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    EXPO   US30214U1025

EXPONENT, INC.

(EXPO)
  Report
Delayed Nasdaq  -  04:00 2022-08-09 pm EDT
96.29 USD   -1.52%
08/05EXPONENT INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
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07/28TRANSCRIPT : Exponent, Inc., Q2 2022 Earnings Call, Jul 28, 2022
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07/28Exponent Q2 EPS, Revenue Higher; Issues Q3 Guidance; Declares Quarterly Dividend
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EXPONENT INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2022 | 05:01pm EDT

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2021, which are contained in our fiscal 2021 Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission on February 25, 2022 (our "2021 Annual Report").

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains 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 our management, as well as assumptions made by and information currently available to our management. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. When used in this document, the words "intend," "anticipate," "believe," "estimate," "expect" and similar expressions, as they relate to us or our management, identify such forward-looking statements. Such statements reflect the current views of us or our 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, our 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 COVID-19 pandemic (including factors relating to measures implemented by governmental authorities or by us to promote the safety of our employees, vendors and clients; other direct and indirect impacts on our business and the businesses of our clients, vendors and other partners; impacts which may, among other things, adversely affect our clients' ability to utilize our services at the levels they have previously; disruptions of access to our facilities or those of our clients or third parties; and increased and potentially significant economic uncertainty and volatility, including credit and collectability risks and potential disruptions of capital and credit markets), 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 this Quarterly Report under the heading "Risk Factors" and elsewhere in this report. The inclusion of such forward-looking information should not be regarded as a representation by the us or any other person that the future events, plans, or expectations we contemplated will be achieved. Due to such uncertainties and risks, you are warned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not intend to release publicly any updates or revisions to any such forward-looking statements.

Business Overview

Exponent, Inc., is an engineering and scientific consulting firm that provides solutions to complex problems. Our multidisciplinary team of scientists, engineers and business consultants brings together more than 90 different technical disciplines to solve complicated issues facing industry and business today. Our services include analysis of product development, product recall, regulatory compliance, and the discovery of potential problems related to products, people, property and impending litigation.

CRITICAL ACCOUNTING ESTIMATES

There have been no significant changes in our critical accounting estimates during the six months ended July 1, 2022, as compared to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Annual Report.


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RESULTS OF CONSOLIDATED OPERATIONS

Executive Summary

Revenues for the second quarter of 2022 increased 9% to $130,281,000 as compared to $119,877,000 during the same period last year. Revenues before reimbursements for the second quarter of 2022 increased 5% to $118,218,000 as compared to $112,468,000 during the same period last year.

During the second quarter of 2022, growth continued across several industries, with work in the consumer products, chemicals, automotive and life sciences sectors driving a number of engagements. On the proactive side, our asset integrity and risk assessments with utilities and energy storage-related work continued to be strong, in addition to machine learning data studies. Among our reactive services, litigation-related work was robust and we saw increased demand for our services related to product safety and recalls.

Net income increased 1% to $25,755,000 during the second quarter of 2022 as compared to $25,400,000 during the same period last year. Diluted earnings per share increased to $0.49 per share as compared to $0.48 in the same period last year. The increases in net income and diluted earnings per share were primarily due to the increase in revenues before reimbursements.

We remain focused on selectively adding top talent and developing the skills necessary to expand our market position and providing clients with in-depth scientific research and analysis to determine what happened and how to prevent failures or exposures in the future. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value.

Overview of the Three Months Ended July 1, 2022

During the second quarter of 2022, billable hours increased 2% to 372,000 as compared to 365,000 during the same period last year. Our utilization decreased to 77% during the second quarter of 2022 as compared to 79% during the same period last year. Technical full-time equivalent employees increased 5% to 934 during the second quarter of 2022 as compared to 888 during the same period last year. We continue to selectively hire key talent to expand our capabilities.

Three Months Ended July 1, 2022 compared to Three Months Ended July 2, 2021

Revenues


                                       Three Months Ended
                                      July 1,       July 2,       Percent
(in thousands, except percentages)     2022          2021         Change
Engineering and Other Scientific     $ 109,150     $  98,139          11.2 %
Percentage of total revenues              83.8 %        81.9 %
Environmental and Health                21,131        21,738          -2.8 %
Percentage of total revenues              16.2 %        18.1 %
Total revenues                       $ 130,281     $ 119,877           8.7 %


The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hours and an increase in billing rates. During the second quarter of 2022, billable hours for this segment increased by 2% to 293,000 as compared to 287,000 during the same period last year. Utilization for this segment decreased to 79% during the second quarter of 2022 as compared to 82% during the same period last year. The increase in billable hours was driven by broad-based growth, with continued strong demand for our services across the utilities, consumer products, automotive, and life sciences sectors. Utilization during the second quarter of 2021 was historically strong. Technical full-time equivalent employees in this segment increased 6% to 715 during the second quarter of 2022 as compared to 677 for the same period last year due to our recruiting and retention efforts.

The decrease in revenues for our Environmental and Health segment was due to a decrease in our realized billing rate. The decrease in our realized billing rate was primarily due to the decrease in the value of the British Pound


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as compared to the U.S. Dollar. During the second quarter of 2022, billable hours for this segment increased by 1% to 79,000 as compared to 78,000 during the same period last year. Utilization in this segment decreased to 69% during the second quarter of 2022 as compared to 71% during the same period last year. The decrease in utilization was due to investments in recruiting and marketing in our Health Practice. Technical full-time equivalent employees in this segment increased 4% to 219 during the second quarter of 2022 as compared to 211 during the same period last year due to our recruiting and retention efforts.

Compensation and Related Expenses


                                       Three Months Ended
                                      July 1,       July 2,      Percent

(in thousands, except percentages) 2022 2021 Change Compensation and related expenses $ 58,446 $ 71,815 -18.6 % Percentage of total revenues

               44.9 %       59.9 %



The decrease in compensation and related expenses during the second quarter of 2022 was due to a change in the value of assets associated with our deferred compensation plan, partially offset by an increase in payroll expense and an increase in fringe benefits. During the second quarter of 2022, deferred compensation expense decreased by $15,935,000 with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $11,259,000 during the second quarter of 2022 as compared to an increase in the value of plan assets of $4,676,000 during the same period last year. Payroll expense increased by $2,228,000 and fringe benefits increased by $276,000 during the second quarter of 2022 due to the impact of our annual salary adjustments and an increase in technical full-time equivalent employees. We expect our compensation expense, excluding the change in value of deferred compensation plan assets, to increase as we selectively add new talent and adjust compensation to market conditions.

Other Operating Expenses


                                        Three Months Ended
                                      July 1,        July 2,       Percent
(in thousands, except percentages)      2022           2021        Change
Other operating expenses             $    8,755      $  8,121           7.8 %
Percentage of total revenues                6.7 %         6.8 %


Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses during the second quarter of 2022 was primarily due to an increase in occupancy expense of $283,000, an increase in depreciation expense of $170,000, and an increase in information technology related expenses of $169,000. The increases in occupancy expenses was due to growth in technical full-time equivalent employees and the transition back to our offices from a remote work environment. The increases in depreciation and information technology related expenses were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent, make investments in our corporate infrastructure, and transition our workforce back to our offices as COVID-19 pandemic related business restrictions are lifted.

Reimbursable Expenses


                                        Three Months Ended
                                       July 1,       July 2,       Percent
(in thousands, except percentages)      2022           2021        Change
Reimbursable expenses                $    12,063     $  7,409          62.8 %
Percentage of total revenues                 9.3 %        6.2 %




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The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects. The increase in reimbursable expenses during the second quarter of 2022 was primarily due to an increase in project-related travel and other project-related expenses as COVID-19 pandemic-related business and travel restrictions eased.

General and Administrative Expenses


                                         Three Months Ended
                                       July 1,        July 2,       Percent
(in thousands, except percentages)       2022           2021        Change

General and administrative expenses $ 5,740 $ 3,160 81.6 % Percentage of total revenues

                 4.4 %         2.6 %



The increase in general and administrative expenses was primarily due to an increase in travel and meals of $1,133,000, an increase in outside consulting expense of $548,000, an increase in recruiting expenses of 304,000, an increase in marketing and business development expenses of $222,000 and several other individually insignificant increases. The increase in travel and meals was due to the easing of COVID-19 pandemic-related business and travel restrictions. The increase in outside consulting expense was due to several ongoing projects associated with investments in our corporate infrastructure. The increases in recruiting expenses was due to the increase in technical full-time equivalent employees. The increase in marketing and business development was due to an increase in our business development activities. We expect general and administrative expenses to increase as we selectively add new talent, expand our business development and staff development initiatives, and increase travel and meal expenses as COVID-19 pandemic related business restrictions are eased.

Operating Income

                                       Three Months Ended
                                      July 1,       July 2,      Percent

(in thousands, except percentages) 2022 2021 Change Engineering and Other Scientific $ 40,032 $ 37,914 5.6 % Environmental and Health

                 6,846         7,495         -8.7 %

Total segment operating income 46,878 45,409 3.2 % Corporate operating expense

             (1,601 )     (16,037 )      -90.0 %
Total operating income               $  45,277     $  29,372         54.2 %


The increase in operating income for our Engineering and Other Scientific segment during the second quarter of 2022 as compared to the same period last year was due to an increase in revenues. The increase in revenues was driven by broad-based growth, with continued strong demand for our services across the utilities, consumer products, automotive, and life sciences sectors. The decrease in operating income for our Environmental and Health segment was due to investments in recruiting and marketing in our Health Practice.


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Certain operating expenses are excluded from the Company's measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

The decrease in corporate operating expenses during the second quarter of 2022 as compared to the same period last year was primarily due to a decrease in deferred compensation expense partially offset by an increase in the costs associated with our human resources, finance, information technology and business development groups. During the second quarter of 2022, deferred compensation expense decreased $15,935,000, with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $11,259,000 during the second quarter of 2022 as compared to an increase in the value of plan assets of $4,676,000 during the same period last year.

Other Income, Net


                                        Three Months Ended
                                       July 1,       July 2,      Percent
(in thousands, except percentages)      2022           2021        Change
Other income, net                    $    (9,845 )   $  5,295       -285.9 %
Percentage of total revenues                -7.6 %        4.4 %


Other income, net, consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The decrease in other income, net, was primarily due to a change in the value of assets associated with our deferred compensation plan partially offset by an increase in the gain on foreign exchange, an increase in interest income and an increase in rental income. During the second quarter of 2022, other income, net, decreased by $15,935,000 with a corresponding decrease to deferred compensation expense, as compared to the same period last year, due to a change in the value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of the plan assets of $11,259,000 during the second quarter of 2022 as compared to an increase in the value of the plan assets of $4,676,000 during the same period last year. The increase in the gain on foreign exchange of $451,000 was due to an increase in the value of assets denominated in currencies that are not our functional currency. The increase in interest income of $161,000 was due to an increase in interest rates. The increase in rental income of $159,000 was due to a decrease in our vacancy rate.

Income Taxes


                                        Three Months Ended
                                      July 1,        July 2,       Percent
(in thousands, except percentages)      2022           2021        Change
Income taxes                         $    9,677      $  9,267           4.4 %
Percentage of total revenues                7.4 %         7.7 %
Effective tax rate                         27.3 %        26.7 %


The increase in income tax expense was due to an increase in pre-tax income and an increase in our effective tax rate. The increase in our effective tax rate was due primarily to an increase in non-deductible officer compensation.

Six Months Ended July 1, 2022 compared to Six Months Ended July 2, 2021

Revenues



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                                        Six Months Ended
                                      July 1,       July 2,       Percent
(in thousands, except percentages)     2022          2021         Change
Engineering and Other Scientific     $ 213,765     $ 191,748          11.5 %
Percentage of total revenues              82.6 %        81.1 %
Environmental and Health                44,994        44,610           0.9 %
Percentage of total revenues              17.4 %        18.9 %
Total revenues                       $ 258,759     $ 236,358           9.5 %


The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hours and an increase in billing rates. During the first six months of 2022, billable hours for this segment increased by 4% to 583,000 as compared to 563,000 during the same period last year. Utilization for this segment decreased to 78% during the first six months of 2022 as compared to 79% during the same period last year. Growth was driven by strong demand for Exponent's services across a broad range of industries and use cases. In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continued to see demand for its solutions in electric vehicles and energy storage. Our work in international arbitrations and integrity management advisory services continued at strong levels. Technical full-time equivalent employees in this segment increased 5% to 716 during the first six months of 2022 as compared to 684 for the same period last year due to our recruiting and retention efforts.

The increase in revenues for our Environmental and Health segment was due to an increase in billable hours partially offset by a decrease in our realized billing rate. During the first six months of 2022, billable hours for this segment increased by 3% to 163,000 as compared to 159,000 during the same period last year. Utilization in this segment decreased to 71% during the first six months of 2022 as compared to 72% during the same period last year. This segment benefited from increased activity in litigation-related projects and support of human participant studies. The decrease in our realized billing rate was primarily due to the decrease in the value of the British Pound as compared to the U.S. Dollar. Technical full-time equivalent employees in this segment increased by 4% to 220 during the first six months of 2022 as compared to 212 during the same period last year due to our recruiting and retention efforts.

Compensation and Related Expenses


                                        Six Months Ended
                                      July 1,       July 2,      Percent

(in thousands, except percentages) 2022 2021 Change Compensation and related expenses $ 127,203 $ 146,353 -13.1 % Percentage of total revenues

              49.2 %        61.9 %



The decrease in compensation and related expenses during the first six months of 2022 was due to a change in the value of assets associated with our deferred compensation plan partially offset by an increase in payroll expense, an increase in fringe benefits, and an increase in bonus expense. During the first six months of 2022, deferred compensation expense decreased $26,214,000 with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $15,959,000 during the first six months of 2022 as compared to an increase in the value of plan assets of $10,255,000 during the same period last year. Payroll expense increased $4,468,000 during the first six months of 2022 due to the increase in technical full-time equivalent employees and the impact of our annual salary adjustments. Fringe benefits increased by $1,059,000 during the first six months of 2022 due to the increase in technical full-time equivalent employees and the impact of our annual salary adjustments. Bonus expense increased by $1,179,000 during the first six months of 2022 due to a corresponding increase to our bonus pool which is equal to 33% of income before income taxes, interest income, bonus expense, and stock-based compensation. We expect our compensation expense, excluding the change in value of deferred compensation plan assets, to increase as we selectively add new talent and adjust compensation to market conditions.

Other Operating Expenses



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                                       Six Months Ended
                                     July 1,      July 2,       Percent
(in thousands, except percentages)     2022         2021        Change
Other operating expenses             $ 16,920     $ 15,831           6.9 %
Percentage of total revenues              6.5 %        6.7 %


Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses during the first six months of 2022 was primarily due to an increase in occupancy expense of $364,000, an increase in information technology related expenses of $325,000 and an increase in depreciation expense of $202,000. The increase in occupancy expenses was due to growth in technical full-time equivalent employees and the transition back to our offices from a remote work environment. The increases in information technology related expenses and depreciation expense were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent, make investments in our corporate infrastructure, and transition our workforce back to our offices as COVID-19 pandemic-related business restrictions are lifted.


Reimbursable Expenses

                                       Six Months Ended
                                     July 1,      July 2,       Percent
(in thousands, except percentages)     2022         2021        Change
Reimbursable expenses                $ 22,671     $ 14,311          58.4 %
Percentage of total revenues              8.8 %        6.1 %


The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects. The increase in reimbursable expenses during the first six months of 2022 was primarily due to an increase in project-related travel and other project-related expenses as COVID-19 business and travel restrictions eased.

General and Administrative Expenses


                                         Six Months Ended
                                       July 1,      July 2,       Percent

(in thousands, except percentages) 2022 2021 Change General and administrative expenses $ 9,971 $ 6,433 55.0 % Percentage of total revenues

                3.9 %        2.7 %



The increase in general and administrative expenses was primarily due to an increase in travel and meals of $1,592,000, an increase in outside consulting expense of $573,000, an increase in recruiting expenses of $395,000, an increase in marketing and business development expenses of $189,000 and several other individually insignificant increases. The increase in travel and meals was due to the easing of COVID-19 pandemic-related business and travel restrictions. The increase in outside consulting expense was due to several ongoing projects associated with investments in our corporate infrastructure. The increases in recruiting expenses was due to the increase in technical full-time equivalent employees. The increase in marketing and business development was due to an increase in our business development activities. We expect general and administrative expenses to increase as we selectively add new talent, expand our business development and staff development initiatives, and increase travel and meal expenses as COVID-19 pandemic related business restrictions are eased.

Operating Income

                                        Six Months Ended
                                      July 1,       July 2,      Percent

(in thousands, except percentages) 2022 2021 Change Engineering and Other Scientific $ 78,522 $ 71,970 9.1 % Environmental and Health

                14,681        15,414         -4.8 %
Total segment operating income          93,203        87,384          6.7 %
Corporate operating expense            (11,209 )     (33,954 )      -67.0 %
Total operating income               $  81,994     $  53,430         53.5 %




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The increase in operating income for our Engineering and Other Scientific segment during the first six months of 2021 as compared to the same period last year was due to an increase in revenues. The increase in revenues was due to an increase in billable hours and an increase in billing rates. Growth was driven by strong demand for Exponent's services across a broad range of industries and use cases. In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continued to see demand for its solutions in electric vehicles and energy storage. Our work in international arbitrations and integrity management advisory services continued at strong levels. The decrease in operating income for our Environmental and Health segment was due to investments in recruiting and marketing in our Health Practice.

Certain operating expenses are excluded from our measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

The decrease in corporate operating expenses during the first six months of 2022 as compared to the same period last year was primarily due to a decrease in deferred compensation expense partially offset by an increase in the costs associated with our human resources, finance, information technology and business development groups. During the first six months of 2022, deferred compensation expense decreased $26,214,000, with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $15,959,000 during the first six months of 2022 as compared to an increase in the value of plan assets of $10,255,000 during the same period last year.

Other Income, Net

                                        Six Months Ended
                                      July 1,      July 2,      Percent
(in thousands, except percentages)     2022          2021        Change
Other income, net                    $ (13,755 )   $ 11,363       -221.1 %
Percentage of total revenues              -5.3 %        4.8 %


Other income, net, consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The decrease in other income, net, was primarily due to a change in the value of assets associated with our deferred compensation plan partially offset by an increase in the realized gain on foreign exchange and an increase in interest income. During the first six months of 2022, other income, net, decreased $26,214,000 with a corresponding decrease to deferred compensation expense, as compared to the same period last year, due to a change in the value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of the plan assets of $15,959,000 during the first six months of 2022 as compared to an increase in the value of the plan assets of $10,255,000 during the same period last year. During the first six months of 2022, other income, net, increased by $893,000 as compared to the same period last year due to a change in the realized gain/loss on foreign exchange. This increase consisted of a realized gain on foreign exchange of $562,000 during the first six months of 2022 as compared to a realized loss on foreign exchange of $331,000 during the same period last year. During the first six months of 2022, interest income increased by $155,000 as compared to the same period last year due to an increase in interest rates.


Income Taxes

                                        Six Months Ended
                                      July 1,      July 2,       Percent
(in thousands, except percentages)     2022          2021        Change
Income taxes                         $  12,875     $  8,545          50.7 %
Percentage of total revenues               5.0 %        3.6 %
Effective tax rate                        18.9 %       13.2 %




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The excess tax benefit associated with stock-based awards was $6,040,000 during the first six months of 2022 as compared to $8,823,000 during the same period last year. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.7% during the first six months of 2022 as compared to 26.8% during the same period last year. The increase in our effective tax rate, excluding the impact of the excess tax benefit, was due primarily to an increase in non-deductible officer compensation.


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LIQUIDITY AND CAPITAL RESOURCES

We believe our existing balances of cash, cash equivalents, and cash generated from operations will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next twelve months.


                                                            Six Months Ended
                                                         July 1,        July 2,
(in thousands)                                             2022          2021
Net cash provided by operating activities               $   23,816     $  45,452

Net cash (used in) / provided by investing activities (5,914 ) 40,757 Net cash used in financing activities

                     (148,536 )     (43,997 )



We financed our business during the first six months of 2022 through available cash. As of July 1, 2022, our cash and cash equivalents were $165,619,000 as compared to $297,687,000 at December 31, 2021.

Generally, our net cash provided by operating activities is used to fund our day to day operating activities. First quarter operating cash requirements are generally higher due to payment in the first quarter of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is collections from our clients. Our primary uses of cash from operating activities are for employee related expenditures, leased facilities, taxes, and general operating expenses including marketing and travel.

The increase in net cash used in investing activities during the first six months of 2022, as compared to the net cash provided by investing activities during the same period last year, was due to a decrease in the maturity of short-term investments partially offset by a decrease in the purchase of short-term investments.

The increase in net cash used in financing activities during the first six months of 2022, as compared to the same period last year, was due to an increase in repurchases of our common stock and an increase in dividends partially offset by a reduction in payroll taxes for restricted stock units.

We expect to continue our investing activities, including capital expenditures. Furthermore, cash reserves may be used to repurchase shares of common stock under our stock repurchase programs, pay dividends, or strategically acquire professional service firms that are complementary to our business.

We maintain a nonqualified deferred compensation plan for the benefit of a select group of highly compensated employees. Vested amounts due under the plan of $87,639,000 were recorded as a long-term liability on our unaudited condensed consolidated balance sheet at July 1, 2022. Vested amounts due under the plan of $10,585,000 were recorded as a current liability on our unaudited condensed consolidated balance sheet at July 1, 2022. Our assets that are earmarked to pay benefits under the plan are held in a rabbi trust and are subject to the claims of our creditors. As of July 1, 2022, invested amounts under the plan of $87,163,000 were recorded as a long-term asset on our unaudited condensed consolidated balance sheet. As of July 1, 2022, invested amounts under the plan of $10,585,000 were recorded as a current asset on our unaudited condensed consolidated balance sheet.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer's or director's lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid.


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Non-GAAP Financial Measures

Regulation G, Conditions for Use of Non-Generally Accepted Accounting Principles ("Non-GAAP") Financial Measures, and other U.S. Securities and Exchange Commission ("SEC") rules and regulations define and prescribe the conditions for use of Non-GAAP financial information. 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. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, net interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. The Company regards EBITDA and EBITDAS as useful measures of operating performance 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. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

The following table shows EBITDA (determined as shown in the reconciliation table below) as a percentage of revenues before reimbursements for the three months ended July 1, 2022 and July 2, 2021:


                                       Three Months Ended           Six Months Ended
                                      July 1,       July 2,       July 1,       July 2,

(in thousands, except percentages) 2022 2021 2022 2021 Revenues before reimbursements $ 118,218 $ 112,468 $ 236,088 $ 222,047 EBITDA

                               $  37,069     $  36,297     $  71,544     $  68,050

EBITDA as a % of revenues before

  reimbursements                          31.4 %        32.3 %        30.3 %        30.6 %




                                     - 30 -

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The decrease in EBITDA as a percentage of revenues before reimbursements during the second quarter of 2022 as compared to the same period last year was primarily due to the decrease in utilization and an increase in other operating and general and administrative expenses. Our utilization decreased to 77% during the second quarter of 2022 as compared to 79% during the same period last year. Utilization during the second quarter of 2021 was historically strong. Other operating and general and administrative expenses increased during the second quarter of 2022 due to an increase in travel and meals associated with the easing of COVID-19 pandemic-related business and travel restrictions, an increase in technical full-time equivalent employees, investments in our corporate infrastructure, and an increase in marketing and business development activities.

The decrease in EBITDA as a percentage of revenues before reimbursements during the first six months of 2022 as compared to the same period last year was primarily due to an increase in other operating and general and administrative expenses. Other operating and general and administrative expenses increased during the first six months of 2022 due to an increase in travel and meals associated with the easing of COVID-19 pandemic-related business and travel restrictions, an increase in technical full-time equivalent employees, investments in our corporate infrastructure, and an increase in marketing and business development activities.


The following table is a reconciliation of EBITDA and EBITDAS to the most
comparable GAAP measure, net income, for the three and six months ended July 1,
2022 and July 2, 2021:

                                  Three Months Ended          Six Months Ended
                                 July 1,       July 2,      July 1,      July 2,
(in thousands)                     2022          2021         2022         2021
Net income                      $   25,755     $ 25,400     $ 55,364     $ 56,248
Add back (subtract):
Income taxes                         9,677        9,267       12,875        8,545
Interest income, net                  (175 )        (12 )       (196 )        (41 )
Depreciation and amortization        1,812        1,642        3,501        3,298
EBITDA                              37,069       36,297       71,544       68,050
Stock-based compensation             4,597        4,592       11,467       10,874
EBITDAS                         $   41,666     $ 40,889     $ 83,011     $ 78,924




                                     - 31 -

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© Edgar Online, source Glimpses

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