Exponent's (EXPO) CEO Paul Johnston on Q3 2017 Results - Earnings Call Transcript

| About: Exponent, Inc. (EXPO)

Exponent, Inc. (NASDAQ:EXPO)

Q3 2017 Results Earnings Conference Call

October 18, 2017, 04:30 PM ET


Whitney Kukulka - Director IR, The Blueshirt Group

Paul Johnston - CEO

Richard Schlenker - EVP and CFO


Tobey Sommer - SunTrust

Tim McHugh - William Blair

Mike Reid - Cantor Fitzgerald

Marc Riddick - Sidoti & Company


Good day, and welcome to the Exponent Third Quarter of Fiscal 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Whitney Kukulka. Please go ahead.

Whitney Kukulka

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's third quarter 2017 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 Paul Johnston, 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 Factors Affecting Operating Results and Market Price Stock in Exponent's most recent Form 10-K.

The forward-looking statements and risks in this conference call are based on current expectations as of today, and Exponent assumes no obligation to update or revise them, whether as a result of new development or otherwise.

And now, I will turn the call over to Paul Johnston, Chief Executive Officer. Paul?

Paul Johnston

Thank you. Thank you for joining us today for our discussion of Exponent's third quarter 2017 financial results.

Exponent achieved double-digit revenue growth in the quarter, once again, exceeding our prior expectations. Given our strong performance, we are raising our guidance for the year.

We benefited from an acceleration of the large human factors assessment project for a client in the Consumer Products industry that we have discussed in previous quarterly calls. We also had noteworthy performances in our polymer science, mechanical engineering, human factor, construction, consulting and chemical regulation and food safety practices.

For the quarter, net revenues were $82.4 million, an increase of 11%, as compared to the third quarter of last year. Net income in the third quarter of 2017 was $14.6 million or $0.54 per share, as compared to $11.3 million or $0.42 per diluted share in the same period last year.

We are pleased with the value that clients are realizing from our integrated multidisciplinary capabilities and global reach. During the first nine months of the year, we advised clients as they innovated consumer products around the globe, ranging from mobile phones to children toys.

Improved product quality and manufacturing during pre-and post production in China. Addressed chemical safety and regulatory challenges for the companies in the agricultural chemicals and food industries in Asia, Europe and the Americas, and engage in infrastructure disputes for mining gas terminal and power plant projects in Australia, Asia and the Middle East.

The large human factors assessment project gained momentum in the third quarter and drove larger than expected revenue growth in utilization across the firm, as we were able to leverage staff from most of our practices.

The project represented approximately 8% of third quarter net revenues. As a reminder, the project represented approximately 5% of our net revenues in the first half of the year, and we had previously expected a deceleration in the third quarter.

We now anticipate the project to contribute approximately 6% of net revenues in the fourth quarter. Also based on discussions with the client, we expect this project to continue for the first six to nine months in 2018, but at a lower level of activity.

Exponent's engineering and other scientific segment represented approximately 80% of the company's third quarter net revenues. Net revenues in this segment grew 13% in the third quarter and 11% year-to-date, as compared to last year. Year-to-date, the company experienced substantial growth in its proactive design consulting services, specifically in the Consumer Products industry.

In addition to the ongoing large human factors assessment project, we are seeing increased demand for similar services from other clients in the transportation, medical device and consumer products industry. We have developed a unique offering of highly qualified scientists and facilities to advise clients, as they navigate the increasing complexity of interactions between their products and users.

We are also experiencing growth from lithium ion battery consulting for the clients in consumer products, transportation, medical device and utility industries. Our interdisciplinary team of chemists, electrical engineers, material scientists and mechanical engineers has guided clients with respect in performance, reliability and safety of new products, as well as with respect to recall from litigation matters involving existing products with lithium-ion batteries.

The balance or 20% of Exponent's third quarter net revenue is from our environmental and health segment. Net revenues in this segment grew 3% in the third quarter and year-to-date, as compared to last year.

During the first nine months of the year, Exponent's chemical regulation and food safety practice continued to expand, as it advise clients with regulatory issues around the world. The depress demand from the oil and gas and industrial chemicals industries remained a challenge for this segment. Year-to-date, we paid $16.2 million in dividends, repurchased $8.4 million of common stock and ended the quarter with $166 million in cash equivalents.

Today, we announced another quarterly dividend payment of $0.21 per share, and reiterated our intent to continue to pay dividends going forward. We believe that our regular quarterly dividend payments and stock repurchase program demonstrate our confidence in our long-term financial position and our continued commitment to deliver value to our shareholders.

Now I will turn the call over to Rich, for a more detailed review of our financial performance and business outlook.

Richard Schlenker

Thanks, Paul. For the third quarter of 2017 revenues before reimbursements or net revenues, as I will refer to them from here on, were $82.4 million, up 11% from $74.2 million in the same period last year.

Total revenues for the quarter were $87.6 million, up 13% from $77.6 million one year ago. Net income for the third quarter increased 30% to $14.6 million or $0.54 per diluted share, as compared to $11.3 million or $0.42 per diluted share in the same period last year.

Third quarter, net income was aided by the completion of tax audits and the tax adjustments associated with share-based awards. Excluding the impact of these onetime adjustments, net income would have been $13.7 million, representing 22% increase year-over-year.

EBITDA for the quarter was $23.2 million, up 20% from $19.3 million in the year-ago period. Year-to-date, net income increased 9% to $246.9 million, and total revenues also increased 9% to $259.5 million.

Net income was $45 million or $1.67 per diluted share in the first nine months of 2017, as compared to $37.1 million or $1.36 per diluted share in the same period a year ago.

As a reminder, in the first quarter of 2016, Exponent early adopted a new accounting standard for the classification of tax adjustments associated with share-based awards. The tax benefit associated with share-based awards realized in the first nine months of the year was $6.5 million or $0.24 per diluted share, as compared to $4.8 million or $0.18 per diluted share in the same period last year.

For the first nine months of 2017, EBITDA increased 17% to $65.7 million. For the quarter, billable hours increased 11.5% to 310,000, as compared to the same period in 2016. For the nine months, billable hours increased 8% to 916,000, as compared to the same period last year.

Utilization in the quarter exceeded our previous expectations. Third quarter and year-to-date utilization was 76%, up from 70% and 71% for the respective periods last year. Utilization benefited from the large project and sustained demand in many parts of our business.

We expect utilization in the fourth quarter to be better than the same period last year, but down sequentially from the third quarter by approximately 5 to 6 percentage points.

As a reminder, utilization typically steps down 3 percentage points from the third to the fourth quarter based on additional holidays and vacations. While we expect sustained activity from the large human factors project in the quarter, the holidays and vacations will have a more meaningful impact on the assessment work, which will reduce utilization and an additional 2 percentage points on a sequential basis.

We expect utilization for the fourth quarter to be 70% to 71%, and as a result, the full year utilization to be approximately 74%. Technical full-time equivalent employees in the quarter were 787, which is an increase of 3% from the 1 year ago period. We expect FTEs to grow 1% to 2% sequentially in the fourth quarter.

In the third quarter, bill rates were roughly flat as compared to the same period last year. The flat realized bill rate is due to increase utilization of junior staff on the large human factors project. We expect the year-over-year realized bill rate decreased to be approximately flat in the fourth quarter.

EBITDA margin for the quarter was 28.2% of net revenue, as compared to 26.1% in the same period last year. For the first nine months, EBITDA margin was 26.6%, as compared to 24.9% in the same period one year ago.

For the quarter, compensation expense after adjusting for gains and losses and deferred compensation increased 7%. Included in total compensation is a gain in deferred compensation of $1.7 million, up from $1.5 million in the same quarter one year ago. As a reminder, gains and losses and deferred compensation are offset in miscellaneous income and have no impact on the bottom line.

Stock-based compensation expense was $3.5 million. We expect stock-based compensation to be approximately $3 million in the fourth quarter. Other operating expenses increased 7% to $7.5 million in the third quarter. Included in other operating expenses is depreciation expense of $1.6 million. We expect other operating expenses to be approximately $7.4 million to $7.6 million in the fourth quarter.

G&A expenses were higher in the first half of the year, due to our managers meeting and marketing related to our 50th anniversary, but returned to more typical levels in the third quarter. G&A expenses were $4.1 million in the quarter, up 8% from the same period last year. G&A expenses are expected to be approximately $4.4 million to $4.6 million in the fourth quarter.

Our tax rate for the quarter was 33.5%, as compared to 37% in the third quarter last year. Our year-to-date tax rate was 27.2%, down from 29.1% in the same period last year.

The third quarter and year-to-date tax rates benefited from the adoption of the new accounting standard. We expect to return to more typical tax rate of approximately 38% to 39% in the fourth quarter.

For the quarter, operating cash flow was - were $9.8 million and capital expenditures were $800,000. Operating cash flows were impacted by slow payments from our large project. Since quarter end, we have received significant payments and expect our receivables to return to a normal level by year end.

We distributed $5.4 million to shareholders through dividend payments in the third quarter and $16.2 million so far this year. Today, we also announced another quarterly dividend payment of $0.21 for the fourth quarter and reiterated our intent to continue paying quarterly dividends.

Year-to-date, we have repurchased $8.4 million of common stock for a total of 139,000 shares at an average price of $60.57. We still have $49 million authorized and available for repurchases under our current repurchase program. After repurchases and dividends, we ended the quarter with $166 million of cash and short-term investments.

We are increasing our 2017 expectations to reflect Exponent's strong year-to-date performance, the ongoing human factors assessment project and our expectations for near term market trends. We expect the fourth quarter and full year 2017 revenue before reimbursement to grow in the high single digits as compared to the same period in 2016.

We expect EBITDA margin growth in the fourth quarter to be 0 to 50 basis points, and the full year increase to be 125 to 135 basis points, as compared to the same period in 2016.

I will now turn the call back to Paul for closing remarks.

Paul Johnston

Thank you, Rich. We are pleased with our sustained growth in both our reactive and proactive services during the first nine months of 2017. We are well positioned to advise clients, as they face increasing demand for safer, healthier products and processes, and as they are challenged to contribute to a more sustainable environment.

In the world of increasing technological complexity, more sophisticated teams are needed to overcome these challenges. Exponent is uniquely positioned to capitalize on this market. With its integrated organization of more than 500 doctored level staff in over 90 different disciplines. We remain confident in our ability to expand our differentiated position and achieve long-term growth.

We believe that our third quarter performance exemplifies the resiliency of our business model. And our high-profile project engagements demonstrate our ability to adapt to shifting industry trends in an increasingly complex environment.

Operator, we are now ready for questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Tobey Sommer with SunTrust. Your line is open.

Tobey Sommer

Thank you. Wanted to start with the large project but maybe talked about it in broader terms than the project itself. Have you been able to decipher an explanation or series of factors that may be impacting certain industries that you serve that could create conditions, where larger projects may just occur with greater frequency. So I'm trying to step back and say let's not just talk about the current large project, but the conditions under which this project materialized? Thanks.

Paul Johnston

Yes, I think there is a couple of comments I would make about that. One in the general field of these kinds of studies, I think we've talked about in the past about how consumer products are becoming increasingly complex. And I think user studies have to do with the interaction between those products, and humans, who are also extremely complex.

And so I think, as you get larger and larger scale companies addressing this marketplace, the size and scope of those studies is likely to – and the importance is likely to increase.

In a more broad sense with regard to large projects, I think what we have seen is that big problems are multidisciplinary problems that require interdisciplinary teams to address them. And I think that, when we look back over the large projects that we've reported to the investment community on since, sort of, 2011 time frame. What we see consistently is just the breadth of expertise needed to address these, and the fact that we've become so broad-based in terms of our discipline capability that we have the ability to assess clients on these really complex projects.

So as a general rule, I would say, yes. We do think big projects are going to be more frequent and larger than they were, for example, in the time period between 2000 and 2010. But that doesn't mean that they're so frequent that we can predict the sort of reliability of the steady diet of that, because we typically only have one of these going at a time. There was a period where we had three projects some years ago, that overlapped that were large.

So they're still relatively rare compared to the 6000 or so projects we get engaged – we engage in any typically year. But we do think there's a trend that is more likely to produce greater projects over time.

Tobey Sommer

Excuse me, Rich, to follow-up on that, if we do have greater probability of larger projects kind of being in the fold in the income statement. How does that influence in, perhaps color your expectations for long-term margin expansion, if at all?

Richard Schlenker

Yes, I think that, look, as we get larger engagements we find that we are able to see during those periods of time a higher utilization of the staff. The reason being that these tends to be something that absorbs people, the [indiscernible] of certain segment of our staff can be absorbed to 100% on a single project, which is rare about our other type of work.

So as these come along, they're much larger, it takes staff that are committed to them. And as such, it does have a positive impact on utilization, which in turn actually flows right to an improved margin.

And over time, if these become more consistent or you at least know, that over a years period of time, you're likely to get a certain amount of that then you will begin to see that more consistently impact the margins of the firm.

But today, we've been very careful about that in the sense that we've highlighted these. We've said they are outside of the normal portfolio, that we have in as such have called them out like that. But, as you know, we’ve been having one of these or more every year for the last several years.

Tobey Sommer

Where are your highest priorities to bring in new talents in terms of consultant additions?

Paul Johnston

So I think there are a number of areas. Let me talk about conceptually two different types of growth here. One is, if we look at the practices that are growing particularly fast, then, obviously, we have a keen drive to attract people and to find new talent to support those practices.

And examples of that include our Polymer Science and Materials Chemistry Practice. It includes the Chemical Regulation and Food Science practice. There are numbers of practice, not just those but material science as well. There is a number of practices that have shown some strong growth and that we need to continue to make sure we have a flow of talent in to support that.

Separate from that is a different area, which is the area of trying to expand into some of the newer areas, something that we're working on, and continues to be challenging for us, is to develop a stronger consulting base to support the pharmaceutical industry, supporting, developing a stronger consulting base to address number of our clients issues associated with data analytics.

And so there are number of areas that are sort of newer to us, that we're trying to break into in a bigger way. We've got nibbles [ph] but we're also - most of our attention is supporting the practices that are already strong and that are strong growth areas.

Tobey Sommer

Thank you very much. I’ll get back in the queue.


We will take our next question from Tim McHugh with William Blair. Your line is open.

Tim McHugh

Thanks. First, maybe on the hurricanes and then other disasters that unfortunately we've seen lately, not to be to Doomsday, but, I guess on the positive side, it often drives work for you. How you thought about recent events and is it having impact on kind of project lead flow that you saw in the quarter or I guess, you would anticipate in the next few quarters?

Paul Johnston

Yes, Tim, so in between the hurricane, floods and fires, obviously, we're here in Northern California. The fires are not that far away, so we're also attended to that too. When we look at those natural disasters, they usually do lead to a particular flow of projects.

What I would tell you in recent - more recent events, not just the ones just turned last few months. But we tend not to get a very big surgeon in business right away. The projects that become larger for us are the ones, the more complex ones that end up in litigation to take a little bit longer to develop.

So what I would tell you is, at this stage, we didn't see a significant impact in Q3 with regard to those revenues. We think there will be some good projects that will come as a result of these events.

I'm not sure that how big they will be in terms of making a significant impact on the overall growth rate, but there's no question we will get some very good projects out of this.

And as I say, it's unfortunate for many people in these events but nevertheless, there are issues that do need to get addressed and we do assist clients with that.

Tim McHugh

Right. I think in excess [ph] on the environmental and health side, I guess, last quarter, I don't know maybe last quarter was, just, I guess, stronger than normal, but, I guess, the growth rates are a little lower. And I felt like your commentary and some of the kind of – some of the challenged areas like oil and gas was maybe a little softer than the quarter before. Am I over reading into that? Or was - I guess, is there any more color you provide on that side of the business in terms of kind of the challenged areas?

Paul Johnston

I think the challenge is correct. The other comment, I think, I would make about this and briefly commented in the remarks is that there are very large project we have at the moment. There are certain aspects of that project that have the ability to use - utilize staff with a very broad variety of backgrounds, broader than normal. And so to some degree that segment was also supported by that. So clearly that segment is just not performing as strongly as the larger segment, the engineering segment.

Tim McHugh

So the staff that would have been pulled into support that large project, would that has - just to be clear, are you seeing net supported revenue in the environmental segment? Or the people would have been working to support? Okay, so the performance would have been weaker, if not for supporting?

Paul Johnston

We have a - the way we account for revenue here is revenue follows the person, who is actually doing the work, and the person - a person who is in that segment then that segment gets the revenue. Some companies have the revenue follow where it's sold. We have it where it's actually worked on.

Tim McHugh

Okay. And last question, just Rich, to extent you are able- I guess, can you, you mentioned the project will continue at this point your best guess, for 6 to 9 months but at a lower pace.

Can you give us any you know, more you know, I guess, more specific context for what a lower pace might mean? And I'm trying to - to extent you know now I guess, I can go back and add up. But, I guess, what's the '17 type - 2017 impact from this versus than what you kind of would guess for 2018 at this point, just from a year-over-year kind of comparison prospective?

Paul Johnston

Yes, for 2017, first of all, we do - we indicated that we expect that the revenues in the fourth quarter from this project will make up approximately 6% of our revenues in the fourth quarter. That will bring the full year contribution to this project to approximately that same 6%. We had about 5% in the first two quarters, a little under 8% in the third quarter and then bringing the total to - for the full year to about 6% as well. So that's how we see the year in whole and completing.

We actually don't have other than an indication from our client that they expect and that we should plan on this project continuing for six to nine months into 2018. There hasn't really been a full workout of how much that work will be.

What we know is that the activities have obviously been peaked here in the third quarter that they do want to continue. They're finding a lot of value in the data that we're collecting, and believe that they would like to see that information continue to be collected for really for another year from now.

So that's the estimate that we have. We don't know how much. We don't know if that's going to be back down at the level of the first two quarters or could be something below that, as we had expected a while back that things would step down into the - to be in the 2%, 3% of revenues.

So at this point in time, we don't know that. Hopefully, we will know more when we - we will know more, when we get to our earnings release at the end of January, beginning of February for the fourth quarter.

Tim McHugh

Okay. That’s helpful. Thank you.


We will take our next question from Joseph Foresi with Cantor Fitzgerald. Your line is open.

Mike Reid

Hi, guys. This is Mike Reid on for Joe. Thanks for taking the questions. My first question is in regards to the proactive versus reactive in the period. Was that mixed little higher towards proactive due to the large project? Or was that in similar in line to prior periods?

Paul Johnston

The proactive was a little higher because of the influence to this project, but other than that, we continue to see a good balance of our proactive and reactive work throughout. And we're continuing to see good demand from that reactive side as well.

Mike Reid

Got it. And still in regards to the proactive, can you kind of discuss a little more detail some of the new, I guess, in the last year, year and half new business development lead generation initiatives being undertaken?

Paul Johnston

Yes, so, I mean, I think you probably understand for our firm that the majority of our work on both the reactive and in the proactive work is very much repeat business from existing clients that know our capabilities and that come back to us. I think what we are focusing more on is focusing on the industries that we are - the prime industries that we’re serving and making sure that other clients who are maybe not our top clients, but other clients understand the full range of capability that we are providing as services to other companies in that industry sector.

So I think that we've been spending quite a bit of time organizing ourselves internally around industries. Traditionally, our line organization is around, sort of, what I’ll call disciplined practice orientation. But as we go to market, particularly on the proactive space, we are aligning more and more around industries.

And so what we're trying to really do in terms of lead generation is make it, sort of, very clear on - very clear what are the - what we sometimes call flagship services, the main things that we are able to sell, and have a history of performing for our other clients in that sector.

So on the proactive side, that's kind of a - it's more sort of an industry focus that we are undertaking. In the reactive side, I think that is, has always been and we continue to have outreach to our major clients and major law firms through a variety of different settings, whether they'd be legal conferences, corporate counsel conferences, and indeed one-on-one meetings with lawyers, who are charged with addressing particular issues that are involved in litigation.

So that is not really so much of lead generation process as an awareness and marketing process, because I think that we're not a company that's trying to get on bitters lift. Like we don't do - we don't really respond - a very small amount of our work respond to bit in proposal process. So what we're really trying to do is make sure that our clients are fully aware of what we have done for others and what we can do.

Mike Reid

Got it. Thanks, guys.


We will take our next question from Marc Riddick with Sidoti & Company. Your line is open.

Marc Riddick

Hi, good afternoon. Just wondering, if you could touch – wondering you could touch a little bit on what you're seeing in the UK at this time, certainly this time last - compared to last year, with the year removed and the impacts of Brexit. I want to get a sense of maybe what you are seeing there, and maybe the pace of what you try to pick up there? And I have a follow-up.

Paul Johnston

Yes, so I think that, as you know, in the UK, the vast majority of our work is related to regulatory work around chemicals and around food, and that practice continues to grow strongly. We are very pleased with performance of that practice. It's one of the ones that I called out in my remarks as being particularly strong, having a noteworthy performance

I think the issues around - there isn't a lot of clarity around Brexit itself, in terms of exactly what that's going to look like, and so forth. But what I can tell you is that we feel very confident that, that business will continue pretty much unimpeded by whatever happens at Brexit.

And the reason for that is the kinds of regulations that are involved and - that affect the clients we have in that space are not really dependent on whether the UK stays inside the European Union or not. And for that reason, we believe that work will continue.

Also in addition to that, because we have other facilities in the European Union, we do have the ability to, if necessary, serve people through European Union offices. But we don't actually even think that - will probably be necessary.

Marc Riddick

Okay, great. And then, I guess, my second question was probably a little more wide ranging. I just wanted to get a sense of – an update on your thoughts on where company stands and its place in the process of the expansion of automated vehicles, whether it's from manufacturing side or the regulatory side? What the opportunities set - feels like at this point going forward? Thank you.

Paul Johnston

Yes, thank you. We think this is very much an opportunity for the firm. I think that, as you know, we have a long history of supporting the automotive industry in a variety of different disciplines. But what we have found and what we have reported on in some previous earnings announcements is that more and more we are engaged by the new comers for that industry.

And particularly, as it relates to electric vehicles and autonomous vehicles, we think that anytime there is a change in technology, a change in regulation that's an environment that's just right for us to assist clients in that space.

We've done some specific hiring in this area address the – to help address clients issues with regard to autonomous vehicles. And of course, on the electric side, a lot of our work, particularly on lithium-ion batteries, and so forth is really quite well known. So we do see this as a growing marketplace for us and one that we're quite excited about.

Marc Riddick

And I guess, maybe the last question. On the - we haven't talked as much about the drone technology, but I did want to get your thoughts there especially in light of the recent incidence [ph] of one hitting a commercial plane. And just kind of want to get your sense [indiscernible] the size of opportunity that vehicles are, but I want to get your sense of kind of where the company may participate going forward? Thank you.

Paul Johnston

Yes, I don't see this as being a big business opportunity. There certainly can be opportunities when there are accidents and so forth. Drones are also extremely useful in surveying and mapping and photographing sites and so forth that are, sort of feedstock to all kind of our investigations that we get involved in.

So we do have a very keen interest in this technology. And we need to use the technology in order to provide the services that we provide. But we see it probably more as a tool than necessarily a business area, although it has some of both.

Marc Riddick

Okay, great. Thank you very much.

Paul Johnston

Thank you.


We will now take a follow-up question from Tobey Sommer with SunTrust. Your line is open.

Tobey Sommer

Thank you. Paul, you talked about the auto industry. If you slice that across your practices and businesses, how much - how large is that? And where has it stood kind of historically, if there is percentage of sales and/or profit, it represented some different, larger, smaller value historically?

Paul Johnston

Yes, Rich will give you some numbers here.

Richard Schlenker

Yes, so the auto industry is approximately 10% of our revenues. And that - it's been pretty consistent in that range for many years. I mean, to be honest, it used to be a much larger a decade or two ago, that was a much larger percentage of our business up into probably the mid-to high teens as a percentage of our business, when you go back into even the '90s time frame.

So it's not that the firms revenue have declined there, but really the firm has grown a much beyond that industry as it is. But still, that industry remains one of our strongest. It's clearly one of our - the industry that we are probably best recognized in. But the interesting thing is that a lot of our recognition in that area has been in the reactive part of the business.

And what we're starting to see because technologies needing to change so quickly relative to electric vehicles and autonomous vehicles is that - and with new players coming into the industry is that we're seeing a demand for our proactive services there.

That - historically that industries had very long development cycles, very established engineering departments and suppliers. And as such, really has the time and luxury to do that work inside and not being pressed on the aggressive timelines that come in industries such as the consumer electronics industry.

But as those players and those technologies that are closer to the consumer electronics industry come into vehicles, we're seeing a higher demand for responsiveness to be able to help them with that rapid change.

Tobey Sommer

Excellent. Thank you for the response.


And there are no further questions. That concludes today’s conference. Thank you for your participation. You may now disconnect.

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