Good day. And welcome to the Exponent First Quarter and Fiscal Year 2021 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 first quarter of fiscal year 2021 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 involves 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 thank you everyone for joining us today. I will start off by reviewing our first quarter 2021 business performance. Rich, will then provide a more detailed review of our financial results and outlook, and we will then open the call for questions.

Our business continued to gain momentum, driving strong quarterly results, which exceeded our prior expectations. In the first quarter, net revenues grew 10% and EBITDA margin increased 400 basis points from the prior year period.

These results were bolstered by increased activity in human participant studies and litigation projects, as pandemic-related restrictions were eased and vaccinations became more widely available.

Exponent is winning new assignments daily, and at the same time, is gradually reengaging on projects that were paused due to Coronavirus restrictions and court closures. The pandemic has altered many aspects of our lives, but one trend that has not abated is the growing complexity of our world.

Exponent continues to leverage its expertise to understand and enhance human machine interactions for technologies, including wearables, medical devices and advanced vehicles.

Exponent advises industry and governments on their most pressing engineering and scientific challenges as society continues to raise expectations for safety, health, sustainability and reliability. These long-term trends that existed prior to the pandemic are now only strengthening, driving increased demand for our services.

Exponent continued its work related to physiological monitoring through wearable technology platforms for the U.S. Army and Navy, and expanded the engagement to include a coordinated effort in the Department of Defense. Exponent is uniquely positioned to advise clients as they leverage technology to improve human health and enhance human performance.

On the reactive side, we saw improvement in demand for Exponent’s support in litigation matters. As restrictions lift, there is more confidence in court cases proceeding and we expect to see a return to normalized levels as the year progresses.

Exponent’s engineering and other scientific segment represented 81% of the company’s net revenues in the first quarter. Net revenues in this segment increased 11% in the first quarter as compared to the prior year period. Growth was driven by strong demand for Exponent’s proactive and reactive services across a broad range of industries and use cases.

In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continues to see demand for its solutions in electric vehicles and energy storage. Our work in international arbitrations and integrity management advisory services continued at strong levels.

Exponent’s environmental and health segment represented 19% of the company’s net revenues in the first quarter. Net revenues in this segment increased 7% in the first quarter as compared to the prior year period. This segment also benefited from increased activity in litigation-related projects and support of human participant studies.

The chemical regulation and food safety practice continue to grow, as Exponent’s scientists evaluated the effects of chemicals and new products on human health and the environment. Society continues to raise its standards for safety, health, sustainability and reliability, which has fueled our growth for over 50 years.

I am incredibly proud of the way that Exponent’s employees have continued to deliver value to our clients and to our shareholders over the last year.

While a degree of uncertainty remains, our strong reputation, diversity of engineering and scientific disciplines, world-class team of experts and the durability of our market drivers all position us to deliver long-term value to our stakeholders.

I’ll now turn the call over to Rich to provide more detail on our first quarter 2021 results, as well as discuss our outlook for the second quarter and the full year 2021..

Thank you, Catherine, and good afternoon, everyone. Let me start by saying all comparisons will be on a year-over-year basis unless otherwise noted.

For the first quarter of 2021, total revenues and revenues before reimbursements or net revenues as I will refer to them from here on, increased 10% to $116.5 million and $109.6 million, respectively, as compared to the first quarter of 2020.

The divestiture of our German entity, which closed in April of 2020 was 1 -- was a 1% headwind in the first quarter. Net income for the first quarter increased $30.8 million or -- increased to $30.8 million or $0.58 per diluted share, as compared to $26.3 million or $0.49 per diluted share.

Exponent recognized a tax benefit from share based awards of $8.8 million or $0.16 per share in the first quarter of 2021, which is the same as the one year ago period. As a reminder, most of the stock awards are granted annually in March as part of our compensation program and released four years later.

As such, it is primarily a first quarter event for us. The tax benefit for -- from share-based awards is determined based on the change in the value between grant date and the issuance date.

EBITDA for the quarter increased 27% to $31.8 million, producing a margin of 29% of net revenues, which is an increase of 400 basis points as compared to the first quarter of 2020. Billable hours in the first quarter were 356,000, an increase of 2% year-over-year.

The German entity accounted for approximately 3% of billable hours and 1% of revenue in the first quarter of 2020. Utilization in the first quarter was 75.7%, up from 71.4% in the same quarter of 2020.

Utilization in the quarter was ahead of our prior expectations, as pandemic-related restrictions were relaxed and vaccinations increased, which accelerated the timing of human participant studies and litigation support. For the second quarter of 2021, we expect utilization to be 74% to 75%, as compared to 64% in the second quarter of 2020.

The reason Q2’s forecasted utilization is expected to be slightly below Q1 actuals is there will be more vacation days taken as we enter the summer and people are vaccinated. For the full year 2021, we expect utilization to be 71% to 72%, as compared to 67% for the full year of 2020.

We do expect vacations to be higher than normal in the back half of the year as people take vacations that were deferred due to the pandemic. Technical full-time equivalent employees in the quarter were 906, approximately flat sequentially and a decrease of 3% as compared to the same period one year ago.

The year-over-year decline in FTEs was primarily due to the divestiture of the German entity, which accounted for 3% of our headcount in the year ago period. We expect sequential headcount to be approximately flat in Q2 and grow sequentially 1% to 2% in Q3 and Q4 as recruiting activities are strong.

The realized rate increased approximately 7% for the quarter. The realized rate increase included a 3% benefit from the divestiture of the German entity. For the remainder of the year, we expect the year-over-year realized rate increase to be approximately 2% to 2.5%. As a result, the full year realized rate increase is expected to be 3% to 3.5%.

Compensation expense after adjusting for gains and losses in deferred compensation increased 7%. Included in total compensation expense is a gain in deferred compensation of $5.6 million, as compared to a loss of $14.6 million in the first quarter of 2020.

As a reminder, gains and losses in deferred compensation are offset miscellaneous income and have no impact on the bottomline. Stock-based compensation expense in the quarter was $6.3 million, as compared to $6.1 million a year ago. We expect stock-based compensation to be $3.9 million to $4.4 million in each of the remaining quarters.

For the full year 2021, we expect stock-based compensation to be $18.5 million to $19 million. Other operating expenses were down 6% to $7.7 million. The primary reason these expenses declined is due to reduced activities in our offices. Included in other operating expenses is depreciation expense of $1.7 million for the quarter.

For the second quarter, we expect other operating expenses to be $8.6 million to $8.8 million. For the full year 2021, we expect other operating expenses to be $34 million to $34.5 million, driven by a gradual return to our offices over the year.

We do believe our office environment provides long-term value as it supports collaboration for our interdisciplinary teams and staff development, which results in higher value for our clients and retention of our employees. We anticipate associate expenses to be at historic levels as we exit the year.

G&A expenses were down 41% to $3.3 million for the quarter. The decline in G&A expenses was primarily due to bad debt expense. We accrued for a potential pandemic losses in the first quarter of 2020, which was released in the fourth quarter of last year, as well as lower travel and meal expenses related to marketing and recruiting.

We expect G&A expenses to gradually scale as travel activities resume. For the second quarter of 2021, we expect G&A expenses to be $3.6 million to $3.8 million. For the full year 2021, we expect G&A expenses to be $16.2 million to $16.8 million, as a result of marketing and recruiting activities increasing during the year.

Interest income decreased approximately $850,000 to $29,000 for the quarter. Lower interest income is due to a steep decline in interest rates. For 2021, we expect interest income to be approximately $25,000 per quarter or $100,000 for the full year. Miscellaneous income net of deferred compensation gain was $450,000.

For 2021, we expect miscellaneous income to be approximately $750,000 per quarter or $2.7 million for the full year. Inclusive of the tax benefit for share based awards, Exponent’s consolidated tax rate was negative 2.4% for the quarter, as compared to negative 9.3% in the prior year period.

For 2021, we expect our tax rate exclusive of any tax benefit for the remainder of the year to be approximately 27.5%. Moving to our cash flows, operating cash flow was $1.3 million for the quarter, as we paid prior year bonuses in March. Capital expenditures were $2.5 million for the quarter. In 2021, we expect CapEx to be approximately $10 million.

In the next -- in the first quarter, we distributed $11.9 million to shareholders through dividend payments. Today, we announced we will pay a $0.20 dividend in the second quarter as well. As of quarter end, the company had $214.5 million in cash and short-term investments.

Looking forward, based on strong demand for our services in the first quarter and the encouraging trends with Coronavirus, we expect to maintain our positive momentum, but recognize that there may be unevenness along the way.

The year-over-year improvement and staff utilization, and the lower than normal operating and G&A expenses are resulting in significant margin improvements.

As a result of the positive momentum across our business and the easier year-over-year comparisons, we expect second quarter 2021 revenues before reimbursements to grow in the low 20s and EBITDA margin to increase approximately 350 basis points to 400 basis points as compared to the same period in 2020.

For the full year 2021, we expect revenues before reimbursements to grow in the high-single digits to low-double digits, and EBITDA margin to be up approximately 100 basis points to 130 basis points as compared to 2020.

We delivered another quarter of sequential improvements across the business in the first quarter and we are confident in our ability to continue to grow profitability. I will now turn the call back to Catherine for closing remarks..

Thank you, Rich. For more than 50 years, Exponent has been called upon to advise clients on the causes of failures, as well as how to produce safer, healthier, more sustainable, and more reliable products and processes.

As our clients’ needs evolve and increase in complexity, our team of engineers and scientists positions itself ahead of the curve, utilizing deep knowledge and multi-disciplinary capabilities to deliver unique solutions. With strong market drivers and a world-class team, Exponent is primed to deliver long-term growth.

Operator, we are now ready for questions..

Thank you. [Operator Instructions] Our first question comes from Tobey Sommer, Truist Securities..

Thank you. My first question has to do with the potential for global supply chain reconfigurations post-pandemic, what you’re hearing from customers and to the extent you are actively helping some achieve this kind of goal or expect to? Thanks..

Yeah. Thanks, Tobey.

So this is an area of concern across a number of our industries that we operate in, right? If you think about the automotive side, if you think about the consumer electronics side in particular and there is -- the opportunity for us that we’ve been seeing vis-à-vis consumer electronics in particular really relates to our presence in Asia and our ability to be on the ground for our clients in understanding what some of these supply chain impacts are, when our clients in the U.S.

are in a situation where they really can’t have their folks traveling as much. So we are seeing, to some extent some demand drivers around being able to advise clients with respect to qualification of suppliers to the extent that they are reorienting.

We are able to help them vis-à-vis understanding the quality implications on their product, some of the related data implications vis-à-vis their products, the likelihood of failure in terms of monitoring and auditing types of things.

And so that’s primarily the area that we are seeing this is going to be around the consumer electronics and consumer products area. Our teams in Asia are being called in to advise clients with regard to some of those impacts, primarily around consumer electronics..

Thank you for that. And what’s the environment like for recruiting, you did mention that you’re active expect to be for the balance of the year.

Has it changed as a result of the pandemic and the relative attractiveness of Exponent as an employer?.

Yeah. So we’re very focused on the recruiting side right now and we really pivoted, of course, during the pandemic. We’ve been able to really take advantage of the virtual space from the standpoint of the way that we are sourcing candidates. We gain these candidates through a variety of channels.

One of those is our university recruiting channel and we have been able in the virtual environment to reach a much broader spectrum of these candidates, a higher level of diversity of these candidates, because of the way we can run these sort of virtual events as opposed to have to being -- having to be in person on campus.

And so what we’re seeing now is we’re accelerating our recruiting process, is that we have got -- we have been able to achieve a healthy pipeline of candidates and it’s been interesting because -- look, people are attending in this environment there. They have been in the pandemic. They are sort of reexamining their lives.

They may be looking for new opportunities and I think we are seeing more of that in terms of being able to capture folks who are maybe getting loose in the saddle from our competitors as well. We’ve tried to accelerate our senior recruiting.

This is using the networks of our very senior leaders in a variety of spaces, whether that be environmental, whether that be on the health sciences side and we’ve been able to take advantage of some of the disruption, if you will, with folks wanting to sort of make changes and so we’re very focused on keeping our finger on the pulse of the various sources of candidates.

And so we’re confident as we accelerate our activity through the second quarter and into the third quarter and fourth quarter that we’re going to be able to get ourselves accelerating that headcount growth, which of course, we had moderated to some extent in 2020, because of our focus on profitability and being able to maintain the very exceptional talent that we have.

So we’ve got a very positive outlook on recruiting and we’re finding -- it’s as competitive as ever. These folks have lots of opportunity. But we are seeing that they are viewing Exponent as one of their top choices..

Thanks.

And then from an expense perspective, you mentioned real estate in your prepared remarks and sort of ramping travel expenses, is there a -- on a net basis, any kind of cost difference that you see in the business exiting -- hopefully, exiting the pandemic versus pre-pandemic levels?.

Yeah. Look, I think, at this point in time, we think that from a facility standpoint, the profile is going to be similar to what we were doing before. I mean, Exponent has been able to pretty much year-in, year-out, squeeze a little bit of better margin out of building critical mass in our locations.

And we expect to be able to continue to do that as we look forward over the next several years. But that’s a path that we were on being able to share space better, collaborate more, do those types of things.

When it comes to the -- do I expect that we’re going to see some lower level of travel expense? I think we will see some in that area as certain conferences or meetings moved to a virtual environment.

What we’re working through at this time is, is there going to be a net cost savings or are those expenses going to be shifted into other forms that are marketing and recruiting expense that allow us to continue to be more effective in that area. So I think that we’re still evolving those areas.

We definitely think there are some places where less travel will be more efficient and actually more effective for our business. But we think that we also need to invest in other forms of communication that can also enhance our position in the marketplace..

And last question from me, as courts’ throughput kind of slowed last year, we weren’t sure whether all projects would sort of be deferred and/or maybe parties would settle.

What’s your perspective now on the degree to which some of those projects kind of went away or really just accumulated in, for lack of a better word, some sort of backlog?.

Yeah. Yeah. Thanks, Tobey. I’ve been spending a fair bit of time engaged with our clients on the litigation side, both the outside counsel, as well as the in-house folks, who make a lot of the decisions around, how they handle their litigation portfolios.

And I will tell you, they have not changed their posture around wanting to fight the battles on the merits of the case. They’re really making their decisions based on the merits. I’m finding we didn’t really see waves of settlements when things started to decline in terms of the macroeconomic impact.

Of course, you get a settlement, you get settlements here and there. And at the end of the day, the vast majority of these matters do settle, but what tends to happen is they get fully worked up, full expert reports, depositions, you’re almost to the courthouse steps before those settlements tend to happen.

And we really have seen that our clients are just as committed to their cases as they have been whether you’re on the plaintiff side or you are on the defendant’s side. They’ve -- there has been a willingness for them to weighted it out, is what I’ve seen and just kind of push the dates. But what we see now is the dates are becoming real.

The reality of bringing a jury in for an in-person trial in even the summer or the fall of this year is very real and that is pushing demand back toward us for things like the preparation of expert reports and doing these deep analyses and preparing for depositions.

And so, that’s been a part of the driver really here for the activity in the quarter, where we continue to see this improvement in matters that are being brought back to life if you will..

Thank you very much..

You’re welcome..

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

Hi. Good afternoon..

Hi, Andrew..

I was hoping you could speak to the outperformance that you saw in the quarter relative to your guidance, where in particular you saw upside? And then somewhat relatedly, when you look at that outperformance, is there any way to describe how much of it was a function of maybe pent-up demand flowing into the pipeline versus what might otherwise be described as more a normal course of business, I realize that that’s maybe a difficult thing to obtain? But just curious if you have any thoughts on pent up versus normal course? Thanks..

Yeah. Let me start off on this one. Look, I think, when we provided the guidance about the first quarter, at that time, clearly, we were in the process -- we had a number of human participant studies that clients had been coming to us, wanting to get ready to go when the restrictions came down and when vaccinations increased.

We can all remember back to what January was like. It was not that long ago. We were all coming off a pretty devastating sort of time over the post-holidays. And but things really -- vaccinations we’re starting, we just didn’t know how quickly we would see the positive impacts of that.

And it turns out that very quickly early in February those restrictions, the numbers started to go down and we were able to really let go and go full bore for the last eight weeks, nine weeks of the quarter on our human participant studies activity. So that was one area that really made a difference, I think, in that area.

I’ve talked to the team, I would say maybe a third of the activity was some work that might have been done in an earlier quarter in late third quarter, early into fourth quarter, but the other two-thirds of it being activity that really wouldn’t have occurred until the first quarter at the earliest.

So the majority of the work is work that’s new, that wouldn’t have been occurring until this time in the product life cycle and going from there. This is an area that we -- was probably, let’s call altogether 6% of -- 5% to 7% of our revenues in the quarter in total, just to give you a sense and there was some of it going on in January.

It just accelerated really in February and continued on. On the litigation support side, again, we -- if you remember back, we saw a good push on that in the fourth quarter.

That really led to a very strong fourth quarter that we had was the people realizing that vaccinations were going to -- were coming out, the court dates would probably begin to firm up and activity really started to move forward on depositions and expert reports and all that activity.

Those slowed a little bit in the late December and all the way through January, but really picked back up again really late January into the beginning of February on those activities. We’ve continued to see a higher level of new engagements year-over-year. So we’re getting plenty of new engagements coming in.

And I would say that again this is a majority of the work is -- work we would have been doing in the first quarter and pushing through, but you have that top off part of that level of work, might be 10%, 20% of what we’re doing in that area that might have been deferred and pushed out, but it’s starting to come off.

So, again, this is an area that litigation overall is 50% of what we do and we’re seeing a little bit of that work being added on the top, but the majority of it being work that’s what we would have expected and we continue to get when we were in the -- deep in the restrictions..

Really helpful color. Thank you.

Maybe with as a follow-up to that and with your answer as context or a precursor, I was hoping you could maybe walk us through in a little bit more detail how you’re thinking about the revenue cadence throughout the remainder of the year? If I look at the implied guide for the second half, it seems like you’re baking in consistent sequential step down through year end? And so I’m wondering, if there’s anything else to call out besides typical seasonality and vacations or it’s just maybe being a bit conservative given how much uncertainty there is in the world at large? Thank you..

Yeah. So I think it’s a lot of those factors. First of all, clearly, we have easier compares in Q2 and Q3 than we have in the fourth quarter. As I just mentioned a moment ago, the fourth quarter utilization was actually pretty strong. It was a good utilization quarter.

We had seen a little bit of uptick in the headcount as well and we had a very strong rate realization in that period. Based on the mix of work, based on positive realizations on projects, the rate realization was definitely the strongest of the year. So we do view that Q4 is a very different comparison for us as we move forward to that.

So we’re not expecting to see as larger -- we’re expecting to see a small rate realization when we get to the fourth quarter just because of the unusual strong rate last year in that period.

We think utilization underlying might be a little bit stronger than it was last year in the fourth quarter, but we realize that vacations are going to be pressing on us at that period of time. And we’re taking that into account.

That likely we’re going to see a few extra days less of productivity from people in the fourth quarter of this year and over the summer, as well as people are taking vacation and doing a little bit of catching up on that. And so that is why at this point in time and the uncertainties that are out there, we have accounted for that.

You’re right, it is a low -- our expectation for year-over-year growth in the fourth quarter on the topline is low because of all of those factors, but it’s not because we don’t see the business getting back to a normal growth rate as we go into 2022.

We think that the strong recruiting that we’re doing right now, hiring PhDs and all that, it takes time to layer back in. We’ll start to see the results of that in the fourth quarter, but a lot of that will fall into the first quarter of next year and beyond.

Where we can get the head count year-over-year growth back up into that 4% to 7% range, as we go into 2022. Where we tend to see good rate increases as we go into this demand environment that we’re all in and we’re seeing inflation and we are seeing good GDP growth and all of that.

We think that will lead to us again being able to realize a good rate increase as we go into 2022. And as I indicated earlier, we expect the utilization this year to be in that 71% to 72% range and we expect over time that that can gradually grow into the mid-70%s over the next four to five years.

So we think that there is room to be able to improve things as we get through the year and set ourselves up well as we go into 2022 and beyond..

Makes sense. Very helpful color. Thank you..

Our next question comes from Marc Riddick, Sidoti..

Hi. Good afternoon..

Hi, Marc..

Hey, Marc..

So I wanted to sort of piggyback on that and I really appreciated the way you kind of laid out how the cadence worked out around the recovery and positive performances that you saw, both on the litigation side and the user study portion.

I was wondering if you could sort of take a similar dive at what you may be seeing, what the automated vehicles and some of those types of efforts, given the focus on what would may be coming as far as increased demand and production in that space?.

Yeah. Thanks, Marc. The automotive area and advanced vehicles in particular are definitely an important driver for us right now. And this is actually -- it hits both the proactive, as well as the reactive side of the business. There has been an uptick sort of in the regulatory activity around advanced vehicles.

We are seeing demand around sort of safety frameworks as the various manufacturers of advanced vehicles and automated vehicles are envisioning the actual deployment of these on the roadways.

That’s really where Exponent comes in, when it gets sort of out of the lab and out of the test environment and you actually get into the realities of a 4,000 pound vehicle being driven by a computer at 70 miles per hour and what the safety implications of that are. So we’re seeing that kind of demand on the proactive side.

And also around the electric vehicle piece, you’ve see all kinds of pledges recently. General Motors fleet is going to be electric by 2030 and others are rounding out….

Right. Right..

… similar sorts of pledge sorts of statements and so we are seeing that our battery expertise on the transportation side is in increasing demand. As the industry ramps up its manufacturing of batteries to meet the demands in the marketplace and to kind of meet the regulatory drivers that are pushing in that direction.

There are all kinds of challenges. But I mean, if you remember back to the Samsung Galaxy Note 7 phone. All of those challenges came through when they ramped up manufacturing.

And so there is opportunity that we’re seeing and there are engagements that we are seeing around quality and performance and reliability of those systems and also crash worthiness of those systems.

Vehicle fires are a concern for both gas-powered vehicles, as well as electric vehicles, but the ways that you put them out and the safety implications are very different just because they’re different propulsion system. So we’re seeing it there. We’re seeing litigation work around advanced driver assistance systems.

So this is not a fully automated vehicle, but this is the technology that’s being deployed in the fleet now, it’s been in the fleet, emergency braking, lane keeping kinds of technologies, adaptive cruise control….

Right. Right..

These are places where the litigation profiles are increasing.

The plaintiff bar is very aggressive as they have always been around vehicle safety and so we have taken -- made investments to position ourselves ahead of the curve on this and are really developing the cutting edge testing capabilities around these systems and really digging into the data around limit performance on these systems.

And so the automotive arena, both proactively and reactively is driving some of the existing demand that we’ve seen in this past quarter, but also we believe it’s going to continue through 2021 and beyond as these technologies continue to be get closer and closer to actual deployment and then once they’re deployed managing the challenges of their performance and failure analysis and things like that once they are out on the roads..

Okay. That’s really helpful. Thank you.

And then I was wondering from a regulatory standpoint, is there a general timeframe or framework that you tend to see for new technologies like this when it comes to I guess maybe on a state and local level involvement and sort of what type of -- is this the type of thing that you can sort of see coming in there, so you can prepare yourself for it and what type of jurisdictions might be sort of the first ones on your doorstep?.

Yeah.

The regulatory environment is a key driver, right? And you hit the nail on the head when you mentioned, it’s not only at federal level, but there is a state and a local level, right? Because the -- it’s at the state level, where they have to -- states do licensing for advanced -- for human drivers, right? Well, how do you decide if you are a state -- if you’re at that state level, there are huge questions around how you determine if an automated vehicles should be quote-unquote licensed to be on the public roadways, right? And the pathway toward that is something that could be different state-by-state and so this is an area where Exponent can really help.

And we would be aiming and have been assisting the industry more so than going after the states themselves necessarily as clients. But we are trying to really actualize getting the vehicle on the roadway and what that actually means in terms of what the vehicle needs to demonstrate.

How do you demonstrate safety? How safe is safe enough is the real question that the whole community of manufacturers is really trying to answer and really trying to get ahead of the regulators, so that you can demonstrate to the regulators that you’ve got the best practices and that’s definitely an area of focus for us now..

Okay. And then I just one more and I promise I’ll be done. Can you talk a little bit about the expansion of the wearables within DoD and sort of how that came to be and was there something that accelerated that pace or how should we think about that opportunity going forward? Thanks..

Yeah. Yeah. So that’s an opportunity where the original work was -- we were doing it at the Army level, we were doing it at the Navy level. But now what’s happening is that, we are -- and it was focused really very exclusively on COVID-related proximity monitoring and contact tracing.

And now what we’re seeing because of what we’ve been able to deliver in those engagements is more of a converged solution across -- as a joint program across the Department of Defense.

We’re looking at that sensor data from the wearable from a variety of different angles in terms of the security of the data, the hardware itself, and the ability of the sensors to detect physiologic signs. The data flow and architecture are important issues here. The human factors issues associated with the display.

How you manage all of those kinds of things and wanting to get all of that information onto the wearable device in a way that is robust and reliable and provides information about health and also readiness in the sense of the armed forces.

And so it’s about taking it sort of out of the laboratory, out of the experimental sort of condition and being able to manage it operationally and sort of optimize that data flow to provide real insights into what the data are telling you.

And so that’s really where the expansion has come through sort of a converged solution that goes across as a joint program in the Department of Defense..

That’s great. Thank you very much..

You’re welcome..

With no more questions in the queue, we will be ending the call. Thank you, ladies and gentlemen. This concludes today’s teleconference. You may now disconnect..