Q1 2020 Earnings Call
Good day and welcome to the.
First quarter fiscal year 2020 earnings call.
For instance, being recorded.
This time I would like to turn the conference over at Summit Whitney Kukulka then.
Please go ahead.
Thank you operator.
Good afternoon, ladies and gentlemen, thank you for joining us on exponent first quarter fiscal year 2020 financial results Conference call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at Www Dot exponent Dotcom watch investor.
This conference call is a copy of exponent that any TV or other reproduction is expressly prohibited without prior written consent.
Joining me on the call today are Dr., Catherine Korigan, President and Chief Executive Officer, and Rich Schlenker, Executive Vice President and Chief Financial Officer.
Before we start I would like to remind you that the following discussion contains forward looking statements.
Including but not limited to export into market opportunities and future financial results that involve risks and uncertainties that may cause actual results could differ materially from those discussed here.
Additional information that could cause actual results could differ from forward looking statements.
He founded extorted periodic SEC filings, including those factors discussed under the caption risk factor. It next on his most recent form 10-K.
Forward looking statements and risks in this conference call are based on current expectations as of today, an excellent assumes no obligation to update or revise them, whether as a result was new developments or otherwise and now I'll turn the call over to Dr., Catherine poured Chief Executive Officer Catherine.
Thank you Whitney and good afternoon, everyone. Thank you for joining our call today.
I hope and all of you and your loved ones are staying healthy.
These are unprecedented times, so we will be taking it somewhat different approach to our earnings call commentary.
On today's call, we will not only review our business performance on financial results for the first quarter.
We'll also share with you the impact stuff the Corona virus pans out.
On our business.
We are doing to address the associated challenges.
How the strength of our business model positions us for long term success.
We're pleased to report another strong quarter with year over year growth in revenues and earnings.
Total revenues grew 7% to 106 million and our earnings per share were 49 cents as compared to 42 cents in the same period last year.
Its revenue and earnings growth occurred despite the impact that business restrictions related to the Corona virus began to have Asian operations in late January ads on certain areas of our European on United States operations in the second half of March.
I suppose engineering and other scientific segment represented 80% of the company's first quarter net revenues.
Revenues in that segment grew 6% in the first quarter as compared to 2019.
This segment had notable performances in its bio medical mechanical engineering vehicle engineering and bio mechanics practices.
Multinational companies across industries engaged our interdisciplinary teens of world class consultants for scientific expertise and risk assessments.
Our works for Pacific gas and electric related to the integrity management of their electric utility infrastructure and higher risk was approximately 4% of exports net revenues in the first quarter of 2020.
Exogenous environmental and health segments represented 20% of the company's first quarter net revenues.
Net revenues in this segment increased 8% in the first quarter as compared to 2019.
Within this segment, the chemical regulation and food safety practices continue to grow as our scientists devaluated the effects of chemicals and new products on human health M.D. environment.
Exponent is addressing the challenges associated with Kopec 19, with the same seriousness intellectual rigor and stock based analysis that we'd have employed for over 50 years.
We are focused on three things.
The health and safety is on people.
Demonstrating leadership by continuing to solve our clients most pressing problems.
And delivering value to shareholders.
Our unique capabilities dedicated team of scientific experts adaptable business model and highly diversified client base shape exponents leading market position.
Despite the expected near term headwinds in some areas of our business. We are serving many essential industries, including utilities life Sciences chemicals transportation insurance and food.
We are confident in the resilience of our business and our ability to deliver growth over the long term and society continues to focus on safety health sustainability as reliability.
Excellent entered this crisis in a position of strength.
We ended the quarter with 152 million in cash cash equivalents and short term in Boston.
We have no doubt.
Today, we reiterated our intent to continue quarterly dividend payments.
I phone and has a long history and a strong track record of delivering for all of our stakeholders on that macro economic turbulence.
I will now provide some details about how exponent has responded to the cobot 19 pandemic and called runs on the trends that we are seeing across the business.
Our employees have been working from home since the initiation of shelter in place orders with the exceptional laboratory and inspection activities for central businesses.
Our business continuity plan and robust infrastructure have been powered productive work from day one.
Our business development process has evolved to adapt to a remote working environment.
The vast majority of our engagements for new and existing clients continue to be initiated by inbound communication based on our reputation our long standing relationship.
We continue to see strong demand for utility integrity management services as clients focus on power reliability, while their customers are asked to stay at home.
Preparation for fire season is an additional market driver in this sector.
Our chemical regulation on food safety services represents an ongoing area of strength as clients must continue to comply with complex regulation, if they distribute products around the world.
At the same time, we have seen slowing of a portion of our litigation support projects due to court health closures and associated legal delays.
Very little of our consultants time, it's actually been testifying important.
But because the legal deadlines have moved some clients have put work on hold.
We're pleased to see that certain courts are beginning to utilize technology to whole virtual hearings and trial.
Trends and laboratory investigations.
This pandemic heads also temporarily paused our user studies, but we are actively adapting the study designs and implementing prophecies m. technologies. So that we can we start them as quickly as possible, while focusing on the health and safety of our participants and our employees.
Our scientific experts are more committed than ever to delivering actionable thought leadership, especially where it can help to manage and mitigate risk associated with the code at 19 pandemic.
Examples of issues that are interdisciplinary teams are seeing include.
Mitigating safety risks in the workplace from occupational health and industrial hygiene to the use of technology to monitor physical distancing and potential signs of illness.
Development regulation and performance of medical products, Disinfectants, and personal protective equipment, including evaluation of covert 19 diagnostics re sterilization prophecies for P.P.E. and disinfection registration across national boundaries.
Global supply chain optimization, including root cause analysis of increased product failure rates due to supply chain disruptions.
How did you use for documenting and analyzing construction delay impacts related to cope in 19.
And litigation claims related to code at 19 exposure.
Safety failure analysis and risk analysis are in the very D.N.A. of our company.
For over 50 years exponent has advised clients across the globe in times of crisis.
We have long demonstrate an hour ability to pay the quickly to address our clients most compelling issues and we are demonstrating that agility in the context of the Corona virus crisis.
However, what remains evidence is that society continues to raise its expectations for safety health sustainability unreliability.
That products and processes continue to grow in their technological complexity.
<unk> market drivers have powered exponent growth for over 50 years and have led to increased demand for our interdisciplinary solutions despite periods of macroeconomic turbulence.
We remain focused on developing on retaining are exceptional talent to ensure that we are increasing our value in the marketplace.
Main committed to our mission and are highly confident in the long term health and our business.
Oh now turn the call over to rich to provide more detail on our first quarter of financial results and couldn't discuss business activity in the first three weeks of the second quarter rich.
Thank you Catherine.
I will start by providing details on the first quarter financial results and then pivoted to just go through our performance and the first three weeks of the second quarter.
At this time, we cannot reliably provide revenue and earnings guidance for the quarter or year due to the high degree of uncertainty surrounding business and travel restrictions.
Oh comparisons will be on a year over year basis, unless otherwise specified.
Where the first quarter of 2022.
Total revenues in revenues before reimbursements work up 7% to 106 million and 99.7 million respectively.
During the first quarter, our work for P. Jeanine related to wildfires and integrity management of their electric power <unk> infrastructure generated approximately 4% of net revenues.
It should be noted that we'd completed the sale of our German entity at the beginning of the second quarter.
That was previously discussed this entity had annual revenues of approximately $4 million and she had structural design and inspection services were not finished strategic fit.
I want to ensure you that that Europe remains a strategic growth area for <unk>.
Net income for the first quarter was $26.3 million or 49 cents per diluted share as compared to $22.7 million or 42 cents per share in the same period last year.
In the first quarter the tax benefit for games realize the bond issuance or Sharebased awards was $8.8 million or 16 cents.
Per share as compared to $5.7 million or 11 cents per share and 29 Jane.
As a reminder, most of these shares are granted annually in March as part of our compensation program and released four years later Oh, such this is primarily a first quarter event the tax benefit from Sharebased towards is based on the changes.
Value from grants to issue in state.
<unk> for the quarter increased 5% to $25 million.
Well, the first quarter billable hours, where 348000 up 6% year over year.
Utilization for the first quarter was 71.4% as compared to 71.6% a year ago.
For the first 10 weeks of the corridor are utilization average 73.5%. This included the shelter in place orders in Shanghai in Hong Kong, which represent approximately 3% of our business.
The final three weeks, so the quarter step down week by week to Enlo of 62% in the 13 and buying a week.
For the first three weeks of the second quarter, the average utilization was 60%.
Compared to 75% for the same period last year.
The primary reasons for the lower utilization bar, the pausing have already user studies delays caused by travel restrictions.
Holds on work due to courthouse closures.
And restrictions on lab work for non essential businesses, such as consumer products companies.
We continue to expect our long term annual utilization to be enough in the mid seventies as we build more critical mass and our offices and practices and expand our service offering.
That can go full time equivalent employees and a quarter were 938 up 6% year over year.
And 1.8% sequentially.
So the second quarter.
We expect <unk> headcount to be flat just slightly down sequentially.
But still resulting in a year over your head count growth of approximately 5%.
We are building backlog, a pre qualified candidates, which are ready for in person interviews as business restrictions or relaxed.
We will focus are hiring where we have strong demand and in areas at a strategic growth.
Well the corridor.
Year over year realize rage increase was approximately 1%.
Although we implemented price increases similar to the past several years the average rate in the first quarter was moderated as a result of minutes.
For the quarter compensation expense after adjusting for gains and losses in differed com.
<unk>, 9%.
Included in total compensation expense is a contract expense for deferred compensation of $14.6 million.
As compared to an expense.
Oh $5.9 million in the first quarter of 2019.
As a reminder gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
Stockbased compensation expense was 6.1 million for the corner as compared to 5.7 million in the first quarter of 2019.
Other operating expenses were 8.2 million.
An increase of 2.6%.
Included in other operating expenses is depreciation expense of 1.8 million.
G.N.A. expenses were 5.5 million and increase of 21.6%.
This included an extra 1.6 million dollar a cruel for potential bad debts.
Today, we have not experienced immaterial deterioration in our receivables due to the current crisis.
But we are taking a conservative approach by increasing R.A.R. reserve.
And the balance sheet to bring it to $6 million for both build UN unveiled receivables.
For the first quarter, even Dom margin was 25% of net revenues, which was down to 50 basis points as compared to the same period last year.
As a result of the lower utilization and higher bad debt expense.
Interest income was 875000 as compared to 1.055 million in the same period 20 and 2019.
Do do a steep decline in interest rates. We are now estimating interest income for the second quarter of 2020 to be approximately 300000.
Miscellaneous income for the corridor.
After adjusting for losses and deferred compensation was 1.8 million.
Which included 800000 for foreign currency game.
We expect miscellaneous income for the second quarter of 2020 to be approximately 900000.
Well the first quarter.
Includes about the packs benefit for Sharebased Awards.
Consolidated tax rate was a negative 9.3% as compared to 2.6% for the same period last year.
Where the remaining corridors of 2020, we expect are consolidating tax rate to be approximately 27.5%.
Moving to our cash flows as expected operating cash flow with a negative $13.8 billion for the quarter as a result of paying out annual bonuses.
Capital expenditures were $1.3 million for the quarter.
For the full year 2020, we expect cat backs to be eight to 10 million.
During the first quarter exponent paid $10.3 million a dividend.
Repurchased 40 million in common stock and an average price of $62 in 91 sense.
Enclose the period with 152 million and cash cash equivalent and short term investments and node debt.
We have a strong balance sheet.
Intend to continue paying quarterly dividend.
At the end of the quarter had $30 million available.
Under our current stock repurchase program.
Turning to the second quarter.
Again at this time, we are not able to reliably provide guidance for the quarter or year as we do not know when and how business and travel restrictions volleyball.
Well three weeks is any limited data set.
We wanted to share the preliminary utilization, which average 60% as compared to 75% for the same period in 2019.
We estimate this declined in year over year utilization equates to approximately 15% to 20% decline in net revenues for the three week period.
If the net revenues for the entire second quarter worked incline year over year by 15% to 20%.
Then.
<unk> EBITDARM margin as a percentage of net revenues would likely be 17% to 20%.
As compared to 29.5% in that same period last year.
Well the second quarter, we estimate that a 1 million dollar increase or decrease in net revenues.
Which is equivalent to 1% of last year's second quarter net revenues.
Would generate corresponding 60 to 70 basis point change and even Dom margin.
And a one cent change you need P.S.
It should be noted that exponent.
Bonus a cruel is one third of pre tax free bonus profits.
And as such employees in shareholders are aligned and their desire to maintain profitability.
Despite the unprecedented backdrop <unk>.
We grew revenues.
<unk> and earnings per share in the first quarter and end is a quarter with 152 million and cash and no debt on the balance sheet.
<unk> has a sustainable business model and intends to continue our quarterly cash dividend payments.
Well we cannot.
Yeah, the magnitude or duration of the disruption caused by the pandemic. We believe were in a position of strength.
I will now turned to call back to Catherine for closing remarks.
Thanks threats.
Okay, well, it's retail yet because the fundamental market drivers remains strong.
That's society continues to raise the bar on safety health sustainability unreliability companies will face challenges that they innovate their complex products and processing tackle regulatory hurdles mitigate risk and resolve disputes.
While physical distancing on the current business and travel restrictions are in attempting our business in the short term.
Hearing to these restrictions we aren't doing our part that's a company to protect the health and the safety of the essential workers on whom we all depend for healthcare unlike necessities.
We select these workers and are prepared to emerge from this challenge I think even stronger farm based on the team work of our incredible employees and the strength of our balance sheet.
Operator, we are ready for class.
Right now and if you might ask a question you may signal by pressing star wine or on your telephone keypad.
<unk> function as turned on layer signal to retire equipment.
Again, let us start mind to seem really to ask a question.
And we'll take our first question from Toby Summer my chest.
Thank you My first question is the best if your ability could you.
Kind of buckets, the shortfall and.
In the utilization and therefore revenue into q. into two primary buckets.
Further opportunity in projects versus actual demand destruction.
<unk>.
Yeah. Thanks, Toby so I'm I'm pleased to say that we are not seeing a cancellation stuff projects. You know what we are seeing if we are seeing pausing I think existing projects.
And we're seeing delay in projects that have already you know we've been engaged but maybe we hadn't started yet right. So you know this includes things like our user studies like something that rich medicine. You know, we we have had pauses in that work but.
Clients in general are showing you know a lot of motivation to get those going again, obviously, we need to develop protocols that will allow us to do those in compliance with all of the relevant destruction family and you know focusing on the health and safety if our participants.
But that work is indeed pauses category on the litigation side.
Same kind of thing we are not seeing.
For example, lots of increased settlements of cases because of the pandemic.
We're seeing is that because the courthouses are closed.
Things are being deferred now we are seeing very interestingly the clients animals. The judges are beginning to use technology. We've seen trials moved to bench trials instead of jury trials. So there are some of mine that those are coming back and you know the legal work is interesting because not all of.
That is a pause to there are there are certain aspects for example, take the international arbitration Arena, where we tend to have you know sort of larger engagement.
Those are not subjects to the requirements that meeting until three in a courthouse. So what we're seeing there is very different we're seeing that and go to video you know we see some some pauses because of travel restrictions and things like that but they down and get that get the video proceedings going on there.
Able to to keep those scaling.
You know for the for the types of projects that require onsite inspections again, <unk> those places where see anything paused, but what's happening is those inspection facilities. For example, as we as a company are working on okay Wonder if that.
Oh look like where we can be physically descent and we can proceed without inspection, we're wrapping up the technology and things like that so you know the good news here Toby is that the work is essentially 99.9 per cent in that differed category you know we can't necessarily.
<unk> no precisely what the what the timing will be on reducing though but we are actively working with a client base in order to get that work moving again, obviously taking into account that we need to be protecting everyone's health and safety.
Thank you.
Tents in using the balance sheet for some time you've had a.
Longer term goal of.
Getting to a different leverage ratio.
Is this the time to execute that.
But yes, we we have continually you know committed to shareholders too overtime return a cash to them through a growing our vivid and and read purchasing.
And you know I think a jar actions during the first quarter here, where we expanded 10 million on dividends and 40 million in repurchases.
I did a step in that direction. You know we do believe you know we're very fortunate with you know the profitability of our from you know as much as it disheartening just to see our margins drop the fact that weren't talking.
Margin, even at age 60% utilization, there's no guarantee that that's where we'll be hopefully will be better, but we may not even at that level to be at 17% to 20% margins is generating a good cast for us. So we are.
<unk> continuing to.
Execute a on that plan dividends in repurchases and returning values shareholders.
Thanks, Rich what was the sure it purchases in the first quarter, where those concentrated in in the length of March when there was more market volatility.
They they were.
Perfect last question for me with respect to the proactive services, that's grown us Fortunately total company over the last decade.
How do you think that is gonna performing and he's going to any color you can give us on that would be helpful.
Yeah. So thanks, Toby I'm the proactive side you know in the short term. There's there's it rained tried when you talk about for example, the utility work that we're doing you know that it that remains in area strength I talked about you know the upcoming fire season, I talked about integrity management.
And there is quite strong the demands on our chemical regulation and food safety side I mean, we're seeing yeah. We've had inflow of of projects already even directly related to close that 19, whether that's emergency you thought you saw authorizations in the short term to some of.
Or you know our longer term the opportunities where those products will need to be you know classified to get across the regulatory hurdles beyond just the emergency uses so that's that's these are ongoing areas effect you know when you look at consumer products in the short term you know those are.
You know not necessarily considered essential industries and so some of the laboratory work. For example are things that have to be deferred until later on but when I look at the long term you know and I consider you know that there there are clearly macro economic consequences, two that's even even in the longer term.
No. We we feel that because of that nature of the type of work that we're doing on the proactive side you know again, the regulatory environment in our view will continue around the world too you know the bar the bar is going up, especially when it comes to things like chemicals and the environment and so you know we.
Anticipate as we always have in the long term that that will continue to drive demand in that area. When I look at the design type of consulting that we're doing you know this is primarily in consumer electronics, we've got that going on in in the medical device area. You know still seeing you have.
The regulatory impact on the medical device area, you know the medical device regulate regulatory framework in Europe, there's been a a you know that there's been a lot of changes in the regulatory framework. There that are driving work. So we continue to believe that you know even us clients are tightening their belts, which is what we see in in sort of risk.
Machinery periods and is what we saw in these sort of Oh wait Oh nine that time frame. They are still innovating their products. You know we we continue to believe that you know from automated vehicles to you know the types of new consumer electronics technologies the way that.
Those are interacting more and more with the human and the importance of that human machine interface and even now you know that human machine aggravates with voice recognition as opposed to things that you would need to touch you know, we'll we'll drive more innovation in that area and so you know justice.
We are we are having to manage through the short term pauses that we're talking about from a long term perspective, we really are very confident in in the demands for the diverse types of services that we do and the opportunities that we have in front of us.
<unk>.
You're welcome.
Well now take our next question from Andrew Nicholas <unk>.
Hi, Good afternoon. This is actually <unk>. Thank you predict my questions and thank you all sorts of playing detail on the <unk> April thus far it was just wondering if there was any difference in the trend as you progress throughout April if you saw kind of a gradual decline.
Similar to how you what you saw in March I'm working seen any improvements come up a low at this point.
Yeah, I'm sure I couldn't give ah some details around that again for everybody. You know we are dealing in the D.N. a week weekly increments that I'm going to share now, which you know it'd be even more precision here, but what we saw it in a in.
April and March, whereas a step down from really that 70, 374% utilize h. and you know in a tent week down to you know where it step down to 69 66, 62% as I mentioned in the last week Mark.
Well. We then saw in April was utilization was 61%. The first week 58, the second week and back up to 61 in the third week. So you know I don't want to yeah, I didn't want to sort of set that Oh, we've hit that you know hit.
Oh and bottom, but it clearly when you take the last four weeks being between that low sixties over 62 in the last week Mark all the way through back to a 61.
In the third week of April you couldn't see that we're we're hovering around in that high high fit these low sixties at least for the last month you know the first dramatic drop we got back in March with sort of clearly a user studies being put almost.
You know on hold immediately that work jet was probably about you know somewhere about 6% number avenues right away a lot and then you sort of some gradual play in a court, it's being close in travel restrictions really tightening up there as.
We moved into the latter part March because things were happening geographically for us things sort of step the n. over that period of time and that's played out what we did see I could lend D.N. over in in Asia and again, it's just.
Small part of our business, but what I look at what what's going on over in Shanghai.
Shanghai, our business is very much about testing different components that are our clients are having challenges with doing deep analysis, and then obviously reporting back for the client, but we need a lot of that data that come in through our testing.
To feed into our analyses.
And with the production over in Asia. Both development, you know research and development all the way through up into the <unk> full production cycles that being brought to a halt and I stay at home order in Shanghai, We saw that work dropped down to almost zero.
For several weeks there and then it began to step back up.
To the point now that we're seeing levels of productivity over in that small office that are higher than what we've had in the in you know back in several months even back into 2019. So we are seeing an upswing there when we take that as a as an example, so.
We do know like what Catherine was saying part of our slowed down is not being able to do testing for not a central businesses. We still are able to do testing and evaluation and all that in our labs for essential but some of the nonessentials hopefully as those things play back.
In in the U.S. that will help improve that part of the business.
Okay. Thank you it certainly a country at that level of detail and then for my follow up just wanted to touch on the expense side sounds like you're still willing to add headcount in certain areas. So is that true across the board or.
Be looking to.
Free headcount and beyond I guess compensation are there other lovers, you can pull commanders expenses in the near term on weight too so.
Yeah. Thanks, traverse so I I can take that one you know on the head count side, you know first of all I think it's important to.
To note that you know performance management, it's something that we are always very actively doing in the company you know that this becomes particularly important in times like this you know our goal is bad hours professional staff.
Are are in fact growing in their careers and they are increasing their ability to you know provide value to clients and that's you know that's the type of bar that we use two you know in sort of that for head count on the performance management side, and we continue to do that.
No <unk> very strongly during that time.
You know, but but that because of you know what has gone on on their actually has been a natural staggering of the head count growth because of our recruiting activities. You know we do think in the long term that it's important for us to continue to fill a recruiting pipeline you know, it's a long court.
Shit process for P.H.C.. So we continued to hold university recruiting events virtually but it's to fill our pipeline for when we expect these you know difficult at work and pauses to be east and to continue recruiting in areas of strength and that is very important point is that.
That you know currently we have you know quite a lot of activity going on in our chemical regulation and food safety practice. So if there are opportunities for us to bring on the right kind of talent that it's going to be able to realize that increased demand, we're going to be doing that over time.
And in other areas of the business. If we find that you know there is a sort of structural change in demands well then we will have to you know we will have to manage that but it is absolutely a sort of business area by business area market by market kind of evaluation that we have you know around.
Talents and around our head count.
Now with regard to other expenses you know there has been a natural decline in things like you know non chargeable travel nine chargeable meals you know our consultants are not able to be out at conferences right. Now that most of those are have been cancelled you know and and probably you know have been replaced by virtual events.
And we're actually doing quite a few of those on Webinars thought leadership things like that and so there has been that you know there has been in decline there and you know that's where we primarily are realizing some of the some of the costs related reductions.
Great. Thank you for all the detail.
You're welcome.
Oh, well now take on next question from Mark right, but Tonight.
Segregating.
M.R. and R.
So I was wondering if it <unk> first of all thank you very much for for all the detail that you provided on on on your business in the in the trend certainly helpful.
Did you get a sense of if you were getting much in the way of conversation around placing or or or some intro really for or anything like that some from customers and and whether or not I'm sure you've seen pictures on those ones.
Mark we we really are saying that and I think that's primarily because exponent has a established over decades that we have eight pride structure that is each concern.
And then our from has an individual billing rate based on their value in the market place, we established that each year on at the beginning of January we we charge all clients the same rate for that individuals odd time that they're expanding so but it is <unk>.
Well known in the industry that we are not going to negotiate discount individual or or rates that we're doing the or that we're going to just count added overall bill level that what we're doing or that we're going to give a volume on discount or two players.
We've you know that same rate is the rate our newest small quite <unk> paid but as well as our largest most establish clients and and we've established that in the marketplace. There is no doubt we've seen it over decades that our clients will become.
Even more focused on the value that they're getting from our services. In this time and you know exponent Ah you know is focused on making sure that were being clear that our communications as to are the budget we have.
The workforce <unk> going to deliver and scope in that and making sure that were being even more diligent about following up with clients and communicating further with them on the overall financial arrangements that we have with them. So that's the approach that we're taking to ensure that our clients.
They're getting <unk> value in what they're doing.
Okay graded then I wanted to touch a little bit on and I can imagine that you. You you had previously done business continuity testing to some degree and and and we're.
But I didn't want to spend a little time that you could sort of discuss what the process was like as far as transitioning to to having to consultants work from home what the technological aspects of that may or may have been and and sort of how you feel about where you are from the technology standpoint, and if you feel as though you need to maybe upgrade and and then maybe.
Just from the technology standpoint, but when we sort of get to be a beside us a little bit how about might reflect how you look at the the the mix so being in the office versus working virtually in that type of thing.
Yeah, So I'm going to start off and talk a little bit about business continuity planning and and technology in that men.
<unk> Oh handed over to Catherine to talk a little bit about the latter part of your question, that's definitely more operational and cultural driven in in nature. So exponent was we absolutely do have a business continuity planned at something that we.
We just we work on a it's a a team that goes across organization. It actually happened to be be led by our director of a health and safety and and and and quality and handles our area business continuity.
The director that leads that that effort, but a very important part of that team is obviously the technology that we have in place that is driven from the I.T. team there as well as our information security team that needs to ensure that.
We can transition over and do it we were able to literally go from you know the normal number of people that are out on the road remotely that bite me you know 100, or 150 or 200 connections, but in a day, that's beat banning indoor organization to 12.
Hundred simultaneous connections coming in within a day or two so right away on the next day, everybody was able to come back in beef holding connected working on the servers in doing that R.I.T. organization for our compute.
Routing individualization stuff is able to set up a virtual environments that allow our analyst and people who do some of that heavier computing and <unk> realisation stuff, we're able to continue to do that from home you know no different than they would if they were running their models at night.
You're doing some more off site and doing those types of things. In addition to that you know our software team, but continued to expand into stand up for our business continuity sides. You know Ah continued to re educate our our staff on the collapse.
Duration tools that we had in place to use and all of those things that have gone very well. We've continued yeah solicit feedback from everybody improve things as we go on learned about new tools that we need data into the tool box, but.
We've been very you know if you go down the list and look at how are people are working from home and how productive they're being in on their work that they would otherwise be doing in the office. The feedback has been you know excellent on that front and productivity is very high it's just as.
Catherine is the where we've seen some of the slow lane is those things where you need to be in the lab on an inspection in a courtroom Oh I have our participants study things of that type that are driving somebody delays in the work that we're having Katherine you want to talk about how you.
See this long-term Ah or changing things maybe in the short term.
Yeah, Yeah, let me, let me add a little bit to that sort of left on the technical side, but more on a more on the people side. You know, we're we're a company where you know the thing on T.M.D. and the interactions among our team members are very important you know the that's part of the secret sauce.
Exponent are these multi disciplinary capabilities right and this is why our business continuity plan allowed us to pivot so quickly to that for a network environment, where people are being productive because that's you know people's ability to engage together on projects and also on the other sorts of development.
Program on business development on marketing very important to our company. So we've had a quite an emphasis on connection that goes beyond just the ability to have the technology right. You know, we've we've set up a a website to where our employees can share their volunteer type of <unk>.
Because in the community because that builds that they'll teens and that builds on the way people can work together, we've been doing a lots of communication emphasizing about formal and informal gatherings. They used to the video I've been doing weekly video addresses to the entire company about where we are and what's going on.
You know that important stuff communication, just just cannot be overstated and and the employees are incredibly grateful for that and I for that and that that sense of t. in that sense of family within the company. It's something that we are working very hard to maintain because in the long term you know that that is where we.
He wants to be you know, we don't anticipate being a company that will have people working at home husband alarm you know.
A number of years from now, but we have absolutely demonstrated our ability to pivot for that.
In the short term it you know and and in the medium term as as things will start to get back to normal you know, we're going to be able to continue to have this culture. This teamwork that is going to really you know help us to emerge strongly out of them.
Well now move to our next color.
A lexus, possibly with the 18%.
Hi, <unk> I think unhealthy but of course is nearly or anything well. If you work for me here to keep their workforce connected and engage with the company I think we all are beginning to recognize just how important but so I just have another question for you on technology.
I can see some adjustment on the litigation business <unk> outside of just wondering if you have a sense of what portion of your projects can comfortably you conducted remotely and when it comes to eventually reopening she plans and work from home and traveled restriction on the original basis or when you have in company wide timeline.
So first of all I mean, the the ability to do things technologically <unk> depends some of them. We have full control over Ah you know some of them Ah require a agreement with the clients.
Maybe even other experts and parties that are involved in in the matter where in and then other times, it's truly the technology that the courtroom is going to choose to implement their but what we are committed to it as being a leader in a in utilizing technology.
Need to communicate effectively Ah the are the L.R. work, our findings and beat present for our clients and those regulators judges and and such that we may need to interact with we are also.
Working when technologies to ensure that we can leverage our broader geographic locations and attending inspections inside soon gathering that documentation that we need so that others in and maybe in a further geographic location.
Work on that matter, but even though they weren't able to physically visit that site and that can be done through you know drones scan scanning areas people going out and taking measurements images. It's it's quite diverse in in the applications that we can.
Apply there so Katherine do you want to add on here.
Yeah. It it very much is sort of kind of a business area by business area as sort of impact you know on the litigation side. It's been very interesting yeah, we've been whereas very close contact with our clients you know not just on a project by project basis.
Relationship basis to really understand what's going on and and you know in the first couple of weeks <unk>.
It was very much say, you know everybody's hunker down kind of kind of attitude that we had you know like while we had just taken this big it's big punch in my God and and stuff were just hunker down in the courts for closing and we were we were on that ramp, but we are very much now.
That's that's fine but around bass is turning the corner in terms of what the conversations are sounding like right. The conversations now are about staying hunker down the conversations now with the clients and with the judges are about how do we get this moving again.
Because we've got a backlog in our courts and we've got we've got plaintiffs who need you know that the justice system right and and we thought you know we've got insurance claims that need to be a adjusted annotate outs and we've dot various things that that you know just it's that need to be resolved and.
So there's a lot of motivation there and of course, we as rich sad you know tying it back to that technology team.
We have a big role to play and not not only because of the technology. We can bring on inspections, but the expertise we can bring from the standpoint of the health and safety you know the participants whether that's an inspection or things like that you have one of the one of the first areas that we were calls on related to cope with.
19 limits really started to attack the United States within the occupation, all health and safety and occupational medicine area, because our health scientists are able to advise companies on how they can be you know managing that that that down ramp, but now it's about how do we manage the on ramp.
Because we thought it would just to let this sort of new normal it's going to look like and there's no longer this sort of passive I'm approach to it. It's it's a very active approach and we are we are really trying to lead from a technological standpoint. So that we can so that we can accomplish that.
Yeah, I would add one less thing onto that I think what we're seeing is that.
Yeah, we're still at a point that the majority of our work is continuing on.
And and not as even on the litigation side. The majority of the work is continuing on some work is not being affected at all and what you know what we've heard from our people and seeing is the larger the engagement the longer the engagement the more likely it is.
To not slow down at all because those clients <unk> realize this is the long haul there's lots of work to do to be there and taking a month or two off get in the middle of it is not going to be get them, the answers and information that they need to make the right businesses.
<unk>. So you know, yes, we've been clear that some work has been pause some clients have chosen and take that opportunity. It's tended to be on a smaller to mid size cases that are individual cases, then it might be a class action.
Or a serial sort of issue that's going to continue on and there's no reason didn't sort of get off and get back on those types of issues. So yeah and it. It it is even in most practices. Their work continues on and some that don't it depends on the.
<unk> depends on the matter and and how close it is to that you know that hearing or trial date and such that's there, but the majority of it is continuing.
On this and that makes sense and then on that subject or something project or put on hold.
Do you want to censor insight into on your client's side. It's me put on hold just into general uncertainty in the business environment or if it's more of a <unk> issue and in that vein.
<unk> clients benefit at all perhaps from the parents after any other governmentally.
Yeah. So.
Yeah. So our our clients you know <unk> our clients are all very diverse set of clients you know, they're they're small companies the very large companies, but look we've we've talked many times two in bastards about the fact that the majority of our revenue you know remember 20 per cent of our.
Projects make up 80 per cent of our revenues and the majority of that work is for large corporations.
That are out there are some of those corporations, finding it more difficult than others than this environment sure, but the majority of yes. They are doing it so that they're putting something on hold because they realize it'd be just keep spending along and things get stretched out they do just.
You know they tend to cost more and so they put the lawyers and they experts and everybody on hold in doing that or they realize that things cannot be as productive in that period of time or is he fission. So it is going to ultimately save them money in doing that.
It is we went through every client that we had $100000 outstanding with and fast our project managers are reviewing principle and the officer over that business area to review the collectability of that in our their issues.
And we got incredibly strong feedback through that review of the strength of the clients. We have it doesn't mean remember we've got automotive companies. You know we've got ones that are in the industries that are taken a big head, but you know we.
We've only got 4.5% of our business in oil and gas and those there for some of the larger players that where the where most of the receivables would be so guilt. We're going through this we feel there's our assessment is that we're in pretty good shape their realm.
Let's see to the quality of the Ah receivables and the fact that the clients at the end of the day, what we saw back in the last recession is even if they're getting hit hard you still have to deal with the litigation. It's on your plate you still need <unk>.
Your your product through the regulatory bodies, you must do those things some clients can hunker down and pulled out inside you know they can't do it on litigation, but on regulation. They can do that but others put on a hiring freeze and it means they use more people outside so it was quite variable and allow.
Last cycle with clients, but ultimately they need to deal with these things.
Okay I'm.
Thinking about.
Thanks to like.
Well now take our next question from Sam England with Sandberg.
Hi, guys just a couple for me that's one you talked before about smoking, it's easy married like supply chain management coming as a result of that <unk> I just wanted the big that then he advocates good buddies project.
Any conversation and stuff.
Reclining in my area.
Yeah. Thanks, Sam So you know we're we're early on in you know, which talked a little bit about the ramp up that's that's going on over in Asia, you know in Shanghai in particular, Adam to some extent in Hong Kong. You know this is really an opportunity for us because.
You know with our clients to our manufacturing over there and their staff on able to travel you know it presents an opportunity for us to be able to you know really really support them, whether that's from you know root cause analysis type of perspectives, if they had an actual product failure.
Or issue it allows us to support them in a scenario, where they are having to change suppliers for some reason they need those I qualify they have issues evaluating quality control and things like that and so you know while they're <unk>. These are conversations that are going on right now.
That's certainly is not an area that has you know that has moved the needle you know from a materiality perspective as of now, but it's something that we are actively we are actively pursuing with our clients you know based on the relationships that we have.
Katherine view, maybe you could.
Talk a little bit further about the areas that we truly about it you know engagements on because there's a number of different areas that we you know it's not just discussions it is truly a that we are getting engagements. They're not you know again as you said, we're not at the point that we're here to say that this is.
They fall move the needle, but that truly couldn't developed a into something a bigger overtime.
Yeah, I'm not sure I mean, I can elaborate a little more on that the <unk>. The the regulatory side is quite busy with activity you know actual engagements around you know things like emergency use authorization swear very it's active.
Substances that meets our typically bio side.
That are utilized in products to actually kill a micro organisms and there are many regulatory hurdles that need to be Matt rank labeling scientific studies things that that nature. So that is probably the largest area of existing project activity that we've seen.
You know ramp up over the just the last few weeks and that's up for both our U.S. team as well as our our United Kingdom team that is doing that sort of work.
I mentioned, a little bit earlier work that is related really advised three work around occupational health and safety.
You know this is with clients, particularly in the manufacturing sector, who our manufacturing products to have concerns about the health and safety if their workforce at the same time, they want to be insuring that and they also want to be able to you know again actively managed.
They're they're onramp back into production. So we are we are actively doing work in that area as well and so you know those I think are two very important areas of that really have them. The earliest activity that we've seen come through.
Okay right.
And then the next question. It's just the you commented on the business development craves that smell changing and sense of it being based on the bomb colds can you just took the about how much of a slow you down that's been inmates inbound inquiries you know.
They may have to do at the age, but the new decline that you've seen or whether it's in another conversation on just people might be a bit more had been to commit just stopping anything at my <unk>.
Yeah, So with regard to the business development process, Yeah, I mean, it it really hasn't changed in terms of the way that the prosody engagement. Ultimately is it's close right. It doesn't depend on our employees being out at a meeting.
Yeah, you know, giving a pinch write it tends to be done you know based on you know we are we are ongoing in contact with our clients and and you know we are we are engaged by them directly you know, but one thing that we have been very focused on is the opportunity while our people are not.
Traveling to use technology to be doing you know thought leadership to be doing using webinars. We've had you know some excellent attendance and a lot of demands you know our clients are cooped up in in a way as well they are craving that sort of information around it sounds like 19 and so.
So you know we've been dedicating resources to ensuring that our capabilities are well articulated and that they're out there and and that we are you know getting that getting those touches in that way in terms of the incoming project flow. You know we are absolutely continuing to see you know opportunity.
It's coming in and actual engagements coming in I would I wouldn't ballpark that for you found that probably yeah, maybe an 80% to 85% sort of level. If it and this is again you know using riches caveat that we're only talking about maybe three weeks at the data like we were for the utilization.
But that's going to be roughly interest in terms of numbers of projects. You know, we don't know what the revenue will be on those by you know that that started hit rate is about at that level.
Yeah, I think I think it's a good indication while that 80, 85% seem so it is we're still getting in you know it you know, let's caught hundreds because we do a such a large number projects. It means that we're getting in that you know over 100.
New engagements you know a week that are coming through and and that and volume. So clients are still having a new litigation matter and wanting to get us engage and have a new product that they need to have evaluating and getting us engaged and they've got a new regs.
Jordi issuing getting a thing gauge some of 'em want it tomorrow, N.A. and get started and others want to make sure that the engagements all set and they're going to start out work when when they can but you know where we're clearly seeing that again.
Super majority is still sending us thing getting is that engagement to only have 15 or 20% that might be waiting.
Until there is even more clarity I think is is in a in a way good news for us because we believe those matters will will come along Ah you know as to as time allows.
Okay. Thanks <unk>.
Thank you.
That's not that's concluded our question and answer session for today as long as the presentation you'd like to think everyone for their participation you mean out that's kinda huh.
Hmm.
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Oh.
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Yeah.
Mm.
Oh yeah.
Hmm.
Hmm.