Q2 2020 Exponent Inc Earnings Call
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Good day and welcome to the exponent second quarter fiscal year 2020 earnings call.
Today's conference is being recorded.
At this time, I, which turned the comments or would you when you Cookie cutter. Please go ahead.
Thank you operator.
I couldn't hear ladies and gentlemen, thank you for joining us on X one in second quarter. After school 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 dot com flashing Dr. This conference call is the properties ex dominant in any t. being 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, enriched linger Executive Vice President and Chief Financial Officer before we start to remind you that the following discussion contains forward looking statements, including but not limited to export market opportunities.
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 can be found in excellent periodic FCC filings, including those doctors discussed under the caption risk factor.
Okay and excellence most recent form 10-Q.
Forward looking statements and risks in this conference call are based on current expectations as of today and exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise.
Ill now turn the call over to Dr., Catherine Korigan, Chief Executive Officer Catherine.
Thank you Whitney and good afternoon, everyone. Thank you for joining our call today I hope that all of you and your loved ones are staying healthy in shape.
When we last spoke at the end of April exponent within its fifth week of most employees working remotely and now we've entered our shifts month.
Please put the responsiveness of our employees and the adopted most of our company to today's on certain environment.
Hi, its continued you call upon exponent you addressed our challenge is actual evaluate their opportunities. Despite the rapid change and I'm predictability that the pandemic has infused into their operating plan.
Fundamentals of our business remains strong and we continue to operate in a position of financial strength.
Well no revenues declined 12% in the second quarter, we were able to deliver earnings per share of 31 cents ended the quarter with $190 million in cash and no debt and reiterate our intent to continue quarterly dividends.
The demand for exponent interdisciplinary solutions durable that's companies continue to innovate and deploy increasingly complex products and systems at the same time society focus on safety health sustainability and reliability requires a rigorous science and data driven analysis.
Hallmarks of exponents more than 50 years of service.
Our agility in assembling and deploying diversely skill teens, drawing upon more than 800 highly credentials consultants across the vast array of just sometimes.
Manifested itself, yet again as we advise clients on a variety of issues prompted by Kopec 19.
That's all it has a long history on strong track record of delivering for all of our stakeholders. As we are confident in the resilience of our business and our ability to deliver growth over the long term.
Exponents engineering and other scientific segment represented 78% of the company's second quarter net revenues.
Net revenues in this segment decreased 15 percentage and the second quarter, that's compared to 2019.
Business restrictions associated with Covidien 19 caused project delays across multiple areas of list segments.
Substantial impact occurred to on litigation support work for the transportation industry with most assignments caused due to court related delays.
At the same time, we continue to see striking integrity management advisory services for the utility sector. That's clients focused on power reliability in particular during the intending fire season in the Western United States.
Exponents environmental and health segment represented 22% of the company second quarter net revenues.
Revenues in this segment decreased 2% in the second quarter, that's compared to 2019.
This segment also experienced delays in projects for the transportation industry as well as to the oil and gas industry.
Within that segment, the chemical regulation on food safety practice continued to grow in both the United States and Europe, that's our scientists evaluated the effects of chemicals and new products on human health and the environment, including disinfectants for the novel Corona virus.
Exponent responded quickly and carefully to address the unprecedented challenges created by the pandemic.
We have successfully adapted and we'll continue to evolve our business development recruiting and operational approaches.
Building benefits both during and after this crisis.
We have accelerated our sharing of getting dept, scientific and regulatory knowledge through Webinars and thought leadership pieces.
Which has fostered new client relationships and projects, we have shifted all recruiting activities online, allowing us to reach a more geographically expansive set of candidates.
The health and safety of our team remain top priorities and therefore, we have leveraged our internal expertise to establish protocols that allow us to states. We continue laboratory activities and recent human participant studies.
Our business continuity play out and robust infrastructure have been powered what productive remote work and employees continues to work from home unless they are performing laboratory testing on sections.
Our leadership team has responded with enhanced internal communications to encourage increased cut activity across the firm.
We are pleased about exponent has been able to effectively addressed clients' needs mostly remote workforce.
The relaxation of the business restrictions in June allowed us to resume laboratory testing inspection with a human participant studies for clients in non essential industries.
Yield inspections of sites and products have increased due to lifting of travel restrictions are still occurring at a reduced level since many businesses are not fully operational.
We successfully completed multiple human participant studies in June utilizing our enhanced health and safety protocols.
Demand for these studies continues to grow but some are delayed because of uncertainty surrounding cobot 19 related restrictions.
We remain optimistic about the long term growth of this area.
We continue to receive new Retentions for litigation support and work is ongoing for many existing matters at the same time trial dates continued to be delayed removing imminent deadlines and causing some clients in particular, the automotive industry to pause work.
Courts have been experimenting with virtual bench trials as well as social distance and four in person trials. So we expect trials will gradually increase overtime.
We're pleased to be sharing our scientific and regulatory knowledge on health and safety issues related to the novel Parana virus.
We have been engaged by clients to provide regulatory support in the United States and Europe, I say register their new or existing biocide products.
We have also been advising clients on occupational health and safety concerns, including Cobiz 19 testing contact tracing and disinfecting I'd say strive to protect our employees customers and students.
Furthermore, we have leveraged our breadth of disciplines from chemist since gives a sense to engineers to evaluate decontamination products from hand, sanitizers to ultraviolet light.
Well that's in the midst of the most widespread and formidable health crisis in modern history, yet organizations around the globe recognize the imperative to move forward.
Exponential unparalleled expertise innovative capabilities and geographic coverage position us as they go to resource for answers in this complex environment.
I'll now turn the call bunch of rich to provide more detail on our first quarter financial results and to discuss business activity in the first three weeks of the third quarter rich.
Thanks, Catherine and good afternoon, everyone.
It was like did last quarter I will start by providing details of exponent its financial results for the second quarter, and then I will pivot.
You just guessing outperformance in the first three weeks of third quarter.
At this time, we cannot reliably provide revenue and earnings guidance due to the high degree of uncertainty as a result of business travel social dispensing imports system restrictions imposed due to covert Nike.
Please note that all comparisons would be on a year over year basis, unless otherwise specified for.
For the second quarter it 2020.
Total revenues were $92 million down 14% and.
Then revenues before reimbursements for net revenues is that he will further down from here on where $87.9 billion down 12%.
During the second quarter or work for PGT relating to the wildfires and integrity management of their electric power infrastructure remain to be 4% to 5% of net revenues.
We expect this work for Pete you need to continue in the third quarter at the same or slightly lower level, and then step down gradually overtime.
There's a second quarter a work related to the Corona virus was approximately 1% to 2% of net revenues.
For the first half or 2020 total revenues decreased 4% the $198 million.
Net revenues decreased 3% to $187.6 million.
Net income for the second quarter was $16.3 million or 31 cents per diluted share as compared to $21 million or 39 cents per share in the same period last year.
And the second quarter exponent recognized state tax benefit from share based awards of $900000 as compared to no tax benefit for share based awards in the same period last year.
EBIT dog in the quarter was $22.8 million or 26% of net revenues.
Compared to $29.6 million or 29.5%, but net revenues last year.
The first half of 2020 net income decreased.
2% to $42.6 million and earnings per diluted share were 80 cents as compared to 81 cents per share in the first half of 2019.
Year to date, the tax benefit from share based awards was $9.7 million as compared to 5.7 million in that same period last year.
Year to date, EBITDA was $47.8 million or 25.5% of net revenues as compared to $53.4 million or 27.6% of net revenues in the first half of 2019.
Turning to some of the key metrics for the second quarter billable hours decreased 15% to 299000.
Year to date billable hours decreased 5% to 647000.
Utilization in the second quarter was 64%.
Which is down 12 percentage points from 76% in that same period last year.
In April and May our utilization was approximately 60%.
As business and travel restrictions were relaxed in early June our utilization rose to the mid Sixty's.
During the final three weeks or the corner, we had a large human participant study, which increased utilization to the low to mid seventies.
This study was completed by the end of quarter and at this time, we do not have an equivalent size study scheduled for the third quarter.
For the first half the year utilization was 68%.
<unk> was down six percentage points from 74% in the same period last year.
We continue to expect our long term annual utilization to be in the mid Seventys as we build more critical mass in our offices and practices and expand our service offerings.
Just to go fulltime equivalent employees in the quarter were 899.
Which is up 1%.
Year over year and down 4% sequentially.
This sequential decline in Ft, Geez was primarily due to the divestiture of our German entity, which accounted for 3% of our headcount and 29 team and the first quarter of 2020.
We continue to have strong employee retention and are building backlog of qualified candidates.
Some of whom won't begin work in the third quarter.
We will continue to focus hiring where there is strong demand in areas of strategic growth.
In the third quarter, we expect sequential head count growth to be 1% to 2%.
For the quarter the realized rate increase was 2.5%.
For the quarter compensation expense after adjusting for gains and losses in deferred comp declined 4% included in total compensation expense is a gain in deferred compensation of $11 million as compared to a gain of coupon.
$2 million in the second quarter of 29 team.
As a reminder gains or losses in deferred compensation are offset miscellaneous income and has no impact on the bottom line.
The primary reason compensation decline. He is the bonus accrual was $3.3 million less which is consistent with the fact that our bonus accrual is 33% a pretax pre bonus income.
Additionally, as our business has been primarily partially impacted by government imposed carbonite gene restrictions, we were eligible for an employer payroll tax credit of $1.6 million through the employee retention program in the care.
As act.
For the third quarter.
The payroll tax spread it is expected to be substantially less as restrictions have been relaxed.
Barack based compensation expense in the quarter was $3.5 million as compared to $4 million in the second quarter of 2019.
Other operating expenses decreased 5% to $7.7 million in the second quarter.
Included in these expenses is depreciation expense of $1.7 million.
The primary reason these expenses declined is we had reduced activities in our offices and labs.
For the third quarter as lab activities have increased other operating expenses are expected to be approximately $8.3 million or equivalent to the same period last year.
Well, we are uncertain when our employees will return to the office full time.
We do believe our office environment provides long term value.
As it supports collaboration of our interdisciplinary team and staff development.
Which results in higher value for clients and retention of employees.
In the second quarter, Gionee expenses were $2.9 million, which is a year over year decreased 45%.
These lower expenses are primarily the result of less travel related to marketing and recruiting.
For the third quarter.
As we increase online marketing recruiting and development activities, we expect DNA expenses to be $3.3 million to $3.6 million as compared to 5.5 billion in the third quarter of last year.
Interest income was $300000 as compared to 920000 in the same period of 29 team.
The lower interest income is due to a steep decline in interest rates.
Third quarter, we expect interest income to be approximately 250000.
Miscellaneous income for the quarter after adjusting for deferred compensation was $990000 as compared to 920000 in the same period last year.
For the third quarter, we expect miscellaneous income to be approximately 800000.
Inclusive of the tax benefit for share based awards exponents consolidated tax rate for the second quarter was 23.7% as compared to 27.2% and the same period last year.
For the first half of 2020, the tax rate was 6.2% as compared to 16.2% a year ago.
For the third quarter, we expect our consolidated tax rate to be approximately 27.5%.
In the second quarter operating cash flow was $48 million capital expenditures were $1.2 million.
During the quarter, our accounts receivables improved to $109 million on July 3rd as compared to $127 million on April Threerd.
Next on it has not experienced any material deterioration in our receivables are collections due to the current crisis.
Additionally, we expect the remaining $3 million, a PGT accounts receivables related to the bankruptcy to be paid in the third quarter of 2020.
Year to date, we distributed to shareholders $20.1 million through dividend payments repurchased $40 million in common stock at an average price of $62, a 91 cents and close the period, where the $190 million in cash it.
Short term investments and no debt.
In late May exponent announced that its board of directors authorized an additional $45 million in share repurchases, increasing the company's current authorization to approximately $75 million.
We have a strong balance sheet active repurchase program and intend to continue to pay quarterly dividends.
Turning to the current activities.
Again at this point, we cannot reliably provide revenue and earnings guidance due to the high degree of uncertainty as a result of business travel social distancing and court system restrictions.
Impose due to covert 19.
Well it is a limited dataset the preliminary average utilization for the first three weeks of July was 68%.
As compared to 75% for the same period in 29 team.
For the three week period, we estimate this year over year change in utilization equates to a 5% to 8% decline in net revenues.
Assuming the estimated third quarter operating expenses I have provided.
And if net revenues for the entire third quarter, where did decline year over year, 5% to 8%.
Then EBITDA margin as a percentage of net revenues would be approximately 24% to 26%.
As compared to 27.2% and the same period last year.
For the third quarter modeling purposes, we estimate that a 1 million dollar increase or decrease in net revenues, which is equivalent to approximately 1% of last year's third quarter net revenues would generate a corresponding.
Hey, 30 to 40 basis point change in EBITDA margin.
It shouldn't be noted that exponents bonus accrual is one third a pretax and bonus income and as such employees and shareholders are aligned and their desire to maintain profitability.
Despite the unprecedented drop backdrop.
Exploit it has retained its employees remain profitable and ended the quarter with 190 million in cash and no debt.
Exponent has a sustainable business model and intends to continue our quarterly cash dividend payments.
Well, we cannot predict the magnitude or the duration of the disruption caused by the pandemic. We believe we are in a position of strength.
I will now turn the call back to Catherine for closing remarks.
Thanks Rich.
Our society continues to raise its expectations for safety health sustainability of the liability and products and processes continue to grow and our technological complexity exponent will evolve to stay ahead of the curve.
These market drivers have powered Exxon its growth for over 50 years I'd have led to increased demand for our interdisciplinary solutions just I was curious macro economic turbulence.
We have been nimble and pragmatic in our response to new market dynamics amid the unpredictable and rapidly evolving backdrop associated with Coke at 19.
I am proud of our employees for responding with the same seriousness intellectual rigor in fact based analysis that we have employed for over 50 years.
We remain focused on three things.
The health and safety of our people demonstrating leadership I continuing to solve our clients most pressing problems and delivering value to shareholders.
Operator, we're ready for questions.
Thank you if you would like to ask a question he signal by pressing star one.
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Well take the first question from Tobey Sommer Suntrust. Please go ahead.
Thank you two reporting segments.
Hi, good friends are kinda impact.
No.
The court closures in the travel restrictions just trying to understand how the.
Some of the factors impacting the business.
Right the district or across the segments.
Yeah, when I start off with a few quantitative numbers and then.
Give a commitment katharine good step in but so there is a difference definitely here because of the strength in our bio chemical regulation in food safety practices as well as the long term nature of the litigation sort of again.
In the environmental segment.
That that segment the revenue net revenues were down.
1.8% versus the net revenues in the other scientific in engineering segment being down 14.9%. So definitely had a different impact a across that are those areas. So when I liked.
Turning it over to Catherine she might have some further comments about.
How's the litigation environment has affected the business and why that's different across the segments.
Yeah. Thanks stretch what we see these has either litigation side. Its a couple of things. So the engineering side of the house is definitely impacted in a more significant way by the apps and at one of the reasons for that is the the nature of the war.
Work being driven to some extent by sites and product inspections, and so those do occur on the environmental and health side, but they're not nearly as prevalent as part of the work flow and so the travel restrictions and the scheduling delays in let's say.
Liability litigations. So this is going to impact our vehicle engineering practice. This is impacting on file mechanics practice. It impacts the human factors practice. These are all going to come into that engineering and other scientific segments.
In addition to that the the courts themselves.
It's interesting they are starting to experiment with withholding trials, but the trial side of the equation is you know probably at least based on my own experience probably about wanting 20 cases, or so maybe it's gonna get to trial, but what really drives the activity is the.
Setting up a trial dates.
And we've seen an interesting trends over the course of the quarter.
Where junkets are definitely putting up the trial dates onto the calendar you know there a little ways out, but we're seeing those and that is driving these schedules you know that will drive the discovery schedule that will drive the product inspection schedule and things like that so.
So some of the trends weve seen on the engineering side over time is that we are able to get out and do more of those inspections. We're also seeing a and improved flow of deposition of our experts that are occurring. This it's been kind of a key keep break through you know three months ago when.
So deficit the idea of doing virtual depositions was not very well received by the legal opinion today. They didnt like the idea of not being in the room with their expert when those depositions happens, but now the idea of virtual expert deposition, it's very much except that I didn't got one on my calendar that I got to do in the next month.
And so we do anticipate on that engineering side, because the inspections are being on locks because the depositions are being unlocked because the trial dates are being put on the calendar that where you know we're optimistic that we will continue to see that the gradual improvement that we saw over Q2 and that that's going to continue.
Into Q3.
[laughter] from abroad perspective, what's your current assessment.
The man deferral versus destruction in how to the compared to when we spoke.
With one key was all.
Yeah.
Thanks, Toby so I think that you know the data we're seeing now in terms of work flow.
Really is consistent with the observations that we made three months ago. You know we were early on back then in that first three weeks or so we haven't seen much in the way of you know outright cancellation of work what we did see what's the pause button being hit you know in a signal.
If they can't way and you know we talked about a few particular areas you know we talked about our human participant studies.
We talked about things related to litigation that I. Just described we talked about lab work for non essential businesses and so what happens over the course of the quarter and even into the first three weeks of Q3.
Is that we've seen the demand.
You know about pause button, if he well being let up on a more and more in each one of those areas. So like when I think of our user experience research theres quite a bit of demand that we're seeing now that we have been able to resume activity in our Phoenix user Research Center.
You know we've worked very hard with our internal teams to develop the health and safety protocols that we need in order to have human participants into our facility. We've taken advantage of the fact that we'd have expertise and disinfection out in the chemistry and im like human factors and in the materials that we need to be.
Able to use 'em in terms of P E and things like that and so we're we're seeing that clients continue to open new projects in that area. You know a we had certainly a reduction last quarter in the sort of new project inquiry flow, but what we've seen over the course of the last three.
Launches that that is gradually improving so I continue to to believes that what's going on now is fundamentally and primarily due to this pausing effect.
As opposed to necessarily a canceling effect, it's it's different across different industries.
There's some difference across even different clients. If you think about you know when the consumer electronic space. This is what's considered a non essential industry in many of the restrictions were able to get back in the lab now some of those restrictions have been lifted but you find that different clients are coming back into that at somewhat different speeds.
In terms of in terms of what they're doing but we are seeing continued demand.
Okay perfect. If you could just elaborate a little bit more on that or your projects that the.
Oh, yes, industrial customers are pausing reactive or proactive.
Any color you can give us there.
Then.
Oh I'm I'm curious if you could also make any comments on M&A, which has not been a frequent occurrence firms like would seem like disruption of this nature could Ah Ah under some San Dimas. Thanks.
Yeah, right. So first let me address the a little more specifics on the automotive industry. So the majority of the work that we do for the auto industry is on the reacted side product liability litigation as well as T. SEC investigation recall related work the.
Area that has been most impacted is the product liability litigation and you know there it's interesting because what we're seeing is that those clients are taking advantage of the delays in the trial schedule you know as we know there a number of the automotive manufacturers.
Foreign cars for a for a substantial period of time and so they're taking advantage of the opportunity to to later legal spend and so if the if the court is not pushing with a trial date on what they have done has asked us to pause the technical work up on the matters that were engaged yet we have not seen.
Any rush to to settle cases that any different rate you know they still fully intends to take cases to try all aware. They believe you know they they should be taking them to trial they seem to be strategically, making those decisions in the same ways, but they are taking advantage of the delays because of the court system.
And then you had asked about M&A as the second part of that rich is that something perhaps that you want to comment on a little bit.
Yes, So look I think it is from an M&A standpoint, still a little bit early on.
In a entities figuring out where they've settle down in and how things are looking.
Yeah, we're not necessarily seeing a distressed sale.
You know going on at this time, we know that depending on where people's business, our they've been more impacted that others by the pauses or restrictions that had been put in place.
What we are seeing though is opportunities to do see in your recruiting.
We're working very hard at that we you know we've hired one or two or you know that's not necessarily going to move the needle, but we are are putting as much effort into that as we ever have a into the senior recruiting area. Because we know that people who are you have normally Ben.
Are you know the star in their organization, but if that organization is not performing as well.
No there tends to be a plan to start to treat the everybody equally by in some of those organizations in and we're we're looking to do is engage with but those individuals that maybe we've been following are talking due for a while but you know we're comfortable where they were and.
Now it may become less comfortable and and so that has led to a bit more open discussions, which we hope will.
Materialized themselves over the next you know 12 months.
Thank you very much.
Well now take our next question from.
Well now take our next question from Axis his deep from D.A. Davidson. Please go ahead.
Hi, rich teleconference. Thank you so much for taking my question.
Thanks, Phil access.
So on the German and he divestiture I just wanted to make sure I have this right. It's accounted for 1% of revenues, but 3% of headcount was I correct.
Those are the.
That's a approximately right that was a business that.
Had a lower you know a lower revenue per upper headcount then that our core business. It's one of the reasons that it didn't really have a good long term fit for us It was more Andy design, a engineering business, which tends to.
I have a much lower a rate per employee. So that's why those are differentiated from each other.
Got it okay.
You know in the past you've alluded to the possibility of cross selling your integrity management services to other utilities and so with fire season approaching now are you see not become a reality.
Yeah. Thanks, a lot said so we are its interesting just this morning, our team did a did a very successful weapon are on this exact topic. When we had about all at once it was definitely over 100 attendees from across quite a few of the major utilities.
So we are seeing yeah, we are scratching the surface I'm not I would say you know in terms of what we are offering and what we are 'em. We are winning with other utilities. There is some ongoing work that has been a so that the outside of the teaching works that we have.
Successful in selling I look forward to this team you know really doubling down on those marketing efforts. It has spent his focus from the standpoint of our business development and our you know our renewed a virtual marketing efforts. If you will unlevered webinars today as a perfect example attached so.
Getting getting some traction getting the word out and hoping that we can we can increase out overtime.
Great. Okay. Thank you I might not just one more for me on the hiring pipeline I was hoping you could kind of talk about thank you for for the color and insight on the on the pipeline right now and also for next quarter.
You could compare the pipeline as it stands today the make up the science I know you've done on your queued up for some of your time curious cutter as it stands today to maybe the end of 2019.
Yeah, Yeah. Thanks, Elecsys, we it's interesting what we have them doing there is.
Undergoing a process that's conversion into the virtual recruiting environment. So our pipeline. It's it's fairly good I mean, what we've seen these of the.
Our recruiting events, which we have had to pivot to doing virtually is that the attendance at those levels, yeah, well instead of hundreds which is substantially more than we would typically get in a single University recruiting events. So we're able to have a sort of a more expansive geographic outreach.
We're feeling very careful however, with regard to decisions about who we are going to formally in Turkey that we're very focused on ensuring that the interviews are happening in the hiring what's happening in areas, where we've got good demand in the business and you don't worry.
Our strategic area going forward you know, we've we've had good success with that I was saying from that standpoint of just the overall competitiveness of the UBS, but the job environments. You know they are there are folks are coming out of universities are coming out of Phd programs.
They are actively looking so I think our pipeline, it's quite healthy we've not really seen a reduction.
Relative to 2019 in the sort of interest level vseventy the top of that funnel, but what we are doing is applying a bit more of a filter or to ensure you know that we are optimizing the amount of interviewing and hiring that that will do.
Okay. Thank you so much.
Well now take our next question from same England from Berenberg. Please go ahead.
Hi, guys. Thanks for taking my questions on first one you mentioned I know you've seen wants to be kind of revenues coming directly from kind of its 19 psychologist. One is how your striking that right right in the second half if you expected to grow Smith.
Yeah, I think because.
Go ahead Kathryn.
I think that you know, we're gonna be dealing with cobot 19 for a long time.
And I think that there are some different areas you know that the initial area, where we've seen the biggest amount of activity is absolutely on the chemicals regulation side. You know this is all of the registration work and things like that as well as the health and safety Advisory you know when interpreting the various guidance and regulation.
Helping our clients with contact tracing sort of those immediate Fang us as well as product to related issues. You know this could be a devices that are using ultraviolet light for decontamination or or these can be diagnostic devices that are being used for cobot 19 testing those are the types of things we're seeing now.
But I believe that overtime for example, we're going to see the litigation ramp up substantially you know that that takes time to get going we're already seeing activity around some of the class actions, you're you're seeing a trend is in the legal arena around.
On business interruption type of disputes and so there was some trends that we're seeing that we believe are gonna drives that you know if it was one.
One and a half 2% of revenue in Q2, I do think that what we're gonna see is is an increase over time you know I don't think we're gonna be at 10% of revenues you know related to coated but I think a couple of percent of revenue you know certainly.
I think 30 cents a possibility it could get to a low to mid single digit kind of area on us we track it but that will take some time and it will take the litigation to develop I believe in order for that to happen.
Yeah, I also think Ah I think that as a as a over the near term I think where some of that will come from is that.
It's really on the occupational medicine side and await related to a contact tracing in a sort of behavioral management trying to keep people social distancing at at work so.
Those are a combination of integration of technologies, a data management and analysis <unk> and obviously to health science around it and how that's changing so I do expect and and we are seeing an increased demand.
And in that area as clients are trying to find a where they are going to actually get a or be able to make a safer environment for their employees customers and students and a in the academic environment.
Great. Thanks, very much and then on the international business I, just wondered whether the recovery that you've seen that has been.
Similar to the kind of you've seen in the right and slow a bit cost that's come back just wanted a day differences.
Yeah. So it was interesting I think we it and it said on the first quarter call that in Asia, I, clearly youre employees had been working from home and and that operation had been a really impacted in me.
February March timeframe, yet only being 3% of our business over in Asia. It wasn't a major impact but it was a indicate indicator we had seen those employees returning to the office and labs.
In the Middle late March and we're starting to see activities pickup in April.
Ladies apparel and a into May we were on a you know, especially in Shanghai.
We saw that business and add a full <unk> level of activity a exceeding where we were at even in late 2019, you know our clients are unable to travel over there.
They were in the process of restarting operations.
And so the demand at our services picked up at that time, and it's been holding a at a pretty strong the level by ever since and Hong Kong, a which is about a third of the revenues over in Asia.
That activity as well picked up a little bit slower because our activities. There do support a lot of a manufacturing that goes in it on in southern China, which means transit in and out of a into Shenzhen and back which is not permitted at this time, but still.
We saw a business pick up substantially in those areas. So that's a azure responded well it was a good indication of what happens when no non essential businesses came back and what we did see is that occurred then when.
We began to be able to do work for non essential businesses, and our lab and travel but in June and our business here. So it did replicate itself over a we saw those activities sort of bounce back in early June and that was similar to what we had seen.
Over in Asia, and Europe, our business is primarily related.
Related to the chemical regulation in food safety business, a those employees are not only you know they're not out in the field that much a yard they're going to go to a meeting or something of that types. So they were won't first able to continue all of their business a working remotely.
There they were also dancing increased demand.
For emergency use in registration on just in fact into another.
And things that were coming into the market in Europe, and so that area or actually saw strength in and what they were doing in Europe, and we have not seen really any of what off of that over that period time. So yeah, that's what we're saying Oh from our.
International offices, I wouldn't say there what's interesting is that European operation is one where no matter how hard the UK or Europe got hit during the last recession in Aon, beginning in Norway, and moving through that area continued to show us double digit.
Growth back through that period of time, so it's good to see that their strength is holding together again.
Great. Thanks, very much like the though right.
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Well now take our next question from Marc Riddick sensitivity. Please go ahead.
Hi, good afternoon.
Hey, Mark.
Oh, what is supposed to I want to take it with the detailed color that you provided around some of it.
It's.
Oh, good knows what is a good.
Follow up a little bit more limited commentary you how to run the the quote activity and the timing of Oh, no getting the document that seems to jumpstart certain things I was wondering shift a little bit of detail around or the we particular, a jurisdictions that uh huh.
The more active than others and sort of be how far out or we are we looking at those dates means that then seemingly set other other activity and maybe a little bit of though no setting the finish line. It does put in other things in motion.
Yeah, Yeah. Thanks, Mark so it's it's a bit it's a bit all over the map and that's I mean that almost literally because there are 50 states and a significant portion of the litigation work that we do it's four cases that are venue in at the state court level there are.
Some matter with the federal level, but I would say at least three quarters, maybe more are gonna be at that state level. So you know we see we see your range. There are some that have said look you know, we don't anticipate getting back to jury trial until let's say January.
But there are others, where I mean, you've got you've got trial dates that are on the calendar that artificial that are going to be in September or that are going to be in October.
And so we were seeing that you know that might be you know, Texas. For example is generally more aggressive than maybe some of the northeastern states and things like that.
Now whether those dates will actually hold is it's a real question I mean, they these are these are places where their work there were jury trials that were listed for July that I mean judges are same S for holding onto their trial dates and not giving that continuance until literally the day before.
And I'm actually that's good news for us because it's the setting up the date for the trial that drives the activity and what was very often happens is that the settlement happens on the courthouse steps and so we're monitoring I literally state by state so that we can.
You know, we can get a sense of when we think these various cases aren't going to go with the federal courts are a little more I'm a little more on the conservative side, but from what I'm seeing you know you're seeing dates that are being pushed later into the fall maybe to early 2021, but they're gonna be driving.
Activity back because once you set your trial date, Okay. Your exhibits you're going to be a do a month before that and that's going to be a settlement conference a month before that and then the expert deposition deadline is three months before that and so we can drive activity back for you know three to six months.
Okay. That's that's really really helpful. Thank you.
I wanted to switch gears will be back I want to go back to the commentary around the 1% to 2% of revenue and I'm, assuming that was for specifically for two Q, but as far as a percentage of revenues related to cool that are correct those dose for that's correct.
That was for Q2, that's correct.
Okay. So I was wondering how are those types of opportunities develop those wondering if you could share some thoughts as to how that might shape up your view as to current practice areas are there depressant areas that you think will develop from from what you're seeing here and you know.
Are there things and opportunities that you think your years, you are well suited for or things that that might drive recruitment to create other processors is one of its or is it too that sort of think along those lines.
Too early I should say difficult missiles.
Yeah, So I I think that and you know in terms of developing a new practice I mean, we when we think about our practices. Those are really based on your folks training and scientific experience, but I do think.
Oh pit 19 opens up sort of market opportunities and you know one of the things that rich mentioned is something that's definitely worth reiterating and is an area that we have had already been active in even before cobot 19 cat and that is this area.
Of health monitoring.
You know rich mentioned some of the contact tracing I'm sort of behavioral proximity monitoring kinds of opportunities that wearable technology presents but it also presents an opportunity to get early signal for four symptom tracking and for physiological sign tracking.
And so with with our experience around large scale data data strategies large scale data collection and data analytics Health Sciences, we believe that we can pull together.
What a differentiated the expertise and offering that you know that would incorporate not only the.
Proximity monitoring the contact tracing but also the health components, you know where are unique in that we've got the health Sciences expertise, we got the occupational medicine expertise. We've also got the electronics expertise, we got the data analytics expertise. So that's been an area I you know one one thing that where I mentioned a lot about.
Doing webinars and an increased digital marketing presence on and that's one example of an area specifically around this code at 19, where they need it has become more acute on and we believe that we that we have opportunity.
Yeah, I think mark that Ah you know that's that's probably you know as we look at our society and where it's going probably one of the biggest opportunities is is we're clearly going to be a pretty much all of us wearing a wearables monitoring or are.
Help to Oh, you know in the future and it's an area that exponent spin or you know getting some work in Ah, but viewed as a large business opportunity before we knew anything about cobot, a 19, yet and its disease and such so we.
We are very fortunate there to reiterate what Ah Katherine said of what we had already been doing in the area, where how we tend to hire in and data analytics, a human factor is ER and in the health area to continue to you know in this time.
Right. Good loved where you want to be is your strategic areas are getting supported so that you can continue to hire and do that in and we do have that market draw a support to be able to do that I do think a and other area is that I you know, we always talk about how soon.
I'd is continuing to grow its demand for a safer healthier environment for especially around human health and ER. This just brings them you know a real microscope onto the issues of human health and and such.
I think people are going to be more interested in how businesses.
If that's the airline industry the cruise industry the hotel anywhere in the hospitality industry is going about disinfecting, its environment and protecting a it those people who come into it so.
As we've mentioned a at spot it has some of the top experts in a you know in those areas of Ah Biologics chemistry on health and human health and so this is an area that we are continuing to recruit in.
And I think even beyond.
The Corona virus here, we're going to see increased demand from society.
To have companies focus in this area.
Okay. That's great. Thank you and then one last one for me.
I was thinking about b.
The.
The food or regulatory.
Part of the offerings in the overseas and I was wondering.
Is there anything that you're working on there or that you see there might be transferable to two around other places in the world, particularly yeah, I was sort of thinking along the lines of some of the Golden monkey related impacts in.
In food safety and those global supply chain proteins.
Scene and warehouse it definitely does wonder if there's anything that you think news is transferable to other portions of the world that you're already working on over there.
Yeah. So I just to be clear you know our chemical regulation in food safety practices, probably one of our strongest from a global footprint standpoint, we have a equally strong team in the U.S.R. and a few people in Asia. So are we are.
Our doing the work I described about going on in Europe. We're also doing here in the U.S.
As well I do a deal it absolutely you know a long term focus of society is protecting.
On the quality of our food system.
And you know exponent views that as an area of growth. Katherine you may want to talk about even from a supply chain standpoint, some of the webinars in and thought leadership.
It's been around does that from a from our team.
Yeah, I think that's right rich I mean, that's one of the areas not just didnt food, but supply chain issues, even more broadly are an area of the impact clearly across multiple industries and you know by way of example, one of the things that that we're seeing in Asia.
You know is it's clearly disruption to the supply chain and our ability to have boots on the ground in Asia.
No.
When our clients are not able to travel over there you know we've been able to help them. These are the their supply chains, whether that's from the standpoint up going into their you know their suppliers factories identifying quality issues. You know there there are issues, particularly with food when.
Your ingredients you know they only have a certain shelf life, saying you are it your supply chain has been impacted and things aren't delay. It you know how do you even think about managing to ensure that your utilizing an ingredient that's gonna be safe and and you know or if it's a drug that is going to be affected us and things like that and so we've been able to end.
Gauging that you know in across a variety of industries that could be a battery manufacturer you know, there's a certain chemistry that needs to use them, that's sort of robustness of the supply chain becomes very important supply chain becomes very important visas. He co take 19 testing uncoated 19 vaccine development.
Yes, you can develop a vaccine, but if you don't have a billion glass vials to put it down or if you don't have you know the billions of slog is that your threed printing or any sort of disruption anywhere along that supply chain can create can really wreak havoc on the delivery of the final.
And so that is an area that we are that we are involved in across a variety of industry.
Okay and I really appreciate all tell us thank you very much.
You're welcome.
And we have no further questions.
This does conclude today's call. Thank you for your participation you may now disconnect.
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