# Exponent Inc: Form 10-Q for the period ended Sep 27, 2024

- Company: [Exponent Inc](/companies/expo.md) (CIK 851520)
- Form: 10-Q
- Filed: 2024-11-01
- Accepted by EDGAR: Nov 1, 2024, 11:39 ET
- Period: 2024-09-27
- Accession: 0000950170-24-119886
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/851520/000095017024119886/expo-20240927.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/851520/000095017024119886/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-27.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-06-29 to 2024-09-27 | $136.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-12-30 to 2024-09-27 | $421.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-06-29 to 2024-09-27 | $25.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-12-30 to 2024-09-27 | $92.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-06-29 to 2024-09-27 | $9.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-12-30 to 2024-09-27 | $30.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-06-29 to 2024-09-27 | $26.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-12-30 to 2024-09-27 | $85.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-06-29 to 2024-09-27 | $0.50 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-12-30 to 2024-09-27 | $1.66 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-06-29 to 2024-09-27 | $0.51 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-12-30 to 2024-09-27 | $1.67 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-06-29 to 2024-09-27 | 51,622,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-12-30 to 2024-09-27 | 51,527,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-12-30 to 2024-09-27 | $88.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-12-30 to 2024-09-27 | $4.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-12-30 to 2024-09-27 | $44.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-12-30 to 2024-09-27 | $5.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-27 | $219.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-27 | $412.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-27 | $744.1m | us-gaap:Assets |
| Current liabilities | at 2024-09-27 | $137.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-27 | $333.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-27 | $410.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,100 characters.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2023, which are contained in our fiscal 2023 Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission on February 23, 2024 and amended on April 17, 2024 (our “2023 Annual Report”).

### Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995, and the rules promulgated pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended) that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. When used in this document, the words “intend,” “anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to us or our management, identify such forward-looking statements. Such statements reflect the current views of us or our management with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, the absence of backlog related to our business, our ability to attract and retain key employees, the effect of tort reform and government regulation on our business and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our 2023 Annual Report under the heading “Risk Factors”. The inclusion of such forward-looking information should not be regarded as a representation by the us or any other person that the future events, plans, or expectations we contemplated will be achieved. Due to such uncertainties and risks, you are warned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not intend to release publicly any updates or revisions to any such forward-looking statements.

### Business Overview

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

### CRITICAL ACCOUNTING ESTIMATES

There have been no significant changes in our critical accounting estimates during the nine months ended September 27, 2024, as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report.

### RESULTS OF CONSOLIDATED OPERATIONS

### Executive Summary

Revenues for the third quarter of 2024 increased 2% to $136,279,000 as compared to $133,336,000 during the same period last year. Revenues before reimbursements for the third quarter of 2024 increased slightly to $125,085,000 as compared to $124,959,000 during the same period last year.

During the third quarter of 2024 proactive engagements in the consumer electronics sector increased driven by user experience studies and product development consulting. This was largely offset by persistent challenges in the chemicals sector and the high benchmark set by the previous year’s third quarter growth rate in reactive services.

- 20 -

Net income increased 6% to $26,044,000 during the third quarter of 2024 as compared to $24,538,000 during the same period last year. Diluted earnings per share increased to $0.50 per share as compared to $0.48 in the same period last year. The increase in profitability was due to our continued efforts to better align resources with demand.

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

### Overview of the Three Months Ended September 27, 2024

During the third quarter of 2024, billable hours decreased 5% to 362,000 as compared to 380,000 during the same period last year. Our utilization increased to 73% during the third quarter of 2024 as compared to 70% during the same period last year. Technical full-time equivalent employees decreased 10% to 949 during the third quarter of 2024 as compared to 1,050 during the same period last year.

### Three Months Ended September 27, 2024 compared to Three Months Ended September 29, 2023

### Revenues

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Engineering and Other Scientific | $115,244 | $110,857 | 4.0% |
| Percentage of total revenues | 84.6% | 83.1% |  |
| Environmental and Health | 21,035 | 22,479 | -6.4% |
| Percentage of total revenues | 15.4% | 16.9% |  |
| Total revenues | $136,279 | $133,336 | 2.2% |

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billing rates partially offset by a decrease in billable hours. During the third quarter of 2024, billable hours for this segment decreased by 3% to 291,000 as compared to 301,000 during the same period last year. Utilization for this segment increased to 75% during the third quarter of 2024 as compared to 71% during the same period last year. The increase in revenues was driven by our services across the consumer electronics and utilities sectors. Technical full-time equivalent employees in this segment decreased 9% to 745 during the third quarter of 2024 as compared to 821 for the same period last year.

The decrease in revenues for our Environmental and Health segment was due to a decrease in billable hours partially offset by an increase in billing rates. During the third quarter of 2024, billable hours for this segment decreased by 10% to 71,000 as compared to 79,000 during the same period last year. Utilization for this segment increased to 67% during the third quarter of 2024 as compared to 66% during the same period last year. The decrease in revenue was related to headwinds in the chemical and life sciences sectors. Technical full-time equivalent employees in this segment decreased 11% to 204 as compared to 229 during the same period last year.

### Compensation and Related Expenses

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Compensation and related expenses | $81,954 | $74,011 | 10.7% |
| Percentage of total revenues | 60.1% | 55.5% |  |

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The increase in compensation and related expenses during the third quarter of 2024 was due to a change in the value of assets associated with our deferred compensation plan, an increase in bonus expense and an increase in stock-based compensation partially offset by a decrease in payroll expense and fringe benefits. During the third quarter of 2024, deferred compensation expense increased by $9,926,000 with a corresponding increase to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $7,157,000 during the third quarter of 2024 as compared to a decrease in the value of plan assets of $2,769,000 during the same period last year. Bonus expense increased $837,000 during the third quarter of 2024 due to a corresponding increase to our bonus pool. Stock-based compensation expense increased $325,000 during the third quarter of 2024 due to an increase in unvested restricted stock unit grants. Payroll expense decreased by $1,900,000 and fringe benefits decreased by $1,075,000 during the third quarter of 2024 due to the decrease in technical full-time equivalent employees partially offset by impact of our annual salary adjustments.

### Other Operating Expenses

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Other operating expenses | $11,975 | $10,997 | 8.9% |
| Percentage of total revenues | 8.8% | 8.2% |  |

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses during the third quarter of 2024 was primarily due to an increase in occupancy expense of $1,062,000. Our land lease with the State of Arizona was extended on June 19, 2024. This extension resulted in additional non-cash rent expense of approximately $1,085,000 during the third quarter of 2024. This increased level of rent expense will continue through the extended lease term ending in January of 2043 with adjustments in 2033 and 2038 based on the consumer price index. We expect other operating expenses to grow as we selectively add new talent and make investments in our corporate infrastructure.

### Reimbursable Expenses

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Reimbursable expenses | $11,194 | $8,377 | 33.6% |
| Percentage of total revenues | 8.2% | 6.3% |  |

The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects. The increase in reimbursable expenses during the third quarter of 2024 as compared to the same period last year was due to an increase in proactive projects for the consumer electronics sector.

### General and Administrative Expenses

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| General and administrative expenses | $5,309 | $6,018 | -11.8% |
| Percentage of total revenues | 3.9% | 4.5% |  |

The decrease in general and administrative expenses was primarily due to a decrease in travel and meals of $509,000 and a decrease in personnel expenses of $309,000. The decrease in travel and meals was due to the decrease in technical full-time equivalent employees and a firm-wide principals' meeting which was held in the third quarter of 2023. We did not have any firm-wide meetings during the third quarter of 2024. The decrease in personnel expenses was primarily due to lower relocation costs. We expect general and administrative expenses to increase as we add new talent and expand our business development and staff development initiatives.

- 22 -

### Operating Income

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Engineering and Other Scientific | $40,292 | $38,734 | 4.0% |
| Environmental and Health | 7,547 | 7,475 | 1.0% |
| Total segment operating income | 47,839 | 46,209 | 3.5% |
| Corporate operating expense | (21,992) | (12,276) | 79.1% |
| Total operating income | $25,847 | $33,933 | -23.8% |

The increase in operating income for our Engineering and Other Scientific segment during the third quarter of 2024 as compared to the same period last year was due to an increase in revenues and an increase in utilization. The increase in revenues was due to an increase in billing rates partially offset by a decrease in billable hours. Growth during the third quarter of 2024 was driven by our services across the consumer electronics and utilities sectors. The slight increase in operating income for our Environmental and Health segment was due to an increase in utilization.

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

The increase in corporate operating expenses during the third quarter of 2024 as compared to the same period last year was primarily due to an increase in deferred compensation. During the third quarter of 2024, deferred compensation expense increased $9,926,000, with a corresponding increase to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $7,157,000 during the third quarter of 2024 as compared to a decrease in the value of plan assets of $2,769,000 during the same period last year.

### Other Income, Net

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Other income (loss), net | $10,090 | $84 | 11911.9% |
| Percentage of total revenues | 7.4% | 0.1% |  |

Other income, net, consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The increase in other income, net, was primarily due to a change in the value of assets associated with our deferred compensation plan. During the third quarter of 2024, other income, net, increased by $9,926,000 with a corresponding increase to deferred compensation expense, as compared to the same period last year, due to a change in the value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $7,157,000 during the third quarter of 2024 as compared to a decrease in the value of the plan assets of $2,769,000 during the same period last year.

### Income Taxes

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Income taxes | $9,893 | $9,479 | 4.4% |
| Percentage of total revenues | 7.3% | 7.1% |  |
| Effective tax rate | 27.5% | 27.9% |  |

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The increase in income tax expense was due to an increase in pre-tax income. The decrease in our effective tax rate was due primarily to an increase in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards was $532,000 during the third quarter of 2024 and there was no excess tax benefit associated with stock-based awards during the same period last year.

### Nine Months Ended September 27, 2024 compared to Nine Months Ended September 29, 2023

### Revenues

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Engineering and Other Scientific | $355,193 | $344,552 | 3.1% |
| Percentage of total revenues | 84.2% | 83.3% |  |
| Environmental and Health | 66,555 | 69,314 | -4.0% |
| Percentage of total revenues | 15.8% | 16.7% |  |
| Total revenues | $421,748 | $413,866 | 1.9% |

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billing rates partially offset by a decrease in billable hours. During the first nine months of 2024, billable hours for this segment decreased by 1% to 911,000 as compared to 916,000 during the same period last year. Utilization for this segment increased to 76% during the first nine months of 2024 as compared to 71% during the same period last year. The increase in revenues was driven by our services across the consumer products and utilities sectors. Technical full-time equivalent employees in this segment decreased 7% to 765 during the first nine months of 2024 as compared to 827 for the same period last year.

The decrease in revenues for our Environmental and Health segment was due to a decrease in billable hours partially offset by an increase in our billing rates. During the first nine months of 2024, billable hours for this segment decreased by 6% to 223,000 as compared to 238,000 during the same period last year. Utilization in this segment increased to 68% during the first nine months of 2024 as compared to 66% during the same period last year. The decrease in revenues for this segment was related to ongoing headwinds in the chemical and life sciences sectors. Technical full-time equivalent employees in this segment decreased by 9% to 211 during the first nine months of 2024 as compared to 232 during the same period last year.

### Compensation and Related Expenses

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Compensation and related expenses | $251,747 | $241,028 | 4.4% |
| Percentage of total revenues | 59.7% | 58.2% |  |

The increase in compensation and related expenses during the first nine months of 2024 was due to a change in the value of assets associated with our deferred compensation plan, an increase in bonus expense, an increase in stock-based compensation partially offset by a decrease in payroll expense and fringe benefits. During the first nine months of 2024, deferred compensation expense increased $9,028,000 with a corresponding increase to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $14,299,000 during the first nine months of 2024 as compared to an increase in the value of plan assets of $5,271,000 during the same period last year. Bonus expense increased by $2,246,000 during the first nine months of 2024 due to a corresponding increase to our bonus pool. Stock-based compensation expense increased $206,000 during the first nine months of 2024 due to an increase in unvested restricted stock unit grants. Payroll expense decreased by $151,000 and fringe benefits decreased by $199,000 during the first nine months of 2024 due to the decrease in technical full-time equivalent employees partially offset by impact of our annual salary adjustments.

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### Other Operating Expenses

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Other operating expenses | $33,691 | $30,863 | 9.2% |
| Percentage of total revenues | 8.0% | 7.5% |  |

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses during the first nine months of 2024 was primarily due to an increase in occupancy expense of $2,065,000 and an increase in depreciation expense of $664,000. The increases in depreciation and amortization were due to continued investments in our corporate infrastructure. Our land lease with the State of Arizona was extended on June 19, 2024. This extension resulted in additional non-cash rent expense of approximately $1,231,000 during the first nine months of 2024. We expect other operating expenses to grow as we make investments in our corporate infrastructure.

### Reimbursable Expenses

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Reimbursable expenses | $27,022 | $30,549 | -11.5% |
| Percentage of total revenues | 6.4% | 7.4% |  |

The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects. The decrease in reimbursable expenses during the first nine months of 2024 as compared to the same period last year was due to a decrease in proactive projects for the consumer electronics sector.

### General and Administrative Expenses

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| General and administrative expenses | $16,984 | $18,498 | -8.2% |
| Percentage of total revenues | 4.0% | 4.5% |  |

The decrease in general and administrative expenses was primarily due to a decrease in outside consulting of $1,106,000, a decrease in travel and meals of 815,000 and a decrease in personnel expenses of $700,000 partially offset by an increase in other professional services of $802,000. Outside consulting decreased primarily due to activity associated with content creation for our external website during the first and second quarters of 2023. The decrease in travel and meals was due to the decrease in technical full-time equivalent employees and a firm-wide principals' meeting which was held in the third quarter of 2023. We did not have any firm-wide meetings during the first nine months of 2024. The decrease in personnel expenses was due to lower relocation and recruiting costs. Professional services increased primarily due to an increase in legal fees. We expect general and administrative expenses to increase as we expand our business development and staff development initiatives.

### Operating Income

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Engineering and Other Scientific | $132,687 | $121,064 | 9.6% |
| Environmental and Health | 23,042 | 22,550 | 2.2% |
| Total segment operating income | 155,729 | 143,614 | 8.4% |
| Corporate operating expense | (63,425) | (50,686) | 25.1% |
| Total operating income | $92,304 | $92,928 | -0.7% |

- 25 -

The increase in operating income for our Engineering and Other Scientific segment during the first nine months of 2024 as compared to the same period last year was due to an increase in revenues and an increase in utilization. The increase in revenues was primarily due to an increase in billing rates. The increase in utilization was due to our efforts to align resources with demand. The increase in operating income for our Environmental and Health segment was due to an increase in utilization.

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

The increase in corporate operating expenses during the first nine months of 2024 as compared to the same period last year was primarily due to an increase in deferred compensation expense and an increase in the costs associated with our human resources, finance, information technology and business development groups. During the first nine months of 2024, deferred compensation expense increased $9,028,000, with a corresponding increase to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $14,299,000 during the first nine months of 2024 as compared to an increase in the value of plan assets of $5,271,000 during the same period last year.

### Other Income, Net

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Other income (loss), net | $23,738 | $12,880 | 84.3% |
| Percentage of total revenues | 5.6% | 3.1% |  |

Other income, net, consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The increase in other income, net, was primarily due to a change in the value of assets associated with our deferred compensation plan and an increase in interest income. During the first nine months of 2024, other income, net, increased $9,028,000 with a corresponding increase to deferred compensation expense, as compared to the same period last year, due to a change in the value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $14,299,000 during the first nine months of 2024 as compared to an increase of $5,271,000 during the same period last year. During the first nine months of 2023, interest income increased by $2,195,000 as compared to the same period last year due to an increase in interest rates.

### Income Taxes

*(in thousands, except percentages)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 | Percent Change |
| --- | ---: | ---: | ---: |
| Income taxes | $30,629 | $26,398 | 16.0% |
| Percentage of total revenues | 7.3% | 6.4% |  |
| Effective tax rate | 26.4% | 24.9% |  |

The increase in income tax expense was due to an increase in pre-tax income and a decrease in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards was $2,204,000 during the first nine months of 2024 as compared to $3,639,000 during the same period last year. Excluding the impact of the excess tax benefit, the effective tax rate would have been 28.3% during the first nine months of 2024 as compared to 28.4% during the same period last year.

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### LIQUIDITY AND CAPITAL RESOURCES

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

*(in thousands)*

|  | Nine Months Ended September 27, 2024 | September 29, 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $88,485 | $56,043 |
| Net cash used in investing activities | (4,342) | (14,422) |
| Net cash used in financing activities | (52,788) | (65,972) |

We financed our business during the first nine months of 2024 through available cash. As of September 27, 2024, our cash and cash equivalents were $219,708,000 as compared to $187,150,000 at December 29, 2023.

Generally, our net cash provided by operating activities is used to fund our day to day operating activities. First quarter operating cash requirements are generally higher due to payment in the first quarter of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is collections from our clients. Our primary uses of cash from operating activities are for employee related expenditures, leased facilities, taxes, and general operating expenses including marketing and travel. The increase in net cash provided by operating activities was due to an increase in net income and a smaller increase in accounts receivable during the first nine months of 2024 as compared to the same period last year.

The decrease in net cash used in investing activities during the first nine months of 2024, as compared to the same period last year, was due to a decrease in capital expenditures primarily due to leasehold improvements during 2023 associated with our office and lab space in Philadelphia.

The decrease in net cash used in financing activities during the first nine months of 2024, as compared to the same period last year, was due to a decrease in repurchases of our common stock and a reduction in payroll taxes for restricted stock units partially offset by an increase in dividends.

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

We maintain a nonqualified deferred compensation plan for the benefit of a select group of highly compensated employees. Vested amounts due under the plan of $115,527,000 were recorded as a long-term liability on our unaudited condensed consolidated balance sheet at September 27, 2024. Vested amounts due under the plan of $12,195,000 were recorded as a current liability on our unaudited condensed consolidated balance sheet at September 27, 2024. Our assets that are earmarked to pay benefits under the plan are held in a rabbi trust and are subject to the claims of our creditors. As of September 27, 2024, invested amounts under the plan of $113,225,000 were recorded as a long-term asset on our unaudited condensed consolidated balance sheet. As of September 27, 2024, invested amounts under the plan of $13,569,000 were recorded as a current asset on our unaudited condensed consolidated balance sheet.

On June 19, 2024, we entered into an agreement with the State of Arizona to extend our land lease for 15 years beginning on January 17, 2028. We are currently obligated to make payments under the lease of $1,009,000 per year, which obligation will continue at that level until January 16, 2028. Beginning on January 17, 2028, our payments under the lease will increase to approximately $6,183,000 per year for the 15-year extension term with adjustments to the annual rent payment in 2033 and 2038 based on the consumer price index. As a result of this extension, we added an additional right-of-use asset in exchange for an operating lease liability of $48,683,000 during the second quarter of 2024.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The

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maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid.

### Non-GAAP Financial Measures

Regulation G, Conditions for Use of Non-Generally Accepted Accounting Principles ("Non-GAAP") Financial Measures, and other U.S. Securities and Exchange Commission (“SEC”) rules and regulations define and prescribe the conditions for use of Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, net interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. The Company regards EBITDA and EBITDAS as useful measures of operating performance to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

The following table shows EBITDA (determined as shown in the reconciliation table below) as a percentage of revenues before reimbursements for the three months ended September 27, 2024 and September 29, 2023:

*(in thousands, except percentages)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Nine Months Ended September 27, 2024 | September 29, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenues before reimbursements | $125,085 | $124,959 | $394,726 | $383,317 |
| EBITDA | $35,767 | $34,520 | $115,825 | $107,122 |
| EBITDA as a % of revenues before reimbursements | 28.6% | 27.6% | 29.3% | 27.9% |

The increase in EBITDA as a percentage of revenues before reimbursements during the third quarter of 2024 as compared to the same period last year was primarily due to an increase in utilization and a decrease in general and administrative expenses. Our utilization increased to 73% during the third quarter of 2024 as compared to 70% during the same period last year. The increase in utilization was due to business activity for our proactive service offerings to the consumer electronics and utilities sectors and our successful efforts to align resources with demand.

The increase in EBITDA as a percentage of revenues before reimbursements during the first nine months of 2024 as compared to the same period last year was primarily due to the increase in utilization and a decrease in general and administrative expenses partially offset by an increase in other operating expenses. Our utilization increased to 75% during the first nine months of 2024 as compared to 70% during the same period last year. The increase in utilization was due to business activity across the consumer products and utilities sectors and our successful efforts to align resources with demand.

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The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for the three and nine months ended September 27, 2024 and September 29, 2023:

*(in thousands)*

|  | Three Months Ended September 27, 2024 | September 29, 2023 | Nine Months Ended September 27, 2024 | September 29, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $26,044 | $24,538 | $85,413 | $79,410 |
| Add back (subtract): |  |  |  |  |
| Income taxes | 9,893 | 9,479 | 30,629 | 26,398 |
| Interest income, net | (2,559) | (1,858) | (7,416) | (5,221) |
| Depreciation and amortization | 2,389 | 2,361 | 7,199 | 6,535 |
| EBITDA | 35,767 | 34,520 | 115,825 | 107,122 |
| Stock-based compensation | 5,465 | 4,891 | 18,382 | 17,177 |
| EBITDAS | $41,232 | $39,411 | $134,207 | $124,299 |

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## Market risk

As filed, 2,926 characters.

We are exposed to interest rate risk associated with our balances of cash and cash equivalents. We manage our interest rate risk by maintaining an investment portfolio primarily consisting of debt instruments with high credit quality and relatively short average effective maturities in accordance with our investment policy. The maximum effective maturity of any issue in our portfolio is 3 years and the maximum average effective maturity of the portfolio cannot exceed 12 months. If interest rates were to instantaneously increase or decrease by 100 basis points, the change in the fair market value of our portfolio of cash equivalents would not have a material impact on our financial statements. We do not use derivative financial instruments in our portfolio. There have not been any material changes during the period covered by this Quarterly Report on Form 10-Q to our interest rate risk exposures, or how these exposures are managed. Notwithstanding our efforts to manage interest rate risk, there can be no assurances that we will be adequately protected against the risks associated with interest rate fluctuations.

We have foreign currency risk related to our revenues and expenses denominated in currencies other than the U.S. dollar, primarily the British Pound, the Singapore Dollar, the Chinese Yuan, and the Hong Kong Dollar. Accordingly, changes in exchange rates may negatively affect the revenues and net income of our foreign subsidiaries as expressed in U.S. dollars.

At September 27, 2024, we had net assets of approximately $22.7 million with a functional currency of the British Pound, net assets of approximately $4.5 million with a functional currency of the Singapore Dollar, net assets of approximately $1.8 million with a functional currency of the Chinese Yuan, and net assets of approximately $0.7 million with a functional currency of the Hong Kong Dollar associated with our operations in the United Kingdom, Singapore, China, and Hong Kong, respectively.

We also have foreign currency risk related to foreign currency transactions and monetary assets and liabilities denominated in currencies that are not the functional currency. We have experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on these foreign currency transactions and the remeasurement of monetary assets and liabilities. At September 27, 2024, we had net assets denominated in the non-functional currency of approximately $11.8 million.

We do not use foreign exchange contracts to hedge any foreign currency exposures. To date, the impacts of foreign currency exchange rate changes on our consolidated revenues and consolidated net income have not been significant. However, our continued international growth increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations.

## Controls and procedures

As filed, 1,726 characters.

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that, as of September 27, 2024, the Company’s disclosure controls and procedures were effective.

We review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis, to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three-month period ended September 27, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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## Risk factors

As filed, 147 characters.

There have been no material changes from risk factors as previously discussed under the heading “Risk Factors” in the Company’s 2023 Annual Report.

Filed Nov 1, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-119886. Last ingested by Listed: Nov 4, 2026, 12:40 ET. No prices; not investment advice.