Exponent Inc (EXPO) 2004 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Exponent fourth-quarter and fiscal year 2004 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Thank you. Miss Johnson, you may begin your conference.

Good afternoon, ladies and gentlemen, and thank you for joining us on today's conference call to discuss Exponent's fourth-quarter and fiscal year 2004 results. Please note that this call is being simultaneously Webcast on the investor relations section of the Company's corporate Website at www.exponent.com. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without Exponent's prior written consent.

Joining me on the call today are Mike Gaulke, President and CEO, and Rich Schlenker, CFO of Exponent.

Before we get started, I would like to remind you that the following discussion includes forward-looking statements, including statements about Exponent's market opportunities and future financial results, that involve risks and uncertainties that Exponent's actual results may vary materially from those discussed here. Additional information concerning factors that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic filings with the SEC, including those factors discussed under the caption "Factors Affecting Operating Results and Market Price of the Stock" in Exponent's Form 10-Q for the quarter ended December 31, 2004. The forward-looking statements and risks that are stated 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 would like to turn the call over to Mike Gaulke, President and CEO of Exponent. Mike, please go ahead.

Thank you for joining us today as we report our fourth-quarter and strong fiscal year 2004 results.

For the fourth quarter, revenues increased 2 percent over the same period last year to 35.1 million, while revenues net of reimbursables increased 4 percent to 32 million. Net income for the fourth quarter decreased 10 percent to 2 million, or 23 cents per share, as compared to 2.2 million, or 27 cents per share for the same period in 2003. For the full year, revenues increased 8 percent to 151.5 million, while revenues net of reimbursables increased 10 percent to 138.7 million. Net income increased by 18 percent to 12 million, or $1.41 per share.

2004 was highlighted by strong performance of many of our core practices, including electrical engineering, biomechanics, human factors, thermal sciences, and mechanics and materials. Additionally, we continued to expand our position in health and construction consulting.

During the year, Exponent leveraged its unique multidisciplinary talent in assisting clients in solving some of their most challenging technical problems. One example is our recent work with the new Las Vegas monorail system which opened in July of 2004. Soon after opening, a driveshaft on one of the vehicles failed, closing down the system. When it reopened in September, the driveshaft failed again, and a portion fell from the elevated guideway to the ground below. At that point, Exponent was called in to help. We determined the root cause of the driveshaft failures and provided engineering, testing and evaluation to allow the monorail system to reopen before the holiday season.

A sample of other projects in 2004 included -- working on a failed oil pipeline of the coast of Angola; determining the morbidity, mortality and costs associated with vertebral compression fractures of the spine; conducting safety evaluations of computer products; determining the cause of two major ship fires involving calcium hypochlorite; assessing a communities' health risk due to arsenic in the soil; and continuing work on liability arising from the Exxon Valdez oil spill in 1989.

Our defense technology development practice demonstrated good progress during the year. We performed field assessments of the U.S. Army's Advanced Robotic Controller and supported the Rapid Equipping Force with Exponent employees in the field in both Afghanistan and Iraq. And we are continuing our work there in 2005.

In the third quarter, our successful work with the Army created the opportunity to serve the U.S. Navy, where we began work in the area of boat IEDs and anti-submarine warfare. We believe we will be able to expand our work with the Navy in 2005.

In summary, we are pleased with our overall progress this past year and believe we continue to maintain a leading position in engineering and scientific consulting. For 2005, we expect to see continued growth in our core businesses, and have taken important steps to expand our opportunities in emerging areas.

With that, I will turn the call over to Rich for a detailed discussion of our financial results for the fourth quarter.

Thanks Mike. Once again, total revenues for the fourth quarter were 35.1 million, up 2 percent over the fourth quarter of 2003. Revenues before reimbursements were 32 million, an increase of 4 percent when compared to the fourth quarter of last year. Net income decreased by 10 percent to 1,966,000, or 23 cents per diluted share. For the year, total revenues increased 8 percent to 151.5 million, from 139.7 million in 2003. Revenues before reimbursements increased by 10 percent to 138.7 million, from 125.9 million in 2003. Net income for the full year increased 18 percent to $12,040,000, or $1.41 per diluted share, as compared to 10,166,000, or $1.27 per diluted share for 2003.

Hereafter, I will compare the results as a percentage of net revenues. Operating income for the fourth quarter was 2,926,000 compared to 3,464,000 in the same period of 2003. For the fourth quarter, the operating margin was 9.1 percent versus 11.3 percent for the same period last year. For the year, operating income was 19,324,000, up 14 percent over 16,902,000 in 2003. The operating margin for 2004 improved to 13.9 percent as compared to 13.4 percent in 2003. We are pleased to have realized a 50 basis point improvement in our operating margin during the year, which is consistent with our goal.

Compensation expense for the fourth quarter increased to $21.4 million, or 66.8 percent of net revenue, versus 20.4 million, or 66.4 percent in the same period last year. For the full year, compensation expenses increased to $90.8 million, or 65.4 percent of net revenue, versus 82.3 million, or 65.3 percent in 2003. For the fourth quarter, technical full-time equivalent employees were 491 as compared to 480 in the same period last year. For the full year of 2004, FTEs were 499 as compared to 474 in 2003.

Fourth-quarter utilization was 59 percent, as compared to 61 percent in the same period last year. For the full year, utilization was 65 percent, as compared to 66 in the prior year. Other operating expenses in the fourth quarter increased to $4.9 million, or 15.2 percent of net revenue, as compared to 4.5 million, or 14.5 percent in the same period a year ago. For the full year, other operating expenses decreased as a percentage of net revenues to 13.6 percent, compared to 14.2 percent in 2003. This improvement was the result of our ability to leverage our existing facilities in 2004.

G&A expenses for the fourth quarter were $2.8 million, or 8.8 percent of net revenues, as compared to $2.4 million, or 7.7 percent in the same period one year ago. For the full year, G&A expenses were 7.1 percent of net revenues, compared to 7 percent in 2003. The full-year expenses includes approximately $500,000 in third-party costs associated with Sarbanes-Oxley 404.

Reimbursable expenses for the quarter were $3 million, as compared to 3.6 million in 2003. The reason for the higher reimbursable expenses in 2003 was due to our work on the U.S. Army's Advanced Robotic Controller.

Our tax rate in the fourth quarter was 41 percent, down slightly from the prior-year quarter, again, demonstrating the benefit of our tax-exempt investments. For the full year 2004 our tax rate was also 41 percent, down from 42.5 in 2003. Shares used to calculate net income per diluted share of 23 cents were 8,737,000.

Turning to the balance sheet, we generated $16 million of operating cash flow in 2004 and closed the year with cash and short-term investments of $60 million. Capital spending for the year was approximately $2.6 million. At year-end, accounts receivable net was $38.6 million and DSOs were 86 days.

For 2005, we expect to see continued lower growth in the first half of the year due to the likely carryover of slower activity in selected practices and the quarter-to-quarter comparisons against strong first and second quarters in 2004. We anticipate returning to high single-digit to low double-digit growth in the second half of year, resulting in revenue growth for the full year in the range of 5 to 10 percent.

Now I will turn it over the call to Mike for closing comments.

Thanks Rich. 2004 was an important year for Exponent. We continued to post solid growth in revenue and improved both operating and net income performance. During the year we built on our reputation as a leader in this marketplace, offered our unique multidisciplinary approach, served a number of long-standing blue-chip clients, employed top experts in their fields, improved our financial performance and strengthened our balance sheet. We are optimistic about 2005 and our long-term growth prospects, and look forward to reporting on our success to you in the future.

With that, I will turn the call over to our operator for your questions.

(OPERATOR INSTRUCTIONS). At this time there are no questions. This concludes today's Exponent fourth-quarter and fiscal year 2004 results conference call. You may now disconnect.