Exponent Inc (EXPO) 2009 Q2 法說會逐字稿

Well, good day, ladies and gentlemen. Thank you so much for standing by. Welcome to the Exponent Q2 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) And as a reminder, the conference is being recorded today on Wednesday, the 22nd of July 2009.

I'll now turn the conference over to Mr. (sic) Brinlea Johnson of The Blueshirt Group. Please go ahead.

Good afternoon, ladies and gentlemen, and thank you for joining us on today's conference call to discuss Exponent's second quarter 2009 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, Executive Chairman; Paul Johnston, President and Chief Executive Officer; and Rich Schlenker, Chief Financial Officer of Exponent.

Before we start, I'd like to remind you that 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 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 ended July 3, 2009.

The forward-looking statements and risks stated on 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 Paul Johnston, President and Chief Executive Officer of Exponent. Paul, please go ahead.

Thank you for joining us today as we report financial results for the second quarter of 2009. Mike Gaulke is joining us today for our Q&A session, and as planned, he has continued to be involved in certain aspects of the operations in his new role as Executive Chairman.

As you know from our press release, we posted strong earnings for the quarter and are pleased with our overall performance.

For the second quarter, total revenues increased 11% over the same period last year; revenues before reimbursements grew 3%; net income in the second quarter was $0.40 per share; and EBITDA was $10.9 million.

During the quarter, we continued to increase revenues and effectively manage our cost structure. We had good performances in our defense technology development and electrical practices, as well as our health and environmental science groups.

Let me comment on how the current economy and certain events are affecting Exponent.

Our business has remained relatively resilient in spite of the economic downturn. In the 65% of our business that is tied to litigation and insurance claims, we are continuing to have a steady flow of projects, but in certain cases, clients are deferring work or narrowing the scope.

Also, this part of our business has been directly impacted by the bankruptcies in the automotive industry. Cumulatively, GM and Chrysler have been 2% to 3% of our revenues in recent periods.

In the near term, we believe revenues will be impacted due to the bankruptcy judge's ruling that significantly reduces the product liability and exposure claims for these restructured organizations.

In the 25% of our business that is made up of more proactive services, we are pleased that most of our clients are continuing to engage us to assist them with their most challenging technical issues, but the tight corporate spending environment has had some effect on this business.

In our defense technology development business, we continued a significant consulting project for the US Army's Rapid Equipping Force to develop a vehicle-mounted ground-penetrating radar system to detect buried improvised explosive devices.

For the second quarter, this project represented approximately half of the $2.4 million of net revenue from the Rapid Equipping Force. We anticipate that the REF will issue us a new contract for the ground-penetrating radar system in October.

As most of you are aware, Exponent has been working for the Army's Rapid Equipping Force for six years. Our current support contract was due to expire this past March and was extended for six months to the end of September. Our past contracts have been a combination of fixed price and time and materials at our commercial rates.

During the second quarter, we responded to a request for proposal for future services using our commercial rates but were subsequently informed that the Army intended to use a cost plus fixed fee contract.

Additionally, the Army intends to restrict the awarded contractor from bidding on follow-on product sales.

As a result, we have informed the Army that we are only interested in performing this work under the same terms as in the past. At this time, the Army has not announced a decision on the contract award.

We are optimistic about our ability to expand our work with several other current Department of Defense clients and are pursuing some promising new opportunities, including discussions with another foreign military about the ground-penetrating radar system.

In summary, we posted a solid second quarter, and while we are more conservative about our outlook for 2009, we are optimistic about the long-term opportunities we are pursuing.

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

Thanks, Paul.

As Paul discussed, we were generally pleased with our performance in the second quarter.

Total revenues increased 11% to $60.9 million, compared to $55 million in the second quarter of 2008.

Revenues before reimbursements, or net revenues as I will refer to them from here on, were $52.4 million, as compared to $50.8 million in the prior-year period. This represented an increase of 3%.

Net income for the second quarter of 2009 was $6 million, or $0.40 per share, based on 15 million shares. This compares to net income of $5.8 million, or $0.36 per share, based on 16.1 million shares in the second quarter of 2008.

EBITDA in the second quarter of 2009 was up 8% to $10.9 million.

Included in the second quarter is a $485,000 bad debt expense for GM and Chrysler receivables.

Our average full-time-equivalent employees in the second quarter of 2009 were 629, an increase of 2.3%, as compared to the second quarter of last year.

During the quarter, we continued to hire top talent, which was offset by departures as a result of our ongoing process of identifying underperformers.

While hiring professional talent continues to be a top priority, we are also focused on net headcount growth relative to revenue, and as a result, we expect full-time-equivalent employees in the third and fourth quarters of the year to be approximately 625 to 630.

In the second quarter, billable hours were 218,000, and as a result, utilization decreased to 67% from 69% in the prior-year period.

As a reminder, in 2009, the Fourth of July holiday fell within the second quarter, which slightly impacted our utilization, as compared to 2008, when it fell in the third quarter.

We continue to believe utilization will be flat to slightly down for the full year 2009, as compared to 67% in 2008.

We realized an average bill rate increase of 3.75% as compared to the same period last year.

Overall, in the quarter, technology developments' net revenues were $4.9 million, as compared to $4.2 million in the same period last year.

Net revenues from product sales were $1.5 million, as compared to $650,000 in the second quarter of 2008. In the third quarter, we expect to realize revenues from product sales of approximately $1 million.

Hereafter, the percentages I will reference are based on a percentage of net revenues.

EBITDA margin for the second quarter improved to 20.9% from 20.0% last year.

Compensation expense for the quarter increased 5.3% year over year to $35 million. Compensation was only up 3.3% after adjusting for deferred compensation gain, which is offset in miscellaneous income.

As a component of compensation, stock-based compensation expense for the second quarter was $1.65 million, slightly down from $1.76 million in the same period last year. We now expect stock-based compensation to be between 7.5 and $8 million for the full year.

Other operating expenses for the second quarter decreased 5% to $5.3 million, as compared to the same period last year.

A component of other operating expense, depreciation was $1.2 million.

G&A expenses in the second quarter were flat with last year at $3.2 million and include the bad debt expense for GM and Chrysler. Excluding this write-off [in G&A] would have been down 14%.

Reimbursable expenses for the second increased to $8.4 million, as compared to $4.2 million in the same period last year as a result of higher product sales.

Interest income for the second quarter was $200,000, as compared to $460,000 in the same period last year.

Our tax rate for the second quarter of 2009 was 40%, as compared to 39.8% in the same period last year.

Turning to the balance sheet, we closed the quarter with cash and short-term investments of $52.1 million.

While we did not repurchase any stock in the quarter, we remain committed to our share repurchase program and have $35 million of authorization available.

Capital expenditures for the second quarter were $740,000.

DSOs at the end of the quarter were slightly higher at 103 days. We experienced some delay in payment related to specific government invoices and expect DSOs to be back under 100 days by the end of the third quarter.

In summary, we were pleased with our second quarter results, posting solid revenue growth and performing well across a number of our practices despite a weaker macroeconomic climate.

For the second half of 2009, we believe the demand for our services will remain relatively resilient in spite of the economic downturn; however, due to the tight corporate spending environment, we are cautious about seeing an increase in short-term demand. Additionally, we have been directly impacted by the bankruptcies in the automotive industry.

As a result of these factors, we expect revenues before reimbursements for the full year 2009 to be approximately flat with last year.

As a reminder, in 2008, we had high product sales and technology development, a favorable foreign currency exchange rate environment, and an extra week in the fourth quarter.

As a result of lower product sales in 2009, we expect EBITDA margin to be approximately 50 to 100 basis points lower than the 19.8% achieved in 2008.

Now, I will turn the call back to Paul for concluding remarks.

Thank you, Rich.

In the second half of 2009, our key areas of focus will be --

To deliver value to our clients by solving their most complex technical issues;

To pursue our strategic growth initiative, 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;

To manage our other operating and G&A expenses to allow for a continued leverage or our infrastructure;

And, finally, to generate additional cash from operations, maintain a strong balance sheet, and undertake activities, such as share repurchases, to enhance shareholder value.

We remain optimistic about our future. Over the long term, our consulting services will continue to be driven by products and processes becoming more technologically complex and society's demand for them to be safer, healthier, and more environmentally sensitive.

We believe that Exponent's differentiated market position will allow us to translate these opportunities and market drivers into long-term shareholder value.

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

All right. Thank you, sir. (Operator instructions)

Our first question is from the line of Joseph Foresi with Janney Montgomery Scott. Please go ahead.

Hi, guys.

Hi.

Hi, Joe.

My question -- my first question, I think you talked and alluded to the RFP with the Army, and I think -- and correct me if I'm wrong -- you were looking for maybe the contract [inaudible] to be fixed price, and they wanted to make it cost plus, and they're sort of deciding if that's acceptable at this particular point.

I'm just curious. Why be so -- maybe you can give us some idea, I guess, on sort of why you've decided that maybe there's not a reason to compromise or to change the cost structure.

Joe, this is Mike Gaulke. Let me start out here.

The business that we've had here with the REF, the Army, and in fact, all of DOD here over the last 10 years has been one that we have been able to successfully conduct in large part because we've been able to leverage off of the activities that we do elsewhere in our firm, and that is really facilitated by doing business on a commercial basis.

Those are skill sets that we're able to call upon and bring immediately to bear on different projects, problems that we've had presented before us, and that model has worked quite well.

The difficulty of doing CPFF work for a client like the government is that it entails a different accounting system and a much more cumbersome way of doing business. And as such, we feel like that our ability to really provide rapid response and call upon all of the capabilities of our firm is very much hindered trying to do business that way.

And as a result, we have chosen over this time period not to do work on a CPFF basis and think that's, in fact, the right decision. Our ability to deliver value to the clients that we've served here in the government is best done on a commercial basis.

Do you -- I mean do you feel like there's enough leverage in the fact that you have the domain expertise that this is still under consideration, or is it more of a -- I'm just trying to get a feel for sort of where you think you stand in perhaps the competition for the business.

Well, we think that there is a lot of attractive business for us to be able to do on these terms. Whether or not we will ultimately end up with this specific piece of business that is out on this RFP is yet to be seen.

But one of the things that we have seen happen here over the last several years is the result of doing good work and providing good value for our clients has broadened our opportunities, and as I look at the opportunities today, there are several that have grown out of our direct activities with the REF, where some of those solutions now have different owners in other parts of the Army.

So whether that's over in the PM [force protection] where we've been doing some work, we're back doing some work on Land Warrior, the work that Paul has referenced here on ground-penetrating radar, there are other activities in DOD that are expressing real interest in the contributions that we have made there, as well as a key ally outside of the US.

So we see our ability, in fact, to be serving all of those clients on a commercial basis, and as a result, are still very committed to this part of our business.

Okay. In terms of just looking at sort of the -- I guess I'd characterize it as maybe a point towards the downward side of initial revenue guidance. I wonder -- and I'm sure, Rich, you could probably do this very accurately -- that, I assume, includes the write-offs from GM, but maybe you could just break down the factors that have you pointing towards the lower end at this point.

Yes. Well, I think at this point in time, the biggest contributing factor there truly is the 2% to 3% of revenues that we have historically done for GM and Chrysler across a broad set of our practices, ranging from vehicle engineering and biomechanics to health sciences, where we are doing work in the asbestos area.

And, really, the fact is that work has been at zero since the bankruptcies, and based on the judge's ruling, which was very unusual in a Chapter 11 restructuring, typically products liability and exposure claims and environmental claims continue on with the restructured entity, and this ruling was not -- was the other way around.

So, clearly, we look at that business sort of growing back slowly over a period of time, and that is the largest contributor to sort of a change in sort of forecast looking forward.

In addition to that, we've continued to see slow activity -- slower activity related to the construction industry. We've talked about that before, and that impact really started almost immediately in the fourth quarter last year and has continued through and impacted our civil engineering and construction business, which is a little less than 10% of our revenues when you look at that part of the business. It's still business there, still going along, but it's had some impact on our ability to grow there.

So with those things out there and a little tightening of spending, we are being cautious about headcount growth. As you can tell from our comments, that doesn't mean that we're not out there recruiting and bringing in new talent and targeting areas where we are busy and growing, but we need to be cautious of that in this environment and especially the step back here with that client.

But, overall here, if you adjust for the one day of holiday, billable hours were pretty close to flat. Pricing was up. Those things were in place in the second quarter, but as we look to the back half of the year, some of these factors come into play, and then most importantly, everybody needs to be reminded that last year we had nearly $2 million or over $2 million of product sales in the second -- in the third quarter, I think we had over $1 million of product sales. In the fourth quarter, we had a extra week in 2008 that landed in the fourth quarter.

You put all those things together, the back half was going to be a difficult hurdle because it was a good year and such, and if we're going to be a little more conservative in our operation here to make sure that we don't get too far ahead of ourselves, we're going to -- we've got to operate in this way.

All right. Thank you. Our next question is from the line of Tim McHugh with William Blair and Company. Please go ahead.

Yes. I just wanted -- your comments on the REF and kind of walk through some of the numbers as you've given them out. You said $2.4 million of revenue this quarter from the REF, and what was that relative to the overall tech development business?

4.9.

Okay. And your comments about they wanting in the contract that you couldn't do product sales, how much of your product sales historically have been from the REF versus the other programs you have? What's the exposure there?

Yes. Currently, the product sales revenues that we have are not part of the REF revenues. Those programs have been moved out of the REF into program offices. So not only do we feel good about that, but those are growing. We think there's -- we're sort of optimistic about the growth prospects with even those.

What we're referring to here is if future technologies were developed as part of our engineering consulting activities, as they have in the past with [Artis and Lapeer and Markbot]. What they had done is put a very restrictive, sort of a restriction beyond the standard [FARE] clause of not allowing us to even bid -- or whoever wins this to even bid on the follow-on product sales. It wasn't that we could bid, but they were going to have to decide if it was best value for the government. It was much more restricted to that.

We took exception to that, obviously. The government always has a choice as to who they want to use, but to say upfront that you'll never bid on that work seemed over reaching and something we didn't want to get into because we think that we have value to deliver to the government here by being able to rapidly develop and integrate these technologies and deliver them in small lots. These have never been large production pieces.

So of the $2.4 million in net revenues we did this past quarter, about half of that was related to the development in, first, prototype deliveries of the ground-penetrating radar system, which now has approximately four units over in Afghanistan and Iraq in operations, and the other half of the revenues is really related to our two labs in theater and our other engineering support.

So we anticipate that our engagement will continue in the GPR program. There's no certainty to that, but we think what we've developed in our role here is so unique that there will be a follow-on contract separate from the engineering support contract that will come on. That's what the REF has indicated, that they were going to split these anyways.

So what we're really talking about is our theater support and our back sort of office engineering support, but at least this last quarter was about half of the REF revenues.

Okay, so just - so you could continue to provide product sales related to this ground-penetrating radar and the technologies you developed under the past contract, but as they've written the contract now, if you had accepted that, you wouldn't be allowed to use the new technologies you developed for product sales?

That's correct.

And then, lastly, the GM impact -- is that kind of 2% to 3% of revenue from GM and Chrysler? Is it fair you just kind of -- basically, you took that all out? And when would you -- how long would you take or expect it to take for that to come back?

Yes, so the 2% to 3% is just sort of a recent historical number. Over a longer time period, it's varied more than that, but in recent periods, it's been about that much.

We expect that the GM and Chrysler work will take some time to come back. Some of it will come back very quickly, but much of it, that part that's really due to what I'll call current litigation is going to take some time because of the way that the bankruptcy judge handled those claims.

Essentially, on Chrysler vehicles, as we understand it, any vehicles that were sold in the old organization, whether or not the claims -- whether or not accidents or claims had happened at the time, those are not going to be claims that Chrysler will have going forward.

And GM is a little bit different than that. If an event has already happened then, in a sense, that liability has been dismissed. But if there is a new accident involving an old GM vehicle, then there could be a claim brought forward under that, and after good result in litigation.

So what's happened really in GM's case is the slate's kind of been wiped clean, and their caseload is sort of put down to zero, and then it will start building back up again. And as it starts building up again, we anticipate working with them.

At the same time, we have over a period of time here been diversifying our work substantially. So we work obviously for the other major domestic auto supplier, but we also manufacture -- I beg your pardon -- but we also work for many of the FARE manufacturers. And so -- and that's why the impact is only of the size that we've described.

Okay, and then last, if I could slip one in, Rich, I didn't know if you said it already, but I missed -- was there an unusual item in other income/miscellaneous income in the quarter?

There -- what is in there is the deferred compensation if you -- just a reminder to everybody, we have a deferred comp program. It's not an expense incurred by the company, but what happens in deferred comp programs is if there's a gain in the investment, so the portfolio the people are investing in, you recognize compensation expense, and we had $565,000 of gain in that, so there's $565,000 up in compensation, and the offsetting gain for that expense is down in miscellaneous income.

Bottom line nets to zero, but when you look at compensation or miscellaneous income, it swings. Last year, that was a $10,000, I think, loss, which means competition was down by 10 and miscellaneous income just had a $10,000 loss.

So you get those swings, especially as we've had these large swings in the market in those numbers. So that's what's going on there.

Typically, if those are zero, we would expect miscellaneous income to be between 350 and $400,000 in a quarter, and obviously, the interest income line will be somewhere between 150 and 200 a quarter. That's what it should be going without these ups and downs in the deferred comp.

Okay, thank you.

All right. Thank you. David Gold with Sidoti and Company, please go ahead with your question.

Hey, good afternoon. So a couple of things. Little bit confused, I guess, as everyone else is, on the split on the contract. Can you, Rich, just go over to be sure we've got the numbers right? The contribution during the quarter you said from Rapid Equipping Force was $2.4 million? Did I get that right?

Yes.

Okay. And then half of that essentially is the piece that we've decided not to bid on so far?

Half of that is tied into GPR, and half of it is tied into the theater support. We have bid on that. We've just -- our bid is in under commercial terms and taking exception to the products part. The government is the one who's come back and said they prefer to do this on CPFF and is still considering our position.

Uh-huh, uh-huh. But one second. So before that, the half and the half, so right now there's one contract out there?

That's correct. There's one contract. GPR is in the -- is an entirely separate task under the current contract, which they have indicated they want to separate that out. We haven't seen that RFP or those actions yet, but that's their intention.

Okay, so it's the theater support one that right now you're bidding on but maybe in a holding pattern?

That's correct.

Okay, gotcha. And then as far as business in general, aside from the autos, were there any other areas that were surprising to you from a softness perspective?

No, I actually don't think so. The construction site continued to be sort of soft at about the same level it had in the prior quarter. There wasn't really a change in that, but I do need to -- it's not running at what we would consider to be sort of a normal level. But there was no other significant change.

Okay. All right. And then just one other minor -- I didn't catch the quarter-end and the average and quarter-end headcount number. Was wondering if you could give those.

Yes, the average FTEs for the quarter were 629, and the ending or June FTEs were 628. So just [inaudible].

Okay, so right in there and presumably essentially no attrition?

That's -- well, yes, net, no attrition. Clearly, we had approximately 20 hires and approximately maybe an extra -- I think we ended last quarter at 630, so you're down two people.

Gotcha.

Two more than we brought in.

Gotcha, gotcha. Perfect. Thank you.

All right, thank you. Our next question's from the line of Sean Jackson with Avondale Partners. Please go ahead.

Yes, good afternoon, guys.

Hi, Sean.

Rich, you mentioned about bad debt expense that you guys took in the second quarter. Is that something that's a one-time charge, or do you anticipate being recurring at those levels?

No. This was a one-time charge of $485,000 related specifically to the GM and Chrysler receivables. We went through those receivables in detail, worked with the law firms we're engaged with or directly with each of those firms, figured out what stuff is going to be paid or may be paid, and put those over into our normal AR.

We had about 485,000 that at this point in time we've determined are unlikely to be paid, and as such, we took that write-off in this quarter. We don't anticipate having to take further write-offs other than what you might find in our general reserve on AR.

Okay. And what was the stock comp expense for the quarter?

The stock comp expense was $1.865 million.

Okay, and what's that anticipated to be in the second half? Is it going to go down from there or not?

Yes. We'd expect it to be approximately $1.7 million in each of the next two quarters.

Okay. All right. So it's about the same.

Okay, and lastly, just -- you mentioned as far as a growth area being health sciences, can you give us an update on some of the new opportunities that you're seeing there? Has there been any kind of, again, delay in projects because of the economy, or is that still on track?

You know, I think that that's a little bit mixed. We have a mixture of contracts there of both -- we work with clients on litigation matters, and those contracts come and go, and at the end of trials or settle and so forth, and so there's been no -- nothing unusual there.

On the contract side, we've had sort of ups and downs of firms that both have been delaying projects, and we've also had firms that have brought new projects forward, but it's just still a tight corporate environment, but I can't say that we've had a significant change in that.

The area that I think is new or newer is sort of different than what I've just described is what we're doing in the regulatory environment, particularly in the United Kingdom, where we are continuing to grow our presence there fairly significantly. And so that work continues to flow, and we haven't seen any stalling or disruptions in that work, and we continue to see growth there.

Okay, all right. Thank you.

All right, thank you. (Operator instructions)

Tobey Sommer with SunTrust Robinson Humphrey, please go ahead.

Thanks. Just wanted to ask a follow-up. Maybe in what you've classically described as your proactive services, wondering if you have any growing examples of customers that perhaps have found themselves short-staffed that maybe over the last several quarters cut too deeply, and that's actually increased your services but just kind of wondering to the extent whether those kind of examples are materializing more often in recent months?

Yes, those examples do materialize. I don't know that I could say that it's more often in recent months, but we've certainly had examples of those.

Again, I think the most -- the strongest area for that is sort of associated with the kinds of activities we're doing in the United Kingdom and with REACH, where companies don't want to staff up to do the regulatory work to help them with those -- meeting those requirements and, therefore, are much more likely to engage outside firms to a greater degree than they might otherwise do, so that's what I could describe there.

In terms of, again, the proactive services, is the biggest opportunity -- could you prioritize the one or two top areas of growth as you see it over the next year or two?

Well, I think that if we go back to our sort of strategic initiatives that we have covers most of the areas that we think that the opportunities exist in.

In the health sciences area, it tends to be around chemical regulation and REACH, and we are continuing to pursue opportunities there.

In product design, it includes medical devices, consumer electronics, portable power, those areas that we are considering continuing to pursue.

In the energy and electric utilities area, most of our work in the electric utilities is all what I would call sort of proactive services of just making sure that companies get less downtime and more value out of the infrastructure that they've got.

And then in the emerging area in energy of both new technologies and the return to nuclear power, there continue to be opportunities that we are -- that we're pursuing there.

So many of the growth areas or most of the growth areas that we've identified do represent these proactive services, and of course, defense technology development is another example of that.

Okay. I'll ask one other question and get back in the queue.

Wonder if you could describe the competitive environment and the extent to which maybe the recession and the general tough business environment has presented any opportunities for you or whether you've seen a change in terms of increased competition? Thanks.

Yes. I think that that haven't -- I would describe that that has not been a problem for us in the sense that you might think that the environment gets more competitive.

Certainly, as we've indicated, our clients are trying to figure out ways to reduce their cost, but sometimes that involves deferring work or changing the scope a little bit.

But we do not find that we are losing business to companies that are pricing it differently. We believe that there's a value to the services we provide, and our clients understand that value and have continued to come back.

And as Rich indicated, he talked about the fact that we've realized the 3.75% price increase here as we look at it over the prior period, so we don't sort of fear the competition in that sense.

Yes, this is Rich. I second that. I think in talking with our people, if anybody's [inaudible] feedback from client, it's more that the client still wants to engage us.

If they want to save a little money or need to slow the spending, it's only a matter of adjusting the scope in the short term, and I think we're even seeing in some cases where people delay things. They can't delay them very long, a matter of a month or two and that client, we may have turned in a proposal which would normally be approved in a day or a week might take a month because they're trying to figure out how to -- if they can wait.

But at the end of the day, those things are starting to come back around in many of the technology areas here even in the early third quarter. So I think we're seeing clients still come to us and just trying to figure out how to do it.

Thank you very much.

All right, thank you. And we have a follow up from one Joseph Foresi. Please go ahead.

Hey, guys. I was just curious. How would you characterize, I guess, the spending environment for any of your products? As we've gone through the years, has discretionary spending -- do you think it's made its way out of the numbers, or are we headed toward stabilities? Is there an inflection point where it may start to increase, or I just want to get your general comments on sort of demand.

Well, I don't think we're at a point where we feel like it's getting worse or really getting a lot better. We just see a tight environment at the moment that we've seen for a period of time here.

But as we've said, we don't see the --the projects don't tend to go away. They tend to sometimes get pushed back a little bit, but we don't think that the business environment is getting more difficult.

Okay. And then I think, Rich, just correct me to housekeeping side of things. Did you say you were going to get a million of product sales next quarter?

Yes, approximately that, yes.

Okay. And then going forward, I think we had talked about sort of a baseline number of about 500,000. Is that still a number that you're comfortable per quarter?

Yes, at this point in time, on the -- yes, that's where we are for the fourth quarter, although some of the opportunities that we think that can really fill in here if we were to not have some of the revenues from the REF are that some of the products opportunities seem to be getting some strength.

Okay. Thanks.

But at this point in time, I think we're going to hold with that.

Okay, great. Thanks.

All right, thank you. There are no further questions at this time. This does, therefore, conclude the Exponent Q2 Earnings Conference Call.

If you would like to listen to a replay of today's conference in its entirety, you can do so by dialing 303-590-3030 or 800-406-7325, enter the access code 4117488. Those numbers again, 303-590-3030 or 800-406-7325, enter the access code 4117488.

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