Good day. And welcome to the Exponent Fourth Quarter and Fiscal Year 2019 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..

Thank you, Operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent’s fourth quarter and fiscal 2019 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; 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 will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer.

Catherine?.

Thank you, Whitney, and good afternoon, everyone. I will start off today by discussing our 2019 business performance. Rich will then provide a more detailed review of our financial results and outlook for 2020 and we will open the call for questions. The fourth quarter was exceptional and concluded a strong 2019 for Exponent.

For the quarter and year, we achieved double-digit revenue growth and increased our EBITDA margin as compared to 2018. For the 14-week fourth quarter of 2019, revenues grew 20%, as compared to the 13-week quarter of 2018. Earnings per share increased to $0.36 per share, as compared to $0.30 in 2018.

For the 53 weeks fiscal year 2019, revenues grew 10%, as compared to the 52-week fiscal year 2018. Earnings per share increased to $1.53 per share, as compared to $1.33 in 2018.

We continued our work for Pacific Gas and Electric to evaluate the integrity of their electric infrastructure, and to help mitigate safety risks for customers and communities related to wildfires. In aggregate, this work contributed approximately 4% of revenues in the fourth quarter and full year.

We continue to anticipate that these projects will step down over time. Beyond PG&E, integrity management represents an opportunity for growth in the utility industry and the broader energy sector. We capitalized on increased demand for both proactive and reactive services related to energy storage.

As sustainability imperatives continue to drive the world toward renewable energy sources. We expanded our portfolio of international arbitration engagements related to large capital projects in Asia, Australia, Europe, the Middle East and North America.

Exponent differentiates itself in this marketplace by layering deep best-in-class engineering subject matter expertise, with its construction delay and financial damages capabilities. We diversified the scope of our human factors and product studies as we provided unique insights into the operability, usability and safety of human machine systems.

During the quarter, our multidisciplinary battery team was called upon for a very rapid analysis related to a complex international trade secret dispute. This project contributed more than 3% of revenues in the fourth quarter, but is substantially complete. So, we will not have a significant contribution to ongoing revenues.

The combination of our expert team and holistic approach enabled this project to scale quickly, an excellent example of the value that our highly differentiated approach provides to our clients. Exponent’s engineering and other scientific segment represented 81% of the company's fourth quarter and 2019 net revenues.

Net revenues in this segment grew approximately 21% in the 14-week fourth quarter and 11% in the 53-week fiscal year 2019 as compared to 2018.

This segments experienced broad-based strength during the year, with notable performances in its human factors, thermal sciences, structural engineering, biomedical material sciences, polymer sciences and construction consulting practices.

An array of multinational companies across industries sought our scientific expertise and sound advice for their products. For example, safety concerns regarding energy storage systems drove increased demand for risk assessments in the consumer products, transportation, utility and medical device industries.

Our scientists address for liability concerns with an in-depth design review of a new liquefied natural gas containment vessel. Our biomedical team is advising a client as it navigates the evolving European regulatory framework for medical devices.

Exponent’s Environmental and Health segment represented approximately 19% of the company's fourth quarter and 2019 net revenues. Net revenues in this segment increased 14% in the 14-week fourth quarter and 6% in the 53-week fiscal year 2019 as compared to 2018.

Within this segment, the chemical regulation and food safety practice continued to grow as Exponent scientists evaluated the effects of chemicals and new products on human health and the environment. We are monitoring the evolving worldwide situation with respect to health concerns surrounding the Coronavirus.

Exponent’s Shanghai and Hong Kong offices are closed this week as per the local governments’ requests, but are currently scheduled to reopen next week. These offices in aggregate represent approximately 3% of our revenues.

Our German entity provides structural design and inspection services, which are not a strategic fit with Exponent’s premium consulting offerings. The entity had 2019 revenues before reimbursements of approximately $4 million. The entity will be divested this month.

The United Kingdom and Europe continue to be strategic geographic areas, with significant growth opportunities for both proactive and reactive services with many industries.

Our chemical regulation and food safety practices already a recognized leader in the region and we continue to build our reputation as engineering and scientific experts for international dispute.

As we look ahead into 2020 and beyond, we will continue to leverage our core competencies as we deepen our client relationships, expand our reputation internationally and bring new talent to the firm.

We are prepared to deliver in-depth engineering and scientific insights into complex and evolving systems, such as automated and electric vehicles, medical devices, consumer electronics and infrastructure.

Exponent is well-positioned to advise its clients as society continues to raise the bar on safety, health, sustainability, reliability and performance. Rich will now provide a more detailed review of our financial performance and business outlook..

Thanks, Catherine. I'd like to start by saying that our comparisons will be on a year-over-year basis unless otherwise specified.

For the 14-week fourth quarter of 2019, total revenues grew 20% to $110.1 million and revenues before reimbursements or net revenues as I will refer to them from here on also increased 20% to $102.2 million, as compared to the 13-week fourth quarter of 2018.

Year-over-year, the quarter benefited 5% from the extra week, 3% from PG&E, and 3% from the trade secret engagement. Net income for the fourth quarter was $19.1 million or $0.36 per diluted share, as compared to $16 million or $0.30 per diluted share one year ago.

EBITDA for the quarter increased 22% to $27.7 million For the 53-week fiscal year 2019, total revenues grew 10% to $417.2 million. Net income or net revenues also increased 10% to $391.4 million, as compared to the 52-week fiscal year 2018. The additional week increased net revenues by approximately 1.25% for the year.

Net income for 2019 increased 14% to $82.5 million or $1.53 per diluted share, as compared to $72.3 million or -- and $1.33 per diluted share in 2018. The tax benefit associated with accounting for share based awards for 2018 was $8.1 million or $0.15 per diluted share, as compared to $4.2 million or $0.08 per diluted share in 2018.

For the full-year 2019, EBITDA increased 11% to $107.1 million, as compared to $96.9 million in 2018. Billable hours in the fourth quarter increased 19% to 359,000. For the year billable hours increased 8% to 1,376,000. The fourth quarters’ utilization was 69.5%, up from 68%, one year ago.

For the full year 2019 utilization was 72%, down from 73% in 2018.

Utilization declined for the full-year due to a challenging comparison in the first half of the year from the large human factors project that concluded in the third quarter of 2018 and the extra week in the fourth quarter, which included the New Year's holiday and associated vacations, reducing utilization for the fourth quarter by 200 basis points and the full-year by 50 basis points.

For the full year 2020, we expect utilization to be 72% to 73%. Technical full time equivalent employees in the quarter increased 8% to 921 as compared to the same period one year ago. For the full year, FTEs increased 7% to 901. We expect sequential headcount growth to be approximately 1.5% per quarter.

The realized rate increase was approximately 1% for the quarter and 2.5% for the year. For 2020, we expect the realize rate increase to be 2% to 3%. For the quarter, EBITDA margin increased 60 basis points to 27.1% of net revenues. For the full-year 2019, EBITDA margin increased 5 basis points to 27.4%.

For the quarter compensation expense after adjusting for gains and losses and deferred compensation grew 18%, included in total compensation expense is a gain in deferred compensation of $4.4 million, as compared to a contract expense of $6.5 million in 2018.

As a reminder, gains and losses and deferred compensation are offset in miscellaneous income, and have no impact on the bottomline. For the year, compensation expense increased 9% after adjusting for gains and deferred compensation of $12.8 million, as compared to a contract expense of $3.9 million in 2018.

Stock-based compensation expense in the quarter was $3.9 million, as compared to $3.4 million. For the full-year stock-based compensation expense was $17.5 million, as compared to $17 million in 2018.

For 2020, we expect stock-based compensation to be $6 million to $6.5 million for the first quarter and $3.7 to $4.2 million in each of the remaining quarters for a total of $18.5 to $19 million for the full-year. Other operating expenses increased 18% to $9.1 million in the fourth quarter and increased 10% to $33.6 million for the full-year.

Included in other operating expenses is the depreciation expense of $1.9 million for the fourth quarter and $6.8 million for the full-year. For 2020, we expect other operating expenses to be in the range of $8.5 million to $9.5 million per quarter.

G&A expenses increased 17% to $5.2 million in the quarter and increased 17% for the full-year to $20.5 million. 2019 expenses related to our biennial managers meeting were split between the third quarter and fourth quarter For 2020, G&A expenses are expected to be in the range of $5 million to $5.5 million per quarter.

For 2019, the tax benefit from share based awards was $8.1 million. For 2020, we estimate based on the current stock price that our tax benefit associated with share based awards will be approximately $6.5 million for the first quarter and full year.

The tax benefit from share based awards is determined based on the change in the value of the shares between grant and issuance dates. Exponent’s consolidated tax rate was 28.6% for the quarter, as compared to 27% in the same period one year ago. For the full year, Exponent’s consolidated tax rate was 20.9%, as compared to 22.6% in 2018.

For 2020, we expect our tax rate to be approximately 5% for the first quarter and 22% for the full year. Moving into our cash flow, operating cash flow was $56 million for the quarter and $108 million for the full year. Capital expenditures were $4.5 million for the quarter and $21.6 for the year.

This was unusually high as we developed our Boston area building. In 2020, we expect CapEx to be $8 million to $10 million. During the year, we distributed $34 million to shareholders through dividend payments. The company also utilized $22 million of cash to repurchase 342,000 shares at an average price of $64.25.

As of year-end, the company had $70.5 million available for stock repurchases under its current program. The company ended the year with 232 million in cash and short-term investments. Today, we announced a 19% increase in our quarterly dividend from $0.16 to $0.19. As Catherine discussed, we are divesting our German entity.

The entity’s 2019 revenues before reimbursements were approximately $4 million or 1% of the company's revenues. The entity had 28 full time equivalent employees at the end of the year.

2019 was another strong year for Exponent as we continue to execute on our strategy to capitalize on increasing technological complexity and the demand for a safer, healthier and sustained overall.

For fiscal year 2020, we expect the underlying business to grow in the high-single digits but to be partially offset by one last week, which is approximately 1.25%, the divestiture of the German entity, which is 1% and PG&E work stepping down by approximately 1% to 2%.

As a result, we expect revenues before reimbursements for the full year 2020 to grow in the middle single-digit as compared to 2019. 2020 EBITDA margin is expected to expand 25 basis points to 50 basis points as compared to 2019. I will now turn the call back to Catherine for closing remarks..

Thanks Rich. Exponent has stood firmly at the forefront of engineering and scientific consulting throughout the technological advances over the last 50 years. As innovation accelerates, companies, organizations and governments will continue to call on Exponent to address concerns related to safety, health, sustainability and reliability.

Exponent is a clear leader with exceptional talent and a diverse portfolio of multinational clients. We look forward to sharing our progress throughout the year. We will now open the call to questions.

Operator?.

[Operator Instructions] We have a question from Joseph Foresi, Cantor Fitzgerald..

Hi. This is Drew Kootman for Joe. Thanks for taking our question. I just wanted to start out on the large projects. I know you mentioned PG&E around 3%, 4% kind of tailing off in the battery project, which is like 3% ending quickly.

But just seeing what else there is in the pipeline and what you guys see for next year?.

Yeah. Let me start off with a few quantitative things and then let Catherine make some comments as well. So look, what we see on the large project size is that PG&E was the particular work around wildfires and the electric integrity management system here. That work was about 4% in a quarter, year-over-year we're up about 3%.

So we had about 1% of that work in the fourth quarter of 2018. We do see that 4% stepping down some here, about a quarter of our work was related to the investigations of the fires over the last few years and in support of their addressing issues in the litigation market and the regulatory response to that.

Due to the fact that they are closing in on a settlement related to that those issues will at least subside. Clearly, they still have an integrity management challenge ahead of them, which we hope to be helping them on for years to come.

So that is why we are actually see that we'll start to see a step down even here in the first quarter, that might be 1% to 2% of our revenues. So it will go, maybe we'll see a 25% step down in that, maybe a little bit more here as we move forward.

But I expect that a majority of this work will continue for a long period of time as we continue to provide value in the integrity management area. As far as the trade secret engagement that we call that out it's a very interesting project as Catherine highlighted, but it was also extremely fast burn.

We have lots of projects to come in, and might be 0.5% or even 1% that's a pretty fast burn, but to engage in this one, ended up, up of that 3% level, maybe even a little more. And the fact that that sort of peaked and then is, stepping down here into the first quarter was why we called that out in particular.

I don't, there isn't anything else in particular that we're focused on as far as being. We've got lots of projects going on in the portfolio. Historically, we've called out as things that have approached in that 4% to 6% level, we had something very fast burn here in this quarter that we called out, and because it's quite interesting.

But other than that, we don't really have anything to add into that..

Yeah, Drew. I….

And then – yeah. Go ahead..

I was just going to add, over the long-term, just really echoing what Rich said. The outlook broadly over the long-term really hasn't changed.

Obviously, there are a number of opportunities that we continue to see in the marketplace, whether it's around, I mean, Rich mentioned integrity management, with even broader opportunities around the utility industry beyond PG&E. We've talked about our international disputes sector. We've got growing market recognition there.

I'm very pleased with what we've been able to do on the life sciences side, both industrial as well as our legal work. Our work related to human factors, where technology is changing fast.

So, yeah, I mean, there are headwinds around these large engagements as they're often can be in a portfolio like ours, but fundamentally those market drivers are there and they're going to continue to be there..

Very helpful. Perfect. And then just wanted to ask about any cadence changes that we should expect, I know 4Q was strong 1Q was a little lighter, so just curious as we get into 2020.

How we should be thinking of that?.

Yeah. So you're correct, the first quarter, it tends to be the strongest, just because of the number of work days. When you look at -- when we talk about work days, we're just really talking about the – how many holidays and vacations are scheduled into that particular quarter. So the first quarter will definitely be the strongest.

We'll see a little bit of shift the difference, I think, the 4th of July holiday falls into the second quarter of this year just based on timing of the date and our fiscal year shift. So you have a little bit of noise around between the second and third quarters.

And then obviously, we fall back into the fourth quarter next year, which will have -- continued to have both the Christmas holiday week as well as the New Year's holiday week as part of it. Even though we'll be dropping sort of down to 13 weeks it still includes those. So we -- that's sort of how – you step through it from a work day standpoint..

Perfect. Thank you..

And our next question comes from Alexis Huseby, D.A. Davidson & Company..

Hi, Catherine. Hi, Rich. Congratulations on a strong end to the year..

Thanks, Alexis..

Thanks..

So I was hoping you could talk us through some of the puts and takes that we're seeing that led to the higher than expected utilization in the fourth quarter.

So does that entirely come from greater than expected work from PG&E and the rapid analysis battery project and was that able to offset impacts from the holidays entirely?.

Yeah. So, I mean, Rich, highlighted a couple of the areas already. I mean, there really was a broad based level of activity in Q4 that really did go beyond those large engagements. I think about the work that we're doing on the human factor side, something we've been talking about for a long time that continued to be strong in the fourth quarter.

The portfolio around the user studies, the user experience work that we're doing. We're seeing demand there that goes across, an increasing number in different types of product lines. We're seeing that, go into the areas around micro mobility areas around virtual reality. Think about health monitoring, think about fitness monitoring.

We've really despite the large project that we talked about last year coming off. We've really kind of diversified that portfolio. And so, we're looking to continue to do that. But that's certainly drove quite a bit of activity as did the portfolio around the international disputes work.

This continues initially that work was focused primarily in the engineering and construction sector that remains the case, but we're seeing some diversification with regard to that both in terms of the clients, as well as the types of matters.

So not just construction related disputes, but sort of a product based type of dispute, whether that's a dispute between an OEM and a supplier, for example. You have contractual disputes that relate to intellectual property.

So there are different areas that we're finding demand in where we're able to really, really compete well in that marketplace because of the differentiated engineering expertise that we're able to bring to the table.

So, still very much scratching the surface of that market, but really in the fourth quarter, the back half of that year we're seeing an increase in that activity as well..

Okay. So really that sounds like a broad based demand benefit at the quarter.

So could you also a highlight any financial impact from the German divestiture, aside from removing that $4 million from forecast for 2020?.

Yeah. Again, due to the fact that this area is small, I mean we will get, this entity was a little less profitable than the company as a whole. So you might get a small bump in the margins related to that. But that's sort of the primary part there – the entity was probably in 2019, that’s just a little bit shy of where we were.

So that's going to definitely help the margins, maybe it's 10 basis points or something, maybe a little more..

Okay. Great. And then, last question, so the cash flow right now is pretty significant. I know you've expressed the long-term goal in the past of getting that balance to $50 million to $70 million.

So aside from the recent increase in the dividend, what are some of the near term plans for the cash, should we be expecting to see continued share repurchases or something else?.

I definitely should expect that we will continue to be in the market on the share repurchases, just as we were in the fourth quarter where we were able to pick up shares at that point in time. So, we are continuing to be have that program.

Look, we've it's not that we don't, we haven't stopped looking for opportunities -- strategic opportunities it can be an acquisition. But our track record doesn't come through to say that you can expect that in the short-term.

But we continue to look for opportunities we’d define that smaller, tuck-in acquisition that can provide a seed for growth or other opportunities that come along. But look we're going to primarily use the dividend and repurchases over time to return the value to shareholders..

Great. Thank you and congratulations again..

Thanks, Alexis..

Our next question comes from Tobey Sommer from SunTrust..

Hey. Good afternoon. This is Jasper Bibb on for Tobey.

I was hoping you could update us on your new industry focused team approach and what are you seeing that strategy maybe improve to go to market?.

Yeah. Yeah. Thanks, Jasper. So, I mean, I really, I do continue to believe that this sort of multi-pronged approach that we've got is helping to support the growth that we're seeing.

We are -- a couple of areas of focus, we're broadening existing relationships, very much focused on client relationship development, looking for those opportunities to sell a broader range of services.

I mean, I think that if you look at the PG&E example is just one example of how we've been able to use, utilize our existing client relationship to really broaden our service to that client based on an opportunity that presented itself in the marketplace. So I think there's real evidence there that this approach to client management is working.

And the life sciences area is another place in particular over this past year and in the back half of the year where we are seeing increasing proactive work. We've got a tighter regulatory framework going on, that's driving that.

We're doing design consulting, our chemistry offerings are crossing over into the medical device area, the health monitoring that I mentioned earlier, it's a real question of whether something it is a medical device or a consumer product these days.

And so, when we look at these trends in the marketplace, I really do think that our teams that we've pulled together with a focus on sort of broadening our range of services with an industry focus.

This really has helped us to take advantage of these trends in the marketplace, whether that's a tightening regulatory environment or trends in the technology. One of the things we're doing is very much focused on broader marketing of our capabilities.

So we want to reach a wider set in order to get new clients in addition to expanding our existing client relationships. So we do this through a number of channels. We do this through our publications. We do this through our thought leadership. We do this through presentations at conferences, professional committee appointments things like that.

And so we've been very active in that area, getting our folks on the podium for presentations at the right places, and really looking to leverage our contacts in the marketplace. So, we are still early in the process. I do like what I'm seeing and I think that that what we're seeing is helping to support the results that we've got.

And in 2020, we're going to be continuing with a focus around accountability with regard to our marketing activities and the development of our client relationship..

Thanks. And then just a larger PG&E engagement becomes a step down.

I was wondering if you've seen more incoming inquiries from other utilities looking for similar kind of work?.

Yeah. So we are for sure out in the marketplace having discussions around integrity management, not just in the utility sector, but really more broadly in the energy sector, because it's applicable beyond just utilities.

So this is again, a great example of an area where we are doing the publication's, we are doing the thought leadership, we are leveraging our contacts in the industry to get opportunities to talk to the right people and to really have an opportunity to describe the offering and how that can provide value to the clients.

So we're engaged in that process. It is a process the development of those relationships takes time. But we are optimistic that there's an opportunity for us with this kind of capability..

That's great. Thanks again..

Sure..

Our next question comes from Andrew Nicholas, William Blair..

Hi. Good afternoon. Thanks for taking my questions. First I just want to dig in a little bit more on margin expansion guidance.

I know you mentioned there being some uplift from the divestiture of the German business, but just curious what are the other drivers of that and what could potentially drive you to a low or high end of that guidance?.

Yeah. So the other contributor to that other than leverage in the cost side is really seeing an improvement in utilization. So as we -- as I mentioned, our guidance is that utilization will be somewhere from 72% that we achieved this year up to 73%.

So we think that the opportunity is to improve that utilization along that curve and have that contribute to it..

Great. And then one from me. Just curious, I know that you end up reporting this in the K, but any color you can provide on revenue growth, whether it's in the quarter or for the full-year between the U.S. and international.

And this international continues to be a top priority in an area of major growth and I'm just curious if it's fair for us to expect headcount growth to be more concentrated internationally as well? Thank you..

Yeah. So I don't have the exact numbers to share on this call today. But what I can say is that what we're seeing internationally is in 2020 that growth is probably similar to what we saw in the company overall.

But I don’t think – but I do think that what will continue to see slightly ahead, what will continue to see is that international outpaces the rest of the organization. We have a conscious effort going on to expand engineering in Europe. We've got a good seed of that initiated in our London office and expect to continue to expand that extensively.

We've brought on new capabilities in Asia this past year with a seed down in Singapore did really support us in the international arbitration area and we continue to think that age overall well, might be challenged in the short run here with the Coronavirus, but is an important place for our clients that are developing product in that environment.

So we think that international has many prongs to it proactive, regular -- proactive work both on design consulting for industries that need that, clearly, in the regulatory consulting area a continued intensification there. That environment only got more complex with Brexit, complex environments are good for our business.

So we will try to take advantage of that. And then we've got the international arbitration opportunities that were today feeding expertise a lot of that coming from here -- from the U.S. serving those clients internationally, but over time, expect that we'll have more boots on the ground in those locations..

Great. Thanks a lot..

Our next question comes from Marc Riddick from Sidoti..

Hi. Good evening..

Hi Marc..

Hi Marc..

I wanted to see if there were any -- if there's some targeted areas that maybe we don't hear very much about generally that you're seeing sort of begin to grow some green shoes if you will and some areas that could provide some good opportunity for you going forward that maybe -- that we don't generally get to talk about? And if that is -- if the go-to-market approach that you're working on now that's helping to uncover maybe future opportunities, as well as some of the other target designers from the go-to-market strategy? Thank you..

Yeah. Yeah. So, I mean, I will bring up automated vehicles and I know that that's an area we talked about in terms of product complexity. But I -- this is a – I highlighted because this is an industry where we are historically known for our reactive services, around litigation and around product recall and defect investigation.

And so, I think, the sort of go-to-market strategy around industry teams is something that is I look forward into 2020. I am optimistic about -- with the engagements that we've had so far, that industry really is starting to really see the value around the work that we do in a proactive sense because of our experience on the reactive side.

So that is an area that I would highlight. Another one that we don't maybe talk about quite as much and this is relatively early, but there -- when you talk about health monitoring, you talk about fitness monitoring. These are things that relates to safety and we think about wearables and things of that nature.

The ability to bring in not only the user experience, which we're very strong in and have been strong in, but bringing in the biomechanics side of that to look to add an extra dimension to what we're doing around safety, what we're doing around performance relative to sort of sports and recreation.

I mean, this is not a large area right now, but I see it on the horizon is something that we are doing thought leadership in. We are looking to establish ourselves more broadly. We think that's an industry that is poised for growth and an area that we should be operating in and so that would be another example..

Is there sort of a top customer vertical or customer group that tends to maybe lead more than others as far as discovering new opportunities that you think kind of sort of either -- whether them kind of discovering these things and kind of leading -- you in that direction or vice versa? Are there any particular sort of key customer verticals that we should be thinking about as far as being the general usual catalyst for what we might be seeing going forward? Thanks..

Yeah. I think that, look, clearly, we play -- we're not doing original research for our customers. It does, as you say, take, our clients need to be going in now. What we can do is compliment their teams as they explore the edges at what they're at.

And clearly what we also need is areas that are pushing that limit with -- we get there with artificial intelligence and such that are coming into the vehicles as Catherine said that environment is very much a change in a push. And I think we've got -- it's a good example of where we are.

The same goes in the medical area, where the clients are really trying to find the next solutions that can come in devices or drugs.

But that Exponent is able to bring a PhD level thought to these areas, battery technology, where are we going to go next there? How do we get there on energy storage? Absolutely our client are leading in some of these areas, the suppliers are of that, sometimes we're working with that client that's a buyer of that technology.

But in each of these areas, what's great about Exponent is that we every year are bringing in about 20% new people. So we go out and our hiring the 20% of our staff in new each year from top universities, who have done recent PhD research for the last five years on the next areas of technology and science. And we do that or brain that in, yes.

The reason that we get a net of 7% last year is we have about 13% turnover.

But that influx of that next gen technologist is very important to seating our continual the ability to be ahead of the curve with our clients, because a lot of the research our people are doing may not even be applicable for several years coming into industry, but when it does, we have those people who have that experience and how it applies to our clients needs in an industrial world.

So that's a little bit on that topic..

Thanks. Much appreciate it..

There are no further questions in the queue. Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect..