking in the reactive side are looking for that aged person who can testify on the stand and such, but clients and the more proactive areas and particularly in design consulting and technology are very apt to take on our more recent PhD grads to assist them in that work. So we think there are opportunities for growth. There's opportunities for improved utilization gradually over time there.

We do believe that and have been focused on creating more critical mass in the offices that we already have. We have seen the benefit of that over time. We would expect that the leverage we get out of other operating and G&A would be let's call it 10 to 20 basis points on average annually. If we are growing in the high single digits on the top line we think we can get some leverage out of the infrastructure we have.

Thank you very much.

Randy Reece, Avondale Partners.

Good afternoon.

Good afternoon, Randy.

The fourth-quarter guidance suggests that your utilization rate will be roughly back to normal compared with history for a fourth quarter, and wanted to dig into that a little bit. You've already signaled some change in headcount. It's not dramatic.

I was wondering if you could describe to us how much of the recovery normalization of utilization rate would stem just from headcount actions and how much reflects how you are feeling about the underlying activity level of the Business?

So I think what we have seen in the utilization moving from the second quarter to the third quarter that we just completed was that if we trended off of the second quarter into the third quarter, we would have expected utilization to be down approximately 3 percentage points going from Q2 to Q3, just based on the fact that we had two less workdays in Q3 than we did in Q2. That would be what we would expect to see there.

So obviously we saw an improvement in the demand side of our work. Not just -- headcount only went down 1% from about 768 to 761, so that explains 1% of that gain but the remainder of that pickup that we had there was as a result of improved demand in the quarter.

And I would say at that level we saw in the third quarter was back closer to what we were seeing in the first quarter of this year from a demand -- from a utilization standpoint. A little lower headcount but on a utilization level about the same level.

We're expecting that to -- based on the current demand environment -- we are expecting that to continue on into the fourth quarter and while we will have some lower headcount because we tend to have less hires in the fourth quarter just based on timing of the year, some years that comes in flat, sometimes a little bit down. I think recruiting has been a little bit slower because of what we saw in the slowdown in the Business in the second quarter so we'll expect that we will probably be about 1% short on our headcount, so that's why we are expecting that. So overall I'd say the utilization has picked up to this level based on demand and 1% to 2% here has obviously come relative to the headcount adjustments.

It didn't sound like in your discussion that you'd seen a lot of change in the depressed environment in the agrochemical space. Is there any anticipated recovery there in the fourth quarter or were you looking at that as something that's going to happen next year?

In the industrial chemicals we haven't really seen a change in that environment and while what we expect is that isn't something that we will go for years, like it could happen in oil and gas, we aren't expecting a near-term recovery there. It's probably something we will see later into next year.

Thank you very much.

Marc Riddick, Sidoti & Company.

Hello, good evening

Good evening.

Wanted to touch on the upside that you have seen in the construction space and wondering if you could spend a little time discussing what you are seeing there and what's driving the strength in construction disputes and if there's any particular pattern that's been emerging that would be helpful for us to get our arms around.

Sure, Marc. One of the things we have done is we made an investment in expanding -- it's a relatively small investment -- but expanding our construction consulting practice more internationally by bringing in a very senior person to our Hong Kong office. That has resulted in getting a number of significant sized international projects.

I think the biggest change that I would say is as a result of that move. Prior to that our construction consulting projects were almost exclusively US-based. So through that I think we have been able to -- we've made a start at growing that practice.

Great. And you had touched on this a little bit, but I was wondering if you could spend a little bit more time on the idea of some of the public difficulties out there that can lead to more proactive services, particularly within the consumer space.

Is there a general sense of how we should look at the potential for the amount of lead time it takes from when you have such a high profile action, whether it's what we are seeing in the consumer electronics space currently or maybe historically, sort of the amount of lead time it takes from when the headline catches everybody's attention to when that leads to business being written and growth in your revenues?

I think that's probably a fairly gradual thing, and what I would say about that is there are usually some immediate things that come from that where let's say another good client of ours who is worried about whether they have a similar problem may very quickly bring you into check that out. You get some initial thrust and then the real issue is over time how do you expand that through your reputation to other clients who aren't so -- necessarily so used to doing that.

I think we have seen that situation play out with other high publicity events that have happened in the past, and so we expect there is some immediate boost but these -- no one project is enough to move the needle that much. Remember we do do 6,000 to 8,000 projects a year, but there's no question that right immediately something hits the news, we do get some calls right away. Basically saying do we have this problem and so on.

Okay and you'd touched on the increased enforcements and I wanted to get a sense of whether, I guess maybe it's somewhat of a similar question, the impact of increased enforcements and maybe some of the areas that you are seeing that have some benefit maybe now or where you see that might lead to some revenue benefit going forward, if there were specific areas that you think were maybe a little more active in responding to those increased enforcements?

I think the comment that Rich and I made earlier about one of the areas of strength for us is really consumer products, and when we talk about that, obviously interactions with the CPSC is a significant part of that. I'm not saying that's the only thing but clearly safety and reliability of consumer products is indeed a huge area. It's something that we have been seeing over a period of time here, some increase in the level of activity with regard to that.

CPSC, I think you can see in the newspapers there's lots of articles written about stepped up CPSC enforcement. People understand the concerns about this, the concerns about getting ahead of it really handling the reporting right handling the investigations right and so forth. And so we do see that as something that is frankly helpful to our business, because we I think are respected by the regulatory agencies as a good independent source of engineering work, whether it be the Consumer Product Safety Commission or whether it be NHTSA on the vehicle side.

Great. And finally I was wondering, as we look at a very strong level of cash that you have on hand, I wanted to get a sense of maybe what you are looking at maybe in the acquisition and what the acquisition pipeline may look like in some of the areas that sort of the target for future growth through acquisitions, be they small or medium-size. Thank you.

First of all, in general I think we would expect acquisitions to be relatively small. We think that focusing on us acting as one Company and having a certain kind of culture makes a very large acquisition risky to that so we would focus on a smaller acquisition, so these are more seed acquisitions.

A pipeline may not be quite the best way of describing that. We always have a few in every year, we have quite a number of companies we look at and often get to the point of making offers on some. But as we have explained before there are certain areas we are focused on. They continue to be in the health, sort of pharmaceutical area where we think we could provide high-value toxicology, epidemiology and so forth in that space. They are also in the computer science space, embedded software and some data analytics related to that.

Those are some of the primaries we have looked at, but I think it would be misleading for us to indicate we have a pipeline of acquisitions. We haven't done one since 2002, but we are very open to doing the right kind of acquisition as long as we get a company at the right stage, where it's a seed for future growth and where they've got a leadership team that's going to continue to drive the business as opposed to one that is looking for retirement.

Thank you very much.

Thank you.

Thank you and we have no further questions at this time.

Thank you very much.

This does conclude today's program. Thank you all for your participation. And you may disconnect at any time.