Exponent, Inc. Q2 FY2025 earnings call

• Revenues in the second quarter were flat but exceeded expectations, with demand for failure analysis expertise driving growth in dispute-related activities, particularly in construction, automotive, and medical device sectors. Proactive engagements were led by risk management work in the utility sector. • Headcount began the year with a 5%-6% headwind in technical full-time equivalent employees but narrowed to 2% by the end of the second quarter, with expectations of headcount growth in the third and fourth quarters. • The company is well positioned to capitalize on growth drivers like safety, health, and environment intersections, including distributed energy systems, wildfire mitigation, AI applications, and augmented/virtual reality technologies.

For the second quarter of 2025, the engineering and other scientific segment represented 85% of net revenues. Net revenues in this segment increased 1%. The environmental and health segment represented 15% of net revenues, and net revenues in this segment decreased 4% due to lower activity in proactive projects in the life sciences sector and chemical regulation services.

• For Q3 2025, expect revenues before reimbursements to be up in the middle single digits, EBITDA margin 26.75%-27.75% of revenue before reimbursements, headcount up ~1%-2%, utilization 72%-73%, realized rate increase 4%-5%, stock-based compensation $5.3M-$5.5M, other operating expenses $12.5M-$13M, G&A expenses $7.5M-$8M. • For full year 2025, maintain guidance with revenues before reimbursements growing in low single digits, EBITDA margin 26.5%-27% of revenues before reimbursements, headcount ~4% higher than start of year, utilization ~72%, realized rate increase 4%-5%, stock-based compensation $23.5M-$24M, other operating expenses $49.5M-$50.5M, G&A expenses $24.8M-$25.5M.

• Uncertainty in the tariff environment causing a little bit of softness in the chemical sector and potential delays in dossier projects, product renewals, etc. • Potential delays in regulatory decisions, particularly at the EPA and FDA, affecting some work, though most regulatory work continues.

Q: How did utilization play out in the quarter?

A: Utilization came down 300 basis points, half related to the July 4 holiday and the other 150 basis points due to step down in utilization from strong levels last year and continuing integration of hires.

Q: How did clients respond to easing tariff uncertainty, new trade deals?

A: Clients are mindful of tariff uncertainty, with some softness in the chemical sector and wait-and-see on import/export projects, but long-term product strategies and supply chain complexity provide opportunities.

Q: Preliminary thoughts on revenue outlook for next year?

A: Encouraged by areas like wearables/sensors, energy space, automotive, and AI in safety-critical systems; planning for 2026 is in early stages, but headcount growth and normal rate realization expected.