Q2 2019 Earnings Call
Please standby.
Good day and welcome to the exponents second quarter of fiscal 2019 earnings call. Today's conference is being recorded at this time I like to turn the conference over to Miss Whitney Kukulka Investor Relations. Please go ahead ma'am.
Thank you operator.
Good afternoon, ladies and gentlemen, thank you for joining us on exponent second quarter 2019 financial results Conference call.
Please note that this call will simultaneously will be 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 or other reproduction is expressly prohibited without prior written consent.
Joining me on the call today are Dr., Catherine Corrigan, 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 exponents market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Additional information that could cause actual results to differ from forward looking statements can be found in exponents periodic SEC filings, including those factors discussed under the caption risk factor.
In exponents most recent Form 10-Q .
The 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.
And now I will turn the call over to Dr., Catherine Corrigan, Chief Executive Officer Catherine.
Thank you Whitney and good afternoon, everyone I will start off today by discussing our second quarter performance.
Rich will then provide a more detailed review of our financial results and expectations for 2019.
And then we will open the call for questions.
Exponent delivered a strong quarter with double digit revenue growth and margin expansion I am pleased to report that we are increasing our outlook for the full year as a result of our out performance in the second quarter combined with our expectation that we will continue to benefit from positive market trends.
Exponent delivered 11% year over year, net revenue growth and 14% net income and EBITDA growth.
Despite facing a challenging year over year comparison due to the large user study, which concluded in the third quarter last year.
Our results are evidence that we are executing on our strategies to drive growth across industries practices and geography.
Exponent has a long track record of success and we believe we are well positioned to deliver sustainable revenue and profitability growth over the long term.
During the quarter, we saw an increase in demand for integrity management and safety assessments in electrical utilities as well as engineering and construction consulting for large international capital project.
As part of our work with Pacific gas and electric exponent has been retained to evaluate the integrity of infrastructure and help mitigate safety risks for customers and communities related to wildfires.
In aggregate. This additional work contributed approximately 4% of revenues in the second quarter.
We anticipate these projects will continue but they will step down overtime.
Infrastructure integrity and management are not limited to utility companies or to wildfire concerns in the western United States.
Similar challenges exist around the world.
Exponent is increasingly engaged in large international engineering and construction consulting projects, which involve complex systems designed to modernize aging infrastructure.
These projects range from utility companies mitigating risk to municipalities reviving mass transportation system.
This presents an exciting market opportunity for exponent over the long term.
We continue to expand the breadth of our human factors and products studies as both new and existing clients look to exponent to help collect and understand the data describing the relationships between humans and products.
Clients rely on these data as they seek to create exceptional experiences for humans through technology at home in the workplace and while on the move.
The volume and sophistication of data we can access today is unprecedented.
Systems are becoming dramatically more complex and our clients seek to unlock the power of data to inform of product and systems development.
We are capitalizing on a broad set of opportunities involving the interactivity between humans and technologies.
The success of our large user study led by our human factors practice last year enabled us to expand our reach across new use cases, while we do not currently have an individual study of that scale. We have replaced a significant portion of revenue from last year's project with a portfolio of smaller scale studies for both new and existing clients.
Our expertise in battery technologies also continues to be a source of strength for exponent.
More and more products today, our battery powered.
As a result, lithium ion batteries have become ubiquitous in our daily lives and our presence in a variety of products, including consumer electronics vehicles and medical devices.
Exponent is retained for battery design reviews manufacturing best practices thermal runaway event failure analyses and battery management system assessments.
Exponents engineering and other scientific segment represented approximately 81% of the company's second quarter net revenues.
Net revenues in this segment grew approximately 13% in the quarter as compared to last year.
For the quarter. This segment had noteworthy performances in its human factors material Sciences thermal sciences, mechanical engineering, biomedical engineering structural engineering and construction consulting practices.
The demand for exponent interdisciplinary solutions continues to grow as our clients are deploying more complex products and systems.
These range from electric scooters to automated vehicles from wearable electronics to electric utility systems and from cardiovascular devices to liquefied natural gas facilities.
The answer is we provide ranged from what went wrong to how to make technology safer and more reliable.
Exponents environmental and health segment represented approximately 19% of the company's second quarter net revenues.
Net revenues in this segment grew approximately 7% in the quarter as compared to last year.
Within this segment, the chemical regulation and food safety Health Sciences, and environmental Sciences practices continued to grow as exponents industry, leading scientists advised clients on the human health and environmental impact of chemicals and new products.
Our unmatched team of engineers and scientists allows us to adapt quickly to evolving client needs.
We are continuously recruiting the best doctoral students from the top universities and developing our existing staff to ensure that we are positioned to address our clients' most challenging issues today and tomorrow.
We continue to provide our clients with unparalleled expert advice, enabling them to deliver safer healthier and environmentally sustainable products and systems.
Rich will now provide a more detailed review of our financial performance and business outlook.
Thanks Catherine.
Let me start off by saying that all comparisons will be on a year over year basis, unless otherwise specified.
For the second quarter of 2019 revenues were up 11%.
Total revenues were a one on 106.5 million in revenues before reimbursements or net revenues as I will refer to them from here on were 100.3 million.
This marks the first time Xplornet has delivered a 100 million of net revenues in a single quarter.
As Catherine has discussed our strength was broad based.
We were able to develop.
A portfolio of human factors projects, which offset three of the 4% headwind from the large study in 2018.
We expect our portfolio of studies to be approximately the same size in the third quarter.
The work for PE Janine.
Related to wildfires and integrity management of their electric infrastructure was approximately 4% of net revenues in the quarter.
We expect this work for P. Janine to continue in the third quarter at the same or slightly lower level, and then step down gradually over time.
Net income and EBITDA in the second quarter increased 14% as compared to last year.
Net income was 21 million or 39 cents per diluted share as compared to 18.4 million or 34 cents per diluted share.
EBITDA was 29.6 million up from 26 million one year ago.
For the first half of 2019 total revenues increased 7% to 205.5 million.
Net revenues also increased 7% to $193.7 million.
Net income increased 13% to 43.7 million in the first half of 2019 and earnings per diluted share were 81 cents.
As compared to 38.8 million and 72 cents per diluted share.
In the first half of 2019, the tax benefit associated with accounting for share based awards was $5.7 million or 11 cents per diluted share.
As compared to 4.1 million or eight cents per diluted share last year.
For the for the first half of 2019, EBITDA increased 8% to 53.4 million as compared to.
49.4 million.
For the second quarter billable hours increased 8.5% to 352000.
Year to date billable hours increased 4.2% to 680000.
The second quarter's utilization was 75.9%, which is up from 74.7% in the same quarter last year.
For the first half of the year utilization was 73.8% down two percentage points from 75.7% last year.
The year to date decline in utilization as a result of the conclusion of the large user study project in 2018.
For the third quarter, we expect a four to five percentage point decline in utilization from the second quarter due to additional holidays and vacations during the summer.
Our biennial managers meeting in a difficult year over year comparison.
For the fourth quarter utilization will step down sequentially and additional five points.
For the full year 2019, we expect utilization to be 71% to 72%, which includes the impact of the large project and the 50 Threerd week.
Which will be an extra week in the fourth quarter.
This additional weve increased net revenues by approximately 5% for the fourth quarter.
And 1.25% for the year.
The additional week will include the 2020, new year's holiday and associated vacations, which will reduce utilization for the fourth quarter by 200 basis points.
And the full year by 50 basis points.
We continue to expect our long term utilization to increase as we build more critical mass in our offices and practices and grow proactive services.
Technical fulltime equivalent employees in the quarter were 890 up 7% year over year.
We expect sequential headcount growth to be approximately 1% per quarter for the remainder of the year.
The realized rate increase was approximately 3% for the quarter.
For the remainder of 2019, we expect the year over year realized rate increase to be 2% to 3%.
For the second quarter.
EBITDA margin increased 60 basis points to 29.5% of net revenue.
For the first half EBITDA margin increased 20 basis points to 27.6%.
For the full year 2019.
EBITDA margin is expected to be down 25 to 50 basis points related to the anticipated variance in utilization compared to last year.
For the quarter compensation expense after adjusting for gains and losses in deferred compensation grew 10%.
Included in total compensation expense is a gain in deferred compensation of $2.2 million.
As compared to a gain of $1 million in the second quarter of 2018.
As a reminder gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
Stock based compensation expense in the quarter was 4 million as compared to $3.7 million last year.
For 2019, we expect stock based compensation to be $3.8 million to $4 million in each of the remaining quarters.
Other operating expenses increased 7% to $8.1 million in the second quarter included in other operating expenses is depreciation expense of $1.6 million.
For the remainder of 2019, we expect other operating expenses to be in the range of 8.4 day point $6 million per quarter.
DNA expenses increased 20% to $5.3 million in the second quarter.
This higher level of spending is primarily related to an increase in recruiting and marketing activities during the quarter.
For the remainder of 2019 DNA expenses are expected to be in the range of $5.6 million to $6 million per quarter, which includes expenses related to our biannual managers meeting at the end of September .
Exponents consolidated tax rate.
Was 27.2% for the quarter as compared to 26.1% in the same period last year.
For the first half of the year inclusive of the tax benefit for share based awards.
Exponents consolidated tax rate was 16.2%.
As compared to 18.2% a year ago.
We expect our consolidated tax rate to be approximately 27.5% for the remainder of 2019.
And our full year tax rate to be approximately 22%.
Moving to our cash flows operating cash flow.
Was $37 million for the for the quarter.
Capital expenditures were $7 million for the quarter.
We expect capex to be approximately 20 million and 29 team as we complete the new building in Boston.
Capex reduce capex should return to approximately 68 million in 2020.
Year to date.
We distributed $16.9 million to shareholders through dividend payments and closed the period with $194.5 million in cash cash equivalents and short term investments.
Approximately half of our PGT accounts receivables at the end of the of the bankruptcies have been paid.
And exponent continues to believe that substantially all of our of the remaining $3 million of accounts receivable.
We'll be paid.
Today, we announced a 16 cents quarterly dividend payment and reiterated our intent to continue to pay quarterly dividends.
Due to our strong second quarter results.
And positive momentum across the business, we are increasing our full year expectations for revenue and EBITDA margin.
We continue to face a challenging year over year comparison from the conclusion of the large project in the third quarter of 2018.
We now expect revenues before reimbursements to grow in the high single digits.
And EBITDA margin to be down 25 to 50 basis points as compared to 2018.
I will now turn the call back to Catherine for closing remarks.
Thanks Rich.
Experiments is engaged by a diverse set of clients to continue to call on our interdisciplinary teams for solutions to increasingly complex challenges across a broad range of safety health environmental and reliability issues.
We continue to strengthen our industry teams through market intelligence capability development and thought leadership.
Our unique capabilities and adaptable business model shape exponents market position.
Our reputation as an industry leader validates our model and we are confident in our ability to deliver valuable solutions to clients and create new opportunities for our firm.
We will now open the call to questions operator.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to Biosimilar treat equipment again press star one to ask a question.
And we'll take our first question today from Tobey Sommer with Suntrust.
Hi, This is Joseph Thompson on the line for Tobey Sommer. This evening. Thank you for taking my question. My first question is how have you seen uncertainty around trade with China impacting your proactive business and.
Any color on what you're hearing from clients would be great. Thank you.
Yes, so so thanks for that and you know we have.
Certainly tariff spring a lot of uncertainty from the standpoint of our clients, there's no doubt about that particularly those.
For whom China, you know, it's a really important part of their supply chain.
Thus far we have not felt a particular impact to the business that to our business that we would attribute to tariff issues.
I would say that historically I mean, we have found that any movement of where our clients are manufacturing.
So for example, lets say in the consumer electronics industry or something like that any movement in where they are sourcing their supply chains is is generally generally represents opportunity for us.
Because of the work that we do around manufacturing manufacturing quality reliability.
And supplier assessments and things like that so we haven't seen a particular impact.
But certainly are in conversation with our clients and.
It will be.
Looking to.
Looking to find opportunities that can present themselves as a result of that.
Thank you for that additional color looking at keeping the topic on the proactive side of the business. What have you seen in terms of the industry client teams impact on us.
Proactive work in market share.
Thank you yeah. So great great question on these industry team is really are focused on that proactive side.
That is where we are trying we're working on.
Setting up.
A framework, where we are.
Focused on opportunities to sell multiple capabilities within an individual client so when I look across the different industries, where we are and we're working on that I mean, we're in different stages in different industries.
It's a one client at a time type of type of effort and what are you seeing.
With some I'm very pleased in terms of seeing some good examples of where we've been able to expand to the work that we're doing for a particular client into a new area and Thats really.
When I talk about a one client at a time kind of.
Kind of focus Thats, what were trying to do I'm seeing I'm seeing human factors work being brought to our utility clients for example.
Which I think really is being driven by this industry initiative I'm seeing a battery work, that's being driven into into the transportation side.
And so I really do think that based on what I'm seeing are focused on both the client management side, a client centered approach as well as what we're doing and capability development. We are we we need to be staying ahead of the curve in terms of what we are offering to our clients in order to have that value.
And I believe that that really is helping to support the growth of our proactive services I think it's it's.
Doing more in the more mature industries.
I'd take electronics and May be transportation oil and gas is an area, where really our proactive work since the price of oil went down hasn't really seen that much of an uptick. So there is a variation sort of across industries, but I think were absolutely seeing examples of those those successes within those client relationships to get those different capabilities out there.
Thank you.
You're welcome.
Next we'll hear from Joseph Foresi with Cantor Fitzgerald.
Hi, This is drew coming on for Joe I, just wanted to touch on the utilization and I think you guys talked about 75.9% for the quarter.
Which is a pretty strong uptick, especially compared to last quarter. So just curious.
What you guys saw there for the quarter and then why such a decline over the next two quarters.
Yes, yes, the utilization was 75.9%.
Here in the second quarter it was a nice.
Pick up.
We discussed at the end of the first quarter that we had seen gradual improvement in our utilization of our staff as we were moving through the first quarter.
We clearly saw an additional benefit in the second quarter as.
In a few areas one.
Is that our user study work portfolio continued to fill in.
And I think that definitely helped us in improving utilization.
The work for Pacific gas and electric and growing in too.
Not only responding to the wildfire incident, but really beginning to focus on integrity management of the overall system and rising that activity up to a 4% of revenues in the quarter.
Showed improvement, but as Katherine indicated in her.
Piece as well we saw a good activities in it was both proactive and reactive so we had a number of good.
International Arbitration cases.
Product liability cases.
And matters that those matters tend to range between let's say, a large ones or a half a million of activity you do maybe one and a half million dollars of activity in the quarter again fits into our pulp portfolio of projects.
But the level of activity on those was just a little bit stronger than we had seen in several quarters. So.
Yes, some of those larger ones that were in that half a million to 1.5 million. Neil we know are going to step down as we move into the third quarter. We still think we will be strong.
But maybe not quite as robust as we were on on those projects nothing sort of falling off a cliff but.
Activity is definitely plan to be at a lower level on a number of those activities. So.
As we look into the third quarter got forecasts from each of our practices.
The level of vacation activity is strong definitely in the summer time.
We do have this managers meeting which will.
Yes impact utilization by probably one percentage point for the quarter.
So if you just did holidays and vacations, you would expect that 75.9 to be probably about 73% Thats typical when we look at the number of days off that are taken we're anticipating that will be sort of one to one and a half percentage points below that the managers meeting and a little bit lower activity.
In a few areas that puts us into this.
Call it approximately 72% a little lower.
Level of activity that would be an end to that quarter. So that's what we're that's what we're looking at there and why we provided that guidance did not only a little bit down from the trend off a very strong second quarter and last year's third quarter that was really strong even though that.
If ever.
People, who were around at last year that third quarter remember that project. The large human factors project came off in August , but we continued our momentum all the way through September .
And so the activities were very strong at that time. So we're still very encouraged about the business.
We're still bringing in a strong set of recruiting and head count coming in.
You know and as such we just see that it'll be a little bit lower.
Primarily because of the holidays vacations managers meeting and such.
Got it and then if you could touch on the cadence for both revenue and margins as we move forward I know.
I'm, assuming probably like a sequential decline and then Q4 is that the strongest given that extra week.
For revenues and then does that same thing apply on margins. Thank you.
Yes.
It is so the.
The third quarter will really follow that step down in utilization.
We'll end up with a few more people, but really offset by a 4% to 5% stepdown in utilization, which really puts you have more in the.
When you adjust for that warrant a 5% to 6% step down in revenues offset by.
Maybe a 1% increase in head count.
That that is how you would expect revenue to step down from the second quarter to the third quarter.
As you move through that the other thing on the is that as you go into the fourth quarter. We would if it again was the same number of weeks would have expected that to step down again that.
Oh lets call it 5% to 6% in revenues as you move into that quarter because of the step down in utilization.
That you play through there that will be offset partially by the 5% additional revenue that we're getting from the extra week that plays through there. So those are the things.
That you ought to be looking at is that primarily you're looking at something that will push through and be able to offset that will provide a higher.
Instead of let's say high single digit.
Growth in revenues in the us the year over year in the third quarter, obviously that would put you into the low double digit growth on a year over year basis for the fourth quarter.
As far as margins go look we had a very strong utilization last year in the in the third quarter, we're talking about a utilization here that's yes.
One to two percentage points below that in the third quarter, that's going to impact margins ill, let Scott in the range of 100 basis points down year over year.
As you look at that the fourth quarter.
I discussed that there will be an impact to margins there related to the extra week.
And and such so again, we would expect margins to be down in the fourth quarter as well on a year over year basis that step down on a year over year basis might be and.
Yes, 60 to 80 basis point range that you might be looking at on a year over year basis.
As we look forward, but that hopefully gives you some better guidance and direction.
Perfect. Thank you.
We'll now hear from Tim Mchugh with William Blair.
Yes. Thanks.
Just wanted to follow up on the PGT work can you I guess elaborate on.
The nature of the work and I guess, what I would probably want to understand more is the potential longevity of it to what extent is this.
Kind of an incident response, and where we are.
Obviously, there is probably a heightened level activity initially versus how much of it is the type of activity that.
Hey, I suspect every year, they need to be assessing kind of there the safety of the utility infrastructure. So what's the potential for ongoing activity.
Two years from now three years from now.
Yes. So there is certainly a component of that Tim which is which is around incident response.
But there is.
A significant proportion of that that is really in the area of.
Integrity management of the assets in the electrical system.
And that is something that there is a there is a large sort of immediate need immediate and if you're looking at what the accounts that are in the lay press and the and the challenges that teach any is having there.
So there is.
Theres certainly a large amount of activity that we're seeing sort of acute Lee there, but we do expect that there will be there will be a tail over time.
It will not be at the level that we're at now I mean, I think if we look.
We only have a certain amount of visibility right I mean, what what often happens and what we've seen in the past.
In things like this is that there is a large amount of activity initially.
But once one product and it's a portfolio projects.
As one of those projects are issues sort of closes what happens is that raises new questions and so it becomes its own sort of portfolio.
It's certainly not reasonable for us to build into expectations that we're going to continue at this level over a period of time this will step down.
Looking into next quarter slightly below where we are now may be at where we are now it becomes more difficult to see beyond that.
But I do think it's reasonable that with with this client and because of our relationship with them that there will be.
Some increase in the baseline level of activity with that client.
Okay.
That's helpful.
Can I ask actually on the environmental side I know you gave some higher level color, but it was a better growth rate that we've been seeing for a while there is there anything different about.
The demand environment.
Our internal execution that you would highlight as we look at the environmental and health.
Yes, so on the environmental and health side, what's driving that is a couple of things. So we see our and are continuing to see fairly steady growth in the work that is on the regulatory side right. So this is the proactive work where we are doing.
Agricultural chemical related industrial chemical related regulatory work that continues to expand were seeing more work globally.
Around that that's been fairly steady for us, but in this particular quarter, we saw a fairly significant uptick on the reactive side when I look across environmental I look across health.
In terms of the litigation activity Rich mentioned earlier that there have been a number of.
There are things that are sort of of that.
Though few hundred thousand kind of kind of sized where there's.
And this is the kind of activity, we're seeing in environmental and health in that portfolio was very strong for that quarter and I think it reflects.
It reflects.
Our folks who are in those areas.
Who are getting more traction in the marketplace in certain of those areas around around chemicals and the effects of chemicals on human health.
So the hope is that we can continue to.
Improves our.
The position of these folks in the marketplace and they they are giving presentations at conferences and out there building are continuing to build our reputation. So I take that as a positive sign but I think it's the the change really was on the reactive side in terms of the increase in the business for the quarter.
Okay. That's helpful. Thank you.
You're welcome.
Sam England with bearing Barrick has our next question.
Hi, guys just a couple from me the first one I was wondering how youre thinking about capital allocation heading into the second half given where the cash position finished the quarter.
On whether youre still looking at the cash down to nothing to 50 to 70 million level Youve talked about historically over the next few years.
Yes so.
Sam I don't think.
In the short term.
Definitely nothing has changed we have not come to a different conclusion long term either.
We continue to increase the dividend on a year over year basis.
We feel that that.
This is an area that we can continue to grow for some period of time faster than earnings.
And we would look to that.
We are being.
Opportunistic.
More opportunistic in the repurchases we saw more of that activity in the fourth quarter. That's why our share count on a year over year basis is down is the repurchase activities that we did late last year, we've had really.
Essentially no activity in the first six months here.
We will continue to.
Evaluate those opportunities as they come along but.
Long term our intent is that.
The balance that we have.
It based on the amount of cash that we can generate.
It is.
Above the level that we need to have it out and you know we continue to have that target of getting it down to a minimum of $50 million to $70 million.
Over the next four years, let's say and we'll continue to work away at that but.
You know look we've been talking about that long there has been a nice rise in in the in the stock price and we've tried to be.
Prudent about our process to go but going about those repurchases.
Other than that you know we.
We havent done.
An acquisition since 2002, it does it mean that.
We're not looking for that seat acquisition to fill a need in some of these.
Growth areas, but.
Again, the focus of this firm is about driving organic growth and expansion of margins and we will see that.
So where we can identify the right opportunity to integrate into our integrated firm.
As we go forward.
Great. Thanks, and then the second one just just in terms of the realized rate guidance is 2% to 3% I think it was for the full year.
Jack now more than offset any wage inflation that you're seeing this year rule.
It's nice to the margin and pre musing, just purely coming from the utilization side.
The utilization is primarily coming from the utilization side, we we do expect that our rate increases our pricing increases will more than offset our.
Salary increases that we've had.
We've been able to demonstrate that even through the first half of the year.
Here with a little lower utilization for the total six month period of time.
Revenues were up.
7% for the first half of the year and our compensation costs after adjusting for deferred compensation is up six.
We saw the same thing in the second quarter. After we implemented raises in the first of April .
Of this year and revenues grew at the.
11% level with compensation cost after the adjustment growing at 10 so.
We're hopeful that we can continue to find that balance.
Clearly the increased value of our people in them in the market place from a client perspective is also driven.
Into the their value as.
As Pete as employees as well, so we try to find that balance and keep them aligned.
Over over the long term and continue to expect to be able to do that.
Great. Thanks, guys.
Our next question comes from Michael would take with Sidoti.
Hi, good evening everyone.
I wanted to I wanted to touch a little bit on the human factors.
Gross and assignments and I was wondering if you could sort of maybe there's a couple of things I wanted to delve into a little bit there one I wanted to get a sense of is there anything we should be thinking about as far as.
Exclusivity or any anything that you have to worry about within a particular industry verticals or anything like that that would be.
Something that could slow you down as far as growing that part of it and then the second part of my question is more sort of on a broader spectrum. If there is any sort of connecting.
Scene that we should be thinking about that that is leading that thanks.
Yes so.
Maybe I'll start off there in Catherine Ken.
At in.
We have not.
Entered into.
Any contractual arrangements or implied arrangements, where the work that we're doing in consumer products market means that we can't work for others.
That are in.
In a competitive area.
We find that that is critical in our business. It's been a practice we've had over decades. It's why this company works for almost all the.
Automotive manufacturers are all of them.
We've been able to we believe that in our business consulting is about working for one client per industry. Its X spine is not in the business of a client has a concept and we come up with the design, we are helping clients gather the in the human factor studies gather the data and information to inform their designs and processes, there and try to design things they can get better information for them to drive that into into the future. So.
Ill it.
It has been a it's something that we're conscious of.
That people can look to limit chew, but one of the reasons are coming to us is because of our experience is what we try to make sure they understand.
You know as far as the Interconnectivity of the work is absolutely. It builds upon itself I mean, what we're seeing is that what you know how we're interacting with consumer products today is equal.
Exponentially growing.
And that you know.
Verbal physical.
Interaction that we have.
That weve seen grow in everything from the phone we have two now devices, we have in our home to how we're interacting with all of our appliances or even technologies in our workplace odd that element is changing.
What do we do when we all ill as we move to virtual reality and that's both in our home in our work in our personal and on our workplace.
What happens when we move into.
The semi.
Autonomy of gold to the fully autonomous vehicle and those interactions. We are already are being seeing and in answering questions just related to individual controls that happened in vehicles.
As those technologies are implemented in new watch how.
Individuals' react to that so this is this is evolutionary.
We're building upon studying those humans in vehicles today, and how they add to address adaptive controls on things.
We'll be very as especially as we go into this into different phase of the automation, how they will react to that so.
We feel that again this is still in its infancy.
We're building upon that we're seeing activities that range from workplace questions to a home automation questions too.
Things that are in the.
Gaming World and the virtual reality environment. So we hope to build upon each of those as we look forward.
Yeah, and I would add Mark that you know this is a lot of how we succeed in this area really goes back to the client focused approach that I was talking about a little bit earlier, you know the human factors in particular.
Because of the sort of changes in the technology that rich is alluding to this is an area that is going to go across you know electronics, it's relevant to transportation, it's relevant to medical devices, it's relevant to oil and gas I mean, we're seeing it applications in utilities and it's the.
The trust that we have from the standpoint of our client relationships that allows us to really sell that capability into all of those areas. So this really.
It creates a really fabulous opportunity for us in a place where also the staff that we have.
That we have recruited and continue to recruit both at the junior and senior level are really absolutely. The these are the top people in these areas across industries and so somewhat when I look out across the business I think that this is.
Particularly exciting opportunity for us.
Okay, great. Thank you for for that color and then the last thing for me I just wanted to see if we could get an update on how you're maybe looking at the global acquisition pipeline, what you're seeing out there how you feel about valuations and maybe some attractive areas or geographies things like that thank you.
Yes, sure so from the standpoint of global opportunities, we we have seen and continue to see.
Engineering in Europe .
As an area of growth opportunity for us.
And interestingly I was I was over in the UK, just a couple of weeks ago and.
Visiting with our team over there we continue to have a very.
Very solid reputation around the chemical regulation arena over there in Europe , but from the standpoint of engineering, our brand is not nearly as well known and when I compare it to the United States.
I think it's it's.
Very much in its infancy in terms of.
In terms of that brand recognition, but there is some traction that is starting to happen. So I think that's very positive.
Our focus right now I think we would.
We would absolutely take advantage, if we were able to find the right.
The right kind of firm at the right size in that area around engineering, our core engineering, but over in Europe .
To integrate into the firm, but we're also very focused on hiring.
In terms of senior talent, we have.
Looking at both junior and senior talent that we can bring in.
Over in.
Both in the UK and elsewhere to try to see that activity.
You can do it by sort of a small acquisition, but you can also do it if you've got someone who is known in the industry known in their fields has.
Has a strong client reputation and a book of business. So we really look to both of those kinds of opportunities.
When we look at growing our engineering.
At work in Europe .
Great. Thank you very much.
You're welcome.
That will conclude today's question and answer session and that will conclude today's call. Thank you for your participation you may now disconnect.
Yes.