Exponent Inc (EXPO) 2005 Q3 法說會逐字稿

Good afternoon. My name is Aleen (ph) and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Exponent third quarter earnings 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.

Good afternoon, ladies and gentlemen, and thank you for joining us on today's conference call to discuss Exponent's third quarter 2005 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 reproductions is expressively 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 the following discussion includes forward-looking statements, including statements about Exponent's market opportunities and future financial results that involve risks and uncertainties that express 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 periodical filings with the SEC, including those factors discussed under the caption "Factors Affecting Operating Results And Market Prices Stock" in Exponent's Form 10-Q for the quarter ended October 2nd, 2005.

The forward-looking statements and risks stated in this conference call are based on current expectations as of today and Exponent assumes no obligation to update or to revise them, whether as a result of new developments or otherwise.

And now, I'd 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 financial results for the third quarter and nine months ended September 30, 2005. In the quarter, we made good progress in many areas of our business and continue to believe we are positioned for additional growth, and for capitalizing on new opportunities in the scientific and engineering consulting business.

For the third quarter we reported net income increased 11% to $3.5 million or $0.40 per share as compared to $3.2 million or $0.37 per share for the same period last year. Total revenues for the quarter were 37.2 million and net revenues were $34.7 million, a decrease of 1% over the prior year.

Revenues from our core businesses increased 4% over the same period last year. However, this gain was offset by a decline in defense technology development, where we experienced a drop in revenue as a result of a defective part provided by an outside vendor that delayed the shipment of 330 robots that are being built for the U.S. Army's Rapid Equipping Force.

Therefore we recognized no revenue from robot shipments in the third quarter. The good news is that we have designed a fix for the defective part, tested it, and have already shipped over 1/3 of the robots and expect to have them all shipped by the end of this month.

In our core businesses, we had strong year-over-year growth in our civil engineering, biomechanics, and food and chemical practices. We also make good progress on the recruiting front and are pleased to report that our technical headcount increased by 5% in the third quarter over the second quarter of 2005.

In the Defense Technology development, during the quarter, we remain focused on the execution of projects for the U.S. Army and U.S. Navy. For the Army's Rapid Equipping Force in addition to building robots, which will be used in Iraq to help our troops deal with the deadly problem of improvised explosive devices or IEDs, we continue to support the REF in Afghanistan and Iraq on a contract that has been extended to March 2006.

Our antisubmarine warfare work for the Navy has now progressed to a demonstration phase which will run through the first half of 2006.

Exponent now has professionals in 19 offices in the U.S. and three offices overseas. Our office in Hangzhou, China which we opened in June of this year has gotten off to a good start. And we are busy assisting major U.S. companies resource their components or designs in China, with product design and consulting work, as well as helping these clients improve the reliability of their manufacturing processes.

As we look into the fourth quarter of 2005, we will remain focused on hiring across the business and look to improve utilization in several areas. Of course, the two hurricanes, Katrina and Rita, which hit the Gulf Coast in late August and September created extensive damage to the region. These two natural disasters have resulted in new business for the number of our practices, beginning in the fourth quarter.

Our civil engineering practice is currently working for four large insurance companies, helping them assess damage claims in the field. Our environmental practice will be working for a large energy company who has retained us to help them deal with the class action suits claiming environmental damage resulting from hurricane-caused oil spills. Our health practice is working for a number of clients dealing with mold issues. And we are in discussion with several other potential clients, regarding providing post-hurricane assistance to them.

I will now turn the call over to Rich to review the financial details of the quarter.

Total revenues for the third quarter were $37.2 million and revenues before reimbursements were $34.7 million. Net income was $3.5 million or $0.40 per diluted share. While net revenues declined 1% over the prior year period, we had improved operating performance in selected practices, good cash management and benefits in taxation, which enabled us to increase net income by 11% over the prior year period.

For the nine-month period, total revenues were $116.2 million and revenues before reimbursements increased 1% to $108.3 million. Net income for the nine months of 2005 increased 14% to $11,476,000 or $1.31 per diluted share.

Turning back to the third quarter, net revenues excluding Defense Technology development increased 4% over the prior year, which was offset by a decline of $1.8 million in net revenues from Defense Technology development. As Mike discussed, this was the result of the delays in robot shipments in the stretching out of the anti-submarine warfare project.

Hereafter, I will compare all results on a percentage of net revenue basis. For the third quarter, we reported operating income of $4.6 million, down from $5.1 million reported in the third quarter of 2004. Operating margin was 13.3% versus 14.5% in the same period last year. We continue to realize improved operating margins in selected practice areas, which were offset by a decline in Defense Technology development.

Operating income for the nine-month period increased 3% to $16.9 million, and operating margin for the period was 15.7% of net revenues as compared to 15.4% in the same period of 2004.

In the third quarter, compensation expense was $22.9 million or 66.1% of net revenue as compared to $23 million or 65.5% in the third quarter of 2004. This quarter, we had a 5% sequential improvement in technical full-time equivalent employees, averaging 505 in the U.S. for the quarter. Utilization for the quarter was 63% as compared to 64% in the same period last year.

Other operating expenses in the third quarter were $4.7 million or 13.5% of net revenue, unchanged for the same period one year ago. Depreciation in the third quarter of 2005 was $870,000. G&A expense for the third quarter increased to $2,441,000, or 7% of net revenue, as compared to $2,346,000 or 6.7% in the same quarter one year ago.

Reimbursable expenses for the quarter were $2.5 million as compared to $2.9 million in the third quarter of 2004.

In the third quarter, we benefited from increased interest income which totaled $309,000, up from $110,000 one year ago. Our tax rate improved to 33.5% as compared to 41% last year, based on increased tax interest income as well as -- I'm sorry, increased tax-exempt interest income as well as a benefit of the finalization of our 2004 tax returns.

Our tax rate for the fourth quarter and full year is expected to be 37.8%. Shares used to calculate net income per diluted share of $0.40 were 8,825,000. Capital expenditures for the quarter were $559,000. At quarter end, accounts receivable net were $45.1 million and DSOs were 94 days as compared to 119 days at the end of the third quarter last year.

We closed the quarter with cash and short-term investments of $64.9 million, an increase of $3.9 million over the prior period.

For the fourth quarter, we expect growth in revenues before reimbursements, excluding Defense Technology development, to be in the high single digits to low double digits as compared to the same period last year. We expect Defense Technology development revenues before reimbursements to be flat or slightly down for the fourth quarter last year as a result of the stretched out schedule for anti-submarine warfare project.

Now I will turn the call to Mike.

Thanks, Rich. In summary, we are satisfied with our third quarter performance, given that we were not able to ship robots. We expect to show stronger growth in our core businesses in the fourth quarter, as we continue to have success hiring and focus on strategic growth initiatives that capitalize on market opportunities.

At this point, we are not planning on providing outlook -- an outlook beyond the fourth quarter but are optimistic about higher levels of growth in 2006.

We look forward to keeping you updated on our progress and remain optimistic about our long-term business prospects, to provide our clients with world-class engineering and scientific services to address their high exposure problems.

Let's now open up your call for questions. Operator.

+++ q-and-a.

(OPERATOR INSTRUCTIONS) Patrick Elgerbly (ph) with Next Generation Equity Research.

Excluding the delays in the defense area ,was there any particular notable weakness in other practices?

We didn't see any notable decreases. I mean, we -- every quarter, we have certain practices that are up significantly and others that could be down slightly versus the prior year. We did have slightly lower revenues in our Mechanics and Materials practice, but we are talking about numbers that are in the low single digits where we had a 2% decline in that business area. Where we were very busy last year in the third quarter in that practice, we just saw a slight decline.

Then from a utilization standpoint, (indiscernible) 63% overall during the quarter. If you excluded the Defense practice, what was utilization?

If we exclude the Defense practice the utilization was 64%. And last year, it would have been 63%, excluding that. So it's slightly up versus last year.

Then a couple of questions on cash flow or on the cash front. What was the cash from operations during the quarter?

3.9 million.

And, any -- did you repurchase any shares during the quarter?

We did not.

Anything new on the acquisition front?

Nothing that we can discuss.

Does the pipeline or -- is there a pipeline, I guess?

Well there's a pipeline I'm not -- it's probably not the description I would use. I would say that we are active in looking at acquisitions. I can tell you that we've had a number of discussions this past quarter with potential candidates. But I can also tell you, we are very picky. So when I say there is nothing that we can discuss at this point it's -- unfortunately that's -- that doesn't give you a lot of insight as to who we are looking at.

But I would say, I would say that we continue to have interest in the areas of strategic growth which are health and construction consulting areas, in particular.

Just one more question, if I could, related to the hurricanes. Is there any way to quantify either in terms of dollar amount or also in terms of the duration of some of these engagements, the opportunity?

Unfortunately the answer is if there is, we don't know how to do it, duet Patrick. The nature of the work and the assignments some of it will be -- we actually have a mix of this juncture in terms of what we're seeing. Some of it will play out, my guess is, over the next few months and that's some of the work that we're doing in assisting our insurance companies assess the damage in the field. That work tends to be a job that will probably get worked through in the next, I would guess, couple of quarters.

Where the principal task here is helping really determine what the cause of damage was. Was that water, was it wind? The reason those are key questions is, that in many cases the insurance covers wind damage but not water damage. So there are very expensive calls that will get made. Other projects that I have alluded to in my introductory comments are ones that in the environmental arena, for example, will probably play out over many years. This class action (technical difficulty) damage was done in the -- to the environment tend to be very long types of suits.

Where our insurance clients end up in disputes, that also creates a tale for us. And the fact that we are involved in the initial assessments would mean that some of those cases would end up having longer lives as well.

The picture at the moment, relative to work, is only one of the continued increase in a number of contacts that we have had. There's tended to be a real delay from the storms themselves before it's really manifested itself in to work.

So all of the comments I just made about the two hurricanes really had little to no impact in our revenues in the third quarter, but most certainly will in the fourth quarter. And into 2006. And there is no question we will see the benefit here for many quarters going forward. We think at least that's the current perspective.

Mike Niehuser with the Robbins Group.

Back to the pipeline, it looks like the submarine tale stretching out with the robotics showing up in this quarter, can you comment about the pipeline for other types of Defense Technology projects that are in the mill or are looking to get into the mill?

Well we have a dialogue going on with our long-term client here the rapid equipping force on other pieces of work. I can't describe what those -- I know what those are but they are confidential in the sense of what we are discussing with them at the moment.

So I can't really describe any programs or potential work there other than to say that we do have a dialogue going on, those, but there's nothing we can announce at this point.

There are other potential pieces of work that we have also under dialogue with the Army and those tend to be in the training area. One piece of work of particular interest there would be to leverage some of the work that we have done on advanced robotic controller into advanced training devices to be used at one or more training centers. But that has not progressed yet to a point that we have any follow-on business from it.

Are you still able to take advantage of the IDIQ ratings for potential business?

Yes. We are not short of contract vehicles here. We have our SOCON (ph) contract. And we are having discussions there as well. So that vehicle, plus we also have a support contract to Night Vision Labs of which we are a member of a team. So that vehicle continues to be up there for us as well.

So the relationship is still good enough that if they need a project for you to jump on that you have capacity to do so?

Yes.

Onto the Katrina and Rita. I watch TV but how really big is Katrina and Rita to your clients. And is -- I mean is it a multiple factor compared to the worst hurricanes in the past?

Yes, this is shaping up to be the largest damage losses at least the last numbers I saw. Not Rita, but Katrina. The impact for our property underwriters is going to be very significant. The experience of our firm in the past over these natural disasters has generally been that we have seen some work but not -- it hasn't been necessarily a windfall of work come in.

The devastation here though is so broad and so deep that many of the issues are going to be very very large exposures for our clients. And that's generally when we tend to get involved.

It seems like it's a perfect mess that requires your legacy business of failure analysis to come into it to sort out like the wind or water thing. You are ideally suited for this kind of problem, aren't you?

Yes we are. We will be able -- I think it's fair to say we will be able to put every qualified body into the field here that has credentials in those specific areas to be employed here in the near-term.

Is there an operating risk where you have maybe two clients that are long-standing clients that maybe are in dispute? Is that a possibility? That this disaster's so big that you actually are not able to service all of your clients?

Conflict at times is our middle name here. And so we have become very adept at being able to try to sort those problems out before they become an issue. In most cases they end up resolving themselves so that we are working for one side or the other. Occasionally if we have two very good clients opposed to each other, we will decline to work for either or often, occasionally, they will both agree that we are the best resource and work for both of them and be a common finder of fact.

But in this particular case, with the hurricane damage, most of the damage is going to be of a nature that I believe we will see few conflicts in the field.

You rolled through four of your segments -- this is my last question. Environmental had to do with obvious facility damage and spillage, I would imagine, is that right?

Yes where there has been oil spills or oil has escaped into the -- created environmental problems. So that would imply potentially not only our environmental folks perhaps eco sciences and questions of hydrology.

What about civil engineering and what would be -- is that the wind and water issue?

Yes, civil will get involved with questions related to structures. And so the damage everything from residential to commercial real estate will be the biggest focus of their work.

And then health will be with regards to -- is that a fallout or follow-on from the environmental issues?

No health issues emanate principally from the water damage that has taken place where you now have mold growing. And so the mold issues are very big in the South here, as a result of all of the water damage.

And the fourth area, was that foreseen and advising how to keep damage at this magnitude from happening again? Is that what that fourth area is or is it something outs?

The three that I just spoke of that touched on are the ones that I mentioned. I did say that there were other areas that we are having discussions on that we haven't been retained yet. We are in discussions of potential work on offshore platform loss. And that would involve folks from our structures -- the mechanics and materials practices -- if that happens.

Would this keep you sufficiently busy where you could see your utilization rate go up? Could this be one of those instances?

It will to the extent that there's -- all this business happens it will have a positive impact on our, utilization, yes.

(OPERATOR INSTRUCTIONS) Jeffrey Myers with Intrepid Capital.

Couple of questions. Just in terms of the defense business how big, I guess, was defense last Q4?

On a net revenue basis, Defense Technology development on a net revenue basis was $2.8 million last year. I'm sorry -- I apologize for that. Last year in the third quarter was 3.45 million. So almost $3.5 million and this year it was 1.675 million. Oh I'm sorry Jeff. Is that what it was. Fourth quarter? Jeff?

Yes (MULTIPLE SPEAKERS)

Fourth quarter? Fourth quarter revenues last year were 2.8 million. That was the correct answer first. I thought you were asking third.

Yes. And so that's net revenue. Is that right?

Yes. That was correct.

And then when you say I guess, growth is going to be sort of upper single digits to low double digits in your core business, that is on a net basis?

Yes. (MULTIPLE SPEAKERS) excluding the technology development part. That's what we were talking about.

We're all right. I understand. So in terms of utilization rates, I mean do you expect them to be similar next quarter or --?

We tend even with increased business we tend -- the seasonality in our business had, for instance, last year we saw a little more than a 4 to 5% drop in the utilization going into the fourth quarter. I would expect to see slightly less because of the pickup in business. But the fact is, we always see a step down in utilization going into the fourth quarter. Because of the holidays, the vacations, no matter what we have going on, we will need to arrange for our people to be home and for the holidays.

I understand. I guess I am trying to get my hands around just this compensation and related as a percent of sales. I guess, where that goes.

I would expect compensation and related expense for the fourth quarter to be similar to last year. Part of it is that you have -- the -- because we've been working on the robot project there is a cost that is deferred. Or an inventory is associated with that; and there will be approximately $500,000 that will be moved into compensation related from Q2 and Q3 that end up lying into the quarter.

That being the case, I think because of some pickup in the business, we can expect compensation and related to be approximately maybe slightly up, it could be 20 to 30 basis points at most. But I would expect that it will just be slightly up, maybe probably not even that much, maybe even less than 10% that you'll see it increase -- I mean 10 basis points. Sorry.

On a sequential basis or year-over-year?

On year-over-year.

Because last year you guys did 66.8%, I guess, of gross. Is that the right way to look at it?

Yes and I'm saying that I would expect it to be somewhere around 67% then.

Because I know for this quarter it's 68.5. So you know what I'm saying? I guess it will be coming down a lot sequentially if it did that next quarter in the face of seasonality, you know?

You are saying it's 60 -- I don't see -- you're taking compensation-related at 20, 22.9 for the quarter?

Oh, okay. I see what you're -- (MULTIPLE SPEAKERS)

It's not -- (MULTIPLE SPEAKERS)

I put the -- I added back the -- (indiscernible) costs, the reimbursable cost.

Yes.

Back in there. I got you.

So what I have is on a -- versus net revenues we were 66.1% of net revenues or 61.6% of gross revenues in the quarter -- for the third quarter.

And for next quarter you expect to be similar to last year?

Seller to last year in the same quarter. In the fourth quarter.

And I'm curious in terms of the defense business. So the robot project got moved from Q3 to Q4. So there's why -- you know what I'm saying? Like, what's moved out of Q4? Is it all the submarine project or is there something else that was kind of moving out into next year?

That's the principal two projects at this point, Jeff, so yes. They (indiscernible) is in a spread those revenues over a longer period so that we will have an impact on the fourth quarter.

Michael Finn with Rockdale Investments.

Just -- I hate to keep going back to this. But my numbers here are still not clear. The miss in the revenue opportunity due to the robot issue was how much? You might have said it before but I might have missed it.

Yes what I said earlier was that the miss overall in technology development was $1.8 million versus the same period last year. That is on a net revenue basis. The amount associated with the robots is about 1.3 million of that $1.8 million.

So the revenue decline overall for the category was 1.8, of which the robots accounted for 1.3 of that?

That's correct.

So if you had shipped all the robots and you had received all that revenue, you still would've been down year-over-year in the segment. Is that right?

In that segment that is correct. But as a company, we would have been up 2 to 3%. Overall.

Right. Rich, could you just go through the numbers again from a prior question for this segment '04. What was it -- it was 3.45 million for (MULTIPLE SPEAKERS)

It was 2.8 million for the fourth quarter. Net revenues.

Okay, for the fourth quarter of '04. 2.8?

That is correct.

And what was the 3.45 million number?

That was for the third quarter of 2004.

You also threw in a number there. 1.675 million. What was that?

That was for the third quarter of 2005. There's your $1.8 million difference.

Thank you very much.

Jerry Heffernan with Lord Abbett.

I'd like to review the utilization numbers a little bit if I can and just make sure I have the right numbers here. We are looking at utilization without the Defense Tech group?

Yes.

Third quarter '04 63%, third quarter of '05, 64%?

That's correct.

I want to make sure I had these notes right from last quarter. 2Q '04 was 65% and 2Q was 69%?

You are -- are you talking about altogether or excluding TEC def?

Per my notes that is taking out the defense TEC group.

Taking out Defense TEC group. Last quarter 2000 -- Q2 2005 was 69%.

That's right, yes. And that compared to a year-over-year number. 65% I believe.

That's correct.

The question is, the 2Q '4 went from a 65% to 63% in the third Q. I think there is a normal seasonality component to that. You get more vacations and stuff in the 3Q. Please correct me if I'm wrong there.

That's correct.

Why so much of a bigger step down in utilization in '05 sequentially? Going from 69% to 64% or a 5% drop compared to the '04 year, which went from 65 to 63?

That has to do with the fact that we, in the fourth quarter, ended up having net hires here in the U.S. of 25 employees. So we ended up, if you remember, one of the big things that I think we needed as a positive turn for looking into the future was to improve our full-time equivalent employees. We were at 480 average FTEs in the second quarter. We took that up to 505 FTEs in the third quarter and as we integrate those people in, we got some utilization out of them. But as you bring them in and get them integrated into the organization, you see some decline in the utilization in the short-term.

You made the statement in U.S. had net hires of 25 in the fourth quarter. Did you mean the third quarter?

In the third quarter. Yes.

So that also answers the question. We had headcount of 481 I believe last quarter, 2Q '05 so that is back up to 505 now or -- ?

That's correct.

Very good. Now did those people come in throughout the quarter or did you have a particularly strong summer recruiting so that a number of these people, a larger percentage started in the July period?

We saw them coming in throughout the quarter. We ended September about five additional people up from that quarterly correlate average. So if you looked at September alone, be about -- probably up around 510. So continued to benefit from it as the quarter went along.

Again just kind of revealing where we are going on a sequential basis here. A civil engineering group had come back strong 1Q. (indiscernible) continued 2Q. How is that in 3Q? Understand it was going back a year or so we had some issues here.

Yes. One of our strongest year-over-year performers was Civil Engineering.

So we can pretty much that issue is fixed, right?

And with Katrina, I would say that would look good for some time going forward.

Yes that's understood. And in environmental, now improvement was seen in 2Q. but not to the level you had desired or not where you wanted to be. Is it fair to say that your expectations are, environmental will very shortly at the level that you want it be post the businesses coming in, after the hurricanes here?

Yes, I think it's getting better. It's slightly up in revenues versus a year ago in the third quarter. We would hope that they can pick up some business here from the hurricanes. But I wouldn't -- that still is not going to fully meet our expectations of where we want this business today. We made a good turnaround in the profitability in improving that. That's still, again, not up where we want to be, but a good turnaround versus a year ago.

The revenue growth has not quite been there and we are hoping that as we go out into the fourth quarter and into 2006 we can see that improve. But at this point in time I'm not prepared to say that it's at the level or I can just see out of these next projects that it's going to be at the level that we would like it to be.

But, I think importantly, that you said you have seen improvement in profitability.

Absolutely.

-- that has you somewhat satisfied. The topline growth is not really there.

Yes.

I had one other question here. The delivery of the robots. Will there be any penalties as a result of inability to deliver?

No.

Robots, no penalties. I mean, certainly, whenever you're doing a project like that the inability to deliver is a little bit of an embarrassment. Do you believe this will have any negative effects in the work that you're doing on an ongoing basis?

I don't think so. I think we tried to manage this with our client. It occurred at the -- literally the 11th hour and we have recovered from it very quickly. So I think they felt like we dealt with the problem very expeditiously. And given that we were reliant upon the number of outside vendors and this was on a very compressed timescale to begin with, there was some appreciation for that risk.

So none of these actually got put into the field and found to be errors you caught them before they went out?

That's right.

I imagine that accounts for a lot.

Yes I think, fortunately, none of them are on a truck. About 1/3 of them are ready to go on a truck so they had -- but we caught it before then. So we ended up being able to rework all those before they were actually shipped.

Can you tell us a little bit about the tax rate? I mean, I understand that it was down very big. I understand that a good chunk of the interest income, I guess, came from non-taxable interest income. Where do you see your tax rate falling out on a longer-term basis?

Somewhere the -- as I look forward into 2006 I see the tax rate settling down, probably in 38.5 to 39% for 2005. We haven't worked on finalizing that. It will depend on how -- what other uses of cash we have going on at that time but that is what we would expect out into 2006. We got -- it's like we have good improvement from the interest income that came in in the quarter. And in addition to that, when we completed the tax returns for last year we had some pick up from that as well that provided us some benefit.

So for fiscal year '06 you see 38.5 to 39%?

That's correct.

And '05 obviously will be reduced due to (MULTIPLE SPEAKERS)

Yes '05, we see that we'll be -- right now we are scheduled to be at 37.8% tax rate.

One last thing. Not providing fiscal year '06 outlook, but are optimistic about higher levels of growth for the year. Can you just clarify what line of the P&L you are referring to? You talked -- expecting higher growth rates in the EPS lying, higher growth rates in the revenue line, both? Neither?

Yes. Let me tie this in with 2004 so that we are on the same page. I think with what guidance we have given on the fourth quarter, we've indicated the core business had high single to low double-digit growth for the fourth quarter with Technology Development flat to slightly down. I would expect that this year will end up with a 3 to 4% growth in our net revenues or revenues before reimbursables.

I think it is important that we focus on revenues before reimbursables because we get fluctuation in the top -- in the gross revenue number based on the amount of subcontractors are reimbursables, that we have going on. So from the year I would expect that we will see 3 to 4% year-over-year growth for the entire year there.

So that will pay a benefit from the fourth quarter growth. We should be able to at that level of growth see it achieve a 50 basis point improvement in the operating margin from 2004 to 2005 for the full year.

That would put us in a position with fourth quarter growth being where it's headed here for the core business. We would hope that, next year, we can see net revenue growth up in that high single digit to low double-digit growth.

At this point in time, we've still got to work through where the projects are headed and in technology development. We go through a planning cycle with each of our practices in offices in the fourth quarter and we are just starting that process. So that is why, at this point in time, with those items in process, the business development activities and technology development, and our planning in our practice area is going on during the fourth quarter.

We are not prepared to lay everything out but we would expect here as we look out over the next year or two that we can continue to see good topline revenue growth, meaning the net revenues and continued improvement in our operating margin.

We still believe there is room in our utilization. That there, for improvement, we can leverage our corporate infrastructure as a small public company and get some benefits out of that as we look out over the next several years.

And that's the 50 basis points. That's part of your, I guess, your long-term business objective to improve the operating margin by the basis points a year?

It is.

Mike Niehuser with the Robbins Group.

Answered the question already. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.