EXPONENT INC [EXPO] Filings

10-Q 1 expo-10q_20220401.htm 10-Q expo-10q_20220401.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to___________

Commission File Number 0-18655

EXPONENT, INC.

(Exact name of registrant as specified in its charter)

delaware		77-0218904
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

149 COMMONWEALTH DRIVE, MENLO PARK, California		94025
(Address of principal executive office)		(Zip Code)

(650) 326-9400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒		Accelerated filer	☐		Non-accelerated filer	☐		Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $0.001 per share		EXPO		Nasdaq Global Select Market

As of April 29, 2022, the latest practicable date, the registrant had 51,821,607 shares of common stock outstanding.

EXPONENT, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION		3

Item 1.	Financial Statements (unaudited):	3

	Condensed Consolidated Balance Sheets as of April 1, 2021 and December 31, 2021	3

	Condensed Consolidated Statements of Income for the Three Months Ended April 1, 2022 and April 2, 2021	4

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended April 1, 2022 and April 2, 2021	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended April 1, 2022 and April 2, 2021	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2022 and April 2, 2021	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II – OTHER INFORMATION		27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

	Signatures	29

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

EXPONENT, INC.

Condensed Consolidated Balance Sheets

April 1, 2022 and December 31, 2021

(in thousands, except par value)

(unaudited)

	April 1, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	215,050		$	297,687
Accounts receivable, net of allowance for contract losses and doubtful accounts of $4,899 and $4,423 at April 1, 2022 and December 31, 2021, respectively		147,508			139,861
Prepaid expenses and other current assets		14,133			15,214
Total current assets		376,691			452,762

Property, equipment and leasehold improvements, net		61,077			59,971
Operating lease right-of-use assets		16,898			14,370
Goodwill		8,607			8,607
Deferred income taxes		46,501			46,546
Deferred compensation plan assets		106,255			99,962
Other assets		1,519			1,521
Total assets	$	617,548		$	683,739

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	30,840		$	24,504
Accrued payroll and employee benefits		57,291			103,552
Deferred revenues		15,669			19,762
Operating lease liabilities		5,310			5,164
Total current liabilities		109,110			152,982

Other liabilities		2,659			2,886
Deferred compensation plan liabilities		107,561			100,999
Operating lease liabilities		11,654			9,807
Total liabilities		230,984			266,674
Stockholders’ equity:
Common stock, $0.001 par value; 120,000 shares authorized; 65,707 shares issued at April 1, 2021 and December 31, 2021		66			66
Additional paid-in capital		293,889			281,419
Accumulated other comprehensive loss
Foreign currency translation adjustments		(2,293	)		(1,983	)
Retained earnings		493,387			478,370
Treasury stock, at cost; 13,885 and 13,591 shares held at April 1, 2021 and December 31, 2021, respectively		(398,485	)		(340,807	)
Total stockholders’ equity		386,564			417,065
Total liabilities and stockholders’ equity	$	617,548		$	683,739

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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EXPONENT, INC.

Condensed Consolidated Statements of Income

For the Three Months Ended April 1, 2022 and April 2, 2021

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	April 1, 2022			April 2, 2021
Revenues:
Revenues before reimbursements	$	117,870		$	109,579
Reimbursements		10,608			6,902
Revenues		128,478			116,481
Operating expenses:
Compensation and related expenses		68,757			74,538
Other operating expenses		8,165			7,710
Reimbursable expenses		10,608			6,902
General and administrative expenses		4,231			3,273
Total operating expenses		91,761			92,423
Operating income		36,717			24,058
Other income, net:
Interest income, net		21			29
Miscellaneous income (loss), net		(3,931	)		6,039
Total other income (loss), net		(3,910	)		6,068
Income before income taxes		32,807			30,126
Income taxes		3,198			(722	)
Net income	$	29,609		$	30,848
Net income per share:
Basic	$	0.56		$	0.59
Diluted	$	0.56		$	0.58
Shares used in per share computations:
Basic		52,419			52,536
Diluted		53,039			53,333
Cash dividends declared per common share	$	0.24		$	0.20

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements

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EXPONENT, INC.

Condensed Consolidated Statements of Comprehensive Income

For the Three Months Ended April 1, 2022 and April 2, 2021

(in thousands)

(unaudited)

	Three Months Ended
	April 1, 2022			April 2, 2021
Net income	$	29,609		$	30,848
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		(310	)		243
Unrealized gains on available-for-sale investment securities arising during the period, net of tax		-			(4	)
Comprehensive income	$	29,299		$	31,087

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements

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EXPONENT, INC

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

	Three Months Ended April 1, 2022
	Common Stock				Additional paid-in			Accumulated other comprehensive			Retained			Treasury Stock
	Shares		Amount		capital			loss			earnings			Shares			Amount			Total
Balance at December 31, 2021		65,707	$	66	$	281,419		$	(1,983	)	$	478,370			13,591		$	(340,807	)	$	417,065
Employee stock purchase plan		-		-		511			-			-			(6	)		53			564
Amortization of unrecognized stock-based compensation		-		-		4,094			-			-			-			-			4,094
Purchase of treasury stock		-		-		-			-			-			553			(48,554	)		(48,554	)
Foreign currency translation adjustments		-		-		-			(310	)		-			-			-			(310	)
Grant of restricted stock units to settle accrued bonus		-		-		10,200			-			-			-			-			10,200
Settlement of restricted stock units		-		-		(2,335	)		-			(1,392	)		(253	)		(9,177	)		(12,904	)
Dividends and dividend equivalent rights		-		-		-			-			(13,200	)		-			-			(13,200	)
Net income		-		-		-			-			29,609			-			-			29,609
Balance at April 1, 2022		65,707	$	66	$	293,889		$	(2,293	)	$	493,387			13,885		$	(398,485	)	$	386,564

	Three Months Ended April 2, 2021
	Common Stock				Additional paid-in			Accumulated other comprehensive			Retained			Treasury Stock
(In thousands)	Shares		Amount		capital			income (loss)			earnings			Shares			Amount			Total
Balance at January 1, 2021		65,707	$	66	$	265,328		$	(1,932	)	$	421,809			13,903		$	(323,773	)	$	361,498
Employee stock purchase plan		-		-		485			-			-			(6	)		58			543
Amortization of unrecognized stock-based compensation		-		-		3,738			-			-			-			-			3,738
Foreign currency translation adjustments		-		-		-			243			-			-			-			243
Grant of restricted stock units to settle accrued bonus		-		-		7,637			-			-			-			-			7,637
Settlement of restricted stock units		-		-		(3,176	)		-			(1,679	)		(313	)		(10,779	)		(15,634	)
Unrealized gain on investments		-		-		-			(4	)		-			-			-			(4	)
Dividends and dividend equivalent rights		-		-		-			-			(11,261	)		-			-			(11,261	)
Net income		-		-		-			-			30,848			-			-			30,848
Balance at April 2, 2021		65,707	$	66	$	274,012		$	(1,693	)	$	439,717			13,584		$	(334,494	)	$	377,608

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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EXPONENT, INC.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended April 1, 2022 and April 2, 2021

(in thousands)

(unaudited)

	Three Months Ended
	April 1, 2022			April 2, 2021
Cash flows from operating activities:
Net income	$	29,609		$	30,848
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property, equipment and leasehold improvements		1,689			1,656
Amortization of premiums and accretion of discounts on short-term investments		-			(7	)
Provision for contract losses and doubtful accounts		686			645
Stock-based compensation		6,870			6,282
Deferred income tax provision		45			1,226
Changes in operating assets and liabilities:
Accounts receivable		(8,333	)		(13,291	)
Prepaid expenses and other current assets		(9,948	)		(8,142	)
Change in operating leases		(535	)		(627	)
Accounts payable and accrued liabilities		5,234			3,451
Accrued payroll and employee benefits		(27,576	)		(17,862	)
Deferred revenues		(4,093	)		(2,894	)
Net cash provided by (used in) operating activities		(6,352	)		1,285
Cash flows from investing activities:
Capital expenditures		(2,606	)		(2,515	)
Purchase of short-term investments		-			(9,997	)
Maturity of short-term investments		-			25,000
Net cash provided by (used in) investing activities		(2,606	)		12,488
Cash flows from financing activities:
Payroll taxes for restricted stock units		(12,904	)		(15,634	)
Repurchase of common stock		(48,554	)		-
Exercise of stock-based payment awards		564			543
Dividends and dividend equivalents rights		(12,514	)		(11,935	)
Net cash used in financing activities		(73,408	)		(27,026	)
Effect of foreign currency exchange rates on cash and cash equivalents		(271	)		249
Net decrease in cash and cash equivalents		(82,637	)		(13,004	)
Cash and cash equivalents at beginning of period		297,687			197,525
Cash and cash equivalents at end of period	$	215,050		$	184,521

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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EXPONENT, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

Exponent, Inc. (referred to as the “Company” or “Exponent”) is an engineering and scientific consulting firm that provides solutions to complex problems. The Company operates on a 52-53 week fiscal year ending on the Friday closest to the last day of December.

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission. Accordingly, they do not contain all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments which are necessary for the fair presentation of the condensed consolidated financial statements have been included and all such adjustments are of a normal and recurring nature. The operating results for the three months ended April 1, 2022 are not necessarily representative of the results of future quarterly or annual periods. The following information should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the U.S. Securities and Exchange Commission on February 25, 2022.

The unaudited condensed consolidated financial statements include the accounts of Exponent, Inc. and its subsidiaries, which are all wholly owned. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Items subject to such estimates and assumptions include accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts. Actual results could differ from those estimates.

Note 2: Revenue Recognition

Substantially all of the Company’s engagements are performed under time and materials or fixed-price arrangements. For time and materials contracts, the Company utilizes the practical expedient under Accounting Standards Codification 606 – Revenue from Contracts with Customers, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided) then the entity may recognize revenue in the amount to which the entity has a right to invoice.

The following table discloses the percentage of the Company’s revenue generated from time and materials contracts:

	Three Months Ended
	April 1, 2022			April 2, 2021
Engineering & other scientific		62	%		61	%
Environmental and health		17	%		18	%
Total time and materials revenues		79	%		79	%

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For fixed-price contracts, the Company recognizes revenue over time because of the continuous transfer of control to the customer. The customer typically controls the work in process as evidenced either by contractual termination clauses or by the Company’s rights to payment for work performed to date to deliver services that do not have an alternative use to the Company. Revenue for fixed-price contracts is recognized based on the relationship of incurred labor hours at standard rates to the Company’s estimate of the total labor hours at standard rates it expects to incur over the term of the contract. The Company believes this methodology achieves a reliable measure of the revenue from the consulting services it provides to its customers under fixed-price contracts given the nature of the consulting services the Company provides.

The following table discloses the percentage of the Company’s revenue generated from fixed price contracts:

	Three Months Ended
	April 1, 2022			April 2, 2021
Engineering & other scientific		20	%		20	%
Environmental and health		1	%		1	%
Total fixed price revenues		21	%		21	%

Deferred revenues represent amounts billed to clients in advance of services provided. During the first quarter of 2022, $9,644,000 of revenues were recognized that were included in the deferred revenue balance at December 31, 2021. During the first quarter of 2021, $6,015,000 of revenues were recognized that were included in the deferred revenue balance at January 1, 2021.

Reimbursements, including those related to travel and other out-of-pocket expenses, and other similar third- party costs such as the cost of materials and certain subcontracts, are included in revenues, and an equivalent amount of reimbursable expenses are included in operating expenses. Any mark-up on reimbursable expenses is included in revenues before reimbursements. The Company reports revenues net of subcontractor fees for certain subcontracts where the Company has determined that it is acting as an agent because its performance obligation is to arrange for the provision of goods or services by another party. The total amount of subcontractor fees not included in revenues because the Company was acting as an agent were $3,660,000 and $3,644,000 during the first quarter of 2022 and 2021, respectively.

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Note 3: Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including money market securities, trading fixed income and equity securities held in its deferred compensation plan and the liability associated with its deferred compensation plan. There were no transfers between fair value measurement levels during the three months ended April 1, 2022 and April 2, 2021. Any transfers between fair value measurement levels would be recorded on the actual date of the event or change in circumstances that caused the transfer. The fair value of these certain financial assets and liabilities was determined using the following inputs at April 1, 2022 (in thousands):

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market securities ⁽¹⁾	$	51,582	$	51,582	$	-	$	-
Fixed income trading securities held in deferred compensation plan ⁽²⁾		32,910		32,910		-		-
Equity trading securities held in deferred compensation plan ⁽²⁾		82,043		82,043		-		-
Total	$	166,535	$	166,535