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Exponent, Inc. (EXPO)

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Exponent Inc. (EXPO)

Q2 2008 Earnings Call

July 16, 2008 4:30 pm ET

Executives

Michael Gaulke – Chief Executive Officer and Chairman

Richard Schlenker Jr. – Chief Financial Officer

Brinlea Johnson – Director, Blueshirt Group

Analysts

Tobey Sommer - SunTrust

Rob Ammann - RK Capital

David Gold - Sidoti & Company

Jim Gentrup - Meadowbrook Capital

Timothy McHugh - William Blair & Company

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Exponent Q2 2008 earnings call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Wednesday July 16, 2008.

I would now like to turn the conference over to Brinlea Johnson of the Blueshirt Group.

Brinlea Johnson

Good afternoon, ladies and gentlemen, and thank you for joining us on today’s conference call to discuss Exponent’s second quarter 2008 results. Please note that this call is being 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 expressively prohibited without Exponent’s prior written consent.

Joining me on today’s call are Mike Gaulke, Chairman and CEO; and Rich Schlenker, CFO of Exponent.

Before we start, I would like to remind you that the following discussion contains forward-looking statements, including statements about Exponent’s market opportunities and future financial results that involve risks and uncertainties, and that Exponent’s actual results may vary materially from those discussed here.

Additional information concerning factors that could cause actual results to differ from forward-looking statements can be found in Exponent’s periodic filings with the SEC, including those factors discussed under the caption Factors Affecting Operating Results and Market Price of Stock in Exponent’s Form 10-Q for the quarter ended June 27, 2008.

The forward-looking statements and risks stated 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’d like to turn the call over to Mike Gaulke, Chairman and CEO of Exponent.

Michael Gaulke

Thank you for joining us today. We are pleased to report strong financial results for the second quarter of 2008. For the quarter, net revenues increased 11% over the same period last year; net income grew 16%, and earnings per share were $0.36 as compared with $0.30 in the second quarter of 2007.

During the quarter, we had strong performances in our Biomechanics, Human Factors, Defense Technology Development, and Mechanics and Materials practices, in addition to our Health Sciences group.

Project activity in the quarter included Biomechanics practices work to help an orthopedic surgical device manufacturer defend its design of a product, which a major competitor claimed infringed upon its intellectual property.

We continue to see demand from the energy sector where we are currently assisting a major utility with an audit of maintenance procedures at its gas distribution stations. This assignment includes professionals from our Electrical and Semiconductors, Thermal Sciences, and Mechanics and Materials practices.

The firm’s Health Sciences group is experiencing strong growth in Europe, assisting clients in complying with new regulations known as REACH which is short for registration, evaluation, authorization and restriction of chemicals.

More specifically REACH is the new European Union chemicals policy that became effective throughout the E.U. in January 2007. REACH covers all chemical substances manufactured or imported into the E.U. in quantities greater than one ton per year.

During the quarter, we continued to support the U.S. Army through the Rapid Equipping Force with development of technologies for deployment in Iraq and Afghanistan. We also supported the Army’s Natick Soldier Systems Center with the development of Future Force Warrior technologies and demonstrations.

Additionally, we received follow-on orders of $7.4 million for Rapid Deployment Integrated Surveillance Systems, which we expect to generate approximately $2 to $2.5 million of net revenue during the third quarter of 2008.

In the area of recruiting, we have started 2008 with strong hiring, increasing FTEs 7% year-over-year and positioning the company for future growth.

In summary, we are pleased with our results for the first half of the year and remain optimistic that we are well-positioned to capture future growth opportunities. I will now turn the call over to Rich for a detailed discussion of our financial results.

Richard Schlenker

Thanks, Mike. As Mike discussed, we reported another quarter of strong results including double-digit revenue growth and expanded margins. For the second quarter of 2008, revenues before reimbursements, or net revenues as I will refer to them from hereon, increased 11% over the prior year to $50.8 million.

Total revenues increased 9% to $55 million. Net income for the second quarter of 2008 increased 16% to $5.8 million or $0.36 per diluted share as compared to $5 million or $0.30 per diluted share for the same period in 2007.

For the second quarter of 2008, EBITDAS increased 17% to $11.9 million as compared to $10.1 million in the prior-year period.

The average full time equivalent employees in the quarter were 614, an increase of 7.2% versus the second quarter of last year. Utilization for the quarter was 69% versus 71% in the same period in 2007. We expect to continue to grow head count 1% to 1.5% sequentially, each of the next two quarters.

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