Good day, and welcome to the Exponent’s Second Quarter of Fiscal 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Whitney Kukulka, Investor Relations. Please go ahead ma’am..

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's second quarter 2019 financial results conference call. Please note that this call will be simultaneously be 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; and Rich Schlenker, Executive Vice President and Chief Financial Officer.

Before we start, I would like to remind you that the following discussion contains forward-looking statements, including but not limited to Exponent'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 Risk Factor in Exponent's 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'll 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 geographies.

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 projects.

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 over time. 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 risks 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 product 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 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 are battery powered. As a result lithium ion batteries have become ubiquitous in our daily lives and are present in a variety of products, including consumer electronics, vehicles, and medical devices.

Exponent is retained for battery design reviews, manufacturing best practices, thermal runaway events, failure analyses, battery management system assessments. Exponent’s engineering, and other scientific segments 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’s 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 liquified natural gas facilities.

The answers we provide range from what went wrong to how to make technology safer and more reliable. Exponent's 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 continue to grow as Exponent’s 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 $106.5 million. And revenues before reimbursements, or net revenues, as I will refer to them from here on, were $100.3 million.

This March the first time Exponent has delivered $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 3% of the 4% headwind from the large study in 2018.

We expect our portfolio of studies to be at approximately the same size in the third quarter. The work for PG&E related to wildfires and integrity management of their electric infrastructure was approximately 4% of net revenues in the quarter.

We expect this work for PG&E 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 $0.39 per diluted share, as compared to $18.4 million, or $0.34 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. And 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 $0.81, as compared to $38.8 million and $0.72 per diluted share.

In the first half of 2019, the tax benefit associated with accounting for share-based awards was $5.7 million or $0.11 per diluted share as compared to $4.1 million or $0.08 per diluted share last year. 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 352,000. Year-to-date, billable hours increased 4.2% to 680,000. 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 is 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 biannual managers meeting and a difficult year-over-year comparison. For the fourth quarter, utilization will step down sequentially an 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 a 53rd week, which will be an extra week in the fourth quarter. This additional week will increase net revenues by approximately 5% for the fourth quarter and one and a quarter percent 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 full time 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 variants and 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 million to $8.6 million per quarter. G&A 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, G&A 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.

Exponent’s 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 Exponent’s 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 quarter. Capital expenditures were $7 million for the quarter.

We expect CapEx to be approximately $20 million in 2019, as we complete the new building in Boston. CapEx should return to approximately $6 million to $8 million in 2020. Year-to-date, we distributed $16.9 million to shareholders through dividend payments and close the period with $194.5 million in cash, cash equivalents in short-term investments.

Approximately half of our PG&E accounts receivables at the end of the bankruptcy have been paid. And Exponent continues to believe that substantially all of the remaining $3 million of accounts receivable will be paid. Today, we announced $0.16 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 basis points to 50 basis points as compared to 2018. I will now turn the call back to Catherine for closing remarks..

Thanks, Rich. Exponent is engaged by a diverse set of clients who 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 Exponent’s 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. [Operator Instructions] 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 thanks for that. And we have – certainly, tariffs bring a lot of uncertainty from the standpoint of our clients. There’s no doubt about that. Particularly those for whom China was 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, we have found that any movement of where our clients are manufacturing, for example, let’s say, in the consumer electronics industry or something like that, any movement in where they’re sourcing their supply chains is 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 we’ll be looking to find opportunities that can present themselves as a result of this..

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 proactive work market share? Thank you..

Yes. So great question. These industry teams 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 working on this, we’re in different stages in different industries. It’s a one client at a time type of effort.

And what I’m seeing is some – I’m very pleased in terms of seeing some good examples of where we’ve been able to expand the work that we’re doing for a particular client into a new area. And that’s really – when I talk about a one client at a time kind of focus, that’s what we’re trying to do.

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 battery work that’s being driven into the transportation side.

And so I really do think that based on what I’m seeing, our focus on both the client management side, a client-centered approach as well as what we’re doing in capability development, we are – 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 doing more in the more mature industries, take electronics and maybe 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 we’re absolutely seeing examples of 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 Kootman on for Joe. I just wanted to touch on the utilization. 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 pickup. 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 some in improving utilization.

The work for Pacific Gas and Electric in growing into 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 Catherine indicated in her piece as well, we saw good activities and 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, large ones are $0.5 million of activity to maybe $1.5 million of activity in the quarter, again fits into our portfolio of projects.

But the level of activity on those was just a little bit stronger than we had seen in several quarters. So some of those larger ones that were in that $0.5 million to $1.5 million, we know are going to step down as we move into the third quarter. We still think we’ll be strong, but maybe not quite as robust as we were on those projects.

Nothing sort of falling off a cliff, but activity is definitely planned to be at a lower level on a number of those activities. So as we looked into the third quarter, got forecasts from each of our practices, the level of vacation activity is strong definitely in the summertime.

We do have this managers meeting, which will impact utilization by probably 1 percentage point for the quarter. So if you just did holidays and vacations, you would expect that 75.9% to be probably about 73%. That’s typical when we look at the number of days off that are taken.

We’re anticipating that we’ll be sort of 1 to 1.5 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 into that quarter.

So that’s what we’re looking at there and why we provided that guidance that’s not only a little bit down from the trend off of the very strong second quarter and last year’s third quarter that was really strong.

Even though that if every – people who were around it 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 headcount coming in. 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 forward? I know – I’m assuming probably like a sequential decline and then Q4 is at the strongest given that extra week and – for revenues? And then does that same thing apply on margins? Thank you..

Yes. So the third quarter will really follow that step-down in the utilization. We’ll end up with a few more people, but really offset by a 4% to 5% step-down in utilization, which really puts you more in the – when you adjust for that, we’re in a 5% to 6% step-down in revenues, offset by maybe a 1% increase in headcount.

That is how you’d 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 again it was the same number of weeks, would have expected that to step down again, that, let’s 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 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 a high single-digit growth in revenues in 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 third quarter. We’re talking about a utilization here that’s 1 to 2 percentage points below that in the third quarter.

That’s going to impact margins, let’s call it, 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 such. So again, we would expect margins to be down in the fourth quarter as well as on a year-over-year basis.

That step-down on a year-over-year basis might be in the 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..

Thanks. Just want to follow up on the PG&E work. Can you, I guess, elaborate on the nature of the work? And I guess what I probably want to understand more is the potential longevity of it.

To what extent is this kind of an incident response, where we’re – obviously, there’s probably a heightened level of activity initially versus how much of it is the type of activity that I suspect every year they need to be assessing kind of the safety of the utility infrastructure? So what’s the potential for ongoing activity two years from now, three from now?.

Yes. So there is certainly a component of that, Tim, 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 large sort of immediate need and even if you’re looking at the – what’s the accounts that are in the late press and the challenges that PG&E is having there. So there is a – there’s certainly a large amount of activity that we’re seeing sort of acutely there. But we do expect that there will be a tail over time.

It will not be at the level that we are at now. I mean I think if we look – we only have a certain amount of visibility, right? I mean 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 that once one – and it’s a portfolio of projects.

As one of those projects or issue 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, maybe at where we are now. It becomes more difficult to see beyond that. But I do think it’s reasonable that 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 or internal execution that you would highlight as we look at the environmental and health?.

Yes, yes. So on the environmental and health side, what’s driving that is a couple of things. So we see 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.

We’re 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 things that are sort of at that few hundred thousand kind of size 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 our folks who are in those areas who are getting more traction in the marketplace in certain of those areas around chemicals and the effects of chemicals on human health.

And so the hope is that we can continue to improve our – the position of these folks in the marketplace, and they are giving presentations at conferences and are out there building – are continuing to build our reputation. So I take that 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 Berenberg has our next question..

Hi guys. Just a couple for me. The first one, I was wondering how you’re thinking about capital allocation heading into the second half given where the cash position finished the quarter.

And whether you’re still looking to get the cash down to, I think, the $50 million to $70 million level that you’ve talked about historically over the next few years?.

Yes. So Sam, I don’t think – in the short term, definitely nothing has changed, and 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. The repurchase activities that we did late that 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, based on the amount of cash that we can generate, is above the level that we need to have it at, and we continue to have the 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 our way at that.

But look, we’ve been talking about that long. There’s been a nice rise in the stock price, and we’ve tried to be prudent about our process going about those repurchases. Other than that, we haven’t done an acquisition since 2002. It doesn’t mean that we’re not looking for that seed 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 feed that where we can identify the right opportunity and integrate into our integrated firm as we go forward..

Right. Thanks. And then the second one, just in terms of the realized rate guidance of 2% to 3%, I think, it was for the full year.

Do you think that will more than offset any wage inflation that you’re seeing this year? Or is most of the margin improvement you’re seeing just purely coming from the utilization side?.

The utilization is primarily coming from the utilization side. We do expect that our rate increases – our pricing increases will more than offset our salary increases that we have 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 cost after adjusting for deferred compensation is up 6%. We saw that same thing in the second quarter after we implemented raises in the 1st 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 the marketplace from a client perspective is also driven into their value as employees as well. So we try to find that balance and keep them aligned over the long term and continue to expect to be able to do that..

All right. Thanks guys..

Our next question comes from Marc Riddick with Sidoti..

Hi, good evening everyone. I wanted to touch a little bit on the human factors growth and the 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 anything that you have to worry about within 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's any sort of connecting theme that we should be thinking about that's leading that? Thanks..

Yes. So maybe, I’ll start off there and Catherine can add 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 a competitive area. We find that, that is critical in our business.

It's been a practice we have had over decades. It's why this company works for almost all the automotive manufacturers or all of them. We've been able to – we believe that in our business, consulting isn't about working for one client per industry. It's – Exponent is not in the business of a client has a concept and we come up with a design.

We are helping clients gather the – in the human factors studies, gather the data and information to inform their designs and processes there and try to design things that can get better information for them to drive that into the future. So, it has been – it's something that we are conscious of that people can look to limit you.

But one of the reasons they're coming to us is because of our experiences what we try to make sure they understand. As far as the interconnectivity of the work is absolutely it builds upon itself.

I mean what we're seeing is that what – how we're interacting with consumer products today is exponentially growing in that verbal, physical interaction that we have – that we have seen growing in everything from the phone we have to now devices we have in our home to how we're interacting with all of our appliances or even technologies in our workplace.

That element is changing. What we do when we – as we move to virtual reality and that's both in our home and in our personal and in our workplace.

What happens when we move into the semiautonomous vehicle to the fully autonomous vehicle and those interactions? We already are being – seeing and answering questions just related to individual controls that happen in vehicles as those technologies are implemented and you watch how individuals react to that. So this is evolutionary.

We are building upon studying those humans in vehicles today and how they address adaptive controls and things will be 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 are building upon that.

We are seeing activities that range from workplace questions to a home automation questions to things that are in the gaming world, in the virtual reality environment. So, we hope to build upon each of those as we look forward..

Yes, and I would add Marc that this – 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.

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 electronics, relevant to transportation, it’s relevant to medical devices, it’s relevant to oil and gas.

I mean we are 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 then a place where also the staff that we have recruited and continue to recruit both at the junior and senior levels are really absolutely – these are the top people in these areas across industries.

And so, when I look out across the business, I think that this is a particularly exciting opportunity for us..

Okay, great. Thank you for that color. And then the last thing for me, I just wanted to see if we could get an update on how you are maybe looking at the global acquisition pipeline, what you’re seeing out there, how you feel about evaluations and maybe some attractive areas or geographies things like that. Thank you..

Yes, sure. So from the standpoint of global opportunities, we have seen and continue to see engineering in Europe as an area of growth opportunity for us. And interestingly 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 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 – very much in its infancy 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 absolutely take advantage if we were able to find 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 are also very focused on hiring in terms of senior talent.

We have been looking at both junior and senior talent that we can bring in – over in both in the UK and elsewhere to try to feed that activity. You can do it by sort of a small acquisition, but you can also do it if you have got someone who is known in the industry, known in their field, 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 work in Europe..

Great. Thank you very much..

You are 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..