Good day, and welcome to the Exponent Third Quarter of Fiscal 2015 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to you Ms. Whitney Kukulka. Please go ahead, ma’am.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's third quarter 2015 financial results conference call. Please note that this call will be simultaneously webcast and on the Investor Relation section on 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, 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, and 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 of 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 developments or otherwise. And now, I will turn the call over to Paul Johnston, President and Chief Executive Officer. Paul?

Thank you for joining us today for our discussion of Exponent’s third quarter financial results. For the quarter, net revenues increased slightly to $74.5 million. Net income for the quarter increased 6% to $11.7 million, or $0.43 per diluted share. We are pleased with our bottom line results for the first nine months of the year. We achieved growth and profits and improved margins, despite the modest revenue growth. Our third quarter and nine months results also demonstrate our ability to effectively generate cash from operations. Our underlying business continues to grow in the high single-digits, but as expected, our results were impacted by the decline in defense work and a major project wrapping up. Exponent continues to be retained to investigate the most significant accidents and failures. We are also seeing strong demand for our proactive services in design consulting for the consumer electronics and medical devices industry. We had notable third quarter performances in our materials, polymer science, biomedical, and vehicle engineering practices, as well as our infrastructure group. As we have previously indicated, the last of our three major assignments wound down early in the third quarter, as a result of a proposed settlement. This project had represented approximately 5% of our revenue. We have made some adjustments to headcount and have increased our business development focus, but still expect to see a short term impact to utilization. We are now back to a more normal project portfolio with no current project representing more than 2% to 3% of our revenue. Rich will elaborate on the details of our forecast in a few minutes. We continue to repurchase common stock in the open market. We repurchased $12.8 million in the third quarter and $19.8 million year-to-date. As we announced today, the board of directors has authorized an additional $35 million in share repurchases, increasing the company's current authorization to approximately $50 million. We paid shareholders a $0.15 per share dividend in September and we intend to continue paying dividends going forward. We believe that the combination of stock repurchases and dividend payments not only reflects our confidence in the company, and the strength and stability of our long-term financial position, but also our commitment to delivering value to shareholders. While we have a challenging year-over-year comparison in Q4, and we'll need to clear the first half of 2016 to get past year-over-year comparisons that include the last of the major assignments, we are well positioned to deliver strong results in the years to come, and believe that we are making the appropriate investment necessary to grow our business. We are excited about our growth opportunities and are committed to providing the best scientific advice to our clients. Now, I will turn the call over to Rich, for more detailed review of our financial performance and business outlook.

Thanks, Paul. For the third quarter of 2015, revenues before reimbursements, or net revenues, as I will refer to them from here on, were $74.5 million, up nominally from $74.3 million in the same period of 2014. Total revenues for the third quarter were $79.9 million, also up nominally over $78.6 million one year ago. Net income for the third quarter increased 6% to $11.7 million, or $0.43 per diluted share, as compared to $11 million or $0.40 per diluted share in the same quarter of 2014. EBITDA for the third quarter increased 2% to $20.1 million versus $19.7 million last year. For the nine month period, net revenues increased 3% to $225.9 million and total revenues increased 4% to $239.2 million. Net income increased 7% to $33.7million or $1.23 per diluted share. EBITDA increased 5% to $59.1 million over the same period of last year. In the third quarter of 2015, net revenues for defense technology development were approximately $500,000, as compared to approximately $2.7 million in the same quarter last year. Year-to-date, net revenues for defense were $2.5 million, as compared to $9.6 million in the same period of 2014. We expect revenues from defense to be approximately $500,000 in fourth quarter of 2015. We had 286,000 billable hours in the third quarter, a slight increase as compared to $285,000 in the third quarter of 2014. Year-to-date, billable hours increased 3.5% to $865,000 from $835,000 a year ago. Utilization for the third quarter was 73%, which was better than we expected, but down from the 74% one year ago. The year-to-date utilization was 74%, up from 73% in the same period one year ago. We expect utilization to be down approximately 2 to 3 percentage points from the 69% we achieved last year in the fourth quarter. It…

Thank you, Rich. For the remainder of 2015, excuse me, and into 2016, we are focused on further expanding our unique market position and assessing the reliability, safety, human health effects, and environmental impacts of increasingly complex technologies, products, and processes. While we are growing at a slower rate than we might like in 2015 due the various factors we discussed in the last few calls, we are pleased with our strong bottom line results, which demonstrates the resilience of our model. Our long term financial goals remain the same, produce organic revenue growth, improve profitability, and generate significant cash flow to allow us to continue to repurchase stock and pay dividends. Operator, we are now ready for questions.

Thank you. [Operator Instructions] And we'll go first to Tobey Summer of SunTrust Robinson Humphrey.

Thank you. I want to start up by asking a question about utilization. With the wind down of the large projects and sort of the shifting around of resources associated with those, and the defense work. Do you think as we look into next year or maybe you can make it a medium-term think it doesn't have to be specific about next year? Do you have an opportunity with the existing mix of talent to get a couple points better utilization or do you need to add talent in certain areas that may be aren't as well developed in order to achieve better company wide utilization? Thanks.

So Tobey, this is Paul. Our view of utilization is that in the short term you get, you know, get some bouncing around some – a little bit some ups and downs, depending from quarter-to-quarter and various things like that, obviously seasonally. We still believe that over the long-term that, when I say long-term, I'll say it mid-term over the next few years, we believe that utilization rates should be able to increase. And as Rich has indicated, we expect this year to be about 72% by the end of the year for the full year. And we think that, that should be able to move up into the mid 70s and we base that on the fact that our larger practices and offices tend to run at higher utilization levels than those that are smaller. So we have larger practices, running in the high 70s to low 80%, fairly consistently. So we believe there is an opportunity for that to rise, simply because of a sort of an increase over time in critical mass and the fact that in sort of larger offices the – that the sort of sharing of work works on a little bit better and you get a little bit high utilization. We don’t feel like we are in a mode where we can kind of project a sort of 2% change in one year. I mean, that’s not the kind of thing that we think we can project. We just think that over a period of years we can gain, you know, something of the order of – on average 0.5% a year and some years will be up a little bit more, some years will down. But we still believe that what we sort of described to the market over the past several years about moving our utilization from where it was in the high 60s, now into the low 70s we believe that that can continue up into the mid 70s.

Thank you very much. A question about FTEs and headcount. If I were to see the underlying numbers kind of absent the cessation of the large project, would there be a slightly kind of higher rate of growth? I'm just trying to think about as we go into next year, maybe what's a reasonable range for growth in headcount? Thank you.

Yes, we, in 2014 as we move through the year last year, we did end up reducing the amount of staff that we had that were individuals that were more focused on the defense industry and we made some changes in that area and that probably reflected a couple of percent of our total full time equivalent billable staff at that time. As we've worked through the adjustments to staffing, relative to our environmental group, that was the primary group working on this major project. We're at least today that adjustment somewhere probably percent and a half of the total full time equivalent employees. So clearly over the last 12 to 18 months, we've been – had that headwind against it. The rest of - so that provides some information for you relative to the - what's been going on the last few years. I do think that as we look going forward, we will see a sequential headcount growth that begins to get back into the more normal range, which for us will reflect an annualized increase that should run somewhere in the 4% to 7% headcount growth. I think that will be - obviously as we're moving through the next nine months, sort of getting back to the transition we made over the major projects, that will be somewhat dampened by 1% to 2%. But I think that as we look forward, we do believe that the underlying model will support a 4% to 7%, 4% to 8% headcount growth.

Thank you, Rich. Just two last questions from me. The capital deployments between repurchase and dividends is kind of come close to tracking operating cash flow, is that what we should be looking for going forward or is there an intent to utilize some of the cash that's accumulated on the balance sheets such that may be you're returning more cash to shareholders than the cash generated from operations?

Absolutely. We intend to reduce our cash on the balance sheet over the next several years. We've talked about over the next 4 to 5 years of bringing that down into the $50 million to $70 million range on the balance sheet. So it is our intent to - through repurchases, as well as dividends and there may over time be some smaller acquisitions in there that we do. But to bring that cash down to approximately $50 million by deploying that excess amount back to shareholders.

Thank you. Last question is, you mentioned some redeployments and resources in the business development. Could you give us some context for how we might see the effects of those additional business development efforts, if they are material [ph] Thank you.

Yes. I mean, these are not sort of big ticket items, they are relatively small. We do - historically our business development is its larger the reputation business and essentially we keep our profile up by attending various conferences and things like that. But the reality is most of the work comes in through clients calling us back. I think as we move to proactive work, there is a little bit more focus on some particular industries and as such we've made some investments that has focused a little bit more on those industries. But these are not big dollar investments.

Thanks, Paul.

I mean, clearly the senior leadership and our environmental practice that was very focused on the work and the goal is obviously has more time now to – and demand to focus on business development in that particular area to refill the backlog.

I appreciate the answers. Very helpful.

And we'll go next to Tim McHugh of William Blair Company.

Yes. Thanks. I guess, I'm sure you're limited somewhat and what you can say, but obviously there is a major auto company in the news with issues in the past, that sort of thing is driven large project for you and I know I've gotten a number of questions about it. Can you in terms of what you can say about your positioning relative to that or credentials or whether. I guess any color you can give us in terms of involvement or potential involvement in that sort of set of issues?

Sure. You are right. There are limits to what we can say. I mean, look, the sort of major news items involving automotive players, whether it be unintended acceleration with Toyota or ignition switches with GM or the airbag situation with a number of manufacturers. These are all things that clients have announced that we've been involved in and we were able to confirm that. Obviously a couple of them are in the past. One of those is still involving airbags is still obviously very active. At the present time, consistent with our normal approach which is we can't indicate whether we're retained or not until our client decides to disclose that. We are not in the position to say nothing about VW at the moment. But it’s - just looking at the track record, it would be surprising if it was something that we didn’t get involved in or that we're not already involved in, whichever way you want to look at it.

Okay. Fair enough. And then I guess, if I – we haven’t talked about pricing in awhile. I guess, can you just give us an update in terms of how sticky are you bill rates, is there any pressure on them in the market right now? Just kind of the general context for discussions with clients around bill rates at this point?

Yes. So our normal process of course is that we go through our planning here in the fourth quarter where we are right now and during that process we set the bill rates that will be become effective in January. We are slightly unusual in the market place and that we operate where each individual has a billing rate that they will charge all clients next year. And we don’t negotiate bill rates. So that way everybody gets the best bill rate, and so that’s kind of a philosophy that we have. There is no question that with major clients there tends to be some pressure to control rates, but the reality is the rates we set for them are the rates we set for everybody. And they also have come to understand that. And so we don’t have any kind of preferential way of treating long standing client, long standing large clients different from other one. So in the end we have to make some decisions. I think our view point has been that that bill rates have continued to increase every year, even in 2009 we've put in a bill rate increases and we expect that to continue. So I don’t see a lot of change in that. I will comment a little further on what I'll call the realized bill rate or the mix of our bill rates at the end, because we are in a mode where our realized bill rate increase is very low compared to history and we think that’s occurred because of sort of the mix of projects we have, more projects with higher leverage, some of the business [ph] practices being ones where the average bill rate might be lower than some others and so forth. The reality is we don’t expect that to remain where it is. We expect that the realized bill rates that we get going forward should be moving back toward more of a normal historical rate.

Okay. Thank you.

[Operator Instructions] And we'll go next to David Gold of Sidoti & Company. Mr. Gold, your line is open. Please go ahead.

Rich, can you give a little bit percentage on the headcount adjustment that we've done so far to manage. Essentially, yes, coming in sort of flattish, I guess, doesn't give us a great sense for where we've maybe trimmed [ph] versus where we added. Can you give us a sense on sort of what the [indiscernible] have been as you just headcount there?

We had approximately 10 people that we separated from in the middle of the quarter relative - primarily related to the ending of the project that we had ongoing, that would have been primarily - that would've all been in our environmental and health segment in that period of time. So it had an impact approximately 5 FTEs in the quarter because it occurred in the middle of the quarter.

Perfect. That's helpful. And then as we think about next year, the addition that you mentioned, as we think about that, is there much - did you say it was just 1% dampening from you know, that you expect to bleed into next year…

No, I think – yes, I mean, I think that the impact to the top line will be approximately 5% of revenues in each of the first and second quarters for a full year impact of about 2.5%. What I've discussed before was that, I thought the -* obviously the impact from – the 2 FTEs in particular was approximately 1.5% because that’s what 10 of the 750 staff that we have, I guess 1.3% or so. But in that range, being the impact to headcount growth as we move into 2016. But those are - that's how I see things happening there.

Perfect. And just one last question, also if we can get a sense for how [indiscernible] presumably on the bill rate side, the larger projects, obviously without going into that individually one would assume that you get some pretty decent rate there. Would we see any impact from the pull back as well?

I think that the rates that we were achieving relative to the work that we're doing on that project were approximately at the average of the company. I don’t see that that will have any impact on rate.

Perfect. Thank you.

I think it will have some impact. Obviously, you had that in the utilization or billable hours and we've adjusted for part of that, but not for all of it as Paul indicated last quarter. Part of this is how you make some adjustments to staff, you do some more, really double down on your business development and you also realize that in this business area you're not going to return all the way to the level of utilization you have when you have a major project like that and that area will operate at a more steady state, lower level once it gets the business develop going and adjust the staff appropriately.

Perfect. Thank you so much.

And with no questions remaining. This will conclude today's conference. We thank you all for your participation. And you may now disconnect.