Q4 2020 Exponent Inc Earnings Call
Good day, and welcome to the exponent fourth quarter and fiscal year 2020 earnings call.
Today's conference is being recorded.
This time I would like to turn the conference over to Whitney. Please go ahead ma'am.
Thank you operator, good afternoon, ladies and gentlemen, thank you for joining us on excellent fourth quarter and fiscal year 'twenty 'twenty 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 slash investors.
This conference call is the property of exponent and any taping rather reproduction is expressly prohibited without prior written consent.
Joining me on the call today are Dr. Catherine Corrigan, President and Chief Financial Press.
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 exponent market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Digital information that could cause actual results to differ from forward looking statements can be found in exponent periodic SEC filings, including those factors discussed under the caption risk factor index.
Most recent form 10-Q.
The forward looking statements and risks in this conference call are based on current expectations as of today and excellent assumes no obligation to update or revise them, whether as a result, with new developments or otherwise.
And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer Catherine.
Thank you Whitney and thank you everyone for joining us today.
We'll start off by reviewing our 2020 business performance Rich will then provide a more detailed review of our financial results and our outlook for 'twenty to 'twenty. One we will then open the call for questions.
And a year of worldwide challenge, we demonstrated the durability of exponent business model and the strength of our market opportunities.
Our fourth quarter results exceeded our prior expectations and illustrate continued improvement across the business or.
For the quarter, we expanded EBIT margin 200 basis points as compared to the same period last year net.
Net revenues in the quarter reflected a return to underlying gross declining only 5% in the face of the 8% headwind from an extra week in the fourth quarter of 2019.
Our successful execution demonstrates the resiliency of our business model the dedication of our world class team and the strength of our reputation.
While we are encouraged by our results COVID-19 continues to impact litigation and she'd like participants studies.
Society is raising the bar for safety health sustainability, and reliability and clients are increasingly seeking exponent interdisciplinary proactive solutions exponent grew with annual revenues from proactive services in both business segments.
Bite pandemic related restrictions one last week about on the prior year and the divestiture of the German entity industry.
Industry and government alike are advancing their missions and multifaceted ways from designing novel products and navigating new regulatory challenges to innovating and evaluating new paradigms and processes.
These dynamics are creating opportunities for exponent and we will leverage our nimble business model to capitalize on these opportunities to drive long term gross and profitability.
For example in the fourth quarter, we deployed the wearable technology platforms for COVID-19 risk monitoring and mitigation for the U S Army and Navy that we talked about on our last conference call.
On COVID-19 use cases wearable technologies can be used to monitor worker health safety and performance and to evaluate the safety and efficacy of health care products and treatments.
Exponent is uniquely positioned with its diverse and integrated expertise to advise clients as they leverage technology to improve human health and enhanced performance.
Technologies, such as virtual reality robotic surgery, and advanced vehicles are becoming ubiquitous and understanding the cognitive aspects of users is critical to optimizing their experience and performance.
While our human participants studies have slowed due to corona virus restrictions the interoperability of humans and increasingly sophisticated technologies is a secular trend that will be a future growth driver for exponent.
The increased focus on sustainability is driving a shift in the transportation industry automotive.
Manufacturers are expanding their electric vehicle fleets and scaling manufacturing in a meaningful way.
Our world class multidisciplinary battery team is leveraging its experience in consumer electronics and our strong reputation for failure analysis in the transportation industry to improve the safety and reliability of energy storage for electric vehicles.
During the fourth quarter, we had increased activity on domestic litigation support which exceeded our expectations. Our progress in this area is occurring in fits and starts.
In the fourth quarter. Many assignments that had been paused were given the go ahead with near term deadlines, but in December and January clients were somewhat more measured as trial dates remain uncertain.
We saw increases in international arbitration hearings as they proceeded virtually since these do not require the involvement of the general public.
We are seeing a steady flow of new litigation projects, but some clients are slower than usual and authorizing work. We are confident that litigation support will remain a long term growth driver for our business.
Exponent engineering and other scientific segments represented approximately 80% of the company's direct net revenues in the fourth quarter and fiscal year 2020 net revenues in this segment decreased 5% in the fourth quarter and 4% in fiscal year 2020 as compared to 2019.
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Clients continue to seek exponent expertise for proactive and reactive engagements across a broad range of industries and use cases.
Our integrity management advisory services for the utilities industry remained strong as clients and regulators focus on power reliability and safety.
Our biomedical team advised clients as they navigate evolving regulatory frameworks around the world, including the impending medical device regulatory deadlines in Europe.
Exponents environmental and health segment represented approximately 20% of the company's net revenues in the fourth quarter and fiscal year 2020.
Net revenues in this segment decreased 5% in the fourth quarter and increased 1% in fiscal year 2020, as compared to 2019 within this segment the chemical regulation on food safety practice continued to grow as exponent scientists evaluated the effects of chemicals and new products.
On human health, and the environment, including registrations for different sectors to prevent the spread of the Corona virus.
For clients, who must meet healthy health and safety regulations as they distribute products globally.
Our scientific and regulatory expertise in the Americas, Europe and Asia is invaluable.
For more than 50 years exponent has been called upon to advise clients on the causes of failures as well as how to produce safer healthier more sustainable and more reliable products and processes as.
That's the technological complexity of these products and processes increases so does the demand for exponent engineering and scientific expertise.
Our market drivers are strong and demand for our services has continued despite ongoing uncertainties and economic turbulence, we are optimistic about our ability to grow in 2021.
I'll now turn the call over to Richard to provide some more detail on our fourth quarter and 2020 results as well as discuss our outlook for the first quarter and for 2021.
Thank you Catherine and good afternoon, everyone.
I'll start by providing details of expert on its financial results for the fourth quarter and full year 2020.
And then we'll provide some insight into our expectations for the first quarter and full year 2021.
All comparisons will be on a year over year basis, unless otherwise noted.
For the 13 week fourth quarter of 2020.
Total revenues declined by 6% to $103 2 million and revenues before reimbursements or net revenues as I will refer to them from here on declined by 5% to $97 3 million.
As compared to the 14 week fourth quarter of 2019.
Having one less week in 2020.
It was an 8% headwind for the fourth quarter.
In addition to the 1% headwind from the divestiture of the German entity that occurred in April of 2020.
As a result, the fourth quarter.
The underlying net revenue grew by approximately 4% year over year.
Net income for the fourth quarter increased to 21 8 million or 41 cents per diluted share as compared to $19 1 million or 36 cents per share.
Ex brought it recognized a tax benefit from share based awards of $2 $6 million or <unk> <unk> per share in the fourth quarter of 2020 as compared to $700000 or one cents per share in the same period, one year ago.
EBITDA for the quarter increased 2% to $28 3 million producing a margin of 29, 1% of net revenues.
The increase from 200 basis points as compared to the prior year period.
With a 52 week fiscal year 2020, total revenues declined 4% to $399 9 billion.
Net revenues declined 3% to $378 4 million.
The 53 week fiscal year 2019.
Having one less week in the 2020.
Year was a 1.25% headwind for the year.
The divestiture of the German entity was a headwind of approximately three quarters of a percent.
As a result, the full year.
The book the underlying net revenues declined by approximately one to one 5% year over year.
Net income per the year was slightly up at $82 6 million or $1.55 per diluted share.
As compared to $82 5 million or $1 53 per diluted share in 2019.
The tax benefit associated with accounting for share based awards for 2020 was $12 $3 million or 23 cents per diluted share as compared to $8 1 million or 15 cents per diluted share in 2019.
For the year EBIT decreased 5% to $102 1 million producing a margin of 27% of net revenues, which is a decrease of 40 basis points as compared to 2019.
Billable hours in the fourth quarter were 318000, a decrease of 11% year over year.
For the year billable hours were $1 million 273000, a decrease from 7% from 2019.
In addition to having one less week in 2020.
The year over year decrease is partially due to the divestiture of the German entity.
Which accounted for approximately 3% of billable hours and 1% of net revenues in 2019, and the first quarter of 2020.
Utilization in the fourth quarter was 67, 3% down from 69, 5% in the same quarter of 2019 for.
For the year utilization was 67, 1% down from 72, 1% from 29 genes.
Utilization adjusted for holidays, and vacations improve sequentially as we continued to get new engagements and some existing projects have their holds released.
But utilization remained below last year's levels as some trial dates have been deferred and human participants studies delayed due to COVID-19 restrictions.
We are pleased that the year over year comparison has improved sequentially each quarter from.
<unk> down 12, 100 basis points in Q2 down 580 basis points in Q3 and down only 220 basis points in Q4.
We expect improvements to continue in 2021.
For the first quarter of 2021, we expect utilization to be 70% to 71% as compared to 71, 4% in the first quarter of 2020.
For the full year 2021, we expect utilization to be 69% to 70% as compared to 67, 1% for the full year 2020.
First Michael Fulltime equivalent employees in the quarter were 909.
1% sequential increase and 1% decrease as compared to the same period one year ago.
The year over year decline in Ftes was due to the divestiture of the German entity, which accounted for 3% of our head count in 2019.
For the full year Ftes increased 1% to 912 inclusive of the impact of the divestiture.
We ended the year with 904 Ftes.
We expect sequential on head count growth of approximately 1% per quarter in 2021.
The realized rate increase approximately was approximately 5% for the quarter and 4% for the year.
The realized rate increase included 2% benefit from the divestiture of the German entity.
The rate for the quarter was higher than we had previously expected.
Salt of continued delays in user studies and testing activity, which leverage more junior staff.
So in the first quarter, we expect year over year realized rate increase to be 4% to 5% as we have one more quarter before we lap the divestiture day.
For the remainder of the quarters, we expect the year over year realized rate increase to be approximately 2%.
As a result, the full year realized rate increase is expected to be two to two 5%.
Were they for the quarter compensation expense after adjusting for gains and losses on deferred compensation.
2%.
The primary reason compensation expense declined was one less operating week in the fourth quarter as compared to the prior year period.
Included in compensation expense is a gain in deferred compensation of $8 $4 million as compared to a gain of $4 4 million in the fourth 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.
For the year compensation expense increased 1% after adjusting for a gain a gain in deferred compensation of $8 million as compared to a gain of $12 8 million in 2019.
Yes.
Stock based compensation expense in the quarter was $4 million as compared to $3 9 million.
For the full year stock based compensation expense was $17 3 million as compared to $17 5 million in 2019.
For the first quarter, we expect stock based compensation to be six 3% to $6 5 million.
And each quarter, we make remaining each of the remaining quarters to be three eight to $4 2 million.
For the full year 2021, we expect stock based compensation to be 18, four day $18 8 million.
Other operating expenses were down 7% to $8 5 million per the quarter and were down 4% to $32 2 million for the year.
Included in other operating expenses is depreciation expense of $1 7 million per the quarter and six $9 million per year.
The primary reason these expenses decline is reduced activities at our offices in labs as well as one less operating week in the fourth quarter as compared to the prior year period.
For the first quarter, we expect other operating expenses to be eight two to $8 5 million for the full year. We expect other operating expenses to be 34, 7% to 34 $35 2 million.
This year over year increase assumes a gradual return to our office offices over the year.
While we are uncertain when our employees will return to the office Paul Thyme, We do believe our office environment provides long term value as it supports collaboration for our interdisciplinary teams and staff development, which result in a higher value for our clients and retention.
Of our employees.
G&A expenses were down 69% to $1 6 million for the quarter and were down 37% to $12 $9 million per the year.
A decline in G&A expenses was partially due to the do not holding a manager's meeting that was held in the prior year period.
And lower travel and meals expenses related to marketing and recruiting.
We expect G&A expenses to gradually scale as these business activities resume.
Additionally, G&A in the fourth quarter included a contra expense of $1 million as we released the bad debt reserve for the actual pandemic losses, which we which we decided to accrue in the first quarter of 2020.
For the first quarter of 2021, we expect G&A expenses to be three four to $3 6 million for the full year 2021, we expect G&A expenses to be $16 four to $16 8 million as a result of marketing and recruiting Inc.
Creasing during the year.
Interest income decreased $800000 to 200000 for the quarter.
And decreased $2 2 million to one 7 million for the year.
Lower interest income is due to a steep decline in interest rates year over year.
For 2021, we expect interest income to be approximately $25000 per quarter or $100000 for the year.
Miscellaneous income net of deferred compensation gains was 500000 for the quarter and three.
$3 6 million per the year from.
For 2021, we expect miscellaneous income to be approximately 750000 per quarter or $3 million per the year.
For 2020, the tax benefit from share based awards was $12 3 million from.
For 2021, we estimate based on the current stock.
Stock price that our tax benefit associated with share based awards will be approximately $6 3 million for the first quarter and full year.
The tax benefit from share based awards is determined based on the change in value of the share based awards between grant and issuance dates.
Inclusive of the tax benefit from share based awards from its consolidated tax rate was 18, 6% per the quarter as compared to 28, 7% in the prior year period.
For the full year exponent has consolidated tax rate was 14, 8% as compared to 29% in 2019.
For 2021, we expect our tax rate exclusive of the tax benefit from share based awards to be approximately 27, 5% or equal to 2020.
Moving to our cash flows operating cash flows were.
$49 million per the quarter and $103 $3 million per the year.
Capital expenditures were 800000 per the quarter and $5 million for the year.
In 'twenty and 'twenty 'twenty, one, we expect capex to be $7 million to $8 million.
During the year, we distributed $39 8 million to shareholders through dividend payments.
The company also utilized $40 million of cash to repurchase shares at an average price of $62 91 per share.
As of year end, the company had $75 million available for stock repurchases under its current program.
The company ended the year with $243 million in cash and short term investments.
Today, we announced a 5% increase in our quarterly dividend from <unk> 19 cents to <unk> 20.
While we see well we are seeing positive indicators that our underlying business. There remains a degree of uncertainty surrounding how and over what time frame business and litigation activities will return to normal.
As a reminder, pandemic related restrictions had a limited impact on our results in the first quarter of 2020.
At approximately 1% of revenues in the quarter were attributed to our German entity, which was divested in April 2020.
The combination of these factors will create and challenging year over year comparison for the first quarter of 2021.
As a result, we expect revenues before reimbursements to grow in the low single digits and EBIT margin to be approximately flat for the first quarter of 2021 as compared to the same period in 2020.
For the full year 2021, we expect revenues before reimbursements to grow in the high single digits and EBITDA margin to be flat to up 30 basis points as compared to 2020.
Exponent has a sustainable business model and the fundamentals of our business remains strong.
Our quarterly results throughout 2020 demonstrated sequential improvement despite the unprecedented restrictions and pose related to the COVID-19 pandemic, we exited 2020 in a position of financial strength.
I will now turn the call back to Catherine for closing remarks.
Thank you rich.
Well I uncertainties related to the pandemic remain ahead of US Society will continue to raise the bar for safety health sustainability and reliability and clients will continue to seek exponent interdisciplinary solutions.
We remain focused on developing and retaining our exceptional talent ensuring that we are ahead of the curve and increasing our value in the marketplace by solving our clients' most pressing problems.
I am grateful to our team for their hard work dedication and resiliency throughout this challenging period.
We are well positioned for long term growth and will continue to deliver for all of our stakeholders operator, we're ready for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If youre using a speakerphone please Mike.
Mute function is turned off to allow your signal to reach our equipment.
Again that is star one for questions.
And we will take our first question from Tobey Sommer with trust.
Thank you.
You gave us some good color on the trends in.
Kind of litigation related work.
In some variability from the most recent months how would you describe that on a year over year basis.
Other in the quarter or <unk> whichever time period, you wanted to say.
You gave us color, but I kind of wanted to see what it was numerically that's a reference to prior year.
Yes.
Yeah on a per the what we experienced in the full year basis is the litigation work overall being down.
About 5% for the fall year on.
You know the I think we saw that that gap closed in the fourth quarter on you know it was probably down.
Somewhere in the mid single digit percentage, 5% to 7%.
We're in that range. So we did see it come off but it's still down year over year.
Okay. Thank you.
How is the company positioned from a.
Pricing perspective in what is the hiring posture.
This year.
Maybe I'll start off there from talking about what we've seen around the pricing that we're going forward with in 2021, and then Catherine will pick up on the sort of demand environment and how it ties into recruiting.
So are we.
We oh.
But it always does we have one rate for each of our individual consultants, we evaluate the market demands for those each year in the fourth quarter and put forward our rate changes on.
As of January one.
Yes, we are we've got some areas that had very strong demand for our people as we've talked about we've seen our proactive work growing and increasing our we still believe that the demand is there in the litigation market because we're still getting those new in game.
Jim and I had a pretty good clip, it's just that they work hasn't picked up but still with that we have clients that are in some challenging situations with their market being down. So we were quite sensitive to that as a result, our when we our rates were about one per.
Sent less of an increase than they were a year ago for our staff. So what happens is that we see that we are staff rates for this year on increased between let's call. It around four and a half a percent on a year over year basis for those employees.
On a year ago that was closer to five 5% a little bit higher on.
So we those increases go through on.
Those are blended down by more junior staff that had been hired recently or into the next year, which gets us to the realized rate increases on.
That we have laid out for the year of being in between two and two 5%, so a little bit lower still price increases.
In the market, but we're being sensitive to certain areas.
Yeah, and I can I can pick up their toby with regard to sort of the talent and recruiting side. So you know, we we certainly feathered our foot on the gas pedal when when Covid first channel back in Q2 and have seen steady gradual increases in our recruiting.
<unk> sort of through Q3 through Q4, and you know we're really looking at it continuing to accelerate that activity as we get into 2021, it's it's focused in.
In the areas of the business strength Friday, it's about hiring the right people in the right areas. So it's the same philosophy.
Some of the areas that we're that we're particularly focused on we're focused on the pharma space.
The junior on the senior level, we continue to focus on the human factors space with the opportunities there the data sciences space, particularly when you think about our opportunities around wearables and our opportunities around life sciences as well as the integrity management side all of these things require.
Bringing on talent more talent around the data Sciences area.
Nearing disciplines that are in our areas of strength. So think about battery related engineering disciplines think about the disciplines related to automated vehicles and vehicle safety. You know these are the areas that are driving the business, where we're seeing the growth and so we're focused on.
That you.
It's been interesting in the virtual space, we've been able to reach more grad students than ever before quite frankly through our virtual events.
So as we move forward, we will we will certainly be returning to in person recruiting on in terms of you know actually meeting our meeting our recruits in the flash, but you know a lot of learnings that I think we'll be able to carry over in terms of really getting our messaging out there around the opportunities that we have and getting that out.
To that talent base.
Because theres no doubt based on what we're seeing that.
The demand for engineering and scientific expertise is there and.
We're seeing that and you know there are lots of on lots of very high quality students that are coming out of out of those programs and being referred to us.
Thank you last question from me.
Accumulation of cash on the balance sheet well, great because it indicates your very profitable is also dampening returns on equity on invested capital do you expect that to continue.
No I mean, we are we remain committed over the long term here near term too rich.
Reduce that cash balance is the goal still remains to work that down in a prudent way to do something that might be in the $50 million to $70 million on the balance sheet on that'll likely through dividends and repurchases be over you know still a four to five year period of time.
But it is on.
Something that we as management and the board remain committed to.
Thank you very much.
And we will take our next question from Andrew Nicholas with William Blair.
Hi, good afternoon.
Nowadays.
We're almost a year out from the start of the pandemic I'm wondering if you could speak any competitive disruption you've seen in your markets, Mike I realize youre.
Your competitive set is relatively fragmented but is there anything you could say about the strength of your competitors today versus pre pandemic I guess I'm just curious to what extent excellence relative scale is proven.
Our competitive advantage in the current environment and what it could mean for future demand capture.
Yeah. Thanks, Andrew as you know the competitive landscape for our services is fragmented.
So we are seeing different things in different spaces.
But there's no doubt that as we have.
Engaged with our folks in the in the technical community, we engage with our competitors.
As we are out it at conferences you know these are being done virtually but but we are definitely finding opportunities from the standpoint of let's say the senior recruiting side.
And we've capitalized on a number of those opportunities this year in terms of being able to higher principal level talent on that as you know is coming out of some of our competitors and so we've been successful in attracting those that's.
That's not an easy thing to do I think there are multiple contributors to that but I think for sure that exponent relative success and the strength of the company and are forward looking opportunities that we have are a big part of the conversations that were.
Having with those folks as we as we talk to them and so I do think that there has been an opportunity for us to you know to gather talent and simply represent the durability on the resilience of the business. You know this is a we've been in business for over 50 years.
We continued to have strong market drivers and.
And we've really been putting out that message and I think that's where competitors are seeing that and.
We've been able to capitalize on some of those trends.
Great. Thank you.
And then from my follow up you talked in the release about teen growth in your proactive business. This year, despite having one less week in the calendar and divestiture, obviously that that's quite encouraging.
I'm wondering on the proactive side, what's your sense of where client budgets yet for this type of work heading into next year any sense of kind of increased wave of R&D and investment.
In 2021 now that some of your larger clients are presumably passed a lot of other COVID-19 related uncertainty.
And Relatedly is it your expectation that proactive will.
Materially outperform reactive in 2021.
Thank you yeah, yeah. Thanks.
It varies to some extent across industries right. When you think about the impact that Covid had and then what the sort of forward looking outlook is so if I think about you know if I think about the utility industry, we're pretty independent of the Covid situation.
Asian, right that that's kind of a one extreme example, where you know the drivers on around driver.
Drivers around our asset integrity drivers around climate uncertainty quantity, you know drivers just around safety and reliability of power delivery right. So so you're not seeing an impact there, but you know you can look to lets say the life sciences side of the equation.
From an early on there and the pandemic you know there were real pullbacks around things like elective surgeries and things like that and so we saw those budget cycles really have an impact somewhat early on but what we're seeing as we go forward. You know is it is.
Is some to some extent the release of that you know those elective surgeries are happening again to a large extent that is driving the usual issues around <unk>.
Regulatory regulatory requirements regulatory strategy on it.
Things like that that the growing the impending deadline around medical device regulation in Europe.
Looking at real World evidence around the pharma space as these technologies in life Sciences.
More and more complex. So those drivers are beginning to really take over again and we're not seeing nearly the sort of impact of those budget cycles. So you know and you think about electronics.
We were we were prevented from doing a lot of that work in the laboratory early on there were.
Were some budgetary impacts there, but as they look forward to their next generation generation of innovation on devices.
We are we are seeing a return to.
Kind of the level of activity around the design consulting. This is something we do in the electronics space as well as the medical device space.
So all in all you know these these are some strong drivers that are coming back in on the proactive side in terms of that sort of a balance of growth between proactive and reactive yeah. There's no doubt that there is increasing.
There are trends that are going to drive the litigation side further along you know sort of independent of Covid. Some of these things are.
Advanced driver assistance systems in the automotive arena.
Yeah, you can think about the toxic tort and environmental Arena, where there is theyre looking at things like Perfluorinated substances, a variety of different things that impact that.
We are we are positioning ourselves and seeing increased inquiries and retentions around those kinds of areas on the litigation side. So I do believe sort of independent of the Covid effect, we will continue to grow that that reactive side of the business, but you know the proactive.
Side for sure grew faster during 2020, we believe over time and on average that is likely to continue to grow at a faster rate.
For reasons that I've mentioned, but I, but really both sides of the house, we anticipate continuing to grow long term.
Really helpful. Thank you.
Youre welcome.
We will take our next question from Sam, England with Barrick Barrick.
Hi, guys. Thanks for taking the questions on the first one do you see any opportunities in the government space under the New administration on other government. It's been a small portion of refugees fees. Historically, the GP is there any opportunities in areas like environmental work on behalf of administration.
Yeah with regard to the government as a client I mean, we certainly are as I mentioned have seen the for example, the Wearables work with the Army and Navy you know, we believe that that actually.
We've delivered we've been delivering well on that and are seeing opportunities for potential expansion on are actually engaged with that client in discussions about that.
In terms of let's say the environmental space.
Or the regulatory space those are areas, where we are typically are.
Our client basis, typically sitting within the industry, but as you said as opposed to the government side. So I think what we will see and we're already seeing is a raising of the bar from a regulatory perspective, you know whether that's around environmental regulation, whether that's around.
Safety related regulations are let's say things like Automotives automated vehicles or pharmaceuticals, I mean, we just had news this morning about a potential metallic contaminants in baby food I mean, there there are a number of things that are going to drive that regulatory bar higher and higher so.
That of course creates opportunity for us, but in terms of the government per se as a client.
Don't have to anticipate that that is going to grow in a way you know nearly in the way that we would see the opportunities on the industrial side.
Great. Thanks, and then I was just wondering what you're seeing in Asia at the moment, you've obviously talked about the opportunity on that or do a lot quicker than maybe other countries to come out the other side of the pandemic. So do.
Do you see a bigger opportunity there on the next couple of years.
Yeah. So so Asia has been was part of the the strength in the fourth quarter and we think to some extent that will certainly continue going into 2021.
Part of what what's been going on very recently with the strength, there really relates to and in some sense our clients in our U S clients inability to travel on.
That's you know work in the consumer electronics space for example in in terms of.
Qualification around issues with suppliers and in a variety of sort of advisory level activities and so we do think there is an opportunity to.
To continue that sort of thats sort of advisory level service that we're providing.
Even going past the Covid pandemic, you know like we think we're really demonstrating our value.
With regard to that and that's an opportunity for the clients to really continue to leverage that another thing I'll bring up with regard to Asia is it's sort of a diversification. There you know there are opportunities internationally that we've talked about.
With regard to some of the major infrastructure projects and things like that on some of that work is in fact centered around our Asia. There is some activity. There. So I think that will be continue to be a growth driver not only in Asia.
But really for our broader sort of global operations. In addition to our domestic operations.
Great. Thanks, and then maybe just one more for rich you noted.
Other costs will ramp up as people begin to return to the office, but.
Any sustainable improvement that you can hold them to be in areas like travel expenses.
I do think that.
You know it's likely that.
People will decide to do some of their activities.
And on a remote basis or virtually on going forward, but I think that you know where we might save in travel and in meals and an area at.
At the same time, we're looking at how do we make sure that we have the best technology and platforms for being successful in those virtual environments as well. So I view that at this point in time that the cotton cost will balance out that we will make.
Some investments to get higher returns on on on the virtual environment.
Well that might be on.
To be offset by reductions in costs.
In the physical environment, but overall I think oh on viewing that there isn't a major long term savings to come out of it but I think there is a and improvement in the return on our investment that we shouldn't be able to get over that time.
Okay, great. Thanks, very much Doug.
Well take our next question from Mike Riddick with Sidoti.
Hi, good evening everyone.
Hey, Mark Hey, Mike.
I wanted to touch a little bit on a couple of things that you had mentioned I wanted to circle back on the user studies on how we should think about maybe how.
Between social distancing as being relaxed in certain jurisdictions on locations and maybe what your thoughts are around the the effectiveness of vaccine rollout, how how that that return might play out if there's kind of a bit of a roadmap that you that you currently have in mind or what we should be looking for as to what could open up to the return of users.
Ladies.
Yeah, I I think there is some optimism that as we look forward that we will be able to move.
Moving forward with a number of the studies that we have lined up on.
But what I would say is that is a it's a early development you know I think things will change over the next several weeks to you on a month or two.
And and things should be getting better as hopefully as we go into late first quarter by the end of the second quarter.
At this time, just breaking out of the stay at home orders I. It's you know it still remained at a limited level on early in the early in the first quarter, but things are lining up on a positive basis going forward.
So it seems as though the interest and user studies from your customers or is it is there. It's just a matter when you get to get started with it is that a free.
Fair taxation.
Absolutely.
Is.
On that that is that is the case.
And we have adapted and and being able to do on certain activities in the areas, but are moving forward with more to be community.
A higher volume out in the community interactions on them.
Have been more limited over the last couple of months and but our planned and.
Expect it to be able to move forward within a few months.
Okay. That's good and then one thing I was sort of curious about I mean, I know that you've made mentioned about some other things that are tied to the virus and I'm not sure. If it's I'm not sure if it's easier to necessarily parse this out but I was wondering if there was sort of a ballpark way we should think about.
How does.
The things that Youre working on that are related to the virus as a percentage of revenue was there sort of a I know that can be a little tricky, but maybe a general ballpark yeah.
Yeah, so yeah.
And we've seen an increase across the three quarters.
We were seeing just over 1% back in Q1, we saw our revenues related to it. This includes our work for the Army and Navy on Wearables, but its work and disinfectants as well as contact tracing programs in and occupational health and safety and across the board.
Testing programs all of those things with us in the fourth quarter on that was about 2.5% to 3% of revenues.
It has been increasing over that period of time, a big of that big step function came without Wearables project on.
In the fourth quarter, which made up now maybe about a half of that that revenues. So we did make a little progress on the other than layer that on top and so it brought the full year about 1% of our revenues in Ah in 2020 were in some way related to.
Uh huh.
Pandemic.
Okay, and then one.
One last one from me I guess I was wondering if you could talk a little bit about going back to the litigation front I think Jonathan I think you had mentioned in prior calls before about sort of how that sort of lays out when you whether things are being put on the docket or what have you just wanted to start just maybe give a broad one.
A review as to maybe what youre seeing in that that process and maybe if it's just certain types of courts or a certain testers you mentioned international which is really helpful. But I just wanted to see a day sort of a little bit on you could add as far as how we can sort of how see how that plays out going forward.
Yeah, Yeah, so theres sort of a.
There are a few things to sort of mentioned I mean this this type of what we're seeing is consistent with the fact that this type of work tends to come in kind of in bullet says that's the way. These litigation projects work. So for example, when you. When you first got brought on you know there's a bolus of activity. When you do your initial work on your inspection.
Alright, and then you might kind of ease back then you've got a big bolus when Youre doing your analysis and putting your expert report together you know that we saw that we saw on number of those types of activities.
Locke for some pretty substantial matters and multi district litigation and things like that when we were in Q4, because they are anticipating they were anticipating trial dates in sort of the early 'twenty 'twenty one time frame.
And as we as we saw the increases in Covid cases that came later in the year.
And given what people were anticipating relative to Covid. In January you know then we saw those dates push have a tendency to push again, you know that the judges are working really hard to try to hold the trial dates, but you know it's so it unlocks a bolus of activity and then they have to they have to push the day, they simply have to because they can't bring a jury on.
Right and so this is part of what we're seeing in these fits and starts.
But it does vary to some extent across geographies as you mentioned, even within the domestic litigation portfolio, you know us states, where there they tend to be more conservative with regard to the stay at home orders you know the courts are generally closed states, where there they are a bit more where things are a bit more open.
You might see an occasional jury trial go forward. So it's it's variable a lot of our work that we do is at the state court level.
So we've definitely had folks who have had to be out there but.
But we continue to sort of see this these policies of activity and then the date gets pushed again I personally had trials now put back into the fall.
You you, we all know the type of uncertainty that exists around the vaccine at this point you know they are doing our best on the rollout side of that but there are still uncertainties vs. A V. How quickly that can be rolled out.
The new virus variants, the lifting of the restrictions et cetera. So we're tracking it closely if we if we kind of look at the trend line over time, you know from Q2 to Q3 to Q4, we're having that steady increase we think that Q1 can kind of continue on that path.
Our our best our best Hope and what we truly believe is that that you know that line will continue to you know continue to move upward as we move through the year.
Okay, great. Thank you very much.
Youre welcome.
And that does conclude today's question and answer session. Thank you for your participation and for joining today, Paul I have a wonderful day you may all disconnect.
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