Exponent Inc (EXPO) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Exponent Q1 2007 earnings conference call. (OPERATOR INSTRUCTIONS). This conference is being recorded today, April 18th, 2007. I will now turn the conference over to your host, Ms. Brinlea Johnson with the Blueshirt Group. Please go ahead, ma'am.

Good afternoon, ladies and gentlemen, and thank you for joining us on today's conference call to discuss Exponent's first-quarter 2007 results. Please note that this call is being simultaneously webcast on the Investor Relations section of the Company's corporate Web site at www.Exponent.com/investors.

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 start, I would like to remind you the following discussion contains forward-looking statements, including statements about Exponent's market opportunities and future financial results that involve risks and uncertainties, and 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 could be found in Exponent's periodical filings with the SEC, including those factors discussed under the caption "Factors Affecting Operating Results and Market Price of Stock" in Exponent's Form 10-Q for the quarter ended March 30th, 2007. 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 revise them, whether as a result of new developments or otherwise. 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 financial results for the first quarter of 2007.

We're pleased with our strong revenue growth and improved bottom-line performance. For the first quarter, net revenue grew 15% over the same period last year to $45.4 million and net income increased 32% over the prior year to $5.1 million. Our strong financial performance this quarter was the result of several factors, including improved utilization, which was achieved while also increasing our technical headcount versus a year ago.

With regard to hiring, we continue to seek qualified candidates across all our practice areas and our results are beginning to show the rewards of last year's headcount additions.

Several of our strategic areas for growth contributed to the strength in the first quarter. Especially noteworthy was our Environmental and Health practices, which improved significantly over the same period last year. This growth was driven by work on several large projects involving questions of exposure to and the toxicity of various hazardous materials.

We also had strong performance on our Civil, Electrical and Semiconductors, and Mechanics and Materials practices. In our Civil practice, we were busy working on assessing the damage done by last October's earthquake in Hawaii. In our Electrical and Semiconductors practice, we continue to see high demand for portable power applications. And in addition to working on product failures, we've also done extensive work on cell and battery pack safety, as well as qualification testing, particularly with lithium ion batteries.

In Mechanics and Materials, we were active in working with major consumer electronics companies, where we have been expanding our role in helping them with the design of new products.

In our Defense Technology Development practice, we delivered 285 MARCbots to the U.S. Army and are continuing to support our troops with teams in Iraq and Afghanistan, where we're finding solutions to problems that can be quickly put into these war zones. At the end of March, we were awarded a follow-on contract for our continued support of the U.S. Army's Rapid Equipping Force.

In summary, we're pleased this quarter to report strong financial results and important progress in strategic areas, including health, construction consulting, product design consulting, energy and technology development. I will now turn the call over to Rich for a detailed discussion of our financial results.

Thanks, Mike. As Mike discussed, we're pleased with our first-quarter results. Revenues before reimbursements, or net revenues as I will refer to them from here, increased 15% over the prior year to $45.4 million. Total revenues increased 16% to $48.9 million. Net income for the first quarter of 2007 increased 32% to $5.1 million, or $0.31 per diluted share as compared to $3.8 million or $0.21 per diluted share reported in the first quarter of 2006.

EBITDAS for the first quarter of 2007 increased 36% to $10.8 million as compared to $7.9 million in the same period of last year.

Our improvement in net income was a function of several factors, including strong revenue growth. Contributing to the revenue growth was a 5.6% increase in billable hours as compared to the first quarter of 2006. This was the result of utilization increasing to 69.2% as compared to 67.9% in the same period last year.

The average full-time equivalent employees in the quarter were 571, an increase of 3.5% versus the first quarter last year. We also increased our billing rates approximately 6%, effective January 1st.

During the quarter, we had revenues of approximately $750,000 related to robot sales as compared to $65,000 in the first quarter last year.

As a reminder, utilization in the first quarter is seasonally higher with few holidays and vacations in the quarter. Our full-year utilization tends to be 3 to 4 percentage points lower than the first quarter. We do expect sequential headcount growth each of the next three quarters.

Compensation expense in the first quarter increased 12.2% to $30 million. This increase is the result of our growth in FTEs as well as a 5.5% salary increase last April. We will see a similar increase effective in the second quarter of this year related to annual reviews. Additionally, the bonus accrual has increased in line with profits since it is funded by 33% of the pretax and bonus profits.

Stock-based compensation expense for the first quarter was $2 million as compared to $1.3 million last year. This is related to the increased bonus accrual and the decision at the end of 2006 to pay a greater portion of bonuses in stock. As I mentioned on last quarter's call, we expect stock-based compensation expense to be 5 to $5.5 million in 2007 as compared to $4.3 million in 2006.

Other operating expenses for the first quarter increased 7.8% to $5.1 million. Depreciation in the first quarter was $917,000. G&A expense for the first quarter were relatively flat at $2.8 million. We expect G&A to range between 3 and $3.5 million in each of the next three quarters. The primary drivers for this increase are the implementation of a new accounting system, and a Company-wide manager's meeting to be held at the end of April, as well as increased marketing expenses related to leveraging our 40th anniversary.

Reimbursable expenses for the first quarter increased to $3.4 million as compared to $2.4 million last year as a result of increased robot sales.

In the first quarter of 2007, we reported total interest income of $484,000, down slightly from $498,000 one year ago.

Our tax rate for the first quarter of 2007 was 39.4% as compared to 39% in the first quarter of 2006. We closed the quarter with cash and short-term investments of $55.6 million.

During the first quarter, we repurchased $2.5 million worth of common stock as part of our ongoing repurchase program. In the last 12 months, we have utilized $32,550,000 to repurchase 1,986,000 shares of our common stock. Capital expenditures for the first quarter were $748,000. DSO's this quarter were 104 days. The first half of the year has historically seen higher DSO's due to the increased sequential revenues. We do expect DSO's at year end will still be in the low 90s.

We're pleased with our strong financial results for the first quarter and the momentum we're carrying into the second quarter. We expect to achieve low double-digit revenue growth for the full year. We also expect margins to improve by approximately 100 basis points for the year.

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

Thanks, Rich. We're optimistic about what we can achieve in 2007 and beyond. For the remainder of the year we will stay focused on building our talent base to drive additional growth, on capitalizing on the strategic opportunities we have identified, on improving operating performance, and on increasing the cash flow from operations.

This year, we celebrate our 40th anniversary as a Company. I am very proud of our accomplishments, our unparalleled technical experience, and our unique multidisciplinary approach. Exponent has developed the reputation of being one of the finest and most respected engineering and scientific consulting firms in the world. We look forward to reporting more success to you in the coming quarters.

Now I will turn the call over to the operator for your questions.

(OPERATOR INSTRUCTIONS). David Gold, Sidoti & Co.

Good afternoon. A couple of questions. First off, Rich, you gave an average FTE number. I was curious if you could give us a quarter-end FTE number as well.

March was 570.

And that's sort of score -- can you talk a little bit about -- I guess my model, that is one area that I was a little bit off. I was looking for a little bit more by way of net adds in the first quarter, say, sequentially. So I was curious if you could talk a little bit about that, and then also the thinking for the remainder of the year on headcount growth.

Well, from an overall basis, the first quarter generally tends to be a little bit slower for us on bringing people on, just that you come out of the holidays and trying to begin recruiting people, and getting them on board, it tends to be a little bit slower. But as a whole, at the end, after the sort of middle of last year, we tended to get a little more focused on trying to make sure that we were also doing a good assessment of people's performance in the organization, and trying to make sure if people were sort of on the underperformer level that they got the message to either pick it up or maybe that other activities might be better off.

But on a going forward basis, we do see that we will see sort of 1, 2, 2% sequential growth in full-time equivalent employees on a quarterly basis, which should allow us for the full year to end up probably at 4%, 3 to 4% headcount growth for the full-year put together. I will say that the third quarter of last year was sort of a high mark for us, and so you're going to see that be a little bit -- might be slightly lower as we go through the third quarter, but I think by year end, the average will pull out in that range.

Okay. And Mike, I guess there was a -- kind of at the near end, a follow-on contract for the Rapid Equipping Force, and I guess as I remember, the last biggest contract win came up in March. I'm curious if you can talk a little bit more on that, and what type of size we might see and how long that runs.

Sure, it's a one-year contract with a one-year extension. Total award amount is $11 million, but the entire contract this time is structured as an ID/IQ, indefinite delivery, indefinite quantity. Of that, we've got reasonable visibility at this point on, let's say the first $6 million of that work. And that is essentially a baseload on that contract. As other opportunities that we work that could get funded under that contract come along, that would be over and above it throughout the year.

When you talk about the good visibility on the $6 million, is that the next couple of quarters, is that the next three quarters or --?

At this point it looks like it's for the -- for the duration of the contract, through its first year. Not necessarily for an extension, but for that first-year period.

In other words, from the period of say April to April?

Yes.

Very good. Thank you both.

Kevin Liu, B. Riley & Co.

Congratulations on the quarter. I wanted to start with just a housekeeping question. Can you break out the stock comp by line item?

Between our different areas, yes. The stock-based compensation, we had approximately $210,000 of that, that was related to the expensing for stock options; $570,000 that was related to the amortization of our matching RSU units; and some of those need to be accelerated at time of grant because of a retirement clause in them. And then our bonus units in the quarter were -- which is an accrual estimate is 870,000 as well.

And you guys updated us on a few of the areas you highlighted last year in terms of your growth initiatives. I was wondering if you could talk a little bit more about your efforts in construction consulting, the health care and energy side as well, maybe in terms of either headcount growth or just qualitatively on some key projects you might be working on in that area?

I'll start with health care -- not health care, but our Health practice. As you know, we had a change of leadership mid-last year, where we brought on Dr. Betty Anderson to take over the role as Group VP for our Health practice. We have, since Betty's arrival, ended up doing an internal reorganization into essentially five units that we refer to as centers, really centers of excellence. And that effort and the market opportunities we've seen have ended up driving some of the results here in the first quarter.

We had a very good quarter in Health from a standpoint of having more business activity flowing in to those centers than we've seen over the past year.

Construction Consulting, we also are continuing to actively pursue, just made a new senior hire, a principal hire here this last month and we look forward to being able to talk with you over the course of this year in terms of continued growth in that area.

Product Design Consulting continues to also move along very well. The activity -- I touched on batteries, and the work we're doing for consumer electronics companies. I should add to those the work that we also continue to do in the medical device area. That has also been a very good business for us.

(OPERATOR INSTRUCTIONS).

If I can just, before we have the next question, I realize I didn't touch on Energy, which was I think part of your question. In Energy, we've also made some recent hires, and are continuing to see the opportunities, particularly in three areas, that we are pursuing with real focus. That is in the area of LNG, liquid natural gas, and the opportunities to assist clients that are looking to build facilities in this country in particular.

Second area that we think, although is probably a little further off for us, but one that we want to get well-positioned in here is really a resumption in activity on the nuclear power front in this country. There are a number of facilities that are now being slated to become projects in years ahead. We've had good experience over the years working with problems in the nuclear -- with nuclear power stations, nuclear power plants. We're well known there, and have talent I think is going to be very valuable as new plant designs begin to take shape and go through the permitting and construction process.

The third area that we are also adding talent in is in the electric power industry. And the electric power infrastructure in our country is one that is continuing to age, and there are some real challenges in that arena. We think there are opportunities for us to play a more significant role in that part of the industry. So we look -- we're actually quite encouraged with the results we've seen thus far, in Energy, and we'll continue to build there.

Gerry Heffernan, Lord Abbett.

Good afternoon, gentlemen. Thank you. Could you review the share buyback? I think you gave a 12-month number, if you could either repeat that number or tell us what you bought back in the quarter?

The buyback in the quarter was $2.5 million worth of shares.

Great. And the stock-based comp, Rich, you made a comment -- how you expected to be 5.7 for the year?

Between 5 and $5.5 million.

My bad writing then; I apologize for that. And I just want to make sure I have my numbers right. The March [2E] FTE count was 570?

That's correct.

And the FTE count at year end was 572?

That's correct.

Okay, so we had a net reduction of 2, but you foresee that picking up through the year to make that 3% to 4% growth number.

We view that the average for the year will be in the 3% to 4% versus the average for last year, yes.

Okay. And I was happy to hear you make the comment about the nuclear; suddenly there's been a lot of talk about that. And is that a business, say, maybe that you see begin to generate revenues in the 12-month time period? Or is that something you see gearing up that is going to be a little bit of a slow grow, but on a maybe 18 to 36-month time window, you want to be ready for that period? I just want to get a view for where you see the needs of that market developing.

We're currently doing some work in nuclear now. I think it's not going to take a sharp step upwards here probably in the next 12 months, but it's one that we think will clearly, over the year, 18, 36-month time frame will continue to build for us. And we're -- the first -- there's sort of a leap -- there's going to be a first plant here to get it permitted, and I think that you will begin to see even more activity following that. So we hope to be an active part of that first plant, and as we go forward, get involved with other clients here that will have similar needs.

Okay. The previous questioner asked about utilization -- robot sales. They were 65,000 a year ago; what were they this quarter?

Approximately 750,000.

Okay. That seems to be a real dramatic difference there. A couple people asked questions, seem to be bantering around the idea; I'll come right to it. This is one heck of a quarter when comparing it to the previous year's first quarter. I will say I certainly am positively surprised at the strength of your performance, surprised compared to what I expected, not to what you can do. But to what degree was that robot sale, that big jump there of close to $675,000, $685,000. How much did that contribute to this bottom-line number of $0.31?

Well, first of all, it is about just under 2% on the top line, so you take that off and the growth is still approximately 13% on the top line. Impact on the bottom line, the maximum impact it would have to that is sort of in the range of up to $0.02. There are some costs associated with that, so it probably had in the range of a penny to $0.02 impact.

Okay. That's great. Thank you very much, I'll get back into queue. Thank you very much for a great quarter again.

Gentlemen, at this time, I show no further audio questions.

Well, thank you all. We will look forward to speaking with you three months from now, if not before. Glad you could join us.

Thank you, ladies and gentlemen. This concludes the Exponent Q1 2007 earnings conference call. Once again, we would like to thank you for your participation. You may now disconnect.