Whitney Kukulka - IR, Director at The Blueshirt Group, LLC Dr. Catherine Corrigan - President and CEO Rich Schlenker - EVP and CFO Dr. Paul Johnston - Executive Chairman.

Tim McHugh - William Blair Tobey Sommer - SunTrust Drew Kootman - Cantor Fitzgerald Marc Riddick - Sidoti Sam England - Berenberg.

Good day and welcome to the Exponent's Q3 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Whitney Kukulka. Please go ahead, ma'am..

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's third quarter 2018 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.exponent.com/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; Rich Schlenker, Executive Vice President and Chief Financial Officer; and Dr. Paul Johnston, Executive Chairman.

Before we start, I would like to remind you that the following discussion contains forward-looking statements, including, but not limited to, Exponent's 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 Exponent's periodic SEC filings, including those factors discussed under the caption Factors Affecting Operating Results and Market Price Stock in Exponent's most recent Form 10-K.

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 and good afternoon everyone. Following my discussion of the results for the third quarter, Rich will provide a more detailed review of our financial performance and business outlook. Paul is also with us for the question-and-answer portion of the call.

Building on the strong growth we saw in the first half of the year, Exponent delivered high single-digit revenue and its EBITDA growth in the third quarter. Total revenues in the third quarter grew 9% to $95.3 million as compared to the same period one year ago. Revenues before reimbursements increased 8% to $88.7 million.

EBITDA increased 7% to $24.8 million and the net income was $17.5 million or $0.32 per diluted share. As indicated by our results, we are excessively leveraging our global expertise to capitalize on strong market trends in several industries and across geographies.

We are once again raising our revenue growth and margin guidance for the full year on the heels of a strong third quarter. We achieved strong results even as the large human factors project concluded in August. This project represents at approximately 3% of third quarter net revenues, down from 8% in the same quarter last year.

In our business, project scope and duration are dictated by the client needs, and we are well equipped to adjust our services to meet these dynamic needs. I'm pleased to note that we remain engaged with this client on a diverse set of assignments that span the product lifecycle including several other human factor studies.

Exponent is a market leader in this important growth area as clients need to better understand the interactivity between sophisticated products and their users. We are encouraged by the increased demands for our human factor services from other clients in the virtual reality, automated vehicle and consumer products industry.

We believe these capabilities are a source of strength for Exponent. Our engineering and other scientific segments represented approximately 80% of the Company's third quarter and year-to-date net revenue. Net revenues grew 9% in the third quarter and 10% in the first nine months, as compared to last year.

For the third quarter, this segment had noteworthy performances in its human factors, material sciences, thermal sciences, electrical engineering and construction and consulting practices. Battery technology consulting remains strong especially for the consumer electronics and transportation industry.

We have been retained to provide expert services to resolve disputes on large construction projects around the world. Exponent is uniquely positioned with our diverse engineering and construction expertise to evaluate cost overruns, delays and non-performance plans that arise during these complex capital projects.

Our environmental and health segments represented approximately 20% of the Company's third quarter and year-to-date net revenue. Net revenues in this segment grew 3% in the third quarter and 6% year-to-date as compared to last year.

This segment continues to grow as global environmental and health concerns rise especially as they relate to food and chemicals. Clients are seeking integrated solutions for their most challenging safety, health, environmental and reliability issues.

Exponent engages the brightest scientists and engineers across an incredible range of disciplines and industry. Our ability to form interdisciplinary teams with diverse industry experience allows us offer unique proactive and reactive solutions to our client challenges.

Our third quarter and year-to-date results demonstrate the strength of our unique market position, adaptable business model and strong client relationships which positions us well to generate long term growth and profitability. Rich will now provide a more detailed review of our financial performance and business outlook..

Thanks Catherine. Let me start by saying that all comparisons will be on a year-over-year basis unless otherwise specified. For the third quarter of 2018, total revenues increased 8.8% to $95.3 million. Revenues before reimbursements or net revenues as I will refer to them from hereon were up 7.7% to $88.7 million.

Net income for the third quarter increased 19.2% to $17.5 million as compared to $14.6 million. As a reminder, our net income also benefited from the new tax legislation which reduced our consolidated tax rate. I will provide more details on our taxes shortly. Earnings per diluted share were $0.32 from the third quarter as compared to $0.27 a year ago.

EBITDA for the quarter increased 6.8% to $24.8 million as compared to $23.2 million a year ago. The large projects that we have discussed accounted for approximately 3% of net revenues in the third quarter. We had previously expected the large project to decelerate in the second half of this year.

However, as Catherine mentioned, we concluded the project in August. For comparison purposes, in 2017 the project accounted for 8% of net revenues in the third quarter and 5% in the fourth quarter. Year-to-date, total revenues increased 10.7% to $287.4 million, and net revenues increased 9.1% to $269.4 million.

For the first nine months of the year, net income was $56.2 million as compared to $45 million in the same period last year. Year-to-date, earnings per diluted share were $1.04 as compared to $0.83 a year ago. In 2016, Exponent adopted a new accounting standard for the classification of tax adjustments associated with share base awards.

The year-to-date realized tax benefit was $4.2 million or $0.08 per diluted share, as compared to $6.5 million or $0.12 per diluted share in 2017. Year-to-date, EBITDA increased 13% to $74.3 million. Billable hours in the third quarter increased 3.1% to $320,000. For the nine month period billable hours increased 6.2% to $973,000.

Utilization in the third quarter was 73% as compared to 75.8% a year ago. The decline in utilization was impacted by the challenging year-over-year comparison due to large project, which is partially offset by gains in our realized rate. As a reminder, there is seasonality in our business due to the timing of holidays and vacations.

As a result, utilization in the fourth quarter is typically three to four percentage points lower than the third quarter. We expect utilization in the fourth quarter to be approximately 69% to 70%, as compared to 72% in the same quarter last year. Year-to-date, utilization was 74.8%, as compared to 75.7% one year ago.

For the full year 2018, we expect utilization to be down approximately 1 to 1.5 percentage points from 74.7% achieved in 2017. Technical full time equivalent employees in the quarter were 843, up 7.1% from last year. We expect FTEs to grow sequentially in the fourth quarter by approximately 1%.

The realized rate increase was approximately 4.4% in the third quarter. As a reminder, our average rate in the third quarter of 2017 was lower than other quarters during 2017 due to the very high utilization of junior staff on the large project.

So as expected the third quarter 2018 had a higher percentage gain than we had realized in the first half of 2018 or expect to realize in the fourth quarter. We expect a year-over-year realized rate increase of approximately 2% in the fourth quarter. For the quarter EBITDA margin decreased 20 basis points to 28% of net revenues.

Year-to-date EBITDA margin has increased 100 basis points to 27.6%. For the quarter, compensation expense after adjusting for gains and losses in deferred compensation increased by 8%, included in total compensation expenses, a gain in deferred compensation of $1.8 million, up from 1.7 million last year.

As a reminder, gains and losses and deferred compensation are offset in miscellaneous income and have no impact on the bottom-line. Stock-based compensation expense was $3.6 million in the quarter, as compared to 3.5 million last year. We expect stock-based compensation to be approximately 3.5 million in the fourth quarter.

Other operating expenses increased approximately 4% to 7.8 million in the third quarter. Included in other operating expenses is depreciation expense of 1.6 million. For the fourth quarter, we expect other operating expenses to be in the range of 8 million to 8.2 million.

G&A expenses were $4.7 million in the quarter, up 15%, which includes half of our principals meeting expenses. The other half of the meeting costs will be expensed in the fourth quarter. G&A expenses are expected to be in the range of $4.8 million to $5 million in the fourth quarter.

Exponent's consolidated tax rate benefited from the new tax legislation. For the third quarter, our tax rate was 27.2%, as compared to 33.5% in the same period last year. Year-to-date inclusive of the tax benefits for share based awards, Exponent's consolidated tax rate was 21.2%, as compared to 27.2% a year ago.

For comparison purposes excluding the tax benefit for share based awards, Exponent year-to-date tax rate decreased to 27%, as compared to 37.7% due to the new tax legislation.

We expect our consolidated tax rate to be approximately 26% to 28% in the fourth quarter and our full year tax rate to be approximately 22% to 23%, which is 10 points lower than it would have been as a result of the new tax legislation. This lower tax rate will generate an additional $8.5 million to $9 million of net income. Moving to our cash flows.

Year-to-date, operating cash flows were $47 million, capital expenditures were $12.6 million of which $8.5 million went towards the development of our new Boston area building, which is scheduled to be completed in the middle of 2019. Year-to-date, we have distributed $20.5 million to shareholders through dividend payments.

Today, we announced another quarterly dividend payment of $0.13 per share for the fourth quarter of 2018. We ended the quarter with $202 million of cash in short term investments. For the full year 2018, we are increasing our revenue growth and margin expectations.

Our outlook reflects our strong performance year-to-date and positive momentum in several business areas, partially offset by the challenging year-over-year comparison due to the large human factors project, which concluded in August of 2018.

We expect revenues before reimbursement for the full year 2018 to grow in the high-single digits as compared to last year, including fourth quarter revenue growth in the middle single digits. EBITDA margin for the full year is expected to increase approximately 50 basis points from the 26.5% achieved in 2017.

This includes EBITDA margin declining 75 to 125 basis points in the fourth quarter as compared to the same period a year ago. I will now turn the call back to Catherine for closing remarks..

Thank you, Rich. We are pleased with our sustained growth throughout the year. Exponent's multi-disciplinary capabilities and geographic reach have truly created a differentiated market offering that is highly adaptable to changing market demand.

While the fourth quarter presents a challenging year-over-year comparison, we are still anticipating strong full year revenue growth and EBITDA margins. We believe this is a testament to the strength and resilience of the business that we have built over the last 50 plus years, and we are excited about our future.

We are focused on positioning the Company for long term success, delivering strong financial results and creating significant value for our stakeholders. We will now open the call for questions.

Operator?.

Thank you. [Operator Instructions] And our first question will come from Tim McHugh will William Blair..

Just wanted to ask kind of I guess some more color on the large project.

I understand that's the nature of these is they can end at any time, but just -- was there anything about there anything about the performance on the project that that it ended sooner than you thought? And is there any chance conversely that it also picks back up, I guess at some point..

Right, so, Tim, we are very pleased in terms of where we are with regards to the clients and the data that we were able to generate for them. As you know, this has been a very large project. It's gone on for quite some time. And the client has been quite pleased throughout the work, with the work product that we have generated.

So, I mean, I am very pleased from that perspective, there was absolutely not an issue related to performance. This was an issue of technological innovation occurring at the pace that it occurs in this particular consumer product space. So, they had the data that they needed and so the project was brought to a close.

In terms of whether they anticipate restarting it, we do not anticipate that happening. We do believe that to be concluded. But the good news is that with this client, we continue to have projects in this same area. They are not of the scale, of this very large one that we had, but we continue to work with them.

So, that is a testament to the fact that they're very pleased with our capabilities in that area. And we're also bringing that capability out to the market to other clients. So we believe that this particular area will be a source of strength for us going forward..

And what's the potential for I guess a different client even taking on a project of this size and scope, I guess trying to understand others broad demand for human factors projects was, is there potential for other projects of this size? Or was this really just an unusual event? I guess, as we think about you trying to redeploy those resources?.

Yes. And well, one thing about redeploying the resources, I mean it's, I think it's important to note that the folks that we were able to utilize on this project came from broadly across the disciplines in the firm. I mean, we engage with staff across nearly all, if not all of our processes here.

And so, as we conclude the projects, we're able to flow those staff back into our broad diverse portfolio of more typical projects relatively well, relatively easily. And so, we're happy it's in contrast to a situation where the projects might involve just a single group or practice and you have to flow all those people back in just that single area.

So, we do believe that is part of why our ongoing business we feel will be fairly strong. But with regards to the likelihood of having a project of this scale, that -- it is fairly unusual at this scale. We don't anticipate that we would get some things this large necessarily in the near-term.

It's certainly possible, but that is not something that we are, that we are banking on..

Okay. And last question I guess, if I think about the -- if I look at the growth rate, even in this quarter excluding that large project, it's actually picked up quite a bit. Is -- I understand this is a mathematic, there could be just math.

I don't know how quickly those got redeployed into other areas, as you say, so maybe it's just a bad way to look at it.

But was there something else that picked up in the business? Or when I look at that growth rate excluding that this project is, I guess, is that a sign of how quickly you are able to redeploy the people off that project and now tell other things?.

Well, I think there are two parts, right. There’s the redeployment of folks into other things. But there are other areas of the underlying business that we are very, very excited about in terms of growth opportunities. When we look at the work we’re doing in battery consulting.

That is one area, that is not only very active in the consumer electronics space, but we’re also seeing substantial traction in the transportation space. So that’s something that where we are porting our capabilities actually across industries, seeing strength there. We’re seeing strength on the chemical side.

This is driven by both our proactive work on the regulatory side with agricultural chemicals as well as some reactive work in that area. Another area I might point out is that, that we’re seeing strong traction in is related to international construction and infrastructure pursuits. That is a place where our offering is quite unique.

We are able to bring to the table not only the construction expertise in terms of delay and damages issues, but we are also able to bring this deep engineering expertise and we’re finding that, that market really is quite hungry for that integrated offering that we have.

So, yes, we’re able to flow back into the project, but we’re also seeing other parts of the business that are quite strong..

And I guess just to be clear, I guess.

Is there any of those that I guess stepped up in the level of strength that commentary may be sounds fairly similar to some of the trends that you’ve been seeing throughout 2018 just trying to understand if anything felt different, I guess?.

Yes. And that’s exactly right. I mean, I think that those are areas where it’s not just for this quarter that there are strong. We feel like the market drivers for those things are particularly strong and will be over time. So yes, if it sounds similar to what you might have heard last quarter, it absolutely is and we’re actually very glad about that..

And our next question comes from Tobey Sommer with SunTrust..

With respect to the large client, you referenced how you draw from many, many disciplines throughout the firm. Does that mean that there won’t have to be any kind of shedding of resources? Or is it really just a function of slightly lower utilization, as a result of the last project ending? Just want to make sure I understand that..

Yes. So, Tobey, that’s exactly right. We do not anticipate any kind of staff reduction related to this project coming off.

In fact, we continue to be very aggressively recruiting top talents, both at the junior level as well as at the senior level, particularly in the areas of strength that I mentioned along with human factors, because we are diversifying that portfolio of projects.

We’re doing more work in user experience across transportation, across electronics, across medical devices. And the folks that we bring in, we expect they are drivers of the growth of the business because they are PhD level folks and they’re able to go out in that marketplace and find new niche areas, because of their expertise.

So, it’s in fact quite the opposite. We not only, will not be shedding staff but we expect to continue to grow our staff..

With respect to headcount additions, I know you typically talked about that too far on the future. But how does that -- what are your plans in broad strokes or kind of net headcount addition? And I'd be curious about your expectation for realized bill rate increases.

I know there is more dialogue out in the economy about general inflation picking up, and I'm wondering if there is any change in your pricing dynamic?.

Yes. Tobey, this is Rich. First of all on the headcount side, I think we continue -- we haven't done our specific planning for 2019. We're actually in the middle of that process at this point in time.

But we continue to believe that the headcount additions in our model over the long term will range from that 4% to 7%, 4% to 8% range as we look at our year-over-year growth in headcount. That's what we think right organic growth model is for us and will continue to be. So, we are very positive about that.

As Catherine indicated, we're continuing to recruit and grow. We indicated that we'll see sequential growth going from third to fourth quarter on that headcount front. As far as the rates go, again, we're currently in the period of time of looking at our rates for 2019.

But we continue to believe that over the long term that, we're looking at rate increases that range from really that 2% to 3.5% range overall on a realized rate increase, that depends on where inflation is in demand. But as you've indicated the demand for engineering and scientific people is in high demand.

And we expect to be able to continue to raise our rates. I mean, if you look back, some of the years have been a little bit more modest, but we have been able to increase our rates over the last decade on the annual basis..

Can you give us an update on your sales approach to the market to get together your key consultants around industries? I know you talked about these 90 days during the last call and I know it's a long-term initiative.

But I'm kind of curious for an update on where we are now and ultimately what kind of addition to growth do you think you might derive from that initiative?.

Yes, so right now in terms of the industry focus, the focus is really around deepening our client relationships. In a particular industry, we might have a number of key players that we're working with. But the focus with regards to our consultants is that they are strengthening those relationships and I have been actively involved in that.

I continue to be out and be engaged with the clients. And I am seeing a deepening of our existing relationships, and I'm seeing a recognition by the clients, a better learning by the clients of the diversity of expertise that we can bring to the table. Historically, these clients perhaps know us in one particular area.

Again, they'll know us for our battery related work, but we've been relatively effective in selling and cross over to, let's say, our user experience and our human factors work. And so, I'm seeing this process evolve in a very positive way.

And when I look at, I look at the kind of growth that we're achieving in, let's say, consumer electronics, which is the area where we are furthest along with this approach. That area is growing very strongly year-over-year you know strong double digit growth. And so, I don't necessarily expect that every industry will grow like that.

But what we are doing is that we are taking the best practices that are working there and we are porting them over into some of our other industries. And what we see is that some of those best practices transfer over quite well and hit with others, things are different from industry to industry and even from client to client within an industry.

But overall we are continuing to work hard on this and I'm seeing a lot of teamwork that is coming out of the consulting ranks which really is laying the foundation for building these client relationships..

Last question from me is.

Could you talk to us about your international business kind of current dynamics? And what do you think that will be -- how it will be sized and how to play into the Company over sort of a more medium three to five years?.

Sure. So, right now, our international business is probably about 10% of the business. But when we look at that, I think on average we see that that has been growing a bit faster than the average.

Some of that is due to the growth not only in the regulatory work that we're doing over there in the chemicals area, but we are also getting more traction in engineering. Our traditional engineering disciplines over in Europe and in Asia work related to the consumer electronics industry as well as regulatory work are areas where we are seeing growth.

So I would anticipate in sort of that medium term that you talk about that that's part of the business although it's a small part of the overall business. I do think that that will on average grow a bit faster than the average..

Thank you. And our next question comes from Joseph Foresi with Cantor Fitzgerald..

This is Drew Kootman on for Joe.

I was wondering, if you could provide a little more color on the proactive revenues and what is driving that?.

So, there are a number of areas where the proactive work is particularly strong. I've talked a little bit already about the consumer product space and specifically consumer electronics. So, we find ourselves engaged with a number of clients in this space, really around the product lifecycle.

So, it can be very early on when products are being developed, and then as the iterations are occurring through that design life cycle, as clients wants to understand what kind of experience their users are having in terms of designing the interface between the human and the product.

We're seeing a great deal of traction in that particular part of the project lifecycle whether that'd be from the virtual reality side, whether that be from the transportation side with advanced driver assistance technologies. So, we’re seeing strength there.

On the chemical side, the agricultural chemicals in particular, that is a place where the regulatory environment only seems to continue to get more stringent, and also with the sort of mergers that have happened within that particular industry.

We see scenarios where those clients have resource constraints and we’re able to step in and help get them through those regulatory hurdles. So, those are a number of areas in addition to our utilities work.

Issues around management of the integrity of the utility infrastructure that is an area that is very well suited to our traditional engineering disciplines like metallurgy, material science. And so we are seeing by way of example, some good traction across clients in the utility space. So I think those are some good examples for you..

And how should we think about margins heading into next year and longer term?.

This is Rich. Look, we aren’t prepared at this time to give guidance for 2019, but Exponent continues to believe that there is room for margin improvement.

If we can gradually improve our utilization from where we’ll end up this year and call it somewhere in the 73% range as that continues to grow and improve towards the middle single-digits, in the middle 70s, we think there’s a room for help on the margins on that side.

And if we can continue to grow in that high-single-digit in the top-line of the revenues, we think that there’s some operating leverage that can be gained.

So, we can still think that over time, the average over the next three to five years that we would expect to gain out of margins might be something in the 30 to 50 basis points on average annually..

And then last question just looking at the balance sheet. The cash balance continues to get higher.

Can you discuss the changes your capital allocation strategy at all?.

Yes. So look, we’ve continued to increase the dividend. We put this in place a few years ago. We’ve grown it faster than earnings over the last several years. We would expect to grow that faster than earnings at least in the near-term.

As you look back at ’18 over ’17, clearly, we would be excluding the one-time adjustment that occurred last year in the December timeframe for tax legislation. But overall, we expect to be growing those dividends at a strong pace. We will be supplementing that with stock repurchases.

We’ve currently got $50 million authorized under our stock repurchase program and expect overtime to continue to be active in that. Clearly, we have demonstrated that we have been more active in the repurchases on pullbacks in the stock we haven’t been one to sort of chase it on the rises up.

But we do expect over the long-term to continue to be active and as a result, over the next 4 to 5 years to be able to bring our cash balance down..

Thank you. And our next question comes from Marc Riddick with Sidoti..

Following up I guess on, just following up on that path that we're already on.

Is there a still a general thought process around that 50 or 75 -- excuse me, $50 million to $70 million balance as kind of an optimal balance or how should we think about that numerically?.

Yes. That has not changed..

Okay great.

And then moving sort of on to, maybe if you can give us a little bit of an update as to what you're seeing out there as far as acquisition pipeline and some areas that might be attractive for you without going into too much detail, but sort of a general thought as to what you're looking at in the acquisition front?.

Sure. So, I would say there are a couple of areas where we think, if we could find the right fit that it could be a good way to see some new activity. That could be for example in a pharma related consulting space. That is an area where we've done a bit of work, but have not had a significant presence in that market.

So that is a place where we have our eyes open certainly. Another area that I think could be right for expansion or could be seeded with a small acquisition would be around computer science. As you think about cybersecurity, authentication. We do some work in that area, but it is not something where we have our substantial player.

So, those two areas certainly are ones that interest that I would cite for you..

And then I wanted to circle back on the proactive reactive mix we spend certainly time on what you're doing on the proactive areas.

So I wanted sort of maybe if you could give a bit of an update on, what you've been seeing in the reactive side of the business? And what's kind of in keeping it busy? And what that mix currently looks like I guess and it sounds as though reactive you're still looking at growing faster than excuse me, proactive growing faster than reactive, but I was wondering if you could give a bit of an update on that?.

Sure yes. So on the reactive side of the business there are few areas. As you think about the recall area. And this is maybe sort of a gray zone between proactive and reactive, but in response to sort of product defect investigation. Those are -- we're very active in that area on the transportation side.

And we're also routinely working very much in that area in consumer products in general so related to recall. So those are two industries that I would cite there. I would also reiterate the strength of the work that we are doing in international arbitration.

This is not only related to large capital projects dispute, but also is related simply to large sort of more traditional failure analysis. So, they're not necessarily construction disputes but they may be related to large aircraft related failure analysis or pipeline related failure analysis and reactive issues that we're seeing.

The difference being that these are being litigated in the international arbitration forums. So this is something that has really, has ramped up for us considerably over the last year or two or three. And it's something that we believe will continue to grow as we build our reputation internationally in that space..

Then one last thing from me, I was curious as to this might be a bit difficult to parse out.

But I was wondering if you thought about kind of what the opportunity is? Or what you've seen from a trend perspective when it comes to weather related events or climate change related events or however you might want to put it? Is there anything that we should be thinking about as far as those types of terms and what we're seeing?.

Yes, so with respect to climate change, I mean, there are certainly, if you look at the various models that folks are using to predict sort of the likelihood of severe weather and the sort of events that occur as a consequence of that. We are not at least at the moment in the business of sort of predicting the changes in the weather.

However, with the understanding that climate change is evolving and occurring, I do believe there is an opportunity there with regard to assisting clients with managing that risk.

And the risk associated with severe weather events and climate change, I think is an area of proactive work that that could be very relevant to, let's say, the oil and gas industry, the chemical industry, we've seen with Hurricane Harvey.

I believe there were some great concerns over chemical releases and what the preparation and the risk management was around those. And so, that's one example I think of an opportunity where we would potentially be able to grow some business on the proactive side..

Thank you. Our next question comes from Sam England with Berenberg..

Could you just then touch on how tough the hiring environment is at the moment? And I thought that the comp had gone up a bit, is that the tool linked to competition in the hiring market?.

Yes, so we certainly are seeing a competitive job market. There is no doubt about it, particularly in some of our geographic areas, such as Silicon Valley, where our headquarters is. And of course, places on the East Coast like New York and Boston those are places where the competition is fairly fierce.

When you think about the types of people that we are looking to hire at that junior level, these are PhDs out of top programs whether it's an MIT grad, or Stanford grad, or Berkeley, or what have you.

So, we are having to compete with some healthy compensation packages, but the good news is that the client base that we have is also the set of companies that we're competing with for talents in a way.

So, they recognize that we need to pay these folks well in order to keep them, and we're able to scale our billing rate that we charge for that talent accordingly. And the client community is not surprised by that.

So although, we absolutely find ourselves in competition and we need to be, we need to stay on top of that and we need to do our best to keep our offers competitive. We are able to adjust for that in terms of how we price in the marketplace..

And Sam, I'll just add one thing, you know the increase in our compensation costs this year is pretty much in line with our revenue growth. So, they’re in line with our headcount growth. So, you’re seeing that headcount is growing 7% and compensation is growing 8% on a year-over-year basis. And that includes raises that occurred over the last year.

So you do have some blending down as you hire more junior staff, but we’re pretty pleased that we’ve been able to manage that is sort of in line with our headcount growth and within the revenues..

And have you seen any changes in the churn rate amongst your staff as well particularly on important things like consumer electronics where I presume that the demand is pretty high for the types of guides, especially the things you have?.

Yes. So we find that our turnover at that level is fairly consistent with what you would expect in a premium professional services kind of organization. The really good news about it though, when we look at the data we certainly see turnover in our junior ranks and it has not, we haven’t been seen it increased substantially in the last several years.

It’s fairly consistent. But what we do find when we do our exit interviews and we learn where folks are going is they are not primarily going to competitors of ours, which we think is good. They’re usually leaving because they’ve decided that, they tried consulting and consulting isn’t for them.

And so they will actually flow very often into client or potential client organizations. And we’ve had a number of examples where they then become our sponsors within those organizations or at the very least good ambassadors for us to those organizations. So, I see the turnover as something that is fairly steady.

We’ve got to work to stay ahead of it and grow our headcount. But in terms of where they’re going, I think it’s positive for the business..

And then just on the Q3 contract win.

So is that come more from new clients or existing/previous clients?.

Yes, I mean, we continue to see that the majority of our business is for repeat clients. We think about 85% of our revenues are coming from repeat clients.

I think some of the -- definitely the strength in the consumer products area and such is actually about, as Catherine discussed, building deeper relationships with existing clients and increasing that revenue base. It’s not that we’re not picking up some new ones.

Clearly, when you look over to some areas such as the automotive industry, there are new players some disruptors into there, and we’re beginning to see -- get some traction with some of those players that might be new to us. But again, most of the work is coming from repeat clients..

Thank you. And we have no further questions at this time. Ladies and gentlemen, this concludes today’s teleconference. And you may now disconnect..