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Exponent Inc.$57.31($.33)(.57%)

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 Exponent Reports Fourth Quarter and Fiscal Year 2017 Financial Results
   Thursday, February 01, 2018 4:05:29 PM ET

Exponent, Inc. (EXPO ) today reported financial results for the fourth quarter and fiscal year ended December 29, 2017.

"We are pleased with our performance in the fourth quarter and full year 2017 as we delivered strong financial results, executed on our strategy and positioned the company for long-term success. We delivered double-digit growth and expanded our margins. We extended our exceptionally strong reputation for reactive services in the United States to Asia and Europe. We expanded our capabilities in strategic growth areas, such as human factors and vehicle automation. We announced in December our CEO succession plan, to promote Dr. Catherine Corrigan, President in May 2018 to the role of CEO and President. To assist in the transition, I will continue in an executive role on a half-time basis for twelve months and it is expected that I will remain on the board and be appointed Chairman," commented Dr. Paul Johnston, Chief Executive Officer.

"The strong demand for our services has allowed us to grow our consulting staff by 7% during 2017 while improving our annual utilization to 75%. The large human factors project, which we have previously discussed, continued to leverage staff across our office network and business segments. We are excited about the growing demand to better understand the interactions between products and their users. Complex technologies are part of almost every task people perform, from playing games to driving cars to performing surgeries, and our engineers and scientists are advancing our clients’ understanding of how their products will perform and what the user experience will be. Another significant growth area for us in 2017 was leveraging our diverse expertise in construction disputes related to large capital projects as our construction consultants formed multi-disciplinary teams to address the complex inter-dependencies of infrastructure projects," continued Dr. Johnston.

Fourth Quarter Financial Results

Total revenues in the fourth quarter of 2017 grew 15% to $88,282,000 as compared to $77,013,000 in the same period one year ago. Revenues before reimbursements increased 14% to $82,718,000 as compared to $72,753,000 in the fourth quarter of 2016.

For the fourth quarter, including the impact of the new Tax Legislation, the net loss was $3,705,000 or $0.14 per diluted share. During the fourth quarter of 2017, the Company recorded a one-time income tax expense of $16,507,000 related to the new Tax Legislation. Excluding this expense net income for the fourth quarter was $12,802,000 or $0.47 per diluted share, an increase of 23% as compared to $10,388,000 or $0.39 per diluted share in the same period of 2016. EBITDA increased by 20% to $21,822,000 as compared to $18,219,000 in the same period one year ago.

Fiscal Year 2017 Financial Results

Total revenues and revenues before reimbursements for fiscal year 2017 grew 10% year over year. For 2017, total revenues were $347,799,000 as compared to $315,076,000 in the prior year and revenues before reimbursements were $329,664,000 as compared to $299,197,000 in 2016.

For fiscal year 2017, including the impact of the new Tax Legislation, net income was $41,305,000, or $1.53 per diluted share. Excluding the income tax expense for the new Tax Legislation, net income for fiscal year 2017 was $57,812,000 or $2.14 per diluted share, an increase of 22% as compared to $47,480,000, or $1.75 per diluted share, in the prior year. In 2016, Exponent adopted a new accounting standardfor the classification of tax adjustments associated with share-based awards. The tax benefit realized for fiscal year 2017 was $6,518,000, or $0.24 per diluted share, as compared to $4,827,000 or $0.18 per diluted share in 2016.

EBITDA in fiscal year 2017 increased 17% to $87,500,000 as compared to $74,570,000 in the prior year.

For fiscal year 2017, net cash generated from operating activities was $67.8 million. During the year, Exponent paid $21.8 million in dividends, repurchased $11.9 million of common stock and ended the year with $196 million in cash, cash equivalents and short-term investments.

In a separate press release today, Exponent announced an increase in its quarterly cash dividend from $0.21 to $0.26 to be distributed on March 23, 2018 and reiterated its intent to continue to pay quarterly dividends.

Business Overview

Exponent’s engineering and other scientific segment represented approximately 79% of the Company’s fourth quarter and 2017 net revenues. Net revenues in this segment grew 14% in the fourth quarter and 12% in fiscal year 2017, as compared to 2016. During the year, this segment had noteworthy performances in its human factors, construction consulting, polymer science, and mechanical engineering practices. Reactive services continued to grow as the Company’s engineers and scientists were engaged to address construction disputes, medical device litigations, and consumer product and automobile recalls. Proactive services expanded significantly, as the Company performed human factors assessments for consumer products and design consulting for consumer electronics and vehicles. This segment grew its consulting staff by 8% during 2017.

Exponent’s environmental and health segment represented approximately 21% of the Company’s fourth quarter and 2017 net revenues. Net revenues in this segment grew 13% in the fourth quarter and 5% for fiscal year 2017, as compared to 2016. During the year, the chemical regulation and food safety practice grew its proactive services to meet demand, as society remains concerned about chemicals affecting the global ecosystem and human health. Consultants from this segment also continued to support the large human factors project. Our environmental and health scientists provided reactive services performing human health and environmental assessments. This segment grew its consulting staff by 3% during 2017.

Business Outlook

"Our outlook for fiscal 2018 reflects positive momentum in a number of industry sectors, as well as our expectations for the ongoing human factors assessment project to continue, but at a lower level than 2017. As a result, we expect full year 2018 revenues before reimbursements to grow in the mid-single digits and EBITDAmargin to decline by approximately 100 to 150 basis points, as compared to 2017. The new Tax Legislation lowers Exponent’s consolidated income tax rate to approximately 22% to 23% for 2018, after including the estimated tax adjustments associated with share-based awards. This tax rate range is ten percentage points lower than it would have been in 2018," commented Richard Schlenker, Executive Vice President and Chief Financial Officer.

"Exponent’s 2017 results demonstrate our ability to grow our business through strategic market expansion and we are well-positioned to capitalize on changing market demands, both in reactive and proactive services. The talent we have been adding in key growth areas is positioning us for long-term success. Demonstrating further confidence in our capital position and our commitment to deliver shareholder value, we just announced a 24% increase in our quarterly dividend payment," concluded Dr. Johnston.

Today’s Conference Call Information

Exponent will discuss its financial results in more detail on a conference call today, Thursday, February 1, 2018, starting at 4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time. The audio of the conference call is available by dialing (888) 539-3696 or (719) 457-2639. A live webcast of the call will be available on the Investor Relations section of the Company’s website at www.exponent.com/investors. For those unable to listen to the live webcast, a replay of the call will also be available on the Exponent website, or by dialing (888) 203­1112 or (719) 457-0820, and entering passcode 5789600#.

Footnotes

The Tax Cuts and Jobs Act (Tax Legislation) was enacted on December 22, 2017 and lowers U.S. corporate income tax rates as of January 1, 2018, implements a territorial tax system and imposes a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The estimated impact of Tax Legislation to the Company was an increase in income tax expense of $16,507,000 in the fourth quarter of 2017.The Company has significant domestic deferred tax assets primarily associated with its deferred compensation plan and stock-based compensation program, which were previously valued at the federal corporate tax rate of 35%. The Company’s deferred tax assets were re-measured at the lower enacted corporate tax rate of 21% which contributed $15,137,000 to the estimated increase in income tax expense associated with the Tax Legislation. The Company also has foreign earnings that were subject to the mandatory repatriation tax. The total mandatory repatriation tax, net of the benefit of the Company’s foreign tax credits, contributed $1,370,000 to the estimated increase in income tax expense associated with the Tax Legislation. Management believes that presenting the Company’s results excluding Tax Legislation is meaningful as excluding this item increases the comparability of period-to-period results. Net income and diluted earnings per share excluding the impact of Tax Legislation are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. A reconciliation of the measures to GAAP is set forth below.

EBITDA is a non-­GAAP financial measure defined by the Company as net income before income taxes, interest income, depreciation and amortization. EBITDAS is a non-­GAAP financial measure defined by the Company as EBITDA before stock-­based compensation. The Company regards EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. Generally, a non­-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. These measures, however, should be considered in addition to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the measures to GAAP is set forth below.

FASB Accounting Standard Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting, March 30, 2016.

About Exponent

Exponent is an engineering and scientific consulting firm providing solutions to complex problems. Exponent’s interdisciplinary organization of scientists, physicians, engineers, and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today. The firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes, ensure the safety and health of their users, and address the challenges of sustainability.

Exponent may be reached at (888) 656-EXPO, info@exponent.com, or www.exponent.com.

This news release contains, and incorporates by reference, certain "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995, and the rules promulgated pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended) that are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. When used in this document and in the documents incorporated herein by reference, the words "intend," "anticipate," "believe," "estimate," "expect" and similar expressions, as they relate to the Company or its management, identify such forward-­looking statements. Such statements reflect the current views of the Company or its management with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company’s actual results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, the absence of backlog related to our business, our ability to attract and retain key employees, the effect of tort reform and government regulation on our business, and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our Annual Report on Form 10­K under the heading "Risk Factors" and elsewhere in the report. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans, or expectations contemplated by the Company will be achieved. The Company undertakes no obligation to release publicly any updates or revisions to any such forward-looking statements.

EXPONENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters Ended December 29, 2017 and December 30, 2016
(unaudited)
(in thousands, except per share data)
                                                 Quarters Ended                   Years Ended
                                                 December 29,      December 30,   December 29,    December 30,
                                                 2017              2016           2017            2016
Revenues
       Revenues before reimbursements            $    82,718       $      72,753  $      329,664  $      299,197
       Reimbursements                                 5,564               4,260          18,135          15,879
               Revenues                               88,282              77,013         347,799         315,076
Operating expenses
       Compensation and related expenses              52,842              46,543         210,289         193,397
       Other operating expenses                       7,578               7,176          29,544          28,397
       Reimbursable expenses                          5,564               4,260          18,135          15,879
       General and administrative expenses            4,503               4,085          17,780          15,492
                                                      70,487              62,064         275,748         253,165
               Operating income                       17,795              14,949         72,051          61,911
Other income, net
       Interest income, net                           422                 194            1,294           683
       Miscellaneous income, net                      2,504               1,648          9,164           6,528
                                                      2,926               1,842          10,458          7,211
               Income before income taxes             20,721              16,791         82,509          69,122
Income taxes                                          24,426              6,403          41,204          21,642
               Net income (loss)                 $    (3,705 )     $      10,388  $      41,305   $      47,480
Net income per share:
       Basic                                     $    (0.14  )     $      0.40    $      1.57     $      1.79
       Diluted                                   $    (0.14  )     $      0.39    $      1.53     $      1.75
Shares used in per share computations:
       Basic                                          26,363              26,262         26,362          26,488
       Diluted                                        26,363              26,955         26,986          27,166
EXPONENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, 2017 and December 30, 2016
(unaudited)
(in thousands)
                                                                     December 29,        December 30,
                                                                     2017                2016
                             Assets
Current assets:
         Cash and cash equivalents                                   $    124,794        $    114,967
         Short-term investments                                           71,604              58,755
         Accounts receivable, net                                         110,100             87,409
         Prepaid expenses and other assets                                9,011               12,913
                   Total current assets                                   315,509             274,044
Property, equipment and leasehold improvements, net                       35,014              36,710
Goodwill                                                                  8,607               8,607
Other assets                                                              80,459              84,383
                                                                     $    439,589        $    403,744
                             Liabilities and Stockholders’ Equity
Current liabilities:
         Accounts payable and accrued liabilities                    $    14,741         $    10,073
         Accrued payroll and employee benefits                            70,064              62,539
         Deferred revenues                                                8,302               7,624
                   Total current liabilities                              93,107              80,236
Other liabilities                                                         56,102              48,508
Deferred rent                                                             1,292               1,654
                   Total liabilities                                      150,501             130,398
Stockholders’ equity:
         Common stock                                                     33                  33
         Additional paid-in capital                                       210,263             194,632
         Accumulated other comprehensive (loss) income                    (2,029   )          (3,126   )
         Retained earnings                                                303,990             291,243
         Treasury stock, at cost                                          (223,169 )          (209,436 )
                             Total stockholders’ equity                   289,088             273,346
                                                                     $    439,589        $    403,744
EXPONENT, INC.
Tax Legislation (1)
For the Quarter and Year Ended December 29, 2017
(unaudited)
(in thousands)
                                                                                                                                                                                                                                                                                                                                           Quarter Ended           Year Ended
                                                                                                                                                                                                                                                                                                                                           December 29,            December 29,
                                                                                                                                                                                                                                                                                                                                           2017                    2017
Net Income (loss)                                                                                                                                                                                                                                           $             (3,705 )  $            41,305
                                                                                                            Impact of Tax Legislation                                                                                                                                                                                                                    16,507                 16,507
                                                                                                                                                                                                                        Net Income excluding the impact of Tax Legislation (1)                                                             $             12,802    $            57,812
                                                                                                            Divided by average diluted shares used in the calculation of diluted earnings (excluding the impact of Tax Legislation) per share                                                                                                            27,001                 26,986
                                                                                                                                                                                                                        Diluted earnings per share excluding the impact of Tax Legislation (1)                                             $             0.47      $            2.14
Diluted shares used in the calculation of diluted earnings per share                                                                                                                                                                                                                                                         26,363                 26,986
                                                                                                            Impact of Tax Legislation                                                                                                                                                                                                                    638                    -
                                                                                                                                                                                                                        Diluted shares used in the calculation of diluted earnings per share excluding the impact of Tax Legislation (1)                 27,001                 26,986
(1) The Tax Cuts and Jobs Act (Tax Legislation) was enacted on December 22, 2017 and lowers U.S. corporate income tax rates as of January 1, 2018, implements a territorial tax system and imposes a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The estimated impact of Tax Legislation to the Company was an increase in income tax expense of $16,507,000 in the fourth quarter of 2017.The Company has significant domestic deferred tax assets primarily associated with its deferred compensation plan and stock-based compensation program, which were previously valued at the federal corporate tax rate of 35%.  The Company’s deferred tax assets were re-measured at the lower enacted corporate tax rate of 21% which contributed $15,137,000 to the estimated increase in income tax expense associated with the Tax Legislation.  The Company also has foreign earnings that were subject to the mandatory repatriation tax.  The total mandatory repatriation tax, net of the benefit of the Company’s foreign tax credits, contributed $1,370,000 to the estimated increase in income tax expense associated with the Tax Legislation.  Management believes that presenting the Company’s results excluding Tax Legislation is meaningful as excluding this item increases the comparability of period-to-period results.  Net income and diluted earnings per share excluding the impact of Tax Legislation are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies.
EXPONENT, INC.
EBITDA and EBITDAS (2)
For the Quarters Ended December 29, 2017 and December 30, 2016
(unaudited)
(in thousands)
                                                                                                                                                          Quarters Ended                                                                                                          Years Ended
                                                                                                                                                          December 29,                                                December 30,                                                December 29,                                                 December 30,
                                                                                                                                                          2017                                                        2016                                                        2017                                                         2016
Net Income (loss)                                                                                                                                         $                                                 (3,705 )  $                                                 10,388    $                                                 41,305     $                                                 47,480
Add back (subtract):
                                                  Income taxes                                                                                                                                              24,426                                                      6,403                                                       41,204                                                       21,642
                                                  Interest income, net                                                                                                                                      (422   )                                                    (194   )                                                    (1,294  )                                                    (683   )
                                                  Depreciation and amortization                                                                                                                             1,523                                                       1,622                                                       6,285                                                        6,131
                                                                                                    EBITDA (2)                                                                                              21,822                                                      18,219                                                      87,500                                                       74,570
                                                  Stock-based compensation                                                                                                                                  3,427                                                       2,674                                                       16,155                                                       13,333
                                                                                                    EBITDAS (2)                                           $                                                 25,249    $                                                 20,893    $                                                 103,655    $                                                 87,903
(2) EBITDA is a non-GAAP financial measure defined by the Company as net income before income taxes, interest income, depreciation and amortization.  EBITDAS is a non-GAAP financial measure defined by the Company as EBITDA before stock-based compensation.  The Company regards EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures.  Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results.  Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  These measures, however, should be considered in addition to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.

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