Exponent Inc (EXPO) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Exponent fourth quarter fiscal 2012 earnings conference call. (Operator Instructions). This conference is being recorded today, January 30, 2013. I would like to turn the conference over to Matthew Hunt, Blueshirt Group, Investor Relations for Exponent. Please go ahead.

Good afternoon, ladies and gentlemen. Thank you for joining us on today's conference call to discuss Exponent's fourth quarter and fiscal year 2012 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 property the Exponent and any taping or other reproduction is expressly prohibited without Exponent's prior written consent. Joining me on the call are Paul Johnston, President and Chief Executive Officer, and Rich Schlenker, Executive Vice President and Chief Financial Officer 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 opportunities, and future financial results that involve risks and uncertainties, and that Exponent's actual results may vary materially from those discussed there. 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-K for the quarter ended December 28, 2012. 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.

And now I would 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 for our discussion of Exponent's fourth quarter and fiscal year 2012 results. The fourth quarter concluded another good year of revenue growth and profitability for Exponent, especially considering the tough year-over-year comparison.

For the fourth quarter net revenues increased 7% to $65 million, and total revenues also increased 7% to $72.9 million. Net income grew 10% to $8.5 million or $0.60 per share.

For the full year net revenues increased 8% to $266.6 million, and total revenues increased 7% to $292.7 million. Net income grew 14% to $37.2 million or $2.60 per share. We generated more than $48 million in cash from operations.

During our fourth quarter we experienced good demand for both proactive and reactive services, andcontinued to benefit from activity related to a few major refinements, resulting in 69% utilization despite this being our seasonally lower slower quarter. Additionally, our Defense Technology Development practice had strong surveillance system product sales.

Throughout 2012 we assisted a wide range of clients in addressing significant technology health and environmental matters by leveraging our breadth of discipline and depth of engineering and scientific knowledge. For the year we had notable contributions in our environmental and health segments, from our Environmental Sciences, Ecological Sciences and chemical regulation and food safety practices. This work included the evaluation of human health exposure from processes and products. We also performed environmental risk assessments for historical, existing and future operations.

In our engineering and other scientific segments we had notable performances from our Mechanics and Materials, electrical, thermal and engineering management consulting practices. This work included the evaluation of a diverse set of battery technologies utilized in a wide range of products to assess their performance and safety. We also leveraged the breadth and depth of knowledge of material science to evaluate the performance of products throughout their life cycle.

During 2012 we continued to evolve to address the engineering and scientific needs of our clients. This included the hiring of more than 90 new engineers and scientists with the knowledge and experience to assist our clients in addressing today's technological challenges and health and environmental issues.

We previously communicated that over the last couple of years a few major assignments have accounted for a greater than usual percentage of our revenues and that there would be an impact on year-over-year revenue growth and profit margins when these assignments stepped down. As we entered 2013 we have experienced this anticipated step-down in these major are assignments. Additionally we are seeing the impact of constraints on defense spending and the reduction of forces in Afghanistan.

We have started 2013 at a slower pace than 2012, and we realize that 2012 created a high hurdle to clear. Nevertheless we remain optimistic about the market drivers and our market position. The demand for our services continues to be driven by increasingly complex technology, product and process safety, human health concerns and environmental issues.

Our market position as a premier consulting firm for engineering and scientific assignments is strong, as evidenced by the matters that our clients hire us to address. We are committed to leveraging these drivers and our position into long-term growth.

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

Thanks, Paul. We are pleased to have delivered another good year are in 2012. For the fourth quarter revenues before reimbursements, or net revenues as I will refer to them,\ from here on, increased 8% to $65 million as compared to $60.5 million in the prior year period. Total revenues for the quarter increased 7% to $72.9 million as compared to $67.9 million in 2011.

Net income for the fourth quarter increased 10% to $8.5 million or $0.60 per diluted share. EBITDA in the quarter increased 10% to $15.6 million. For the full year 2012 net revenues increased 8% to $266.6 million. Total revenues increased 7% to $292.7 million. Net income for the year improved 14% to $37.2 million or $2.60 per diluted share. EBITDA in 2012 improved 12% to $66.1 million.

In our Defense Technology Development business net revenues for the fourth quarter were $4.3 million, as we continued to support the US Rapid Equipping Forces' mobile labs in Afghanistan as well as the UK in their ground penetrating radar program. During the quarter, we had $2 million in net revenues from product sales, largely related to the surveillance systems. For the full year, net revenues in Technology Development were $17.6 million, including $3.1 million from product sales.

Looking into 2013, we expect surveillance system product sales will be significantly reduced as a result of the drawdown in forces in Afghanistan. We are expecting net revenues to be approximately $500,000 for the year. For the first quarter of 2013 this will be approximately $150,000, as compared to $860,000 in the first quarter of 2012.

Utilization in the fourth quarter was 69%, equal to the exceptionally strong fourth quarter we had last year. For the year utilization was 73%, up from 71% in 2011. In 2013, we expect utilization to be approximately 69% as a result of several major assignments stepping down.

For the fourth quarter billable hours increased 3% over the same quarter in 2011 to 251,000. This brings our full year total billable hours to 1.052 million, which is up 7% as compared to 2011. During the fourth quarter we did not recognize revenue on one international project that was running at between $1 million and $1.5 million per quarter due to a change in the financial status of that client.

During 2012 we realized an effective billing rate increase of approximately 2.5% for both the fourth quarter and full year. For 2013 our new billing rates took effect on January 1. We expect to realize a billing rate increase of approximately 2.5% to 3% based on an average billing rate increase for our existing staff of approximately 4%, which has historically been reduced by hiring of more junior staff throughout the year.

Our average technical full-time equivalent employees for the fourth quarter increased 4% to 704 as compared to the same period last year. For the full year, average FTEs were 692, up 5% from 2011. We ended the year with 705 billable -- or technical full-time equivalents.

We are very pleased with the talent that we have added this past year. We will continue to selectively hire key talent to expand our capabilities, as this is the key to our long-term organic growth strategy. For 2013, we expect sequential quarterly FTEs to be flat as we manage our headcount to reduce the impact from the step-down in the major assignments.

The percentages I will reference hereafter are on a percentage of net revenue basis. EBITDA margin for the fourth quarter improved 60 basis points from the same period last year to 24%. EBITDA margin for the year improved 90 basis points from 2011 to 24.8%. These increases are the results of improved utilization and effective cost management.

For the fourth quarter, compensation expense, after adjusting for gains and losses in deferred compensation, increased 7% to $41.1 million. For the full year 2012 compensation expense, again after adjusting for gains and losses in deferred comp, increased 8% to $169.7 million. This increase is the result of 5% headcount growth and annual compensation increases. As a reminder, our annual raises occur in April of each year and are expected to be at or below our average billing rate increase.

Included in total compensation in the fourth quarter is a gain in deferred comp of $131,000, as compared to $1.4 million last year. For the full year 2012, we posted a gain in deferred compensation of $2.2 million, as compared to a loss of $273,000 in 2011. As a reminder, deferred compensation gains and losses are offset in miscellaneous income and have no impact on the bottom line.

As a component of compensation, stock-based compensation expense for the fourth quarter was $2.4 million, andthe full year was $12.4 million. In 2013, we expect stock-based compensation to be approximately $12.5 million to $13 million for the full year, of which about $5 million will be expensed in the first quarter. Consistent with prior years, this higher level of expense in the first quarter is the result of a requirement to accelerate expensing on our matching RSU grants to employees over the age of 59.5 at the time we distribute our 2012 bonuses.

Other operating expenses for the fourth quarter increased 4% over the prior year to $6.2 million. As a component of other operating expenses, depreciation was $1.25 million. For the full year other operating expenses were up 1% to $23.6 million as compared to 2011. Depreciation expense was $4.7 million in 2012. For 2013 we expect other operating expenses to be in the range of $6 million to $6.5 million per quarter.

G&A expenses in the fourth quarter were $4 million, up 4% from the same period last year. For the year G&A expenses increased 3% to $13.6 million as compared to 2011. For 2013 we expect G&A expenses to be in the range of $3.2 million to $3.6 million in the first three quarters and then approximately $4 million in the fourth quarter.

For the year, interest income was $328,000, as compared to $236,000 in 2011. Our tax rate for the fourth quarter of 2012 was 41.3%, as compared to 40.9% in the same period last year. For the full year 2012 our tax rate was 39.7%, as compared to 40.4% for 2011. For 2013 we expect our tax rate to be approximately 40.3%.

Turning to the balance sheet. For the year we generated the $48.5 million in cash from operations and used $23.4 million to repurchase 48,000 -- 480,000 shares of our stock at an average price of $48.73,closing the year with $134.1 million of cash, cash equivalents and short-term investments. At the close of 2012 we had $21 million still available for repurchase authorization.

Capital expenditures for the fourth quarter were $1.5 million and were $4.9 million for the full year. DSOs were 94 days at the end of the year.

In summary, we are pleased with how the firm executed in 2012. We were able to assist more than 2,000 clients on over 7,000 projects during the year, utilizing over 90 disciplines. We are building a highly experienced and specialized firm and feel confident in our market position and our ability to grow organically over the long-term.

As we enter 2013, we have experienced this anticipated step-down in major assignments. Additionally, we are seeing the impact of constraints on defense spending and the reduction of forces in Afghanistan. As a result, we expect 2013 revenues before reimbursements to be approximately flat with 2012 and EBITDA margin to be down 250 to 300 basis points.

As Paul discussed, we have started 2013 at a slower pace than 2012, andwe will have lower surveillance system product sales. So, we expect first quarter net revenues to decrease approximately 2% to 3% and EBITDA margin to be down 400 to 450 basis points as compared to the first quarter of 2012.

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

Thank you, Rich. In summary, we are pleased to have delivered a strong 2012. As we move into 2013, we are prepared to manage our business to deliver long-term shareholder value. We will continue to provide the expertise and experience to address our are clients' important technology, health and environmental questions. We will selectively add new talent to allow us to continue to expand our capabilities and strengthen our offerings while managing our overall headcount growth to reduce the impact of a step-down in a few major assignments.

We will manage operating expenses to provide the foundation for a long-term growth in revenues and earnings. We will generate cash from operations, maintain a strong balance sheet, and undertake activities such as share repurchase to enhance shareholder value.

And finally we previously communicated that we would reconsider our dividend policy in 2013, assuming that there was some clarity in US tax regulations. This topic will be considered at our next Board meeting. While we have some challenges ahead this year, we continue to by excited about our future, and we believe that we are well positioned to deliver long-term organic growth.

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

Thank you. (Operator Instructions). Our first question comes from the line of Tim McHugh with William Blair & Company. Please go ahead.

Yes. Thanks, guys, for taking the question. I guess first I wanted to just ask for a little more color on the large engagements. We tend to talk about these collectively as one, but I know there are a couple of different engagements. It sounds as though you have seen each one of these step down? Is that fair, or was the step-down particularly significant in one area than the other? Just trying to get some more color on that?

Thanks, Tim. We consider they are really -- excluding Technology Development, there are really three assignments that we are talking about here. And what happened is that in all of those assignments there have been significant settlements.

Now, having said that, none of these are gone. They are all continuing, and they are continuing at different levels. One of the projects still has a very major piece continuing. Other projects have splintered a bit more.

In other words, there are some -- there are a lot of offshoots or different new assignments that are coming as a result of the interactions on that assignment. So I can't put them all in the same boat, but certainly collectively we see this step-down.

Is there any risk of further step-down, or have you probably seen the biggest impact now from the anticipated step-down in these at some point?

Yes. I mean, I think what we have talked about in the past was that the reason that we wanted our shareholders to be aware of these was because their size was sort of the 4% to 5% of revenues annually, as opposed to what we consider to be our normal large projects. Every year we have projects in the 2%, 3%.

So as these step down from that larger major assignment into what I will call normal large projects -- still normal large projects come and go, but normal large projects usually get replaced by other large projects. And so certainly these assignments, while they are not the major assignments we talked about before collectively, they are still large projects.

What type of -- maybe Rich, what type of headwinds have you built in I guess as we think about flat the revenue guidance for the year? I'm assuming it is the underlying business growing at a higher rate offset by a certain basis point impact from those projects.

Yes, look we viewed that not only the large assignments have stepped down, but we also believe that basically the product sales that we had of about $3 million -- a little over $3 million last year is also basically going away. We will maybe have $500,000 of that left. In addition to that, we had a large US GPR development program going on. Dueto decisions to not reopen up that for a longer term a bigger program by the Department of Defense, then we view that work is stepping down as well.

So we -- all of those things included are what we have built into the fact that as to why we believe that revenues will be flat. We did, as I indicated in there, believe that we saw a slower start to the first quarter. It -- part of that is due to when the New Year's day holiday was, and we definitely had more vacation in January than we normally have. But it was also just things seemed to be starting off a little slower.

Part of it is that probably these major projects and some other things. But that is going to leave us with, as I mentioned before, a negative 2% to 3% in revenues in the quarter. And as such look, look, I think that the core underlying business is still growing, probably in the high single digit range. We -- I think we have spent a lot of time looking at this, and we feel very positive about the future.

Unfortunately, we got this high hurdle to overcome. The business on the proactive side continued to be positive and good and more diverse and growing, and we continue to get hired on the large assignments at issues that come up. And we continue to be able to recruit good people. So I don't think we have any reason to believe that we are not going to be able to grow the business in the high single to low double digit growth rate out as we look out over the next several years and into the future, that that all still is here.

Unfortunately, we have got to go through this adjustment period and move along. But I don't think that reflects at all on what -- how we feel about the underlying business over multiple years.

Okay. And just to be clear, your comment about Q1, it is not just the projects ending and it's taking time to redeploy, but I guess you're also saying just January -- for are whatever reason we haven't figured out yet -- started a little slower in the core business.

Yes, I would -- I think that is absolutely what we are saying there.

Okay. And as we -- just last question, as you think about the margins for are this year. I think in the past you kind of roughly said each drop in utilization of 1 percentage point might be like 70 basis points to margin. Is it -- is that a simplistic way of looking at the margins, the 400 point drop in utilization equating to kind of the margin guidance you gave?

So the guidance for the full year, thinking about dropping from this past year being -- for the full year being 73% to approximately 69% range, I think your estimate -- your ratio there is relatively right. It is somewhere between 60 and 70 basis points per utilization point, and then you have a little bit of additional drop in the margin there. If you are on the low end of that, it is 60 per point.

Then you also have about probably 20 or 25 basis points per $1 million you are dropping in the product sales as well there. So those are how those play in together to get you in 250 to 300 basis points down for the year.

Okay. Thank you.

Thank you. Our next question comes from the line of Joseph Foresi with Janney Montgomery Scott. Please go ahead.

Hi. My first question here is just on the government work in the large projects. Is it safe to say -- how would you characterize this year's guidance? Is that pencils down in the large projects, or are just a reversion to a lower revenue run rate? And then I will ask about the government, same question. ButI'm wondering has -- have they just moderated and you are expecting them til continue to the end of the year, or just completely taken them out of your numbers?

We definitely have not continued -- we definitely have not taken them out of our numbers. Those major assignments are still large projects, and we anticipate revenues from those large projects over the course of the year. So we have not -- they've just moved from this -- what we call the major assignment category to a large project assignment. So let me just characterize that, and Rich will address the question on the government.

Yes, I think the same actually plays out on the government side. We view that we will continue to support the Rapid Equipping force throughout the year. We don't have all that funding in place, but we view that due to the fact that is tied in to combat readiness and support that we will be able to continue with that work.

We also believe that we do -- where we do have contract and funding in place with the UK that we will continue to is support them throughout the year. This past year was a little higher in that area because they did some uplifts to their systems. We may not see all of that.

And we actually expect that we will get additional work. It is just not going to be necessarily at the level that we were running at this past year.

Got it. Okay. So basically I mean the way we should think about it is that the two -- the large projects have moderated into large projects that are actually manageable, and the government work is reduced as well, but there is some potential for work going forward. So just basically a moderation, and that is kind of making its way through the numbers as far as guidance is concerned, is that right?

That's correct. Yes, that is --

Okay.

And the difference is I think in the past we have been looking out forward for that step-down to occur, and I think as Paul indicated in his comments, due to some of the settlements that have occurred and things we -- or that we have seen that happen, we are experiencing it clearly here in the first quarter.

You talked about I think -- Rich, you cited this -- that the business is running high single digits, low double digits. Organically I guess is the best way to kind of put it for lack of a better term. Is that when you strip out the lumpiness for the large projects and the lumpiness for government work? How'd you measure that?

Yes, I think that's exactly right. I see that we are probably -- in this economic environment I think we viewed that to be probably in the high single digits than in the low double digits. So I would say over the last few years that's where we have been running organically is more in that range. And then when you take into effect these other hurdles, that is why it has been brought down to a flat year.

Got it. Okay. And then just two more quick ones. From a comp or a comparative perspective, when do we start to see the large projects and the government work being comped? Do we have to go a full four quarters, or did it start to tail off third quarter, heading into the fourth quarter?

No, we continue to -- those projects continued to be strong into the fourth quarter this past year, so [again] we had strong product sales in the fourth quarter, and so I think we -- you are going to see that lapping out through the -- throughout the year.

Okay. And then the last one me, this 250 to 300 basis point decline over the year, is that -- maybe you could just break that out? I think you kind of answered it before, but can you just give me some idea what part of that is utilization, what part of that is -- I think the product sales are a higher margined? Maybe you could just give us some sort of breakdown on that.

What I had indicated before is that you are looking at something like 60 basis points per UT point drop. That is sort of how the model works, and that it is probably -- call it 20 basis point per $1 million drop in net revenues from product sales that we had going through there. Again, the gross is at our normal margins, but because of the net, that is where it is. So if we look at having that, that's how it plays through.

Got it. So the utilization goes down from 69% to 61%, is that correct? And then the rest is --

The utilization -- yes, the utilization is going from 73% to 69%for the year.

Okay, and the remainder is made up by the government stuff.

Yes.

Okay. Thank you.

Thank you. Our next question comes from the line of Tobey Sommer with SunTrust. Please go ahead.

Thanks. Question for you about the kind of sequential or quarterly progression of margins that you have. If I square your quarterly comment about where EBITDA margins start and where we end up for the full year, is there any peculiarity into the progression of margins throughout the year, or is it a function of the normal seasonal patterns that you have with your are expenses and general taxes, 401(k), et cetera?

So I think that clearly the first quarter is significantly impacted by the accelerated expensing that has happened each of the last few years, but accelerating expensing of the stock grants that go out, so that has had an impact in the past and will. Other than that, if you look across, we -- that at this time all we can expect is a more normal seasonal trend in how the business goes, and that is that we tend to find the first quarter -- the second quarter to be similar to the first quarter.

Maybe because we got a little bit of a slow start, it will be a little that flat or a little bit up. The summer steps back, usually the utilization steps back a point or so. And then as we get into the fourth quarter we have the step-down that clearly we even saw this year. We averaged 69% in the fourth quarter but 73% for the year. So you clearly have the impact there, but itis normal seasonal trending that we would expect.

Okay. I will think we he talked about that enough for my purposes on that. Just stepping back here, from a competitive position anything changed, or for these large projects for a customer to seek out an alternative to Exponent, are they likely to have to put together a synthetic team of alternatives, like a team of vendor suppliers to come close to replicating that you can provide at a one-stop shop?

Yes, we don't think there is any change in our leading market position here. It is not like anything that has happened here is because a client has moved work from us to somebody else or something like that. We don't believe that any of those changes are in place. It is clearly one of your strong selling points that we have a very broad range of top talent under one roof that can help clients in these complex situations, and that clearly is part of our -- clearly a differentiator for our services, and we he continue to see that.

From a hiring standpoint -- if you gave this I forgot or didn't catch it -- could you tell us what your plans are this year? Because I know you managed the business for more than a couple of quarters or even a year.

Yes, so we absolutely intend to continue to recruit top talent. We believe a firm like ours needs to continue to do that. We -- as we have described before, we are not a kind of a firm that hires and fires for particular projects. We hire top talent for the long-term.

But we he also counsel our staff, and we track people's performance, and if people are growing and performing well, that is great. But there are times when people probably don't have a longer term future here, and we act to over time counsel those people into different careers. So clearly in these kinds of situations we make sure that we are balancing those two appropriately. An as such, this year, while we expect to clearly go out and bring new talent in, I think guidance that Rich has given you is that we expect our sequential headcount to remain relatively flat.

Okay. And then my last question is there any implication for hiring and the availability of talent to the firm from an element of debated immigration legislation that would increase available visas for highly educated individuals?

Yes, it really only has potentially a very small effect at the margins. And the reason I say that is because certainly in the past and even today we do recruit people that need to get H1B visas, and we have run into the past occasionally where somebody has not been able to get a visa.

But the reality is that is not our main focus of recruiting, and the reason for that is that in the high end consulting that we do it is important for our people to be able to communicate well with clients, to be able to meet with regulators, testify in litigation matters and so forth. And in those situations there is a premium on communication skills, and that tends to balance more in favor of at least native English speakers.

It doesn't mean we don't hire other people occasionally, but there is certainly a focus toward that direction. So we don't think that is going have a significant impact on us one way or another.

Thank you very much.

Thank you. (Operator Instructions). Our next question comes from the line of David Gould with Sidoti. Please go ahead.

Hey, good afternoon.

Hey, David.

So hate to belabor the point, but just want to be sure that I'm clear on it. So, Rich, it sounded like your expectation on utilization -- well, not it sounded like, your expectation is similar to a typical year. So is that to basically say -- let me go back a little bit, I think at one point we spoke about the projects [being] -- call it two years ago -- about 10% of revenue, then maybe last year -- 2012 -- down to 8%, 9%, and the expectation was that they would maybe halve. Is that to say that all of the big tail off basically happened at the end of the fourth quarter, into the first quarter?

First of all, yes, it did occur. A lot of things settled or changed with clients at that point in time. When -- just for clarity purposes these were projects -- three engagements that were all running in the 4% to 5% range. So these are things that were going to be more like 13% to 14% of the revenues if you look across those engagements. So when we are talking about the step-down, that is what we are stepping down from.

But the answer is, yes, when we look at the level of activity that we had even during the fourth quarter, they remain to be strong. It just occurs that several parts of the these -- if it was a litigation case that settled, the major part of it, or if it was in something that has been bifurcated into multiple issues, a few of those issues have settled. Hearings in front of regulators have been completed on others. So there's been a number of things that have been going on. Most it has been -- some of it has been reported in the news -- most or all of it has been, so I don't think that those things are any new news to anybody.

Right. Okay. Fair. What I'm trying to get a sense for or getting at is, if we took -- [at] another 13%, 14% down to -- call it 5% to 7%, did it all just work out that as we come into the year that basically happened, or should we expect basically the rest of that run-through over the span of the next 12 months?

Yes, I think I will try to hit that, because I think Paul was mentioning before. Look, we have seen a step-down in these. It happened to be that they aligned up together instead of staggering over time like you would think a normal portfolio would do, but we saw more of that at once than we would have maybe expected.

We do expect that each of these assignments will continue probably throughout the year at a lower level. There are still, as we have described, large assignments in our firm, but more -- probably more in a normal range or getting there.

Eventually -- as we have described we expect things like this to have tails that can last a few years. And we will see what happens from there. But we would hope that this can -- other large assignments can step in as these begin to tail off in the future.

Sure. Sure. Got you. Okay. That's helpful. And then one other question. Presumably as things roll off, obviously you guys have looked to rationalize the headcount by doing less hiring. But can you speak a little bit to the fungibility there of the folks who have been working on the projects? I mean, is it about basically replacing the worker, or is there the potential if things don't step back up you may actually need to do a little bit by way of reduction?

Yes, I mean, I think it is more are -- I would describe it as more that those consultants in our firm who do really good work usually find ways to get onto other projects and move forward, and there is new work always coming in. I mean, Rich talked about how we did 7,000 projects last year. So I expect that the vast majority of people coming off of those projects will find their way onto new projects and things will work fine for them.

It is really more those, whether they were working on these projects or working on other projects, who have just not progressed, are being more at the margin and are more are difficult to keep busy that maybe aren't suited for a long-term career here. And those are the individuals that we tend to counsel as we go through these kinds of processes.

So I don't see that the way we handle our staffing here is really different from -- for example go back to 2009, which was obviously a very he different issue then. The economy was bad and so forth, but we had to work our way through that year as well from the standpoint of handling staffing issues, and so we expect we can handle that.

I think in 2009 we probably recruited 70 or 80 new staff in, but we had flat to slightly down headcount through the year.

Yes.

So I don't think any of that was really sort of -- some major are process in one day. It is just a matter of continuing to run a good consulting organization where you hire people in, and they -- you are hoping they develop up through the principal path. And sometimes they decide that academia is better for them, or research organization is better for them, or other things of that type, and those things work themselves out.

Perfect. That's helpful. Thank you both.

Okay.

Operator?

Ladies and gentlemen, this concludes the Exponent fourth quarter fiscal 2012 earnings conference call. This conference will be available for replay. You may access the replay system at any time by dialing 1-800-406-7325 or 303-590-3030 and entering the access code of 4588503. We thank you for your participation. You may now disconnect.