Exponent Inc Q4 FY2020 Earnings Call

Good day, and welcome to the Exponent Fourth Quarter and Fiscal Year 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Whitney Kukulka. Please go ahead, ma'am.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's fourth quarter and fiscal year 2020 financial results conference call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at www.exponent.com/investors. This conference call is the property of Exponent and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Dr. Catherine Corrigan, President and Chief Executive Officer; and Rich Schlenker, Executive Vice President and Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements, including, but not limited to, Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that can cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption Risk Factors in Exponent's most recent Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise. And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Catherine?

Thank you, Whitney, and thank you, everyone, for joining us today. I will start off by reviewing our 2020 business performance, Rich will then provide a more detailed review of our financial results and our outlook for 2021. We will then open the call for questions. In a year of worldwide challenge, we demonstrated the durability of Exponent's business model and the strength of our market opportunities. Our fourth quarter results exceeded our prior expectations and illustrate continued improvement across the business. For the quarter, we expanded EBITDA margin 200 basis points compared to the same period last year. Net revenues in the quarter reflected a return to underlying growth, declining only 5% in the face of the 8% headwind from an extra week in the fourth quarter of 2019. Our successful execution demonstrates the resiliency of our business model, the dedication of our world-class team, and the strength of our reputation. While we are encouraged by our results, COVID-19 continues to impact litigation and human participant studies. Society is raising the bar for safety, health, sustainability, and reliability, and clients are increasingly seeking Exponent's interdisciplinary proactive solutions. Exponent grew its annual revenues from proactive services in both business segments despite pandemic-related restrictions, one less week than the prior year, and the divestiture of the German entity. Industry and government alike are advancing their missions in multifaceted ways, from designing novel products to navigating new regulatory challenges and innovating new paradigms and processes. These dynamics are creating opportunities for Exponent, and we will leverage our nimble business model to capitalize on these opportunities to drive long-term growth and profitability. For example, in the fourth quarter, we deployed the wearable technology platforms for COVID-19 risk monitoring and mitigation for the U.S. Army and Navy that we discussed on our last conference call. Beyond COVID-19 use cases, wearable technologies can be used to monitor worker health, safety, and performance and to evaluate the safety and efficacy of healthcare products and treatments. Exponent is uniquely positioned with its diverse and integrated expertise to advise clients as they leverage technology to improve human health and enhance performance. Technologies such as virtual reality, robotic surgery, and advanced vehicles are becoming ubiquitous, and understanding the cognitive aspects of users is critical to optimizing their experience and performance. While our human participant studies have slowed due to coronavirus restrictions, the interoperability of humans and increasingly sophisticated technologies is a secular trend that will be a future growth driver for Exponent. The increased focus on sustainability is driving a shift in the transportation industry. Automotive manufacturers are expanding their electric vehicle fleets and scaling manufacturing in a meaningful way. Our world-class multidisciplinary battery team is leveraging its experience in consumer electronics and our strong reputation for failure analysis in the transportation industry to improve the safety and reliability of energy storage for electric vehicles. During the fourth quarter, we had increased activity in domestic litigation support, which exceeded our expectations, but progress in this area is occurring in fits and starts. In the fourth quarter, many assignments that had been paused were given the go-ahead with near-term deadlines. In December and January, clients were somewhat more measured as trial dates remained uncertain. We saw increases in international arbitration hearings as they proceeded virtually since these do not require the involvement of the general public. We are seeing a steady flow of new litigation projects, but some clients are slower than usual in authorizing work. We are confident that litigation support will remain a long-term growth driver for our business. Exponent's engineering and scientific segment represented approximately 80% of the company's net revenues in the fourth quarter and fiscal year 2020. Net revenues in this segment decreased 5% in the fourth quarter and 4% in fiscal year 2020 compared to 2019. Clients continue to seek Exponent's expertise for proactive and reactive engagements across a broad range of industries and use cases. Our integrity management advisory services for the utilities industry remain strong as clients and regulators focus on power, reliability, and safety. Our biomedical team advised clients as they navigate evolving regulatory frameworks around the world, including the impending medical device regulatory deadlines in Europe. Exponent's Environmental & Health segment represented approximately 20% of the company's net revenues in the fourth quarter and fiscal year 2020. Net revenues in this segment decreased 5% in the fourth quarter and increased 1% in the fiscal year 2020 compared to 2019. Within this segment, the chemical regulation and food safety practice continued to grow as Exponent's scientists evaluated the effects of chemicals and new products on human health and the environment, including registrations for disinfectants to prevent the spread of the coronavirus. For clients who want to meet health and safety regulations as they distribute products globally, our scientific and regulatory expertise in the Americas, Europe, and Asia is invaluable. For more than 50 years, Exponent has been called upon by clients on the causes of failures as well as on how to produce safer, healthier, more sustainable, and more reliable products and processes. As the technological complexity of these products and processes increases, so does the demand for Exponent's engineering and scientific expertise. Our market drivers are strong, and demand for our services has continued despite ongoing uncertainties and economic turbulence. We are optimistic about our ability to grow in 2021. I'll now turn the call over to Rich to provide some more detail on our fourth quarter and 2020 results as well as discuss our outlook for the first quarter and for 2021.

Thank you, Catherine, and good afternoon, everyone. I will start by providing details of Exponent's financial results for the fourth quarter and full year 2020, and then we'll provide some insight into our expectations for the first quarter and full year 2021. All comparisons will be on a year-over-year basis, unless otherwise noted. For the 13-week fourth quarter of 2020, total revenues declined by 6% to $103.2 million, and revenues before reimbursements, or net revenues, declined by 5% to $97.3 million compared to the 14-week fourth quarter of 2019. Having one less week in 2020 was an 8% headwind for the fourth quarter, in addition to the 1% headwind from the divestiture of the German entity that occurred in April of 2020. As a result, the underlying net revenue grew by approximately 4% year-over-year. Net income for the fourth quarter increased to $21.8 million or $0.41 per diluted share, compared to $19.1 million or $0.36 per share. Exponent recognized a tax benefit from share-based awards of $2.6 million or $0.05 per share in the fourth quarter of 2020 compared to $700,000 or $0.01 per share in the same period one year ago. EBITDA for the quarter increased 2% to $28.3 million, producing a margin of 29.1% of net revenues, which is an increase of 200 basis points relative to the prior year period. For the 52-week fiscal year 2020, total revenues declined 4% to $399.9 million, and net revenues declined 3% to $378.4 million compared to the 53-week fiscal year 2019. Having one less week in the 2020 year represented a 1.25% headwind for the year, and the divestiture of the German entity was a headwind of approximately 0.75%. As a result, the underlying net revenues declined by approximately 1% to 1.5% year-over-year. Net income for the year was slightly up at $82.6 million or $1.55 per diluted share compared to $82.5 million or $1.53 per diluted share in 2019. The tax benefit associated with accounting for share-based awards for 2020 was $12.3 million or $0.23 per diluted share compared to $8.1 million or $0.15 per diluted share in 2019. For the year, EBITDA decreased 5% to $102.1 million, producing a margin of 27% of net revenues, which is a decrease of 40 basis points compared to 2019. Billable hours in the fourth quarter were 318,000, a decrease of 11% year-over-year. For the year, billable hours were 1,273,000, a decrease of 7% from 2019. In addition to having one less week in 2020, the year-over-year decrease is partially due to the divestiture of the German entity, which accounted for approximately 3% of available hours and 1% of net revenues in 2019 and the first quarter of 2020. Utilization in the fourth quarter was 67.3%, down from 69.5% in the same quarter of 2019. For the year, utilization was 67.1%, down from 72.1% in 2019. Utilization, adjusting for holidays and vacations, improved sequentially as we continue to get new engagements, and some existing projects have had their holds released. But utilization remained below last year's levels as some trial dates have been deferred and human participant studies delayed due to COVID-19 restrictions. We are pleased that the year-over-year comparison has improved sequentially each quarter from down 1,200 basis points in Q2 to down 580 basis points in Q3 and down only 220 basis points in Q4. We expect improvements to continue in 2021. For the first quarter of 2021, we expect utilization to be 70% to 71% compared to 71.4% in the first quarter of 2020. For the full year 2021, we expect utilization to be 69% to 70% compared to 67.1% for the full year 2020. Technical full-time equivalent employees in the quarter were at 909, a 1% sequential increase and a 1% decrease compared to the same period one year ago. The year-over-year decline in FTEs was due to the divestiture of the German entity, which accounted for 3% of our head count in 2019. For the full year, FTEs increased 1% to 912, inclusive of the impact of the divestiture. We ended the year with 904 FTEs. We expect sequential headcount growth of approximately 1% per quarter in 2021. The realized rate increase was approximately 5% for the quarter and 4% for the year. The realized rate increase included a 2% benefit from the divestiture of the German entity. The rate for the quarter was higher than we had previously expected as a result of continued delays in user studies and testing activity, which leverage more junior staff. For the first quarter, we expect a year-over-year realized rate increase of 4% to 5% as we have one more quarter before we lap the divestiture day. For the remainder of the quarters, we expect the year-over-year realized rate increase to be approximately 2%. As a result, the full year realized rate increase is expected to be 2% to 2.5%. For the quarter, compensation expense, after adjusting for gains and losses in deferred compensation, declined 2%. The primary reason for the decline in compensation expense was one less operating week in the fourth quarter compared to the prior year period. Included in compensation expense is a gain in deferred compensation of $8.4 million compared to a gain of $4.4 million in the fourth quarter of 2019. As a reminder, gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line. For the year, compensation expense increased 1% after adjusting for a gain in deferred compensation of $8 million compared to a gain of $12.8 million in 2019. Stock-based compensation expense in the quarter was $4 million compared to $3.9 million. For the full year, stock-based compensation expense was $17.3 million compared to $17.5 million in 2019. For the first quarter, we expect stock-based compensation to be $6.3 million to $6.5 million, and for each of the remaining quarters to be $3.8 million to $4.2 million. For the full year 2021, we expect stock-based compensation to be $18.4 million to $18.8 million. Other operating expenses were down 7% to $8.5 million for the quarter and were down 4% to $32.2 million for the year. Included in other operating expenses is depreciation expense of $1.7 million for the quarter and $6.9 million for the year. The primary reason these expenses declined is reduced activities in our offices and labs as well as one less operating week in the fourth quarter compared to the prior year period. For the first quarter, we expect other operating expenses to be $8.2 million to $8.5 million. For the full year, we expect other operating expenses to be $34.7 million to $35.2 million. This year-over-year increase assumes a gradual return to our offices over the year. While we are uncertain when our employees will return to the office full time, we do believe our office environment provides long-term value as it supports collaboration for our interdisciplinary teams and staff development, which results in a higher value for our clients and retention of our employees. G&A expenses were down 69% to $1.6 million for the quarter and were down 37% to $12.9 million for the year. The decline in G&A expenses was partially due to not holding a managers meeting that was held in the prior year period, and lower travel and meals expenses related to marketing and recruiting. We expect G&A expenses to gradually scale as these business activities resume. Additionally, G&A in the fourth quarter included a contra expense of $1 million as we released the bad debt reserve for the potential pandemic losses, which we decided to accrue in the first quarter of 2020. For the first quarter of 2021, we expect G&A expenses to be $3.4 million to $3.6 million. For the full year 2021, we expect G&A expenses to be $16.4 million to $16.8 million as a result of marketing and recruiting increasing during the year. Interest income decreased to $800,000 from $200,000 for the quarter and decreased from $2.2 million to $1.7 million for the year. Lower interest income is due to a steep decline in interest rates year-over-year. For 2021, we expect interest income to be approximately $25,000 per quarter or $100,000 for the year. Miscellaneous income, net of deferred compensation gains, was $500,000 for the quarter and $3.6 million for the year. For 2021, we expect miscellaneous income to be approximately $750,000 per quarter or $3 million for the year. For 2020, the tax benefit from share-based awards was $12.3 million. For 2021, we estimate, based on the current stock price, that our tax benefit associated with share-based awards will be approximately $6.3 million for the first quarter and full year. The tax benefit from share-based awards is determined based on the change in value of the share-based awards between grant and issuance date. Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 18.6% for the quarter compared to 28.7% in the prior year period. For the full year, Exponent's consolidated tax rate was 14.8% compared to 20.9% in 2019. For 2021, we expect our tax rate, exclusive of the tax benefit from share-based awards, to be approximately 27.5%, similar to 2020. Moving to our cash flows. Operating cash flows were $40.9 million for the quarter and $103.3 million for the year. Capital expenditures were $800,000 for the quarter and $5 million for the year. In 2021, we expect CapEx to be $7 million to $8 million. During the year, we distributed $39.8 million to shareholders through dividends and payments. The company also utilized $40 million of cash to repurchase shares at an average price of $62.91. As of year-end, the company had $75 million available for stock repurchases under its current program. The company ended the year with $243 million in cash and short-term investments. Today, we announced a 5% increase in our quarterly dividend from $0.19 to $0.20. While we are seeing positive indicators in our underlying business, there remains a degree of uncertainty surrounding how and over what time frame business and litigation activities will return to normal. As a reminder, pandemic-related restrictions had a limited impact on our results in the first quarter of 2020, and approximately 1% of revenues in the quarter were attributed to our German entity, which was divested in April of 2020. The combination of these factors will create a challenging year-over-year comparison for the first quarter of 2021. As a result, we expect revenues before reimbursements to grow in the low single digits, and EBITDA margin to be approximately flat for the first quarter of 2021 compared to the same period in 2020. For the full year 2021, we expect revenues before reimbursements to grow in the high single digits, and EBITDA margin to be flat to up 30 basis points compared to 2020. Exponent has a sustainable business model and the fundamentals of our business remain strong. Our quarterly results throughout 2020 demonstrated sequential improvements despite the unprecedented restrictions imposed related to the COVID-19 pandemic. We exited 2020 in a position of financial strength. I will now turn the call back to Catherine for closing remarks.

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

And we will take our first question from Tobey Sommer with Truist.

You gave us some good color on the trends in kind of litigation-related work and some variability in the most recent months. How would you describe that on a year-over-year basis, either in the quarter or in 1Q, whichever time period you wanted to say? Because you gave us color, but I kind of wanted to see what it was numerically as a reference to the prior year.

Yes. For the full year, our litigation work decreased by about 5%. However, we noticed that this gap closed in the fourth quarter, where the decline was likely in the mid-single-digit percentage, around 5% to 7%. While there was some improvement, it still remains down compared to the previous year.

Okay. How is the company positioned from a pricing perspective? And what is the hiring posture this year?

Maybe I'll start off there by talking about what we've seen around the pricing that we're going forward with in 2021, and then Catherine will pick up on the sort of demand environment and how it ties into recruiting. As Exponent always does, we have one rate for each of our individual consultants. We evaluate the market demands for those each year in the fourth quarter and put forward our rate changes as of January 1. We've got some areas that had very strong demand for our people. As we've talked about, we’ve seen our proactive work growing, and we still believe that the demand is there in the litigation market because we're still getting those new engagements at a pretty good clip. It's just that the work hasn't picked up. But still with that, we have clients that are in some challenging situations with their market being down. So we were quite sensitive to that. As a result, our rates were about 1% less of an increase than they were a year ago for our staff. So what happens is that our staff rates for this year increased by around 4.5% on a year-over-year basis. A year ago, that was closer to 5.5%, so those increases go through. Those are blended down by more junior staff that have been hired recently or into the next year, which gets us to the realized rate increases that we have laid out for the year of being between 2% and 2.5%. So a little bit lower, still price increases in the market, but we're being sensitive to certain areas.

Yes. I can pick up there, Tobey, with regard to the talent and recruiting side. We certainly feathered our foot on the gas pedal when COVID first hit back in Q2 and have seen steady gradual increases in our recruiting activity from Q3 through Q4. We're really looking at continuing to accelerate that activity as we get into 2021. It's focused in the areas of business strength, right? It's about hiring the right people in the right area. So it's the same philosophy. Some of the areas that we're particularly focused on include the pharma space, at both the junior and the senior level; we continue to focus on the human factors space with the opportunities there; the data sciences space, particularly relating to our opportunities around wearables and life sciences, as well as the integrity management side, all of these things require bringing on more talent around the data sciences area; and the engineering disciplines that are in our areas of strength. Think about battery-related engineering disciplines, or the disciplines related to automated vehicles and vehicle safety. These are the areas that are driving the business where we're seeing the growth, and so we're focused on that. It's been interesting in the virtual space; we've been able to reach more grad students than ever before, quite frankly, through our virtual events. So as we move forward, we will certainly be returning to in-person recruiting in terms of actually meeting our recruits in the flesh. But there are a lot of learnings that I think we'll be able to carry over in terms of really getting our messaging out around the opportunities we have and getting that out to that talent base because there's no doubt we're seeing that the demand for engineering and scientific expertise is there, and there are lots of very high-quality students coming out of those programs and being referred to us.

Last question for me. The accumulation of cash on the balance sheet is beneficial because it shows you're very profitable, but it's also reducing returns on equity and invested capital. Do you expect that to continue?

No. I mean we remain committed over the long term here, or near term, to reduce that cash balance. The goal still remains to work that down in a prudent way to something that might be in the $50 million to $70 million range on the balance sheet that will likely, through dividends and repurchases, be over still a 4- to 5-year period of time. But it is something that we as management and the Board remain committed to.

We will take our next question from Andrew Nicholas with William Blair.

Now that we're almost a year out from the start of the pandemic, I'm wondering if you could speak to any competitive disruption you've seen in your markets. I realize your competitive set is relatively fragmented, but is there anything you could say about kind of the strength of your competitors today versus pre-pandemic? I guess I'm just curious to the extent Exponent's relative scale has proven a competitive advantage in the current environment and what it could mean for future demand capture?

Yes. Thanks, Andrew. As you know, the competitive landscape for our services is fragmented. So we are seeing different things in different spaces. But there's no doubt that as we have engaged with folks in the technical community, we engage with our competitors as we are out at conferences. These are being done virtually. We are definitely finding opportunities from the standpoint of, let's say, the senior recruiting side. We've capitalized on a number of those opportunities this year in terms of being able to hire principal level talent coming out of some of our competitors. And so we've been successful in attracting those. That's not an easy thing to do. I think there are multiple contributors to that. But I think, for sure, Exponent's relative success and the strength of the company and the forward-looking opportunities we have are a big part of the conversations we're having with those folks as we talk to them. I do think there's been an opportunity for us to gather talent and simply represent the durability and resilience of the business. We've been in business for over 50 years. We continue to have strong market drivers, and we've really been putting out that message. I think our competitors are seeing that, and we've been able to capitalize on some of those trends.

And then for my follow-up, you talked in the release about seeing growth in your proactive business this year despite having one less week in the calendar and divestiture. Obviously, that's quite encouraging. I'm wondering on the proactive side, what's your sense of where client budgets sit for this type of work heading into next year? Any sense of an increased wave of R&D investment in 2021, now that some of your larger clients are presumably past a lot of the COVID-related uncertainty? And then relatedly, is the expectation that proactive will materially outperform reactive in 2021?

Yes. Thanks. It varies to some extent across industries, right? When you think about the impact that COVID had and then what the forward-looking outlook is. If I think about the utility industry, we're pretty independent of the COVID situation, right? That’s kind of a one extreme example where the drivers are around asset integrity, climate uncertainty, and the safety and reliability of power delivery. So you're not seeing an impact there. On the life sciences side, early in the pandemic, there were real pullbacks around things like elective surgeries and that sort of thing, and we saw those budget cycles really have an impact early on. But we're seeing as we go forward, the release of those elective surgeries happening again to a large extent that is driving the usual issues around regulatory requirements and strategy, as well as the impending medical device regulation deadlines in Europe, and real-world evidence around the pharma space as these technologies in life sciences become more complex. So those drivers are beginning to take over again, and we're not seeing the impact from those budget cycles. In electronics, we were prevented from doing a lot of that work in the laboratory early on. There were some budgetary impacts there, but as they look forward to their next generation of innovation and devices, we're seeing a return to the level of activity around design consulting. This is something we do in the electronics space as well as the medical device space. So all in all, there are some strong drivers coming back on the proactive side. In terms of the balance of growth between proactive and reactive, there's no doubt that there are trends that will drive the litigation side further along, independent of COVID. Some of these things are advanced driver assistance systems in the automotive arena. You can think about toxic tort and environmental areas where they're looking at various issues that impact that. We are positioning ourselves and seeing increased inquiries around those kinds of areas on the litigation side. The COVID effect will continue to grow on the reactive side of the business. But the proactive side, for sure, grew faster during 2020. We believe that, on average, that is likely to continue to grow at a faster rate for the reasons mentioned, but we anticipate continuing to grow both sides long term.

We will take our next question from Sam England with Berenberg.

Do you see any opportunities in the government space under the new Biden administration? I know government has been a small portion of revenues for you historically, but do you think there are opportunities in areas like environmental work under that administration?

With regard to the government client, we certainly, as I mentioned, have seen wearables work with the Army and Navy. We believe that we are delivering well on that and are seeing opportunities for potential expansion and management discussions about that. In terms of, let's say, the environmental space or the regulatory space, those are areas where our client base is typically on the industrial side, as opposed to government. However, we are seeing a raising of the bar from a regulatory perspective, whether around environmental regulation, safety regulations, or technologies like automated vehicles and pharmaceuticals. There are a number of issues that are driving that regulatory bar higher, which, of course, creates opportunities for us. But in terms of government as a client, I don't expect it to grow significantly compared to the industrial side.

What are you seeing in Asia at the moment? You've talked about the opportunity there, and many Asian countries have been quicker to come out on the other side of the pandemic. Do you see a bigger opportunity there over the next couple of years?

Asia has been a part of the strength in the fourth quarter, and we think that will certainly continue into 2021. Part of what's been going on very recently in that strength really relates to our U.S. clients' inability to travel. That involves work in the consumer electronics space, for example, in terms of qualification around issues with suppliers alongside advisory level activities. We think there's an opportunity to continue that advisory level service yet even past the pandemic. I think we’re demonstrating our value with regard to that, and that's an opportunity for our clients to really continue leveraging that. Another point regarding Asia is the diversification. There are opportunities internationally related to significant infrastructure projects, some of that work is, in fact, centered around Asia. I think that will continue to be a growth driver, not only in Asia but also for our broader global operations in addition to domestic operations.

Do you think there's any sustainable improvement that you can hold on to in areas like travel and facilities expenses?

I do think that it's likely that people will decide to do some of their activities on a remote basis or virtually going forward. I think that where we might save in travel and meals at the same time, we are looking at how to ensure we have the best technology and platforms to be successful in those virtual environments as well. So I view that there isn't a major long-term saving to come out of it, but I think there is an improvement in the return on our investment that we should be able to gain.

We'll take our next question from Marc Riddick with Sidoti.

I wanted to touch a little bit on a couple of things that you mentioned. I wanted to circle back on the user studies and how we should think about how social distancing, being relaxed in certain jurisdictions and locations? And maybe what your thoughts are around the effectiveness of vaccine rollout? How that return might play out if there's kind of a bit of a roadmap that you currently have in mind? Or what we should be looking for as to what could open up the return of user studies?

There is optimism as we move forward, that we will be able to progress with a number of the studies we have lined up. But I would say that is in its early development. Things should get better as we move into late first quarter, but it’s limited early in the first quarter due to stay-at-home orders. That said, things are lining up positively going forward.

So it seems as though the interest in user studies from your customers is there, it's just a matter of when you get to get started with it. Is that a fair assessment?

Absolutely, that is the case. We have adapted and been able to perform certain activities in the areas, but moving forward with higher volume community interactions has been more limited in the last couple of months. However, those interactions are planned and expected to move forward within a few months.

I was wondering if you could talk about the percentage of revenues related to the virus over 2020. I know that might be tricky to parse out, but could you share a general ballpark?

We've seen an increase across the three quarters. In the first quarter, revenues related to the virus were just over 1%. In the fourth quarter, that was about 2.5% to 3% of revenues. It has been increasing over that period, largely due to the wearables project in the fourth quarter, which made up about half of the increase. For the full year, about 1% of our revenues in 2020 were related to the pandemic.

If you could talk about how litigation lays out as things are being put on the docket, what sort of trends you’re noticing? And which types of courts are impacted the most?

What we're seeing is consistent; litigation projects tend to come in boluses. When you first get brought on, there's a lot of initial activity, and then there's a pause. We saw a number of activities unlock due to anticipated trial dates in early 2021 because of increases in COVID cases, those dates were pushed back, which is part of the fits and starts we're seeing now. This varies across geographies; even within domestic litigation, more conservative states have courts generally closed, whereas more open states may see the occasional jury trial go forward. We're monitoring this closely. We've seen a steady increase over time from Q2 to Q3 to Q4, and we think that Q1 can continue on that trend.

And that does conclude today's question-and-answer session. We thank you for your participation and for joining today's call. Have a wonderful day. You may now disconnect.