Exponent, Inc. Q3 FY2025 earnings call

• Exponent had double-digit net revenue growth in the third quarter, driven by reactive engagements in energy, transportation, life sciences, and construction, and proactive engagements in utility risk management and chemical regulatory consulting, though offset by lower activity in consumer electronics with improving trends in Q4. • AI is integrating into Exponent's work across product life cycles, touching reactive and proactive sides, with significant presence in industries like consumer products, energy, and transportation. • Recruiting efforts are strong, targeting growth areas like digital health, automated vehicles, and energy-related sectors. • Utilization improved in Q3, and there are ongoing efforts to diversify and advance work in human machine interaction and safety-critical systems.

Exponent's engineering and other scientific segment represented 84% of net revenues in the third quarter, with net revenues increasing 10%. The environmental and health segment represented 16% of net revenues, with net revenues increasing 9%.

• Fourth quarter 2025: Expect revenues before reimbursements to grow in low to mid-single digits, EBITDA to be 26%-27% of revenues before reimbursements. Maintain revenue guidance and raise margin expectation for full year 2025, with revenue before reimbursements expected to grow in low single digits and EBITDA to be 27.4%-27.65% of revenues before reimbursements. • Fourth quarter headcount expected to be up ~4% due to recruiting, utilization 68%-70%, stock-based compensation expense $4.9M-$5.2M, other operating expenses $12.7M-$13.2M, G&A expenses $6.1M-$6.6M. • Full year 2025: Expect utilization ~72.5%, realized rate increase 4%-5%, stock-based compensation expense $23.7M-$24M, other operating expenses $49.5M-$50M, G&A expenses $25M-$25.5M.

• Government shutdown impact: ~2%-3% of business is federal government contracts, but most ongoing work is under contract and continued in Q4. • Regulatory environment changes: Can impact work, but business is driven by health, safety, and environmental issues; also, some talent recruitment from regulatory agencies due to shakeups.

Q: Any early thoughts on 2026 hiring specifically?

A: Strong momentum in recruiting, targeting growth areas, planning for 2026 with potential 4%-6% headcount growth.

Q: Thoughts on AI sizing and growth, balance between proactive and reactive?

A: AI integrating significantly into work across product life cycle, touching both reactive and proactive sides, difficult to quantify but balanced.

Q: Year-to-date growth between proactive and reactive?

A: Reactive side was real growth driver in Q3, proactive was ~flat with regulatory consulting and risk management growth offset by consumer electronics decline, but improving in Q4.

Q: Impact of government shutdown on guidance?

A: ~2%-3% of business, short term revenues in Q4 similar to Q3, but long-term depends on 2026 budget.

Q: Impact of hiring mix on rate increases?

A: Rate increase due to demand environment, reactive business drawing on seasoned people, and hiring mix; current 6% rate increase may not carry on due to factors like hiring more entry-level people.