Good day, and welcome to the Exponent First Quarter Fiscal 2016 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Whitney Kukulka.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's first quarter of fiscal year 2016 financial results conference call. Please note that this call will be simultaneously webcast over the Investor Relations 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 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. Thank you for joining us today for our discussion of Exponent's first quarter 2016 results. For the quarter, net revenues were $79 million, a 4% increase as compared to $76.1 million for the same period last year. Net income was $15.4 million, or $0.50 per diluted share in the first quarter of 2016 which includes $4.5 million or $0.16 per share attributable to the adoption of the new accounting standard for tax adjustments associated with share-based awards. Rich will elaborate on the detail shortly. We are pleased to have grown revenues and earnings during the quarter despite the challenging year-over-year comparison. Our underlying organic growth rate of net revenues within the high single-digits offset by the completion of a major project in the third quarter of 2015. This project has represented approximately 5% of our revenue in the first half of last year and will partially offset growth again in the second quarter. We have a typical project portfolio today with no current project representing more than 2.5% of our revenues. We will return to more normal year-over-year comparisons in the second half of 2016. In the first quarter we had notable performances from our materials, polymer science, electrical, thermal science, human factors, and biomedical practices. We were engaged in a broad range of investigations and disputes involving environmental and health issues, equipment failures, and interruption to manufacturing facilities. We continue to be called upon to assist clients with a diverse setup of product recalls ranging from vehicles to toys. We also supported clients in evaluating potential new products for performance, reliability and safety. We repurchased $3.5 million in common stock, paid $4.6 million in dividends, and ended the quarter with $155 million in cash equivalent. Today, we announced the quarterly dividend payment of $0.18 per share and reiterated our intent to continue to pay dividends going forward. We are confident in the strength of long-term financial health of the company and believe that the combination of stock repurchases and dividend payments reflects our commitment to deliver in shareholder value. Now I will turn the call over to Rich for a more detailed review of our financial performance and business outlook.

Thanks, Paul. For the first quarter of 2016 revenues before reimbursements or net revenues as I will refer to them from here on were $79 million, up 4% from $76.1 million in the first quarter of 2015. Total revenues for the first quarter were $83.2 million, up 4% from $80.3 million one year ago. Our underlying revenue growth was in the high single-digits but was offset by the impact of a major project which ended in the third quarter of 2015. In the first quarter of 2016, Exponent early adopted a new accounting standard for the classification of tax adjustments associated with share-based awards which was applied prospectively. The tax benefit realized was $4.5 million or $0.16 per diluted share in the first quarter of 2016. Including the tax benefit, the first quarter's net income was $15.4 million as compared to $10.3 million in the same period last year. For comparison purposes excluding the tax benefit net income would have been $10.9 million in the first quarter representing an increase of 5% year-over-year. Earnings per diluted share increased to $0.56 inclusive of the $0.16 per share tax benefit as compared to $0.38 in the first quarter of last year. EBITDA for the first quarter was $19 million, up from $18.4 million in the same period of 2015. For the first quarter, global hours were 295,000, an increase of 1.2% as compared to the same period last year. Consistent with our expectations, utilization was 74% in the first quarter, down approximately 1.3 percentage points from the same period last year, primarily due to the impact of the major project which ended in the third quarter of 2015. As a reminder, we have less work days in the second quarter than we had in the first quarter due to additional holidays and…

Thank you, Rich. We are retained to investigate some of the most significant accidents and product recalls and to evaluate reliability, safety and environmental impacts of increasingly complex technologies, products and processes in an environment that is rapidly changing. We intend to leverage our experience and reputation and react to services to continue the growth and development of our proactive services such as design evaluation, risk management and regulatory consulting. While the previously articulated project completion continues to create headwinds for top-line growth in the first half of 2016 we are optimistic about our opportunity to leverage our unique market position to generate long-term growth. Our long-term financial goals remain the same, produce organic revenue growth, improve profitability and maintain a solid balance sheet. We believe our strong bottom-line results and healthy capital structure demonstrate the resilience of our model. Finally, our ongoing stock repurchases and dividend payments reflect our commitments to delivering long-term shareholder value. Operator we are now ready for questions.

[Operator Instructions] We'll take our question from David Gold of Sidoti. Your line is open.

Hey, good afternoon.

Afternoon, David.

So couple of questions for you. First, as we think about the headcount adds over the next few quarters, can you speak couple of spots; one, any particular areas obviously pulled out if you were having success where you are looking through most aggressively at, number one. And the number two, are there newer areas of expertise that have been developed along the lines of your core business that you might want to speak about as well?

Sure. Yes, certainly when we look at the areas that have been growing in headcount they are not as you might expect, aren't uniform across the company. We have areas that are pushing stronger. We are continuing to see a trend which we've seen for quite some time now, quite number of quarters, where we are seeing much of that growth in the area of the some of the -- what I'll call traditional engineering practices, materials, polymer science, electrical engineering and thermal sciences. Those practices for example are -- you know, were very solid in Q1 and have been growing and we expect to get to make more about what I'll call entry level hires in those spaces. That also lapse over to the growth of our still relatively small offices in Asia; in Shanghai and Hong Kong where we continue to see a fair amount of demand. And then, again on the health and environmental segment, the area that continues to grow the fastest is what we call the food and chemical center which is really associated with food safety and chemical regulations for the pesticides regulations and so forth. So those areas I think are the ones we see -- really the strongest growth and within that I would say that areas that are a little bit newer for us, we are finding a lot of growth and demand for, what I must call chemistry, our polymer science is -- actually the full name of the practice is polymer science and materials chemistry, and there is quite a lot of demand in that area, we've been growing the sort of service range that we provide to clients in that area both from an equipment standpoint, we do a certain amount of testing work to support our consulting and so we've been active in that area, as well as finding new people to grow out the chemistry side of what use to be more focused as what I call the material side. So that represents certainly a growing new area for us. We continue to look at areas related more to computer science and pharmaceutical consulting but those areas have not as of yet grown at a rate that we are looking to get for the future.

Got you, perfect. And as you've gone out and hired, have you seen any change in ability to hire, is it any more difficult maybe than it's been or sort of status quo or do you hire as necessary?

I don't -- look, I think it's always a little bit difficult but I think we actually have great success in our entry level hiring. I think that we have a way of focus on hiring from top schools and we have sort of active programs in recruiting PhDs from those schools. And I think that that program continues to work well. There is no question that there is more competition there than there was let's say five years to ten years ago certainly in just about all of the high tech areas, whether you're talking about electrical, computer science, any of the materials related areas whether it's polymer materials or other materials, bio medicals. A lot of these areas are very strong right now just because of the high-tech industry both in medical devices, consumer electronics and so forth. And many of our frankly good clients are also hiring people in that space, so there is certainly a lot of competition but we still feel we can get our share and I think that we don't feel like our growth is limited by our ability to find qualified entry level people. I think that growing organically in the high single digits in the current economy where we think we can be or we think we can find those. To branch into new areas we do need to recruit at a more senior level, it's not more senior, it's a very senior level. I think if you are looking for a thought leadership in developing new areas and that space is always difficult to recruit in because really talented people and well-known people with good reputations in those spaces are typically careful while in doing what they are doing now. But every now and again we get an opportunity because of some kind of an upset at that company or in the marketplace and we certainly take that opportunities. We've made some good senior level hires this year and we hope it's going to take some time obviously for that to consolidate and build out from there. But we've had I think a little bit more success so far this year than we had last year. But hiring the senior people has always been the more difficult challenge for us.

Got you, perfect. One or two other quick ones. Paul, so should we think about uses of cash, obviously put back a little bit of stock during the quarter but cash position continues to be quite strong. Any thoughts there aside from dividend as to acquisitions, hiring, and repurchases when you think about the use of that cash?

Yes, I mean certainly we do continue to look at acquisitions but we've been sort of -- what we considered to be very disciplined, some people might say very conservative but we certainly been very disciplined about trying to find what we are looking for. We have found a couple of good opportunities that we weren't able to close on. So we're going to continue to look there. We don't expect that even if we are successful in that area that it would take a huge amount of our cash because we are looking for acquisitions that are closer to sea than they are of a significant percentage of the size of our company, plus the fact I think if we were going to do something we would want the people joining us to have an interest in our stock, so there would be probably some split between stock and cash that we would do the deal on. So yes, we need to have some money available for that but that's not -- but we don't think that obviously requires what we've got right now. I think we are pretty comfortable with the approach of an increasing dividend that I think we have had a good track record of since we introduced it few years back. And I think just to reiterate what we've generally said about stock repurchases which is that regardless of the price we expect to buyback enough to make sure we offset any stock that we're putting out during the year but for more significant buybacks, they are more likely to happen on those times when there is a pullback, a bit of a pullback in the stock. And I think again, our track record overtime has demonstrated that that's the approach we have taken.

Sure, perfect. And just one last one, Rich, can you give either the number of shares repurchased or average share price and you gave the aggregate dollar value?

Yes, the -- it was -- the number of shares was 73,000 shares at $48.13.

At $48.13, perfect. Thank you both.

Thanks, David.

Our next question is from Tobey Sommer of SunTrust. Your line is open.

Hi, this is Quan [ph] for Tobey. Thanks for taking my questions. First of regarding the auto segments, could you give us an update on the activity level in that area? I know you can't give us specific names but if you could elaborate on what types of work are driving the segment right now and whether the business is as robust as was last quarter? Thank you.

Yes, sure. I mean I think what we have been able to say as you know, I think in this area there are times when we can announce what we are working on and there are times when our client hasn't yet disclosed that and so we can't. The two things that have obviously been more in the news up late continue to be the issues around airbags that we've described that we are involved in and working for the automotive manufacturers for. And we've also indicate the other issue that's out there obviously is the Volkswagen emissions issue, and we've not been able to say that we've been retained there. We've basically been in a position of being able to describe that no disclosures to be made and -- but also let people know that the Volkswagen is a client of the firm on other matters. So we really -- I don't really have any special update to describe there with regard to what sort of going on in the recall side of the business. I think it continues to be pretty strong, there is a lot of activity in that area but it's been strong for some time. So I wouldn't describe that as being a big change. I do think I would say that I do think we are finding more opportunities to work in the electric vehicle space and we're a pretty well-known firm for specialty consulting on battery technology and battery reliability and everything from that sort of reliability, safety, puncture resistance, even to the point of how you put out a fire that started with batteries; those kinds of issues. So we've been doing quite a lot of work in that area and we continue -- that area continues, I feel to grow for us.

Got it. And my second question is regarding returning capital to shareholders. You said in the last conference call that it will be a four to five year process in getting that cash level down to smaller rate. Do you still see it as a four to five year process now or is there a shortened timeframe?

No, I think we still -- that's kind of our goal. I think as I described in answer today this question -- depending upon what kind of pullbacks you got into stock, I mean we're not looking for pullbacks from the stock but the reality is they do happen from time to time and when they do, that will create a bigger opportunity for us to buyback more stock. And so in a slightly strange way it is actually difficult for us to predict how long it will take to get our cash back to the more normal level that we've described. I will indicate normal so for the target level we've talked about in the $50 million to $70 million kind of range, I think we don't expect to do that all in a year but we would expect over a period of few years that we would get those opportunities.

Okay. And on the proactive side, could you give us some color on the areas of increased activity. Where are you seeing increased demand compared to last year? And maybe give us some update on your energy client base?

Yes, a few different things. I mean the areas that are strong for us in the productive space, we continue to do well in consumer electronics for medical devices. There is also a fair amount of activity in the construction area -- construction management area that we're involved in. There is definitely in their regulatory consulting we see opportunities there. We're doing quite a bit of work associated with which our utility clients I think would continue. I think the area that is little bit weaker in terms of the proactive work would be the oil and gas sector and I think probably not surprising given the price of oil off-late, we continue to get retained when there are event driven activities that in the reactive space say are, but I think that proactive space has been quiet as a result of the drop and the price of oil.

Got it. And my last question is numerical. What is the revenue breakdown between engineering and environment health?

The revenue on a total revenue basis, the revenues for the first quarter were $64.8 million in the engineering area and $18.3 million for the environmental and health. On a net revenue or revenues before reimbursement those were $61 million for engineering and $18 million for environmental and health.

Got it, thank you very much.

Thanks.

Our next question is from Tim McHugh of William Blair.

Hi guys, again, just quickly I guess on the product recall area, you have that and I guess it's been strong for a while but I would assume there is some inherent volatility in that. I guess so what's – I recognized maybe on the other hand there is a long-term trend towards complexity and project that's going to drive maybe more product recalls over a long-term. But how do you think about weighing those two things on -- I guess where we're at in terms of the level of work from product recall versus if you look over five or ten years for you guys. Are we elevated, is that sustainable I guess or is it -- it's kind of a different form of bigger project risk that at some point inevitably we'll have its ups and downs.

Yes, so Tim I would look at that in a couple of different ways. I think the products recalls that get the most publicity, the vehicle ones, that are controlled by NHTSA. But I think there is another whole set of recalls from the Consumer Product Safety Commission, CPSC. Our view is that the recall activity from the CPSC or just consulting related to our recall issues and the CPSC is clearly being increased. There have been some regulatory changes there that toughened up the rules there and we clearly see more activity associated with product safety, separate from the automotive space. And so we think that that's a growing business and it runs the whole gamete from fairly big things like offload vehicles that wouldn't necessarily be under NHTSA to toys and all kinds of other consumer products. And so we are seeing more work in that area and we anticipate and we're kind of adding some staff to address some opportunities in that particular space. If I come back to the NHTSA side, there is no question we've seen a number of very high profile ones over the last several years when you think back to acceleration, ignition switches, emissions and airbags and so forth, there has been a lot of -- sort of publicity over very large matters. I don't know -- I don't think I'm in a position to say that we think that that's going to get less overtime. Vehicles get safer overtime but vehicles get more complex overtime. And -- so the range of issues that come up is just continuing to expand. So it's -- if you think about, vehicles used to be very sort of mechanical devices, you're looking on intended acceleration was really kind of a lot of work on electronics…

Okay, that's helpful. And Rich, on the tax rate, this is an accounting change right? It doesn't change the cash flows or effectively your cash tax rate in anyway. Is that fair enough?

It does not change our cash tax rate, previously you were required to flood this tax benefit through the financing section of your cash flow statement and since now we'll be running through the income statement, it will be reflected -- be moved and reflected in the operating cash flow of the company. So the company's operating cash flow will increase by the amount of this tax benefit but the overall cash flow will not -- in the balance sheet will in that not change.

Okay. And it's not something that spread through the year and in few years it will all be a Q1 in that?

It will for Exponent because of the timing of the vast majority of stock put-out at our company has done one-time each year in March when we distribute our RSUs, it will primarily be focused then. There will be other times during the year that it can or will come out, our Board of Directors gets there minus their stock in the second quarter, that sort of material amount and I don't think we'll really make the material different. The other timing that can affect it which is totally variable is that you do get the same benefit on an exercise of a stock option, that is exercised and the tax is realized on that. But the timing of when stock options are exercised, obviously is not forced into a certain period of time, so those will just be at the time that those are traded, Exponent doesn't have a large number of options outstanding so that number will be last for us. But it can come along for instance last year related to other things, it was a material amount, if you go back our -- in 2015, we -- in the first quarter we had $4.4 million of tax benefit and during the rest of the year we had another $2 million. But the prior two years to that we only had something approximating $0.5 million of benefit in addition to what we had in the first quarter. So it will vary and the timing of it will vary as well but I wouldn't -- there is not an ability to plan for that at this time.

Okay, great. Thank you.

And there are no further questions at this time. And this concludes today's Exponent first quarter fiscal 2016 results conference call. Thank you for participating. You may now disconnect your lines. And everyone have a great day.