EXPONENT INC (EXPO)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this Annual Report on Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2023 and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2023.

OVERVIEW

Exponent is an engineering and scientific consulting firm providing solutions to complex problems. Exponent's interdisciplinary organization of scientists, physicians, engineers, and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today. The firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes, ensure the safety and health of their users, and address the challenges of sustainability.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the assumptions, judgments and estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on our critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements.

Revenue recognition. We derive our revenues primarily from professional fees earned on consulting engagements, fees earned for the use of our equipment and facilities, as well as reimbursements for outside direct expenses associated with the services that are billed to our clients.

Substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements. For time and material and fixed-price service projects, revenue is generally recognized as the services are performed. For substantially all of our fixed-price service engagements, we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract. Our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects. We believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts.

Management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period. These judgments and estimates include an assessment of the estimate as to the total effort required to complete fixed-price projects.

Estimating the allowance for contract losses and doubtful accounts. We make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process, we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers we recognize allowances for contract losses and doubtful accounts taking into consideration factors such as historical write-offs, customer concentration, customer creditworthiness, current and forecasts of future economic conditions, and aging of amounts due.

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The following table sets forth, for the periods indicated, the percentage of revenues of certain items in our consolidated statements of income and the percentage increase (decrease) in the dollar amount of such items year to year:

EXECUTIVE SUMMARY

Revenues and revenues before reimbursements for 2024 increased 4% as compared to the prior year. Our focus on effective resource management drove significant improvement in utilization. Demand for our proactive services strengthened during the year driven by the consumer electronics and utilities industries. We saw increased activity in user research studies and product development consulting in the consumer electronics sector and strong demand for our risk-related work in utilities. Growth in reactive services was supported by strong activity in the utilities and medical device industries. With increasing global demand for energy and the related investments in infrastructure, we are actively involved in failure analysis and dispute-related projects around the world. Our multidisciplinary team of scientists and engineers continues to provide critical data, analyses and insights for our clients.

Society is raising the bar for safety, health, sustainability and reliability, and clients are increasingly seeking our interdisciplinary proactive solutions. As our suite of offerings and key markets expands, so does the demand for our multidisciplinary services. We continue to expand our client relationships and enhance our reputation and capabilities across the firm. As innovation and technology become increasingly complex, the critical nature of our insights uniquely positions Exponent to address our clients’ needs throughout the product lifecycle.

Net income increased 9% to $109,002,000 during 2024 as compared to $100,339,000 during 2023. Diluted earnings per share increased to $2.11 for 2024 as compared to $1.94 for 2023. The increase in profitability was due to our continued efforts to better align resources with demand. Net income and diluted earnings per share for 2024 and 2023 benefited from the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $2,793,000 during 2024 as compared to $3,620,000 during 2023. The decrease in the excess tax benefit was due to a smaller increase in value of our common stock between the grant date and the release date for the restricted stock units released during 2024 as compared to 2023.

We remain focused on building our world-class engineering and scientific team to position Exponent at the forefront of innovation and meet the ever-changing needs of our clients and the market. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value.

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OVERVIEW OF THE YEAR ENDED January 3, 2025

Our revenues consist of professional fees earned on consulting engagements, fees for use of our equipment and facilities, and reimbursements for outside direct expenses associated with the services performed that are billed to our clients.

We operate on a 52-53 week fiscal year with each year ending on the Friday closest to December 31st. Fiscal period 2024 included 53 weeks of activity and ended on January 3, 2025. Fiscal period 2023 included 52 weeks of activity and ended on December 29, 2023. Fiscal period 2022 included 52 weeks of activity and ended on December 30, 2022. Fiscal period 2025 is 52 weeks and will end on January 2, 2026.

Billable hours were 1,495,000 during both 2024 and 2023. Our utilization increased to 73% for 2024 as compared to 69% for 2023. The increase in utilization during 2024 was due to our efforts to align resources with demand. Technical full-time equivalent employees decreased 8% to 967 for 2024 as compared to 1,047 for 2023.

FISCAL YEARS ENDED January 3, 2025 AND December 29, 2023

Revenues

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billing rates and an increase in billable hours. Growth in this segment during 2024 was primary driven by demand for our services across the consumer products and utilities industries. In the consumer electronics sector we advised clients on projects related to digital health and wearables, such as advanced sensors in health applications and engagements in augmented and virtual reality. During 2024, billable hours for this segment increased by 1% to 1,199,000 as compared to 1,188,000 during 2023. Utilization for this segment increased to 75% for 2024 as compared to 70% for 2023 due to our continued efforts to align resources with demand. Technical full-time equivalent employees in this segment decreased 7% to 759 during 2024 as compared to 818 for 2023.

The decrease in revenues from our Environmental and Health segment was due to a decrease in billable hours partially offset by an increase in billing rates. During 2024, billable hours for this segment decreased by 4% to 296,000 as compared to 307,000 during 2023. The decrease in billable hours was related to headwinds in the chemical and life sciences sectors. Utilization for this segment increased to 67% for 2024 as compared to 64% for 2023 due to our continued efforts to align resources with demand. Technical full-time equivalents decreased 9% to 208 during 2024 as compared to 229 for 2023.

Revenues are primarily derived from services provided in response to client requests or events that occur without notice and engagements are generally terminable or subject to postponement or delay at any time by our clients. As a result, backlog at any particular time is small in relation to our quarterly or annual revenues and is not a reliable indicator of revenues for any future periods.

Compensation and Related Expenses

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The increase in compensation and related expenses during 2024 was due an increase in payroll expense, an increase in bonus expense and an increase in stock-based compensation. During 2024, payroll expense increased $3,771,000 due to the impact of our annual salary increase partially offset by a decrease in technical full-time equivalent employees. During 2024, bonus expense increased by $5,096,000 due to a corresponding increase in our bonus pool. Stock-based compensation increased $1,150,000 during 2024 due to an increase in unvested restricted stock unit grants. We expect compensation expense, excluding the change in value of deferred compensation plan assets, to increase as we selectively add new talent and adjust compensation to market conditions.

Other Operating Expenses

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses was primarily due to an increase in occupancy expense of $3,437,000, an increase in information technology related expenses of $839,000 and an increase in depreciation expense of $773,000. Our land lease with the State of Arizona was extended on June 19, 2024. This extension resulted in additional non-cash rent expense of approximately $2,316,000 during 2024. The remainder of the increase in occupancy expense was due to investments in our office and laboratory facilities. The increases in depreciation and information technology related expenses were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent and continue to make investments in our corporate infrastructure.

Reimbursable Expenses

The amount of reimbursable expenses will vary from year to year depending on the nature of our projects. The increase in reimbursable expenses as compared to 2023 was due to an increase in proactive projects for the consumer electronics sector.

General and Administrative Expenses

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The decrease in general and administrative expenses during 2024 was primarily due to a decrease in outside consulting expenses of $1,304,000, a decrease in travel and meals of $844,000 and a decrease in personnel expenses of $673,000. Outside consulting decreased primarily due to activity associated with content creation for our external website during 2023. The decrease in travel and meals was due to the decrease in technical full-time equivalent employees and a firm-wide principals' meeting which was held in 2023.We did not have any firm-wide meetings during 2024. The decrease in personnel expenses was due to lower relocation and recruiting costs. We expect general and administrative expenses to increase as we expand our business development and staff development initiatives.

Operating Income

The increase in operating income for our Engineering and Other Scientific segment during 2024 as compared to 2023 was due to an increase in revenues and an increase in utilization. The increase in revenues was due to an increase in billing rates and an increase in billable hours driven by demand for our services across the consumer products and utilities industries. The increase in utilization was due to our efforts to align resources with demand. The increase in operating income for our Environmental and Health segment was due to an increase in utilization due to our efforts to align resources with demand.

Certain operating expenses are excluded from our measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, corporate, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts. The increase in corporate operating expenses was due to an increase in stock-based compensation and an increase in the provision for contract losses and doubtful accounts.

Other Income

Other income, net consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The increase in other income, net was primarily due to an increase in interest income of $2,851,000 due to an increase in cash and cash equivalents.

Income Taxes

The excess tax benefit associated with stock-based awards decreased to $2,793,000 during 2024 as compared to $3,620,000 during 2023. The decrease in the excess tax benefit was due to a smaller increase in the value of our common stock between the grant date and the release date for the restricted stock units released in 2024 as compared to restricted stock units released in 2023. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.9% and 28.8% for 2024 and 2023, respectively. The decrease in our effective tax rate, excluding the

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impact of the excess tax benefit, was primarily due to a re-measurement that reduced the value of our deferred tax assets in connection with relocating one of our offices to a location designated as tax exempt for all state and local taxes during 2023.

LIQUIDITY AND CAPITAL RESOURCES

We financed our business in 2024 through available cash and cash flows from operating activities. We invest our excess cash in cash equivalents. As of January 3, 2025, our cash and cash equivalents were $258,901,000 as compared to $187,150,000 at December 29, 2023. We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next 12 months.

Generally, our net cash provided by operating activities is used to fund our day to day operating activities. First quarter operating cash requirements are generally higher due to payment in the first quarter of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is collections from our clients. Our primary uses of cash from operating activities are for employee related expenditures, leased facilities, taxes, and general operating expenses.

The decrease in net cash used in investing activities during 2024 as compared to 2023 was due to a decrease in capital expenditures primarily due to leasehold improvements during 2023 associated with our office and lab space in Philadelphia.

The decrease in net cash used in financing activities during 2024 as compared to 2023 was primarily due to a decrease in repurchases of our common stock, a reduction in payroll taxes for restricted stock units, and an increase in exercise of stock-based payment awards, partially offset by an increase in dividends.

We lease office, laboratory, and storage space in 13 states and the District of Columbia, as well as in China, Germany, Hong Kong, Ireland, Singapore, Switzerland, and the United Kingdom under non-cancellable operating lease arrangements that expire at various dates through 2033. On June 19, 2024, we entered into an agreement with the State of Arizona to extend our land lease for 15 years beginning on January 17, 2028. We are currently obligated to make payments under the lease of $1,009,000 per year, which obligation will continue at that level until January 16, 2028. Beginning on January 17, 2028, our payments under the lease will increase to approximately $6,183,000 per year for the 15-year extension term with adjustments to the annual rent payment in 2033 and 2038 based on the consumer price index. As a result of this extension, we added an additional right-of-use asset in exchange for an operating lease liability of $48,683,000 during the second quarter of 2024. As of January 3, 2025, the value of our obligations under operating leases was $81,477,000. See Note 12 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations. The value of our non-cancellable unconditional purchase obligations was not material at January 3, 2025.

We expect to continue our investing activities, including capital expenditures. Furthermore, cash reserves may be used to repurchase common stock under our stock repurchase programs, pay dividends, procure facilities and equipment or strategically acquire professional service firms that are complementary to our business.

We maintain nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Vested amounts due under the plans of $112,646,000 were recorded as a long-term liability on our consolidated balance sheet at January 3, 2025. Vested amounts due under the plans of $14,976,000 were recorded as a current liability on our consolidated balance sheet at January 3, 2025. Company assets that are designated to fund the benefits under the plans are held in a rabbi trust and are subject to the claims of our creditors. As of January 3, 2025, invested amounts under the plans of $110,259,000 were recorded as a non-current asset on our consolidated

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balance sheet. As of January 3, 2025, invested amounts under the plans of $17,578,000 were recorded as other current assets on our consolidated balance sheet.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Non-GAAP Financial Measures

Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (“Non-GAAP”) financial measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. We regard EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

The following table shows EBITDA as a percentage of revenues before reimbursements for 2024 and 2023:

The increase in EBITDA as a percentage of revenues before reimbursements during 2024 as compared to 2023 was primarily due to the increase in utilization and a decrease in general and administrative expenses, partially offset by an increase in other operating expenses. Our utilization increased to 73% during 2024 as compared to 69% during 2023. The increase in utilization was due to demand for proactive services in the consumer electronics and utilities

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industries, demand for reactive services in the utilities and medical device industries and our efforts to align resources with demand.

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for 2024 and 2023:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2022 and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2022.

OVERVIEW

Exponent is an engineering and scientific consulting firm providing solutions to complex problems. Exponent's interdisciplinary organization of scientists, physicians, engineers, and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today. The firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes, ensure the safety and health of their users, and address the challenges of sustainability.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the assumptions, judgments and estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on our critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements.

Revenue recognition. We derive our revenues primarily from professional fees earned on consulting engagements, fees earned for the use of our equipment and facilities, as well as reimbursements for outside direct expenses associated with the services that are billed to our clients.

Substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements. For time and material and fixed-price service projects, revenue is generally recognized as the services are performed. For substantially all of our fixed-price service engagements, we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract. Our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects. We believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts.

Management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period. These judgments and estimates include an assessment of the estimate as to the total effort required to complete fixed-price projects.

Estimating the allowance for contract losses and doubtful accounts. We make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process, we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers we recognize allowances for contract losses and doubtful accounts taking into consideration factors such as historical write-offs, customer concentration, customer creditworthiness, current and forecasts of future economic conditions, and aging of amounts due.

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The following table sets forth, for the periods indicated, the percentage of revenues of certain items in our consolidated statements of income and the percentage increase (decrease) in the dollar amount of such items year to year:

EXECUTIVE SUMMARY

Revenues for 2023 increased 5% and revenues before reimbursements increased 7% as compared to the prior year. The increase in revenues was due to an increase in billable hours and an increase in billing rates. Our multidisciplinary team of scientists and engineers continues to provide critical data, analyses and insights for our clients as society raises expectations for safety, health and the environment. Growth during 2023 was driven by our reactive business, which experienced strong demand for failure investigations and dispute-related work. Demand for our services across the transportation and energy sectors was strong during 2023. Proactive revenues for the consumer electronics sector declined during 2023 due to ongoing industry headwinds and product lifecycle timing. The remainder of our proactive portfolio grew during 2023 primarily driven by safety-related work evaluating the impacts of chemicals on human health and the environment.

Society is raising the bar for safety, health, sustainability and reliability, and clients are increasingly seeking our interdisciplinary proactive solutions. As our suite of offerings and key markets expands, so does the demand for our multidisciplinary services. We continue to expand our client relationships and enhance our reputation and capabilities across the firm. As innovation and technology become increasingly complex, the critical nature of our insights uniquely positions Exponent to address our clients’ needs throughout the product lifecycle.

Net income was $100,339,000 during 2023 as compared to $102,330,000 during 2022. Diluted earnings per share decreased to $1.94 for 2023 as compared to $1.96 for 2022. Net income and diluted earnings per share for 2023 and 2022 benefited from the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $3,620,000 during 2023 as compared to $5,829,000 during 2022. The decrease in the excess tax benefit was due to a smaller increase in value of our common stock between the grant date and the release date for the restricted stock units released during 2023 as compared to 2022.

We remain focused on building our world-class engineering and scientific team to position Exponent at the forefront of innovation and meet the ever-changing needs of our clients and the market. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value.

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OVERVIEW OF THE YEAR ENDED December 29, 2023

Our revenues consist of professional fees earned on consulting engagements, fees for use of our equipment and facilities, and reimbursements for outside direct expenses associated with the services performed that are billed to our clients.

We operate on a 52-53 week fiscal year with each year ending on the Friday closest to December 31st. Fiscal period 2023 included 52 weeks of activity and ended on December 29, 2023. Fiscal period 2022 included 52 weeks of activity and ended on December 30, 2022. Fiscal period 2021 included 52 weeks of activity and ended on December 31, 2021. Fiscal period 2024 is 53 weeks and will end on January 3, 2025.

During 2023, billable hours increased 2% to 1,495,000 as compared to 1,465,000 during 2022. Our utilization decreased to 69% for 2023 as compared to 74% for 2022. The decrease in utilization during 2023 was due to an increase in technical full-time equivalent employees. Technical full-time equivalent employees increased 10% to 1,047 for 2023 as compared to 955 for 2022. We continue to selectively hire key talent to expand our capabilities.

FISCAL YEARS ENDED December 29, 2023 AND December 30, 2022

Revenues

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hours and an increase in billing rates. Growth in this segment during 2023 was primary driven by demand for our services across the transportation and energy sectors. During 2023, billable hours for this segment increased by 3% to 1,188,000 as compared to 1,153,000 during 2022. Utilization for this segment decreased to 70% for 2023 as compared to 75% for 2022 due to an increase in technical full-time equivalent employees. Technical full-time equivalent employees in this segment increased 11% to 818 during 2023 as compared to 736 for 2022.

The increase in revenues from our Environmental and Health segment was due to an increase in billing rates offset by a decrease in billable hours. Growth in this segment during 2023 was primarily driven by safety-related work evaluating the impacts of chemicals on human health and the environment. During 2023, billable hours for this segment decreased by 2% to 307,000 as compared to 312,000 during 2022. Utilization for this segment decreased to 64% for 2023 as compared to 69% for 2022. Technical full-time equivalents increased 5% to 229 during 2023 as compared to 219 for 2022. The decrease in utilization was due to the 5% increase in technical full-time equivalent employees.

Revenues are primarily derived from services provided in response to client requests or events that occur without notice and engagements are generally terminable or subject to postponement or delay at any time by our clients. As a result, backlog at any particular time is small in relation to our quarterly or annual revenues and is not a reliable indicator of revenues for any future periods.

Compensation and Related Expenses

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The increase in compensation and related expenses during 2023 was due to a change in the value of assets associated with our deferred compensation plan and an increase in wages and fringe benefits. During 2023, deferred compensation expense increased $28,502,000 with a corresponding increase to other income, net, as compared to the prior year due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $14,315,000 during 2023 as compared to a decrease in the value of the plan assets of $14,187,000 during 2022. Wages increased $21,084,000 and fringe benefits increased $4,888,000 during 2023 due to the impact of our annual salary increase and increase in number of employees.

Other Operating Expenses

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses was primarily due to an increase in occupancy expense of $2,037,000, an increase in depreciation expense of $1,837,000 and an increase in information technology related expenses of $1,715,000. The increase in occupancy expenses was due to growth in technical full-time equivalent employees and the transition back to our offices from a remote work environment. The increases in depreciation and information technology related expenses were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent and continue to make investments in our corporate infrastructure.

Reimbursable Expenses

The amount of reimbursable expenses will vary from year to year depending on the nature of our projects. The decrease in reimbursable expenses as compared to 2022 was due to a decrease in proactive projects for the consumer electronics sector.

General and Administrative Expenses

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The increase in general and administrative expenses during 2023 was primarily due to an increase in travel and meals of $953,000, an increase in bad debt expense of $402,000 and an increase in marketing and business development expenses of $313,000, partially offset by a decrease in outside consulting expenses and other professional services of $736,000. The increase in travel and meals was due to the continued easing of COVID-19 pandemic-related business and travel restrictions. The increase in bad debt expense was due to an increase in write-offs. The increase in marketing and business development expenses was due to an increase in our business development activities. The decrease in outside consulting expenses and other professional services was due a reduction in activity associated with developing content for our external website.

Operating Income

The increase in operating income for our Engineering and Other Scientific segment during 2023 as compared to 2022 was due to an increase in revenues, partially offset by an increase in expenses. The increase in revenues was due to an increase in billable hours and an increase in billing rates. Growth was driven by demand for our services across the transportation and energy sectors. The increase in expenses was due to an 11% increase in technical full-time equivalent employees and investments in our corporate infrastructure.

The increase in operating income for our Environmental and Health segment was due to an increase in revenues. The increase in revenues was due to an increase in billing rates, partially offset by a reduction in billable hours. Growth was driven by evolving regulatory requirements which drove safety-related engagements evaluating the impacts of chemicals on human health and the environment.

Certain operating expenses are excluded from our measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

The increase in corporate operating expenses during 2023 as compared to 2022 was primarily due to an increase in deferred compensation expense and an increase in the costs associated with our human resources, finance, information technology and business development groups. During 2023, deferred compensation expense increased $28,502,000, with a corresponding increase to other income, net, as compared to the prior year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $14,315,000 during 2023 as compared to a decrease in the value of plan assets of $14,187,000 during 2022.

Other Income

Other income consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our Silicon Valley and Natick facilities. The increase in other income was primarily due to the change in value of assets associated with our deferred compensation plan and a change in the realized gain and loss on foreign exchange partially offset by an increase in interest income and an increase in rental income.

During 2023, other income increased $28,502,000 with a corresponding increase to deferred compensation expense as compared to 2022 due to the change in value of assets associated with our deferred compensation plan. This increase

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consisted of an increase in the value of the plan assets of $14,315,000 during 2023 as compared to a decrease in the value of the plan assets of $14,187,000 during 2022. During 2023, other income decreased $781,000 as compared to 2022 due to realized gain and loss on foreign exchange. This decrease consisted of a realized loss on foreign exchange of $259,000 during 2023 as compared to a realized gain on foreign exchange of $522,000 during 2022. During 2023, interest income increased by $5,054,0000 due to higher interest rates. During 2023, rental income increased $433,000 as compared to 2022 due to the addition of an additional tenant in our Natick facility and an increase in rent.

Income Taxes

The increase in our effective tax rate was due to a decrease in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $3,620,000 during 2023 as compared to $5,829,000 during 2022. The decrease in the excess tax benefit was due to a smaller increase in the value of our common stock between the grant date and the release date for the restricted stock units released in 2023 as compared to restricted stock units released in 2022. Excluding the impact of the excess tax benefit, the effective tax rate would have been 28.8% and 27.0% for 2023 and 2022, respectively. The increase in our effective tax rate, excluding the impact of the excess tax benefit, was primarily due to the re-measurement of our deferred tax assets in connection with relocating one of our offices to a location designated as tax exempt for all state and local taxes and a decrease in our foreign rate benefit.

LIQUIDITY AND CAPITAL RESOURCES

We financed our business in 2023 through available cash and cash flows from operating activities. We invest our excess cash in cash equivalents. As of December 29, 2023, our cash and cash equivalents were $187,150,000 as compared to $161,458,000 at December 30, 2022. We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next 12 months.

Generally, our net cash provided by operating activities is used to fund our day-to-day operating activities. First quarter operating cash requirements are generally higher due to payment of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is cash collections from our clients. Our primary uses of cash from operating activities are for employee-related expenditures, leased facilities, taxes, and general operating expenses.

The increase in net cash used in investing activities during 2023 as compared to 2022 was due to an increase in capital expenditures primarily due to leasehold improvements associated with our new operating lease for office and lab space in Philadelphia.

The decrease in net cash used in financing activities during 2023 as compared to 2022 was primarily due to a decrease in repurchases of our common stock and a reduction in payroll taxes for restricted stock units, partially offset by an increase in our quarterly dividend payment.

We lease office, laboratory, and storage space in 13 states and the District of Columbia, as well as in China, Germany, Hong Kong, Ireland, Singapore, Switzerland, and the United Kingdom under non-cancellable operating lease arrangements that expire at various dates through 2033. As of December 29, 2023, the value of our obligations under operating leases was $28,261,000. See Note 12 of our Notes to Consolidated Financial Statements for additional

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information regarding our lease obligations. The value of our non-cancellable unconditional purchase obligations was not material at December 29, 2023.

We expect to continue our investing activities, including capital expenditures. Furthermore, cash reserves may be used to repurchase common stock under our stock repurchase programs, pay dividends, procure facilities and equipment or strategically acquire professional service firms that are complementary to our business.

We maintain nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Vested amounts due under the plans of $103,398,000 were recorded as a long-term liability on our consolidated balance sheet at December 29, 2023. Vested amounts due under the plans of $13,166,000 were recorded as a current liability on our consolidated balance sheet at December 29, 2023. Company assets that are designated to fund the benefits under the plans are held in a rabbi trust and are subject to the claims of our creditors. As of December 29, 2023, invested amounts under the plans of $101,169,000 were recorded as a non-current asset on our consolidated balance sheet. As of December 29, 2023, invested amounts under the plans of $14,018,000 were recorded as other current assets on our consolidated balance sheet.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Non-GAAP Financial Measures

Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (“Non-GAAP”) financial measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. We regard EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

The following table shows EBITDA as a percentage of revenues before reimbursements for 2023 and 2022:

The decrease in EBITDA as a percentage of revenues before reimbursements during 2023 as compared to 2022 was primarily due to the decrease in utilization and an increase in other operating expenses. Our utilization decreased to 69% during 2023 as compared to 74% during 2022. The decrease in utilization was due to a 10% increase in technical full-time equivalent employees and historically strong utilization during 2022. Other operating expenses increased

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during 2023 due to an increase in technical full-time equivalent employees and investments in our corporate infrastructure.

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for 2023 and 2022:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2021 and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

OVERVIEW

Exponent is an engineering and scientific consulting firm providing solutions to complex problems. Exponent's interdisciplinary organization of scientists, physicians, engineers, and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today. The firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes, ensure the safety and health of their users, and address the challenges of sustainability.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts have a potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the assumptions, judgments and estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on our critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements.

Revenue recognition. We derive our revenues primarily from professional fees earned on consulting engagements, fees earned for the use of our equipment and facilities, as well as reimbursements for outside direct expenses associated with the services that are billed to our clients.

Substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements. For time and material and fixed-price service projects, revenue is generally recognized as the services are performed. For substantially all of our fixed-price service engagements, we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract. Our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects. We believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts.

Management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period. These judgments and estimates include an assessment of the estimate as to the total effort required to complete fixed-price projects.

Estimating the allowance for contract losses and doubtful accounts. We make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process, we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers we recognize allowances for contract losses and doubtful accounts taking into consideration factors such as historical write-offs, customer concentration, customer creditworthiness, current and forecasts of future economic conditions, and aging of amounts due.

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The following table sets forth, for the periods indicated, the percentage of revenues of certain items in our consolidated statements of income and the percentage increase (decrease) in the dollar amount of such items year to year:

EXECUTIVE SUMMARY

Revenues for 2022 increased 10% and revenues before reimbursements increased 7% as compared to the prior year. The increase in revenues was due to an increase in billable hours and an increase in billing rates. Our multidisciplinary team of top-tier scientists and engineers continues to provide critical data, analyses and insights for our clients as society raises expectations for safety, health and the environment. Demand for our proactive services remained strong across the consumer products, electronics, automotive and life sciences sectors. Our reactive engagements were driven by robust litigation-related activity and a diversified portfolio of product safety- and recall-related work spanning multiple industries. We are seeing our accelerated recruitment efforts materialize as we continue to attract a strong pipeline of high-quality talent. We increased headcount in key areas of the business where we have identified the greatest need and opportunity.

Society is raising the bar for safety, health, sustainability and reliability, and clients are increasingly seeking our interdisciplinary proactive solutions. As our suite of offerings and key markets expand, so does the demand for our multidisciplinary services. We continue to expand our client relationships and enhance our reputation and capabilities across the firm. As innovation and technology become increasingly complex, the critical nature of our insights uniquely positions Exponent to address our clients’ needs throughout the product lifecycle.

Net income was $102,330,000 during 2022 as compared to $101,202,000 during 2021. Diluted earnings per share increased to $1.96 for 2022 as compared to $1.90 for 2021. Net income and diluted earnings per share for 2022 and 2021 benefited from the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $5,829,000 during 2022 as compared to $10,009,000 during 2021. The decrease in the excess tax benefit was due to a smaller increase in value of our common stock between the grant date and the release date for the restricted stock units released during 2022 as compared to 2021.

We remain focused on building our world-class engineering and scientific team to position Exponent at the forefront of innovation and meet the ever-changing needs of our clients and the market. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value.

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OVERVIEW OF THE YEAR ENDED December 30, 2022

Our revenues consist of professional fees earned on consulting engagements, fees for use of our equipment and facilities, and reimbursements for outside direct expenses associated with the services performed that are billed to our clients.

We operate on a 52-53 week fiscal year with each year ending on the Friday closest to December 31st. Fiscal period 2022 included 52 weeks of activity and ended on December 30, 2022. Fiscal period 2021 included 52 weeks of activity and ended on December 31, 2021. Fiscal period 2020 included 52 weeks of activity and ended on January 1, 2021. Fiscal period 2023 is 52 weeks and will end on December 29, 2023.

During 2022, billable hours increased 4% to 1,465,000 as compared to 1,405,000 during 2021. Our utilization decreased to 74% for 2022 as compared to 75% for 2021. Technical full-time equivalent employees increased 6% to 955 for 2022 as compared to 900 for 2021. We continue to selectively hire key talent to expand our capabilities.

FISCAL YEARS ENDED December 30, 2022 AND December 31, 2021

Revenues

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hours and an increase in billing rates. During 2022, billable hours for this segment increased by 5% to 1,153,000 as compared to 1,101,000 during 2021. Utilization for this segment decreased to 75% for 2022 as compared to 77% for 2021. Growth during 2022 was broad-based, with continued strong demand for our services across the consumer products, life sciences, and automotive sectors. In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continued to see demand for its solutions in electric vehicles and energy storage. Technical full-time equivalent employees in this segment increased 7% to 736 during 2022 as compared to 688 for 2021 due to our recruiting and retention efforts.

The increase in revenues from our Environmental and Health segment was due to an increase in billable hours. Excluding the impact of foreign exchange, revenues for this segment increased 3%. During 2022, billable hours for this segment increased by 3% to 312,000 as compared to 304,000 during 2021. Growth in this segment was primarily driven by our proactive safety-related work evaluating the impacts on chemicals on human health and the environment. Utilization for this segment was 69% for both 2022 and 2021. Technical full-time equivalents increased 3% to 219 during 2022 as compared to 212 for 2021 due to our recruiting and retention efforts.

Revenues are primarily derived from services provided in response to client requests or events that occur without notice and engagements are generally terminable or subject to postponement or delay at any time by our clients. As a result, backlog at any particular time is small in relation to our quarterly or annual revenues and is not a reliable indicator of revenues for any future periods.

Compensation and Related Expenses

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The decrease in compensation and related expenses during 2022 was due to a change in the value of assets associated with our deferred compensation plan partly offset by an increase in wages and fringe benefits and an increase in bonus expense. During 2022, deferred compensation expense decreased $28,917,000 with a corresponding decrease to other income, net, as compared to the prior year due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of the plan assets of $14,187,000 during 2022 as compared to an increase in the value of the plan assets of $14,730,000 during 2021. Wages increased $10,376,000 and fringe benefits increased $1,875,000 during 2022 due to the impact of our annual salary increase and increase in number of employees. During 2022, bonus expense increased by $1,873,000 due to a corresponding increase in the bonus pool, which is 33% of income before income taxes, interest income, bonus expense, and stock-based compensation. We expect our compensation expense, excluding the change in value of deferred compensation plan assets, to increase as we selectively add new talent and adjust compensation to market conditions.

Other Operating Expenses

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses was primarily due to an increase in occupancy expense of $1,224,000, an increase in depreciation expense of $592,000 and an increase in information technology related expenses of $582,000. The increase in occupancy expenses was due to growth in technical full-time equivalent employees and the transition back to our offices from a fully remote work environment. The increase in information technology related expenses were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent and continue to make investments in our corporate infrastructure.

Reimbursable Expenses

The amount of reimbursable expenses will vary from year to year depending on the nature of our projects. The increase in reimbursable expenses during 2022 was primarily due to an increase in project-related travel and other project-related expenses as COVID-19 pandemic-related business and travel restrictions eased.

General and Administrative Expenses

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The increase in general and administrative expenses during 2022 was primarily due to an increase in travel and meals of $4,935,000, an increase in outside consulting expenses of $1,157,000, an increase in recruiting expenses of $817,000, an increase in marketing and business development expenses of $442,000 and several other individually insignificant increases. The increase in travel and meals was due to a firm-wide managers' meeting held during 2022 and the continued easing of COVID-19 pandemic-related business and travel restrictions. The increase in outside consulting expenses during 2022 was due to costs associated with investments in our corporate infrastructure and technology platforms. The increase in recruiting expenses was due to an increase in technical full-time equivalent employees. The increase in marketing and business development expenses was due to an increase in our business development activities. We expect general and administrative expenses to increase as we selectively add new talent, expand our business development efforts, and pursue staff development initiatives.

Operating Income

The increase in operating income for our Engineering and Other Scientific segment during 2022 as compared to 2021 was due to an increase in revenues partially offset by an increase in expenses. The increase in revenues was due to an increase in billable hours and an increase in billing rates. Growth during 2022 was broad-based with continued strong demand for Exponent's services across the consumer products, electronics, life sciences and automotive sectors. In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continued to see demand for its solutions in electric vehicles and energy storage.

The decrease in operating income for our Environmental and Health segment during 2022 as compared to 2021 was due to investments in recruiting and marketing in our Health Practice. The impact of foreign exchange rates also contributed to the decrease in operating income for this segment.

Certain operating expenses are excluded from the Company’s measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

The decrease in corporate operating expenses during 2022 as compared to 2021 was primarily due to a decrease in deferred compensation expense. During 2022, deferred compensation expense decreased $28,917,000 with a corresponding decrease to other income, net, as compared to 2021 due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of the plan assets of $14,187,000 during 2022 as compared to an increase in the value of the plan assets of $14,730,000 during 2021. This decrease in corporate operating expenses is partially offset by an increase in costs associated with our human resources, finance, legal, information technology, and business development groups as we continue to make investments in these areas to support our growth.

Other Income

Other income consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our Silicon Valley facility. The decrease in other income was primarily due to the change in

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value of assets associated with our deferred compensation plan partially offset by an increase in interest income, a change in the realized gain/loss on foreign exchange, and an increase in rental income. During 2022, other income decreased $28,917,000 with a corresponding decrease to deferred compensation expense as compared to 2021 due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of the plan assets of $14,187,000 during 2022 as compared to an increase in the value of the plan assets of $14,730,000 during 2021. During 2022, interest income increased by $2,030,000 due to higher interest rates. During 2022, other income increased $1,039,000 as compared to 2021 primarily due to realized gain and losses on foreign exchange. This increase consisted of a realized gain on foreign exchange of $522,000 during 2022 as compared to a realized loss on foreign exchange of $517,000 during 2021. During 2022, rental income increased $281,000 as compared to 2021.

Income Taxes

The increase in our effective tax rate was due to a decrease in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $5,829,000 during 2022 as compared to $10,009,000 during 2021. The decrease in the excess tax benefit was due to a smaller increase in the value of our common stock between the grant date and the release date for the restricted stock units released during 2022 as compared to 2021. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.0% and 27.5% for 2022 and 2021, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We financed our business in 2022 through available cash and cash flows from operating activities. We invest our excess cash in cash equivalents. As of December 30, 2022, our cash and cash equivalents were $161,458,000 as compared to $297,687,000 at December 31, 2021. We believe our existing balances of cash and cash equivalents will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next 12 months.

Generally, our net cash provided by operating activities is used to fund our day-to-day operating activities. First quarter operating cash requirements are generally higher due to payment of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is cash collections from our clients. Our primary uses of cash from operating activities are for employee-related expenditures, leased facilities, taxes, and general operating expenses.

The increase in net cash used in investing activities during 2022, as compared to the net cash provided by investing activities during 2021, was due to a decrease in the maturity of short-term investments partially offset by a decrease in the purchase of short-term investments and an increase in capital expenditures due to an increase in investment in our corporate infrastructure.

The increase in net cash used in financing activities during 2022 as compared to 2021 was due to an increase in repurchases of our common stock and an increase in our quarterly dividend payment partially offset by a reduction in payroll taxes for restricted stock units.

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We lease office, laboratory, and storage space in 13 states and the District of Columbia, as well as in China, Hong Kong, Singapore, Switzerland, and the United Kingdom under non-cancellable operating lease arrangements that expire at various dates through 2028. As of December 30, 2022, the value of our obligations under operating leases was $18,601,000. See Note 12 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations. The value of our non-cancellable unconditional purchase obligations was not material at December 30, 2022.

We expect to continue our investing activities, including capital expenditures. Furthermore, cash reserves may be used to repurchase common stock under our stock repurchase programs, pay dividends, procure facilities and equipment or strategically acquire professional service firms that are complementary to our business.

We maintain nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Vested amounts due under the plans of $91,183,000 were recorded as a long-term liability on our consolidated balance sheet at December 30, 2022. Vested amounts due under the plans of $10,171,000 were recorded as a current liability on our consolidated balance sheet at December 30, 2022. Company assets that are designated to fund the benefits under the plans are held in a rabbi trust and are subject to the claims of our creditors. As of December 30, 2022, invested amounts under the plans of $89,437,000 were recorded as a non-current asset on our consolidated balance sheet. As of December 30, 2022, invested amounts under the plans of $11,294,000 were recorded as other current assets on our consolidated balance sheet.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Non-GAAP Financial Measures

Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (“Non-GAAP”) financial measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. We regard EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

The following table shows EBITDA as a percentage of revenues before reimbursements for 2022 and 2021:

The decrease in EBITDA as a percentage of revenues before reimbursements during 2022 as compared to 2021 was primarily due to the decrease in utilization and an increase in other operating and general and administrative expenses. Our utilization decreased to 74% during 2022 as compared to 75% during the same period last year. Other operating and general and administrative expenses increased during 2022 due to an increase in travel and meals associated with

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a firm-wide managers' meeting held during 2022 and the continued easing of COVID-19 pandemic-related business and travel restrictions, an increase in technical full-time equivalent employees, investments in our corporate infrastructure, and an increase in marketing and business development activities.

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for 2022 and 2021:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of this Annual Report on form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2021.

OVERVIEW

Exponent is an engineering and scientific consulting firm providing solutions to complex problems. Exponent's interdisciplinary organization of scientists, physicians, engineers, and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today. The firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes, ensure the safety and health of their users, and address the challenges of sustainability.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in accounting for revenue recognition and estimating the allowance for contract losses and doubtful accounts have a potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the assumptions, judgments and estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on our critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements

Revenue recognition. We derive our revenues primarily from professional fees earned on consulting engagements, fees earned for the use of our equipment and facilities, as well as reimbursements for outside direct expenses associated with the services that are billed to our clients.

Substantially all of our engagements are service contracts performed under time and material or fixed-price billing arrangements. For time and material and fixed-price service projects, revenue is generally recognized as the services are performed. For substantially all of our fixed-price service engagements, we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract. Our estimate of total labor hours we expect to incur over the term of the contract is based on the nature of the project and our past experience on similar projects. We believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts.

Management judgments and estimates must be made and used in connection with the revenues recognized in any accounting period. These judgments and estimates include an assessment of the estimate as to the total effort required to complete fixed-price projects.

Estimating the allowance for contract losses and doubtful accounts. We make estimates of our ability to collect accounts receivable and our unbilled but recognized work-in-process. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us or for disputes with customers that affect our ability to fully collect our accounts receivable and unbilled work-in-process, we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers we recognize allowances for contract losses and doubtful accounts taking into consideration factors such as historical write-offs, customer concentration, customer creditworthiness, current and forecasts of future economic conditions, and aging of amounts due.

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The following table sets forth, for the periods indicated, the percentage of revenues of certain items in our consolidated statements of income and the percentage increase (decrease) in the dollar amount of such items year to year:

EXECUTIVE SUMMARY

Revenues for 2021 increased 17% and revenues before reimbursements increased 15% as compared to the prior year. The increase in revenues before reimbursements was due to an increase in billable hours and an increase in billing rates. Our multi-disciplinary team of engineers and scientists continues to deliver unique and innovative solutions as we broaden our client base and deepen our relationships. Among our proactive services, demand for human factors and machine learning studies was strong throughout 2021 and is expected to continue as clients seek data to improve user experience and advance product performance. At the same time, within our reactive services, litigation related work continues to recover as courts further adapt operating procedures to the COVID-19 environment. Over the last year we further evolved our capabilities, ensuring we can support our clients as they seek to deliver safer, healthier, and more sustainable products and services.

Growth during 2021 was broad-based, with continued strong demand for our services across the utilities, consumer electronics, consumer products, life sciences and automotive sectors. Growth was also driven by our proactive safety-related work evaluating the impacts of chemicals on human health and the environment.

Society is raising the bar for safety, health, sustainability and reliability, and clients are increasingly seeking our interdisciplinary proactive solutions. As our suite of offerings and key markets expands, so does the demand for our multidisciplinary services. At the onset of the COVID-19 pandemic, we acted swiftly in the face of uncertainty to align our business to protect profitability, but as demand for our services increased, we accelerated our recruiting efforts. While the job market for engineering and scientific talent remains highly competitive, we persist in our ability to attract world-class talent.

Net income was $101,202,000 during 2021 as compared to $82,552,000 during 2020. Diluted earnings per share increased to $1.90 for 2021 as compared to $1.55 for 2020. Net income and diluted earnings per share for 2021 and 2020 benefited from the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $10,009,000 during 2021 as compared to $12,258,000 during 2020. The decrease in the excess tax benefit was due to a smaller increase in value of our common stock between the grant date and the release date for the restricted stock units released during 2021 as compared to 2020.

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We remain focused on selectively adding top talent and developing the skills necessary to expand upon our market position, providing clients with in-depth scientific research and analysis to determine what happened and how to prevent failures or exposures in the future. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value.

OVERVIEW OF THE YEAR ENDED DECEMBER 31, 2021

Our revenues consist of professional fees earned on consulting engagements, fees for use of our equipment and facilities, and reimbursements for outside direct expenses associated with the services performed that are billed to our clients.

We operate on a 52-53 week fiscal year with each year ending on the Friday closest to December 31st. Fiscal period 2021 included 52 weeks of activity and ended on December 31, 2021. Fiscal period 2020 inluded 52 weeks of activity and ended on January 1, 2021. Fiscal period 2019 included 53 weeks of activity and ended on January 3, 2020. Fiscal period 2022 is 52 weeks and will end on December 30, 2022.

During 2021, billable hours increased 10% to 1,405,000 as compared to 1,273,000 during 2020. Our utilization increased to 75% for 2021 as compared to 67% for 2020. Technical full-time equivalent employees decreased 1% to 900 for 2021 as compared to 912 for 2020. We continue to selectively hire key talent to expand our capabilities.

FISCAL YEARS ENDED DECEMBER 31, 2021 AND JANUARY 1, 2021

Revenues

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hours and an increase in billing rates. During 2021, billable hours for this segment increased by 13% to 1,101,000 as compared to 976,000 during 2020. Utilization for this segment increased to 77% for 2021 as compared to 67% for 2020 due to increased workflow and a decrease in technical full-time equivalent employees. Growth during 2021 was broad-based, with continued strong demand for our services across the utilities, consumer electronics, consumer products, life sciences, and automotive sectors. In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continued to see demand for its solutions in electric vehicles and energy storage. Our work in international arbitrations and integrity management advisory services continued at strong levels. Technical full-time equivalent employees in this segment decreased 2% to 688 during 2021 as compared to 704 for 2020. The decrease in technical full-time equivalent employees was due in part to the divestiture of our German subsidiary in April of 2020.

The increase in revenues from our Environmental and Health segment was due to an increase in billable hours and an increase in billing rates. During 2021, billable hours for this segment increased by 2% to 304,000 as compared to 297,000 during 2020. Growth in this segment, which saw less impact from business restrictions in 2020, was primarily driven by our proactive safety-related work evaluating the impacts on chemicals on human health and the environment. Utilization for this segment was 69% for both 2021 and 2020. Technical full-time equivalents increased 2% to 212 during 2021 as compared to 208 for 2020 due to our recruiting and retention efforts.

Revenues are primarily derived from services provided in response to client requests or events that occur without notice and engagements are generally terminable or subject to postponement or delay at any time by our clients. As a result, backlog at any particular time is small in relation to our quarterly or annual revenues and is not a reliable indicator of revenues for any future periods.

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Compensation and Related Expenses

The increase in compensation and related expenses during 2021 was due to an increase in bonus expense, a change in the value of assets associated with our deferred compensation plan, an increase in wages, and an increase in fringe benefits. During 2021, bonus expense increased by $15,186,000 due to a corresponding increase in the bonus pool, which is 33% of income before income taxes, interest income, bonus expense, and stock-based compensation. During 2021, deferred compensation expense increased $6,702,000 with a corresponding increase to other income, net, as compared to the prior year due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $14,730,000 during 2021 as compared to an increase in the value of the plan assets of $8,028,000 during 2020. Wages increased $3,280,000 during 2021 due to the impact of our annual salary increase. Fringe benefits increased $2,708,000 during 2021 due to an employee retention credit that we claimed under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) for $2,230,000 during 2020. There was no CARES Act credit claimed during 2021. We expect our compensation expense, excluding the change in value of deferred compensation plan assets, to increase as we selectively add new talent and adjust compensation to market conditions.

Other Operating Expenses

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses was primarily due to an increase in information technology related expenses partially offset by a decrease in depreciation expense and a decrease in occupancy expense. We expect other operating expenses to grow as we selectively add new talent, make additional investments in our corporate infrastructure, and transition our workforce back to our offices as COVID-19 pandemic-related business restrictions are lifted.

Reimbursable Expenses

The amount of reimbursable expenses will vary from year to year depending on the nature of our projects. The increase in reimbursable expenses during 2021 was primarily due an increase in project-related travel and other project-related expenses as COVID-19 pandemic-related business and travel restrictions eased.

General and Administrative Expenses

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The increase in general and administrative expenses during 2021 was primarily due to an increase in outside consulting services of $425,000, an increase in liability insurance premiums of $366,000, an increase in legal fees of $349,000, an increase in charitable contributions of $201,000, an increase in employee relocation of $190,000, an increase in employee relations of $173,000, an increase marketing and business development expenses of $165,000, and several other individually insignificant increases. The increase in outside consulting during 2021 was due to the completion of several projects associated with investments in our corporate infrastructure. There was a lower level of activity during 2020 in outside consulting due to the COVID-19 pandemic. The increase in liability insurance premiums was due to pricing increases associated with our annual insurance renewal. The increase in legal fees was primarily due to compliance costs associated with our international operations. The increase in charitable contributions was due to a gift of $250,000 to the Georgia Tech Foundation for the newly established Exponent Dean’s Scholarship Endowment in the College of Engineering. The increases in employee relocation, employee relations, and marketing and business development expenses were due to an increase in human capital and business development activities. We expect general and administrative expenses to increase as we selectively add new talent, expand our business development efforts, and pursue staff development initiatives.

Operating Income

The increase in operating income for our Engineering and Other Scientific segment during 2021 as compared to 2020 was due to an increase in revenues driven by an increase in the utilization. Utilization for this segment increased to 77% for 2021 as compared to 67% during 2020 due to increased workflow and a 2% decrease in technical full-time equivalent employees. Growth during 2021 was broad-based, with continued strong demand for our services across the utilities, consumer electronics, consumer products, life sciences, and automotive sectors. In addition to the steady increase in litigation support and human participant studies, our multidisciplinary battery team continued to see demand for its solutions in electric vehicles and energy storage. Our work in international arbitrations and integrity management advisory services continued at strong levels.

The increase in operating income for our Environmental and Health segment during 2021 as compared to 2020 was due to an increase in revenues. The increase in revenues was due to an increase in billable hours and an increase in billing rates. Growth in this segment, which saw less impact from business restrictions in 2020, was primarily driven by our proactive safety-related work evaluating the impacts on chemicals on human health and the environment.

Certain operating expenses are excluded from the Company’s measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

The increase in corporate operating expenses during 2021 as compared to 2020 was primarily due to an increase in deferred compensation expense. During 2021, deferred compensation expense increased $6,702,000 with a corresponding increase to other income, net, as compared to the prior year due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $14,730,000 during 2021 as compared to an increase in the value of the plan assets of $8,028,000 during 2020. During 2020 we claimed an employee retention credit for $2,230,000 under the CARES Act. This credit was excluded from fringe benefits in our measure of segment operating income. There was no CARES Act credit claimed during 2021. Corporate operating expenses also increased due to increases in costs associated with our human resources, finance, information technology, and business development groups as we continue to make investments in these areas to support our growth.

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Other Income

Other income consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our Silicon Valley facility. The increase in other income was primarily due to the change in value of assets associated with our deferred compensation plan partially offset by a decrease in interest income, a change in the realized gain/loss on foreign exchange, and a decrease in rental income. During 2021, other income, net, increased $6,702,000 with a corresponding increase to deferred compensation expense as compared to the prior year due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $14,730,000 during 2021 as compared to an increase in the value of the plan assets of $8,028,000 during 2020. During 2021 interest income decreased by $1,639,000 due to lower interest rates for our cash equivalents and short-term investments. During 2021, other income, net, decreased by $1,109,000 as compared to 2020 due to a change in the realized gain/loss on foreign exchange. This decrease consisted of a realized loss on foreign exchange of $517,000 during 2021 as compared to a realized gain on foreign exchange of $592,000 during 2020. During 2021, rental income decreased $692,000 as compared to 2020 due to an increase in our vacancy rate.

Income Taxes

The increase in our effective tax rate was due to a decrease in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards decreased to $10,009,000 during 2021 as compared to $12,258,000 during 2020. The decrease in the excess tax benefit was due to a smaller increase in the value of our common stock between the grant date and the release date for the restricted stock units released during 2021 as compared to 2020. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.5% for both 2021 and 2020.

LIQUIDITY AND CAPITAL RESOURCES

We financed our business in 2021 through available cash and cash flows from operating activities. We invest our excess cash in cash equivalents and short-term investments. As of December 31, 2021, our cash and cash equivalents were $297,687,000 as compared to $242,526,000 at January 1, 2021. We believe our existing balances of cash, cash equivalents and short-term investments will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next 12 months.

Generally, our net cash provided by operating activities is used to fund our day-to-day operating activities. First quarter operating cash requirements are generally higher due to payment of our annual bonuses accrued during the prior year.

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Our largest source of operating cash flows is cash collections from our clients. Our primary uses of cash from operating activities are for employee-related expenditures, leased facilities, taxes, and general operating expenses.

Net cash provided by operating activities was $124.6 million for 2021 as compared to $103.3 million in 2020.

During 2021 and 2020, net cash provided by investing activities was primarily related to the purchase and maturity of short-term investments and capital expenditures.

The decrease in net cash used in financing activities during 2021 as compared to 2020 was due to a decrease in repurchases of our common stock and a decrease in the proceeds from the exercise of stock-based payment awards partially offset by an increase in our quarterly dividend payment.

We lease office, laboratory, and storage space in 13 states and the District of Columbia, as well as in China, Hong Kong, Singapore, Switzerland, and the United Kingdom under non-cancellable operating lease arrangements that expire at various dates through 2028. As of December 31, 2021, the value of our obligations under operating leases was $16,763,000. See Note 12 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations. The value of our non-cancellable unconditional purchase obligations was not material at December 31, 2021.

We expect to continue our investing activities, including capital expenditures. Furthermore, cash reserves may be used to repurchase common stock under our stock repurchase programs, pay dividends, procure facilities and equipment or strategically acquire professional service firms that are complementary to our business.

We maintain nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Vested amounts due under the plans of $100,999,000 were recorded as a long-term liability on our consolidated balance sheet at December 31, 2021. Vested amounts due under the plans of $9,380,000 were recorded as a current liability on our consolidated balance sheet at December 31, 2021. Company assets that are earmarked to pay benefits under the plans are held in a rabbi trust and are subject to the claims of our creditors. As of December 31, 2021, invested amounts under the plans of $99,962,000 were recorded as a long-term asset on our consolidated balance sheet. As of December 31, 2021, invested amounts under the plans of $9,380,000 were recorded as a current asset on our consolidated balance sheet.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Non-GAAP Financial Measures

Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (“Non-GAAP”) financial measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. We regard EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute or

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superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

The following table shows EBITDA as a percentage of revenues before reimbursements for 2021 and 2020:

The increase in EBITDA as a percentage of revenues before reimbursements during 2021 as compared to 2020 was primarily due to the 15% increase in revenues before reimbursements and slower growth in compensation and related expenses and other operating expenses. The increase in revenues before reimbursements was due to an increase in billable hours and an increase in billing rates. Our multi-disciplinary team of engineers and scientists continues to deliver unique and innovative solutions as we broaden our client base and deepen our relationships. Among our proactive services, demand for human factors and machine learning studies was strong throughout 2021 and is expected to continue as clients seek data to improve user experience and advance product performance. At the same time, within our reactive services, litigation related work continues to recover as courts further adapt operating procedures to the COVID-19 environment. Over the last year we further evolved our capabilities, ensuring we can support our clients as they seek to deliver safer, healthier, and more sustainable products and services. The slower growth in compensation and related expenses during 2021 was due to a decrease in technical full-time equivalent employees. Due to our recruiting efforts, hiring has picked up over the last several months despite the competitive market for engineering and scientific talent. As such we expect compensation and related expenses to increase. The slower growth in other operating expenses was primarily due to the continued business restrictions associated with the COVID-19 pandemic. We expect other operating expenses to increase as COVID-19 pandemic-related business restrictions are eased.

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for 2021 and 2020:

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