Exponent Inc (EXPO) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you so much for standing by. Welcome to the Exponent fourth-quarter 2008 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). As a reminder, this conference is being recorded today on Wednesday, February 4, 2009.

I will now turn the conference over to 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 fourth-quarter and fiscal year 2008 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/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, Chairman and CEO, and Rich Schlenker, CFO of Exponent.

Before we start, I would like to remind you that the following discussion contains forward-looking statements, including statements about Exponent's market conditions and future financial results, that involve risks and uncertainties, and that Exponent's actual results may vary materially from those discussed here. Additional information containing 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 Stock in Exponent's Form 10-Q for the quarter January 2, 2009.

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.

And now, I'd like to turn the call over to Mike Gaulke, Chairman and CEO of Exponent. Mike, please go ahead.

Thank you, and thank you all for joining us today. We are pleased to report another good quarter of financial performance.

For the 14-week fourth quarter of 2008, revenue before reimbursements increased 10% over the 13-week fourth quarter of last year. While net income in the fourth quarter was down slightly over the same period last year, when we had unusually high product sales, our earnings per diluted share increased to $0.34 versus $0.33 last year.

The fourth quarter concluded a strong 2008 for Exponent, where revenue before reimbursements increased 13% over the prior year to $206 million. Net income in 2008 increased 14%, and earnings per diluted share increased to $1.47 from $1.25 in the prior year.

Throughout 2008, we continued to selectively hire new talent and benefited from our electrical technology development, mechanics and materials, and human factors practices, in addition to our health sciences group. We made significant progress in several of our strategic growth areas, including health sciences consulting, product design consulting, energy consulting and defense technology development.

In health sciences consulting, we had significant growth in our UK operations, where we continued to expand our offering in performing risk assessment of pesticides and biocides, as well as the development of dossiers for regulatory compliance. Additionally, we are excited about several new hires for the health group in both the UK and US.

In product design consulting, we continued to expand our client portfolio of consumer electronics manufacturers, as well as the key suppliers to this industry, in particular battery technology companies.

Exponent's extensive experience in failure analysis has allowed us to develop a unique position in helping these companies solve their most challenging technical problems throughout the product lifecycle.

In energy, we were able to expand our capabilities in engineering management consulting. This team of consultants, combined with our subject area experts, helped a major utility assess and improve their maintenance processes. We believe we are well positioned to assist utilities as they work to improve the efficiency of both plant and transmission operations.

In defense technology development, we continued to expand our core consulting offering. During the fourth quarter of 2008, we started on a project to develop a vehicle-mounted, ground-penetrating radar system to detect buried improvised explosive devices. We continued our work to develop innovative application modules and personal area network technologies capable of supporting the Future Warrior Technology Integration program.

We've continued our support of the US Army's Rapid Equipping Force in Iraq and Afghanistan. We also completed significant product orders for video surveillance systems and culvert denial systems.

In summary, we are pleased with our results for the fourth quarter and fiscal year 2008. We believe the progress we made during 2008 has positioned us well for long-term future growth. Considering these unusually difficult economic times, we are cautiously optimistic about our prospects for 2009.

I will now turn the call over to Rich for a detailed discussion of our results.

Thanks, Mike. As Mike discussed, we were pleased to report a good fourth quarter and complete the full year with double-digit growth in revenue and net income.

Before I walk through the details, I want to remind you that the fourth quarter of 2008 had 14 weeks as compared to 13 weeks in 2007. This additional week resulted in 2008 being a 53-week year versus a 52-week year in 2007.

In the fourth quarter, revenues before reimbursements, or net revenues, as I will refer to them from here on, increased 10% over the same quarter in the prior year to $51.6 million. Total revenues increased 4% to $58.9 million.

For the full year, net income increased 13% over 2007 to $206 million, and total revenues increased 12% to $228 million. Net income for the fourth quarter of 2008 decreased 3% to $5.1 million. The decrease in net income was expected, due to the unusually high product sales in the fourth quarter of 2007, which was partially offset by a $550,000 foreign currency exchange gain in 2008.

EBITDA was $9.1 million, approximately the same as in the fourth quarter of 2007. However, net income per share for the fourth quarter of 2008 increased to $0.34 per share, based on 15.1 million shares, as compared to $0.33 per share in the fourth quarter of 2007, based on 16.1 million shares.

For fiscal year 2008, net income increased 14% to $23.2 million or $1.47 per share, as compared to $20.3 million or $1.25 per share in the prior year. EBITDA increased 15% to $40.9 million.

Our average full-time-equivalent employees in the fourth quarter were 646, an increase of 8.1% as compared to the fourth quarter of last year.

In an effort to manage our risk in these more uncertain times, we currently expect our 2009 year-over-year FTE growth to be in the range of 3% to 5%.

As expected, during the fourth quarter, utilization decreased to 62% from 66% in the prior-year period. This decline in utilization was a result of the additional New Year's holiday week and an unusually strong fourth quarter in 2007. For the full year, utilization decreased to 67% from 68% in 2007. In 2009, we expect utilization to be flat to slightly down.

During the fourth quarter, defense technology development's net revenues from product sales were $1.1 million, bringing the full year's net revenue from product sales to $5.6 million. As a reminder, based on the unpredictable nature of our product sales, we do not believe investors should expect more than $500,000 a quarter in product sales.

Compensation expense increased 12.2% to $33.7 million. For the year, compensation expense increased 11.7% year over year to $133.5 million or 64.7% of net revenues versus 65.2% last year. This includes growth in FTEs, the impact of annual raises, and the bonus accrual. When salary raises take effect in April, we expect to have managed the average salary raise to be less than our bill rate increase, which is approximately 5%.

As a component of compensation, stock-based compensation expense for the fourth quarter was $1.5 million, flat with the same period last year. For the full year, stock-based compensation expense was $7.8 million as compared to $6.2 million in 2007. For 2009, we expect stock-based compensation to be between $8.5 million and $9 million, with $3.3 million to $3.5 million being expensed in the first quarter alone. As in the past, there is a requirement to accelerate expensing of RSUs granted to employees over the age of 59.5.

Other operating expenses for the fourth quarter increased 4.2% to $6 million. For the full year, other operating expenses increased 4.4% to $5.6 million or 11% of net revenues as compared to 11.8% last year. As a component of other operating expenses, depreciation in the fourth quarter was $1.1 million, and for the full year was $4.1 million.

G&A expense for the fourth quarter increased 17.4% to $3.8 million. This increase was a result of a Company-wide manager's meeting, as well as increased levels of recruiting and professional development. G&A expenses for the full year increased 11.2% to $13.4 million or 6.5% of net revenues as compared to 6.6% in 2007. We expect to be able to manage our combined other operating and G&A expenses to grow at a slower rate than net revenues in 2009.

Reimbursable expenses for the fourth quarter decreased to $7.3 million as compared to $9.8 million in the same period last year. For the full year, reimbursable expenses were slightly up to $22.6 million.

EBITDA for the fourth quarter was $9.1 million or about flat compared to the same period last year. EBITDA margin for the fourth quarter of 2008 was 17.6% as compared to 19.5% in the same period of 2007. This decrease in margin is the result of 2007 benefiting from unusually high product sales.

For the year, EBITDA increased 15% to $40.9 million. EBITDA margin for the year increased to 19.8% as compared to 19.5% in 2007. Just as in 2007, our 2008 margins benefited from the unusually high level of product sales by 100 to 120 basis points. As such, we expect our margins in 2009 will be down by an equivalent amount.

Interest income for the fourth quarter was $345,000. For the full year, interest income was $1.7 million. Due to a lower interest rate environment, we expect interest income to be approximately $250,000 per quarter.

Our tax rate for the fourth quarter of 2008 was 38.8% as compared to 39.4% in the fourth quarter of 2007. For the full year, our tax rate was 39.8% as compared to 39.5% in 2007. For 2009, we expect our tax rate to be 40%.

Turning to the balance sheet, we closed the quarter with cash and short-term investments of $57.4 million. During the fourth quarter, we repurchased $13.1 million worth of common stock as part of our authorized stock repurchase program, bringing our total repurchases for 2008 to $41.5 million. This leaves $9.9 million available for future purchases on our most recent authorization.

Capital expenditures for the fourth quarter were $1.3 million. For the year, capital expenditures were $5.6 million. In 2009, we expect this to be approximately 2% of revenues.

DSOs at the end of the fourth quarter were 98 days.

In summary, we were pleased with our good fourth-quarter results, posting strong revenue and operational execution, performing well in a number of our practices. The fourth quarter closed a strong 2008, during which we achieved double-digit revenue and net income growth, organically increased full-time-equivalent employees, and continued to repurchase our shares.

In the coming year, we expect our underlying business to grow revenue before reimbursement in the mid- to high single digits, which is slightly lower than our historical expectations, due to the uncertain macroeconomic environment.

In addition, our underlying growth will be reduced by approximately 3% to 4% because in 2008 we had high product sales in technology development, a favorable foreign exchange -- foreign currency exchange rate environment, and an extra week.

Now I will turn the call back to Mike for his concluding remarks.

Thank you, Rich. We are pleased with our market position in these difficult economic times. To date, we have experienced little change in the 65% of our business that is tied to litigation and insurance claims related to products, as well as health and environmental issues.

In the 25% of our business that is made up of more proactive services, we are experiencing a more mixed market. While we are continuing to get new projects from most of our consumer electronics clients, they are being more conservative in their approach.

In our health sciences group, some clients are delaying work, while others are asking for more help as they no longer have the internal resources to meet regulatory deadlines.

Defense technology development's core consulting business has started off the year strong. While we do not have any significant product orders at this time, there continues to be interest in existing products, as well as new product ideas that come out of our consulting projects.

Both of our current REF and Future Warrior contracts are expiring in March, but we are hopeful we will win the follow-on awards.

Some of you have asked, what will be the impact on our business of the new administration in Washington? The answer is that we do not expect to be the recipient of any new business activity directly, but we think it is likely that we will see some benefit from the economic stimulus package coming from the proposed spending on infrastructure, science and technology, and energy. We would expect this work to be in the form of new litigation from increased construction activity, some of it from helping clients deal with new regulations relating to environmental and health issues, and some of it from new initiatives in energy.

We are cautiously optimistic about our opportunities for 2009. Our key areas of focus will be to pursue our strategic growth initiatives, including health sciences, product design, energy, electric utilities and defense technology development; to selectively add new talent to drive further growth while being cognizant of its impact on current-year margins; manage our other operating and G&A expenses to allow for continued leverage of our infrastructure; and finally, to generate additional cash from operations to maintain a strong balance sheet and undertake activities such as share repurchases to enhance shareholder values.

We look forward to reporting more success to you in the coming quarters. Now I will turn the call back over to the operator for your questions.

(Operator Instructions). David Gold, Sidoti.

A couple of things. First, I missed the utilization number for the quarter. Rich, would you mind giving that again?

Yes, that was 62%.

62%, okay. And actually, let's say positively surprised with the guidance, given the shift of the year -- the shift of the 14 weeks, the extra week that you have in there. So I just wanted to go over a couple of things there to be sure I am catching it correctly.

First, when we look at military contracts potentially rolling off in March or likely rolling off, the $500,000 a quarter that you point to, what's your level of confidence that that's the right number for the next four quarters?

Well, David, at this point in time, as you know, none of that is -- we usually are able to tell you if it's sort of close to booked when we come into the call there. I would tell you we don't have anything booked into -- out into those later quarters, although we are finding that some of the products that we originally did the work for the REF, those products were handed off to the program offices to carry going forward.

So just recently, we just got a request for some addition to the surveillance systems that we did basically a year ago and in the first quarter of this year. You know, it won't be large. It may be net revenues of $0.5 million or something. But they want add-on technology to that, or a sensor package.

So the answer is, there's no certainty around even the $500,000 baseline, but it's something that at this point in time we at least hope and are trying to work towards being able to maintain.

Sure. I guess my question was more, given the history, if the contract rolls off -- I mean, presumably these are, let's say we get past March, those would be add-ons. Is that right, or--?

David, the base contract that we are referencing here is our contract with the Rapid Equipping Force. And there has been no award of that contract yet. We are hopeful that we will be successful in continuing to supply services here for the Rapid Equipping Force. And implicit in our estimate here of some level of that ongoing product sales is continuing work here with the REF.

I see. So basically, the expectation, or from everything that you know right now, is there will be another contract. So it's just a question of who gets it?

That's correct.

And we've assumed we will, in our estimate of our underlying business, sort of being in the mid- to high single digits, that estimate includes the expectation that we would be continuing at the same or a slightly increased level in the area of defense on a going-forward basis.

What I want to be clear on, what we put out there, is you need to subtract 3% to 4% from that range to get to what our revenues will be, because of the adjustment for the 53rd week, the foreign exchange and the product sales. So that moves the -- what we wanted to be clear on, what are the fundamentals of our core business are in the mid- to high single digits. You need to adjust that down for the 3% to 4% that is related to these one-time events as we see them.

Okay, yes, I didn't understand that. So that makes a lot more sense to me and puts you more squarely in line with what I was thinking.

And then a couple of other things -- I mean, essentially just to boil that down for those of us who aren't that smart, I guess, at the end of the day. That's to say that what it will show is maybe revenue growth of -- net rev growth of maybe 2% to, let's say in the zone of 2% to 6% which really would be more like that mid- to single digit. Right? So in other words, the actual growth experience would be more like 2% to 6%, but it's just, apples-to-apples basis, it's closer to a mid- to upper single digit.

That's correct, so we will be in the, at the -- exactly.

Got you. Then two other minors. A quarter-end headcount number?

Yes, quarter end was 643.

Okay. And then you had commented that you would expect to see utilization tick down, 2009, or, you know, flat to slightly down. Thinking there, or sort of why should we expect that, especially if you dial back a little on maybe the hiring goals?

David, I think it's just partly a matter of the environment that we are out there in. Clearly, we had very strong growth coming in this past year. We are being sensitive to some of the comments that Mike made here, feeling a little bit from our -- sort of our design consulting clients.

Clearly, our litigation clients, while they can't sort of avoid products' liability, health and environmental liabilities that they get faced with, they surely are going to try to manage their costs tight in this economic environment that they have.

So we think we've been adding people in a lot of the right areas. We are going to try to manage the additions in the right areas. But it's not -- not everybody -- you know the challenge with our business is people aren't fungible across all the practices. So if construction, civil sort of slows down some, I can't move those people over to deal with a regulatory issue around health or something else. And as you are aware, we are trying to develop for the long term, so we will balance that out.

But we are going to try to manage any things that may come towards us in the future. But I think it's important to realize that, sure, our clients are in a changing environment, and we think we've got a pretty good position, but we are not entirely insulated from the problems that are out there.

Got you. So it's more cautious optimism, and maybe at the margin you're seeing some delays, but nothing to create a ton of uncertainty just yet?

I think that's a fair characterization. It's the environment that we are in, I would submit, there isn't a management team that you're talking to in the market that has ever been through it before, so -- in terms of what it is likely to play out here as. So we are trying to be appropriately cautious in terms of where we are going.

Terrific. Thank you both so much.

Tobey Sommer, SunTrust Robinson Humphrey.

I was wondering if you could comment on the hiring environment, headcount additions in the quarter, and just any kind of color you could provide around the composition of the hires. Perhaps are you able to get more experienced people from industry that could market where there's good demand, generate their own books of business and become revenue generators?

Sure, Tobey. First, I would say that the recruiting environment for us, hiring environment, is actually very good. As you might suspect, for companies -- any company that's hiring today has got more candidates than they typically do in boom times. So we are blessed with, I believe, having the opportunity to hire some very high-quality folks in 2009, and we have been beneficiaries of that here in the latter part of 2008 as well.

In terms of the mix, the bulk of our hiring is a model of bringing folks in at the entry level, either our engineer or scientist or senior scientist and senior engineer level, and grow those folks up through the firm.

I do think that 2009 will create an opportunity to, however, bring in more talent with some senior hires. We do have -- we are not exclusively hiring just in at the bottom. And in 2008, as I commented, in the health arena, we brought in some senior hires that we are very excited about to grow our health sciences practice. And we will see opportunities to do that in some of our other practices in 2009. And yes, I believe it will be a more attractive environment for senior hires, as well as just the junior folks.

And then, Rich, I had a question for you. When you -- in your press release and on the call here, you've talked about the impact of a couple of different events on 2009 relative to 2008. Are those listed in sort of order of priority, or is there a different order of priority in terms of the impact? I think you have technology first (multiple speakers) currency.

Yes. Basically, when you look at these, I think you are looking at -- no, I would say that in order of size, technology development, followed by the extra week, followed by the foreign exchange rate there. So, no, they weren't in a size order there.

Okay. One last question and I will get back in the queue. In terms of your philosophical approach to managing the business in this challenging economic times, are you moderating the growth in headcount in expectation for utilization? I'm trying to get a sense for how much you are being prudent about what we don't know and how much you are reflecting current business conditions. Any kind of color you could give there would be appreciated.

I think it's more the fact as we look at 2009 with caution as to what the business environment will be. We are coming off a very strong year in hiring in 2008, so obviously we carried that into 2009. So we think it prudent, in spite of the comments I just made about how attractive the recruiting environment will be in 2009, it's prudent not to get too far ahead of ourselves until we get a better sense of how the year plays out.

As we go through the year, we could well end up -- and will likely modify, based upon how we are seeing business as we progress through the year. But at this point in time, the perspective is one of, let's be cautious as we start the year. We come into it well loaded up with talent.

Joseph Foresi, Janney Montgomery Scott.

My first question, and just to be totally clear, you had given high single digits/low double digits for last year's growth, and as we look at that growth, the 3% to 4% that you're talking about is basically the difference between your guidance now, which is now mid- to high single digits, versus what you did in '08, correct?

No. We are saying that the core of the business, independent of those adjustments, is in the mid to high. If you -- we believe that's what the year-over-year growth would be independent of those three factors, which means that you need to lower the category by 3% to 4%, from mid to high down to low to mid.

Low to mid, got it. Okay. And then, just maybe you could talk a little bit about the auto business and some of the stuff you do there on the litigation side. Maybe you can give us some color as to what you're seeing in that front and how much litigation is coming through, and just anything that you're hearing from those particular clients.

No doubt our litigation clients are having as difficult time as any industry is experiencing -- our auto clients, sorry. Our auto clients are having a difficult time as any industry in the country, perhaps in the world, in this environment, certainly the US industry. And as a follower of the Company will know, they have been an important client set for us.

The current challenges they face, although perhaps more difficult than it has been in the past few years for the industry, the industry has -- the auto industry has been in very much a belt-tightened mode for the last several years. So we are able to look at that experience and what it's meant from a litigation standpoint and I think have a pretty good understanding of how they're going to have to deal with litigation in the current environment in 2009.

And bottom line, that is you are going to spend your dollars very wisely in having to deal with litigation if you're an auto firm, but the exposures, the risks attendant to not dealing with those are far, far greater. And as a result, it is not in any sense a discretionary expense.

So our business, our litigation business with our auto clients in this environment has held up, and we would expect that to be the case in 2009.

And just sticking with that thought process, I mean, I know you talked about some movements potentially in the product business. Maybe you can give us some idea of what percentage of your revenue -- I mean, should we just think of the products business as being open for discretionary work -- or I'm sorry, discretion so that it can fluctuate a lot going forward? Or is there any -- I'm trying to just get a sense about your full revenue base, what you consider to be essential business and stuff that could be maybe a little bit more open to discretion.

Yes, you were talking about our product design consulting or (multiple speakers)?

Yes, should we think of--?

Yes, I mean, our product design consulting work, helping clients in a proactive way with their products to avoid failures or recall or litigation issues in the future, that type of work, that is about 10% to 15% of our total revenues. And it's, as we've talked about before, concentrated in the consumer electronics and their suppliers, as well as the medical device industry. We tend to help them in very niche areas.

Clearly, we've been growing that business pretty aggressively over the last several years. We are continuing to get projects on a very regular basis. But we, on the other hand, I think we haven't been able to get our arms totally around it. The tasks may, I'm sure, become slightly smaller. People are going to be tight with their dollar. They are going to do the things they have to do. But those are -- people are going to watch what they are spending on outside consultants.

We think we bring a unique set of talent and a niche service to them that allows us to be in a little bit better position than maybe a commodity service that they have, where they might be able to just pull it back inside. But clearly, we are feeling there is a little bit of step-back there in the market.

And just kind of moving on to the military business, obviously you've kind of taken it into consideration here. Would you characterize your stance, looking at that business beginning the year, as conservative, or should we think of it as -- how would you characterize it? Because it seems like you haven't really accounted for any potential business. And is there some reason to think either that there is maybe less coming, or more coming, or is it just wide-open that you just don't -- you're not sure at this particular point?

I think we've built in that business to grow in the expectations we've put out to the market. That's an area that's strong right now. We have put in, outside of the products part of it, the expectations we have there have growth in that area. So I would say that that is -- and that includes the fact that on the other side, we have a number of things that are coming off that we're going to have to either get those contracts back, win them back, or get other work. So there's a lot of challenges in front of us in that area, but we are optimistic that we've been building a good reputation out there and that we can build upon the work that we did in 2008.

All right. Are you dealing with somebody new in that business, with the change in administration?

The answer is no.

Okay, so it's still the same people that you would normally go to?

Same players. So our client there is principally the DoD and the services within the DoD. Let me just add one thing here on the product sales. The fact that we are just talking about $0.5 million of product sales per quarter is not necessarily reflective of our desire to go after that kind of business or capitalize on it when we see it. But we don't have the visibility here to say that, with any certainty, that we are going to, on a quarter-after-quarter basis, be able to end up with sales in that area.

So we are not going to be forecasting that we think that those are going to be bigger until we've got visibility as to what it might be.

Fair. And just one quick last one. I know you talked about the infrastructure package potentially being a positive. Just kind of going through the package, a lot of that has been deemed as sort of ready to go. In other words, it gets to where it needs to go quickly, and then those particular initiatives are taken care of.

I was wondering if you could point us to some particular piece of business or work that you've been talking about or notified of that you would be working on immediately, assuming the package got passed. If you could just maybe give us some color as to what that would look like from your point, and if you've had those discussions already.

To take you back to my comments, let me be very clear. I don't believe that there is any direct funding that's going to come out of that project or out of that bill, out of that spending, directly to us. It will end up being the second-order effects that that stimulus package will have that we will benefit from. So there will be more R&D development, there will be more construction, there will be more work on failing infrastructure. There are likely to be some construction disputes. The work in energy, be it alternative energy or some of the problems that the auto industry will have to deal with, will likely create opportunities for us to assist our clients.

From that standpoint, if the bill were passed tomorrow, I wouldn't have any expectation we're going to see an immediate benefit from it. This will be something that will play out as those dollars get into the economy and activity begins to pick up.

(Operator Instructions). Tim McHugh, William Blair & Company.

First I wanted to ask about -- you've had a lot of strength in Europe from kind of the REACH regulation. Where are we with that in terms of companies having to comply with that? Can that continue to be a source of strength over the next 12 to 18 months?

The REACH regulation is in several phases, Tim. It was implemented first in June, June 1, 2007, and it has escalating requirements out through -- into the teens. I don't remember exactly what the implementation period is. I think it's roughly 10 years.

So as we go forward in time, there is definitely going to be additional things that clients are going to need help on doing in terms of complying. The first is really just getting your chemicals registered. But then as it goes on down the timeline here, there are more requirements that we think will be an attractive marketplace for us.

Okay. And then, Rich, can I ask -- you mentioned an all-Company manager meeting. How significant was that expense? Just trying to get a sense of what to plan for SG&A in the first quarter on a more normalized run rate.

Yes, that area alone was somewhere in the $300,000-plus, $300,000 to $400,000 in total. I think we will be able to, with that and some other things that flow through in the fourth quarter there, be able to hopefully manage things back closer to what we were seeing last year in each of the quarters.

Okay. Then on the share count, the share repurchases, Rich, were those spread evenly, or is there a carryover effect that we should model?

They were more in the early part of the quarter. So there is a little bit of a carryover. But it was concentrated in the first month, closer to the first month of the quarter.

And do you give out your equity grants here in the first quarter, such that the share count does go up just from that, or if you can remind me?

Yes, we put out our -- we don't -- we have some equity grants that come typically in the February time frame, and then the majority of the RSU grants come actually around March 15. So we don't see a lot of the impact in the first quarter. So I would say that probably based on the carryover from the repurchase of a third event and what ends up impacting the first quarter will sort of offset each other as you look at Q1.

Okay. Then lastly, just to be clear, some of the comments on the guidance on the macro impact -- is this stuff that you're seeing on the product design side, companies being more conservative with your type engagements here in January -- December and January, or is this more just kind of the logical conclusion as you look at the macro events that we've seen?

Yes, we are seeing clients that are -- we are seeing clients on that side that are tightening their belts. And they are doing work they have to do with us. I mean, that's what people are doing. We've got a very diversified group.

I would say the comments we've made in each of these sectors apply to where we see it now. Are we seeing a little -- as Mike commented, we see less of an impact to our litigation, but absolutely. You know, you talk with the auto clients on that two-thirds, and they are tightening the belt and trying to see if there's anything left to squeeze out of it.

You are seeing a little bit of deferral on things. You see the product side. But on the other hand, our litigation stuff continues to happen on a daily basis, and there's lots of cases built up in the past, too.

You know, cars still drive down the road. People still eat their food. Bridge infrastructure is still aging out there. All the things that we get involved in that you read in the papers on a daily basis create either regulatory demands or litigation demands.

But clearly, our client group, just as you would expect from any company, are trying to ask themselves how can they manage this as tightly as possible? They are doing the same thing on the product side, product development side, and that area.

On the other hand, when they've got regulatory issues they've got to meet or they've got a product that they are trying to improve upon, they've got to do the work.

So the comments that were made by Mike are ones that I feel we are seeing at this point in time and we've tried to take into account in our expectations.

Thank you. And gentlemen, there are no further questions at this time. Please continue with any closing comments.

Okay, thank you all for joining us. We look forward to chatting with you here over the next quarter, if not before the next conference call.

Have a good day.

Thank you. Ladies and gentlemen, this does conclude the Exponent fourth-quarter 2008 earnings conference call. If you'd like to listen to a replay of today's conference, you can do so by dialing 1-800-405-2236 or 303-590-3000. Input the access code 11125475.

ACT would like to thank you very much for your participation today. You may now disconnect. Have a very pleasant rest of your day.