Exponent (NASDAQ:EXPO) Q4 2020 Earnings Call

0:00 Good day and welcome to the exponent fourth quarter and fiscal year 2020 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Whitney. Please go ahead, ma'am. Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on exponent fourth quarter and fiscal year 2020 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 slash investors. This conference call is the property of Exponent and any taping or other reproduction is expressly prohibited without prior written consent.

0:45 Joining me on the call today are Dr. Catherine Corrigan, President and Chief Executive Officer, and Richard 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 exponents 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 periodic SEC filings including those factors discussed under the caption risk factor in Excellence's most recent form 10Q.

1:31 The forward-looking statements and risks in this conference call are based on current expectations as of today and Excellence 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 2020 business performance. Rich will then provide a more detailed review of our financial results and our outlook for 2021. We will then open the call for questions. In a year of worldwide challenge, we demonstrated the durability of Exponent's business model and the strength of our market opportunities.

2:18 Our fourth quarter results exceeded our prior expectations and illustrate continued improvement across the business. For the quarter, we expanded EBITDA margin 200 basis points as compared to the same period last year. Net revenues in the quarter reflected a return to underlying growth, declining only 5% in the face of the 8% headwind from an extra week in the fourth quarter of 2019. Our successful execution demonstrates the resiliency of our business model, the dedication of our world class team, and the strength of our reputation. While we are encouraged by our results, COVID-19 continues to impact litigation and human participant studies.

3:07 Society is raising the bar for safety, health, sustainability, and reliability. and clients are increasingly seeking Exponent's interdisciplinary proactive solutions. Exponent grew its annual revenues from proactive services in both business segments despite pandemic-related restrictions, one less week than the prior year, and the divestiture of the German entity. Industry and government alike are advancing their missions in multifaceted ways, Thank you for joining us today. In the fourth quarter, we deployed the wearable technology platforms for COVID-19 risk monitoring and mitigation for the U.S. Army and Navy that we talked about on our last conference call. Beyond COVID-19 use cases, wearable technologies can be used to monitor worker health, safety, and performance, and to evaluate the safety and efficacy of healthcare products and treatments.

4:26 Exponent is uniquely positioned with its diverse and integrated expertise to advise clients as they leverage technology to improve human health and enhance performance. Technologies such as virtual reality, robotic surgery, and advanced vehicles are becoming ubiquitous, and understanding the cognitive aspects of users is critical to optimizing their experience and performance. While our human participant studies have slowed due to coronavirus restrictions, The interoperability of humans and increasingly sophisticated technologies is a secular trend that will be a future growth driver for Exponent. The increased focus on sustainability is driving a shift in the transportation industry.

5:14 Automotive manufacturers are expanding their electric vehicle fleets and scaling manufacturing in a meaningful way. Our world-class multidisciplinary battery team is leveraging its experience in consumer electronics and our strong reputation for failure analysis in the transportation industry to improve the safety and reliability of energy storage for electric vehicles. During the fourth quarter, we had increased activity in domestic litigation support, which exceeded our expectations, but progress in this area is occurring in fits and starts. In the fourth quarter, many assignments that had been paused were given the go-ahead with near-term deadlines. But in December and January, clients were somewhat more measured as trial dates remain uncertain.

6:03 We saw increases in international arbitration hearings as they proceeded virtually, since these do not require the involvement of the general public. We are seeing a steady flow of new litigation projects, but some clients are slower than usual in authorizing work. We are confident that litigation support will remain a long-term growth driver for our business. Exponents engineering and other scientific segments represented approximately 80% of the company's net revenues in the fourth quarter and fiscal year 2020. Net revenues in this segment decreased 5% in the fourth quarter and 4% in fiscal year 2020 as compared to 2019. Clients continued to seek Exponents expertise for proactive and reactive engagements across a broad range of industries and use cases.

6:56 Our integrity management advisory services for the utilities industry remain strong as clients and regulators focus on power reliability and safety. Our biomedical team advised clients as they navigate evolving regulatory frameworks around the world, including the impending medical device regulatory deadlines in Europe. Exponents environmental and health segment represented approximately 20% of the company's net revenues in the fourth quarter and fiscal year 2020. Net revenues in this segment decreased 5% in the fourth quarter and increased 1% in fiscal year 2020 as compared to 2019. Within this segment, the chemical regulation and food safety practice continued to grow as exponent scientists evaluated the effects of chemicals and new products on human health and the environment, including registrations for disinfectants to prevent the spread of the coronavirus.

7:55 For clients who must meet health and safety regulations as they distribute products globally, our scientific and regulatory expertise in the Americas, Europe, and Asia is invaluable. 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 the technological complexity of these products and processes increases, so does the demand for Exponent's engineering and scientific expertise. Our market drivers are strong, and demand for our services has continued. Despite ongoing uncertainties and economic turbulence, we are optimistic about our ability to grow in 2021.

8:45 I'll now turn the call over to Rich to provide some more detail on our fourth quarter and 2020 results, as well as discuss our outlook for the first quarter and for 2021. Thank you, Catherine, and good afternoon, everyone. I will start by providing details of Exponent's financial results for the fourth quarter and full year 2020. and then we'll provide some insight into our expectations for the first quarter and full year 2021. All comparisons will be on a year-over-year basis unless otherwise noted. For the 13-week fourth quarter of 2020, total revenues declined by 6% to $103.2 million, and revenues before reimbursements, or net revenues as I will refer to them from here on, declined by 5% to $97.3 million as compared to the 14-week fourth quarter of 2019.

9:45 Having one less week in 2020 was an 8% headwind for the fourth quarter, in addition to the 1% headwind for the divestiture of the German entity that occurred in April of 2020. As a result, the fourth quarter The underlying net revenue grew by approximately 4% year-over-year. Net income for the fourth quarter increased to $21.8 million or $0.41 per diluted share as compared to $19.1 million or $0.36 per share. Exponent recognized a tax benefit from share-based awards of $2.6 million or 5 cents per share in the fourth quarter of 2020 as compared to $700,000 or 1 cent per share in the same period one year ago.

10:46 EBITDA for the quarter increased 2% to $28.3 million, producing a margin of 29.1% of net revenues, which is an increase of 200 basis points as compared to the prior year period. For the 52-week fiscal year 2020, total revenues declined 4% to 399.9 million, and net revenues declined 3% to 378.4 million as compared to the 53-week fiscal year 2019. Having one last week in the 2020, was a 1.25% headwind for the year. And the divestiture of the German entity was a headwind of approximately three quarters of a percent.

11:44 As a result, the full year, the underlying net revenues declined by approximately one to one and a half percent year over year. Net income for the year was slightly up, at $82.6 million or $1.55 per diluted share as compared to $82.5 million or $1.53 per diluted share in 2019. The tax benefit associated with accounting for share-based awards for 2020 was $12.3 million or $0.23 per diluted share as compared to $8.1 million or $0.15 per diluted share in 2019.

12:29 For the year, EBITDA decreased 5% to $102.1 million, producing a margin of 27% of net revenues, which is a decrease of 40 basis points as compared to 2019. Available hours in the fourth quarter were 318,000, a decrease of 11% year-over-year. For the year, available hours were 1,273,000, a decrease of 7% from 2019. In addition to having one less week in 2020, the year-over-year decrease is partially due to the divestiture of the German entity.

13:21 which accounted for approximately 3% of billable hours and 1% of net revenues in 2019 and the first quarter of 2020. Utilization in the fourth quarter was 67.3%, down from 69.5% in the same quarter of 2019. For the year, utilization was 67.1%. Down from 72.1% in 2019. Utilization adjusting for holidays and vacations improved sequentially as we continue to get new engagements and some existing projects have their holds released.

14:09 But utilization remained below last year's levels. as some trial dates have been deferred and human participant studies delayed due to COVID-19 restrictions. We are pleased that the year-over-year comparison has improved sequentially each quarter from down 1200 basis points in Q2 to down 580 basis points in Q3 and down only 220 basis points in Q4. We expect improvements to continue in 2021. For the first quarter of 2021, we expect utilization to be 70 to 71% as compared to 71.4% in the first quarter of 2020.

14:55 For the full year 2021, we expect utilization to be 69 to 70% as compared to 67.1% for the full year 2020. Technical full-time equivalent employees in the quarter were at 909, a 1% sequential increase and 1% decrease as compared to the same period one year ago. The year-over-year decline in FPEs was due to the divestiture of the German entity, which accounted for 3% of our headcount in 2019. For the full year, FTEs increased 1% to 912, inclusive of the impact of the divestiture.

15:48 We ended the year with 904 FTEs. We expect sequential headcount growth of approximately 1% per quarter in 2021. The realized rate increase was approximately 5%. for the quarter and 4% for the year. The realized rate increase included 2% benefit from the divestiture of the German entity. The rate for the quarter was higher than we had previously expected as a result of continued delays in user studies and testing activity, which leveraged more junior staff.

16:34 For the first quarter, we expect year-over-year realized rate increase to be 4% to 5% as we have one more quarter before we lap the divestiture date. For the remainder of the quarters, we expect the year-over-year realized rate increase to be approximately 2%. As a result, the full year realized rate increase is expected to be 2% to 2.5%. For the quarter, compensation expense after adjusting for gains and losses in deferred compensation declined 2%. The primary reason compensation expense declined was one less operating week in the fourth quarter as compared to the prior year period.

17:23 Included in compensation expense is a gain in deferred compensation of $8.4 million. as compared to a gain of 4.4 million in the fourth quarter of 2019. As a reminder, gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line. For the year, compensation expense increased 1% after adjusting for a gain in deferred compensation of 8 million as compared to a gain of $12.8 million in 2019. Stock-based compensation expense in the quarter was $4 million as compared to $3.9 million.

18:14 For the full year, stock-based compensation expense was $17.3 million as compared to $17.5 million in 2019. For the first quarter, we expect stock-based compensation to be $6.3 to $6.5 million, and each of the remaining quarters to be $3.8 to $4.2 million. For the full year 2021, we expect stock-based compensation to be $18.4 to $18.8 million. Other operating expenses were down 7% to $8.5 million for the quarter and were down 4% to $32.2 million for the year. Included in other operating expenses is depreciation expense of $1.7 million for the quarter and $6.9 million for the year.

19:10 The primary reason these expenses declined is reduced activities in our offices and labs, as well as One less operating week in the fourth quarter as compared to the prior year period. For the first quarter, we expect other operating expenses to be 8.2 to 8.5 million. For the full year, we expect other operating expenses to be 34.7 to 35.2 million. This year-over-year increase assumes a gradual return to our offices over the year. While we are uncertain when our employees will return to the office full-time, we do believe our office environment provides long-term value as it supports collaboration for our interdisciplinary teams and staff development, which result in a higher value for our clients and retention of our employees.

20:13 DNA expenses were down 69% to $1.6 million. for the quarter, and we're down 37% to $12.9 million for the year. The decline in G&A expenses was partially due to not holding a manager's meeting that was held in the prior year period, and lower travel and meals expenses related to marketing and recruiting. We expect G&A expenses to gradually scale as these business activities resume. Additionally, G&A in the fourth quarter included a contra expense of $1 million as we released the bad debt reserve for the potential pandemic losses, which we decided to accrue in the first quarter of 2020.

21:12 For the first quarter of 2021, We expect G&A expenses to be $3.4 to $3.6 million. For the full year 2021, we expect G&A expenses to be $16.4 to $16.8 million as a result of marketing and recruiting increasing during the year. Interest income decreased $800,000 to $200,000 for the quarter and decreased $2.2 million 1.7 million for the year. Lower interest income is due to a steep decline in interest rates year over year. For 2021, we expect interest income to be approximately $25,000 per quarter or $100,000 for the year.

22:05 Miscellaneous income, net of deferred compensation gains, was $500,000 for the quarter. and $3.6 million for the year. For 2021, we expect miscellaneous income to be approximately $750,000 per quarter or $3 million for the year. For 2020, the tax benefit from share-based awards was $12.3 million. For 2021, we estimate based on the current stock price, that our tax benefit associated with share-based awards will be approximately $6.3 million for the first quarter and full year.

22:51 The tax benefit from share-based awards is determined based on the change in value of the share-based awards between grant and issuant dates. Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 18.6% for the quarter as compared to 28.7% in the prior year period. For the full year, ex fundus consolidated tax rate was 14.8% as compared to 20.9% in 2019. For 2021, we expect our tax rate exclusive of the tax benefit from share-based awards to be approximately 27.5% or equal to 2020.

23:44 Moving to our cash flows, operating cash flows were 40.9 million for the quarter and 103.3 million for the year. Capital expenditures were 800,000 for the quarter and 5 million for the year. In 2021, we expect CapEx to be 7 to 8 million. During the year, we distributed $39.8 million to shareholders through dividend payments. The company also utilized $40 million of cash to repurchase shares at an average price of $62.91 per share. As of year-end, the company has $75 million available for stock repurchases under its current program.

24:36 The company ended the year with $243 million in cash and short-term investments. Today, we announced a 5% increase in our quarterly dividend from 19 cents to 20 cents. While we are seeing positive indicators in our underlying business, there remains a degree of uncertainty surrounding how and over what time frame business and litigation activities will return to normal. As a reminder, pandemic-related restrictions had a limited impact on our results in the first quarter of 2020. And approximately 1% of revenues in the quarter were attributed to our German entity, which was divested in April of 2020.

25:24 The combination of these factors will create a challenging year-over-year comparison for the first quarter of 2021. As a result, we expect revenues before reimbursements to grow in the low single digits and EBITDA margin to be approximately flat for the first quarter of 2021 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 and EBITDA margin to be flat to up 30 basis points as compared to 2020. Exponent has a sustainable business model and the fundamentals of our business remain strong. Our quarterly results throughout 2020 demonstrated sequential improvements despite the unprecedented restrictions imposed related to the COVID-19 pandemic. We exited 2020 in a position of financial strength.

26:30 I will now turn the call back to Catherine for closing remarks. Thank you, Rich. While uncertainties related to the pandemic remain ahead of us, society will continue to raise the bar for safety, health, sustainability, and reliability, and clients will continue to seek exponents interdisciplinary solutions. We remain focused on developing and retaining our exceptional talent, ensuring that we are ahead of the curve, and increasing our value in the marketplace by solving our clients' most pressing problems. I am grateful to our team for their hard work, dedication, and resiliency throughout this challenging period. We are well positioned for long-term growth and will continue to deliver for all of our stakeholders.

27:19 Operator, we're ready for questions. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one for questions. And we will take our first question from Toby Sommer with Truist. Thank you. You gave us some good color on the trends in kind of litigation-related work in some variability in the most recent months. How would you describe that on a year-over-year basis? either in the quarter or in one, two, whichever time period you wanted to say.

28:08 Because you gave us color, but I kind of wanted to see what it was numerically as a reference to the prior year. Yeah, and, you know, for the – what we experienced in the full year basis is the litigation work overall being down about 5% for the full year. I think we saw that gap closed in the fourth quarter. It was probably down somewhere in the mid single-digit percentage, 5% to 7%, somewhere in that range. So we did see it come up, but it's still down year over year. Okay, thank you. How is the company positioned from a pricing perspective in what is the hiring posture this year?

29:05 Maybe I'll start off there from talking about what we've seen around the pricing that we're going forward with in 2021. And then Catherine will pick up on the sort of demand environment and how it ties into recruiting. So we You know, as Exponent always does, we have one rate for each of our individual consultants. We evaluate the market demands for those each year in the fourth quarter and put forward our rate changes as of January 1st. You know, we've got some areas that have very strong demand for our people, as we've talked about. You know, we've seen our proactive work growing and increasing.

29:56 We still believe that the demand is there in the litigation market because we're still getting those new engagements at a pretty good clip. It's just that the work hasn't picked up. but still with that, we have clients that are in some challenging situations with their market being down. So we were quite sensitive to that. As a result, our rates were about 1% less of an increase than they were a year ago for our staff. So what happens is that we see that our staff rates for this year increased between, you know, let's call it around 4.5% on a year-over-year basis for those employees.

30:45 A year ago, that was closer to 5.5%, a little bit higher. So those increases go through. Those are blended down by more junior staff that have been hired recently or into the next year, which gets us to the realized rate increases that that we have laid out for the year of being in between 2% and 2.5%. So a little bit lower, still price increases in the market, but we're being sensitive to certain areas. Yeah, and I can pick up there, Toby, with regard to sort of the talent and recruiting side of We certainly feathered our foot on the gas pedal when COVID first hit back in Q2 and have seen steady, gradual increases in our recruiting activities through Q3, through Q4, and we're really looking at it continuing to accelerate that activity as we get into 2021. It's focused You know, in the areas of business strength, right, it's about hiring the right people in the right areas. So it's the same philosophy.

32:01 You know, some of the areas that we're particularly focused on, you know, we're focused on the pharma space at both the junior and the senior level. We continue to focus in the human factors space with the opportunities there. The data sciences space, particularly when you think about our opportunities around wearables and our opportunities around life sciences, as well as the integrity management side. All of these things require bringing on talent, more talent around the data sciences area. The engineering disciplines that are in our areas of strength. Think about battery-related engineering disciplines. Think about... the disciplines related to automated vehicles and vehicle safety.

32:49 These are the areas that are driving the business where we're seeing the growth, and so we're focused on that. It's been interesting in the virtual space. We've been able to reach more grad students than ever before, quite frankly, through our virtual events. So as we move forward, we will certainly be returning to in-person recruiting in terms of actually meeting our recruits in the flesh. But a lot of learnings that I think we'll be able to carry over in terms of really getting our messaging out there around the opportunities that we have and getting that out to that talent base because there's no doubt based on what we're seeing that the demand for engineering and scientific expertise is there.

33:35 and we're seeing that and there are lots of very high quality students that are coming out of those programs and being referred to us. Thank you. Last question for me. The accumulation of cash on the balance sheet, while great because it indicates you're very profitable, it's also dampening returns on equity and invested capital. Do you expect that to continue? No, I mean, we remain committed over the long term here or near term to reduce that cash balance. The goal still remains to work that down in a prudent way to something that might be in the $50 to $70 million on the balance sheet that will likely, through dividends and repurchases, be over Thank you very much.

34:29 We will take our next question from Andrew Nicholas with William Blair. Hi, good afternoon. We're almost a year out from the start of the pandemic. I'm wondering if you could speak to any competitive disruption you've seen in your markets. I realize your competitive set is relatively fragmented, but is there anything you could say about the strength of your competitors today versus pre-pandemic? I guess I'm just curious to what extent Exxon's relative scale has proven a competitive advantage in the current environment and what it could mean for future demand capture.

35:22 Yeah, thanks, Andrew. You know, as you know, the competitive landscape for our services is fragmented. So we are seeing different things in different spaces. You know, but there's no doubt that as we have engaged with folks in the technical community, you know, we engage with our competitors, you know, as we are out at at conferences, you know, these are being done virtually. But we are definitely finding opportunities from the standpoint of, let's say, the senior recruiting side. And we've capitalized on a number of those opportunities this year in terms of being able to hire principal-level talent that is, you know, is coming out of some of our competitors.

36:12 And so we've been successful in attracting those. That's not an easy thing to do. I think there are multiple contributors to that, but I think for sure that Exponent's relative success and the strength of the company and the forward-looking opportunities that we have are a big part of the conversations that we're having with those folks as we talk to them. And so I do think that there's been an opportunity for us to gather talent and simply represent the durability and the resilience of the business. We've been in business for over 50 years. We continue to have strong market drivers, and we've really been putting out that message, and I think that competitors are seeing that, and we've been able to capitalize on some of those trends.

37:11 Thank you. And then for my follow-up, you talked in the release about seeing growth in your proactive business this year, despite having one less week in the calendar and the divestiture. Obviously, that's quite encouraging. I'm wondering, on the proactive side, what's your sense of where client budgets sit for this type of work heading into next year? Any sense of an increased wave of R&D and investment? in 2021, now that some of your larger clients are presumably past a lot of the COVID-related uncertainty? And then, you know, relatedly, is the expectation that Proactiv will, you know, materially outperform Reactive in 2021? Thank you. Yeah, yeah, thanks. You know, it varies to some extent across industries, right? When you think about the impact that COVID had and then what the sort of forward-looking outlook is.

38:10 So if I think about, you know, if I think about the utility industry, we're pretty independent of the COVID situation, right? That's kind of a one extreme example where, you know, the drivers are around, you know, drivers around climate uncertainty, drivers just around safety and reliability of power delivery, right? So you're not seeing an impact there, but you can look to, let's say, the life sciences side of the equation. And early on there in the pandemic, there were real pullbacks around things like elective surgeries and things like that. And so we saw those budget cycles really have an impact somewhat early on. But what we're seeing as we go forward is to some extent the release of that. Those elective surgeries are happening again to a large extent. That is driving the usual issues around regulatory requirements, regulatory strategy. and things like that, the growing, you know, the impending deadline around medical device regulation in Europe, you know, looking at real-world evidence around the pharma space as these technologies in life sciences become more and more complex. So those drivers are beginning to really take over again, and

39:40 we're not seeing nearly the sort of impact of those budget cycles. So, you know, and you think about electronics. We were prevented from doing a lot of that work in the laboratory early on. There were some budgetary impacts there, but as they look forward to their next generation of innovation and devices, we are seeing a return to the level of activity around the design consulting. This is something we do in the electronic space as well as the medical device space. So all in all, these are some strong drivers that are coming back in on the proactive side. In terms of that sort of balance of growth between proactive and reactive, there's no doubt that there's increasing – there are trends that are going to drive the litigation side further along, sort of independent of COVID. Some of these things are advanced driver assistance systems in the automotive arena.

40:45 You can think about the toxic toward an environmental arena where they're looking at things like perfluorinated substances and a variety of different things that impact that. We are positioning ourselves and seeing increased inquiries and retentions around those kinds of areas on the litigation side. So I do believe sort of independent of the COVID effect, we will continue to grow that reactive side of the business. but the proactive side for sure grew faster during 2020. We believe over time and on average that is likely to continue to grow at a faster rate for reasons that I've mentioned but really both sides of the house we anticipate continuing to grow long term.

41:37 Really helpful. Thank you. You're welcome. We will take our next question from Sam England with Barenburg. Hi, guys. Thanks for taking the questions. And the first one, do you see any opportunities in the government space under the new Biden administration? I know government's been a small portion of revenues for you historically, but do you think there's any opportunities in areas like environmental work under that administration? Yeah, with regard to the government as a client, I mean, we certainly, as I mentioned, have seen, for example, the wearables work with the Army and Navy. You know, we believe that that actually, you know, we've been delivering well on that and are seeing opportunities for potential expansion and are actually engaged with that client, you know, in discussions about that.

42:33 you know in terms of let's say the environmental space you know or the regulatory space those are areas where we are typically you know our client base is typically sitting within the industry as you said as opposed to the government side so I think what we will see and we're already seeing is is a raising of the bar from a regulatory perspective, whether that's around environmental regulation, whether that's around safety-related regulations, or let's say things like automated vehicles or pharmaceuticals. I mean, we just had news this morning about potential metallic contaminants in baby food.

43:18 I mean, there are a number of things that are going to drive that regulatory bar higher and higher. So that, of course, creates opportunity for us. But in terms of the government per se as a client, you know, we don't have to anticipate that that is going to grow in a way, you know, nearly in the way that we would see the opportunities on the industrial side. Great, thanks. And then I was just wondering what you're seeing in Asia at the moment. You've obviously talked about the opportunity over there and there's been a lot quicker in many of the Asian countries to come out the other side of the pandemic. So, you know, do you see a bigger opportunity there over the next couple of years? Yeah, so Asia has been, you know, was part of the strength in the fourth quarter.

44:05 And we think to some extent that that will certainly continue going into 2021. Part of what's been going on very recently with the strength there really relates to, in some sense, our U.S. clients' inability to travel. That's work in the consumer electronics space, for example, in terms of qualification around issues with suppliers and a variety of advisory-level activities. We do think there's an opportunity to to continue that sort of advisory level service that we're providing, yet even going past the COVID pandemic. You know, like we think we're really demonstrating our value with regard to that, and that's an opportunity for the clients to really continue to leverage that. Another thing I'll bring up with regard to Asia is sort of the diversification there. You know, there are opportunities internationally that we've talked about, with regard to some of the major infrastructure projects and things like that. Some of that work is, in fact, centered around our Asia. There's some activity there. So I think that will continue to be a growth driver not only in Asia but really for our broader sort of global operations in addition to our domestic operations.

45:33 Great, thanks. And then maybe just one more for Rich. You noted that, you know, costs will ramp up as people begin to return to the office, but do you think there's any sustainable improvement that you can hold on to in areas like, you know, travel or facilities expenses? I do think that, you know, it's likely that people will decide to do some of their activities on a remote basis or virtually going forward. But I think that where we might save in travel and meals in an area, at the same time, we're looking at how do we make sure that we have the best technology and platforms for being successful in those virtual environments as well. I view that at this point in time that the cost will balance out that we will make some investments to get higher returns on the virtual environment that might be able to be offset by reductions in cost in the physical environment. But overall, I think I'm viewing that there isn't a major long-term savings to come out of it, but I think there is and improvement in the return on our investment that we should be able to get over that

47:04 time. Okay, great. Thanks very much, guys. And we'll take our next question from Mark Reddick with Sidoti. Good evening, everyone. Hi, Mark. Hi, Mark. I wanted to touch a little bit on a couple of things that you mentioned. I wanted to circle back on the user studies and how we should think about maybe how between social distancing and being relaxed in certain jurisdictions and locations, and maybe what your thoughts are around the effectiveness of vaccine rollout, how that return might play out if there's kind of a bit of a roadmap that you currently have in mind or what we should be looking for as to what could open up the return of user studies.

47:57 Yeah, I think there is some optimism that as we look forward that we will be able move forward with a number of the studies that we have lined up but what I would say is that is in its early development I think things will change over the next several weeks to a month or two and things should be getting better as hopefully as we go into late first quarter by the end of the second quarter but at this time just Breaking out of the stay-at-home orders, it's still remained at a limited level early in the first quarter, but things are lining up on a positive basis going forward.

48:54 So it seems as though the interest in user studies from your customers is there. It's just a matter of when you get to get started with it. Is that a fair characterization? Absolutely, that is the case. You know, and we have adapted and been able to do certain activities in the areas. Moving forward with more community, you know, higher volume out in the community, interactions on them have been more limited over the last couple of months, but are, you know, planned and expected to be able to move forward within a few months.

49:42 Okay, that's good. And then one thing I was sort of curious about, I mean, I know that you've made mention about some of the things that are tied to the virus, and I'm not sure if it's easy to necessarily parse this out, but I was wondering if there was sort of a ballpark way we should think about the things that you're working on that are related to the virus as a percentage of revenue. I know that can be a little tricky, but maybe a general ballpark. Yeah. Yeah. So yeah, we've seen an increase across the three quarters. We were seeing just over 1% back in Q1. We saw Revenue is related to it. This includes our work for the Army and Navy on wearables, but it's work in disinfectants as well as contact tracing programs and occupational health and safety and across the board testing programs.

50:38 All of those things we touched. In the fourth quarter, that was about 2.5% to 3% of revenues. So it has been increasing over that period of time. A big step function came with that wearables project in the fourth quarter, which made up maybe about a half of that revenue. So we did make a little progress on the others and then layered that on top. And so it brought the full year about 1% of our revenues in 2020 were some way related to the pandemic. Okay. And then one last one for me, I guess.

51:23 I was wondering if you could talk a little bit about going back to the litigation front. I think, Catherine, I think you had mentioned in prior calls before about sort of how that sort of lays out when you, you know, whether things are being put on the docket or what have you. I just wanted to sort of just maybe give a broad overview as to maybe what you're seeing in that process and maybe if it's just certain types of You mentioned international, which is really helpful. I just wanted to see if there was sort of any little more that you could add as far as how we could sort of see how that plays out going forward. Yeah, yeah. So there are a few things to sort of mention. I mean, this type of what we're seeing is consistent with the fact that this type of work tends to come in kind of in boluses.

52:15 That's the way these litigation projects work. So, for example, when you first get brought on, there's a bolus of activity when you do your initial workup and your inspection, right? And then you might kind of ease back. Then you've got a big bolus when you're doing your analysis and putting your expert report together. We saw that. We saw a number of those types of activities unlock for some pretty substantial matters and multi-district litigations and things like that when we were in Q4 because they were anticipating – were anticipating trial dates in sort of the early 2021 timeframe. You know, and as we saw the increases in COVID cases that came later in the year, and given what people were anticipating relative to COVID in January, you know, then we saw those dates push, have a tendency to push again.

53:05 You know, the judges are working really hard to try to hold the trial dates, but, you know, so it unlocks a bolus of activity, and then They have to push the date. They simply have to because they can't bring a jury in, right? And so this is part of what we're seeing in these fits and starts. But it does vary to some extent across geographies, as you mentioned, even within the domestic litigation portfolio. States where they tend to be more conservative with regard to the stay-at-home orders, the courts are generally closed. and so forth. and we all know the type of uncertainty that exists around the vaccine at this point.

54:14 They're doing their best on the rollout side of that, but there are still uncertainties vis-a-vis how quickly that can be rolled out, the new virus variants, the lifting of the restrictions, et cetera. So we're tracking it closely. If we kind of look at the trend line over time, from Q2 to Q3 to Q4, We're having that steady increase. We think that Q1 can kind of continue on that path. Our best hope and what we truly believe is that that line will continue to move upward as we move through the year. Okay, great. Thank you very much. You're welcome. And that does conclude today's question and answer session.

55:05 We thank you for your participation and for joining today's call. Have a wonderful day. You may now disconnect.