Exponent, Inc. (EXPO) Earnings

Management highlights

- Core Financial Performance * Q2 2026 total revenues increased 21% year-over-year to $171.6 million, while net revenues (revenues before reimbursements) increased 12% to $148.9 million. Faster total revenue growth was driven by higher reimbursable expenses from expanded user research studies. * Net income grew 11% year-over-year to $29.4 million; diluted EPS increased 15% to $0.60, supported by a 5% reduction in diluted shares outstanding from $211 million in share repurchases over the prior 12 months. * EBITDA increased 16% year-over-year to $42.7 million, with EBITDA margin expanding 90 basis points to 28.7% of net revenues. * Billable hours grew 8% year-over-year, average technical full-time employees increased 6% to 1,012, utilization rose to 74% from 72% a year prior, and realized rates increased 4% year-over-year. - Growth Drivers and Market Trends * Double-digit revenue and earnings growth reflects strong sustained demand for Exponent's specialized multidisciplinary expertise across all industries, powered by long-term trends of rapid technological innovation, increasing system complexity, rising energy demand, investment in resilient infrastructure, and higher expectations for product safety and reliability. * Proactive work grew strongly, led by expanding demand for complex user research studies as clients accelerate development of AI-enabled products across diverse new hardware form factors. Proactive activity also benefited from increased risk management and infrastructure engagements in the utility sector focused on grid resilience amid rising power demand and more extreme weather. * Reactive work grew as well, with strong demand for dispute and failure analysis expertise across consumer products, chemicals, and transportation. Growth was driven by increased product liability inquiries for advanced driver assistance systems, chemical safety evaluations for legacy and emerging compounds, and product safety/recall support for complex consumer technologies. * AI is a major cross-cutting growth driver, as AI integration into real-world physical products increases the need for specialized expertise to evaluate human-machine interaction, safety, and reliability in unstructured real-world environments. - Capital Allocation * In Q2 2026, Exponent returned $14.8 million to shareholders via dividends and repurchased $67.4 million in common stock at an average price of $59.88. Over the prior 12 months, the company returned a combined $272 million to shareholders ($211 million in repurchases, $61 million in dividends). * The board of directors approved a $50 million increase to the existing share repurchase program, reflecting management's confidence in Exponent's long-term growth trajectory.

Guidance

- Management raised full-year 2026 guidance, now expecting net revenue growth of 9% to 10% year-over-year, with EBITDA margin between 27.8% and 28.1% of net revenues. - For Q3 2026, management expects 8% to 10% year-over-year net revenue growth, with EBITDA margin between 28.0% and 28.5% of net revenues. - Average technical full-time equivalent employees are expected to increase 4% to 5% year-over-year in Q3 2026, and 4.5% to 5% for the full year 2026. - Q3 2026 utilization is projected to be 74% to 75% (up from 74% in Q3 2025), while full-year 2026 utilization is maintained at 72.5% to 73%, unchanged from prior guidance and matching 2025's full-year rate. - Year-over-year realized rate increases are expected to be 3% to 4% in Q3 2026, and 3.5% to 4% for the full year 2026. - Full-year 2026 capital expenditures are projected to be $12 million to $14 million. The full-year effective tax rate is expected to be 28.5%, up from 28.0% in 2025.

Segment performance

1. Engineering and Other Scientific Segment: This segment accounted for 85% of Exponent's total net revenues in Q2 2026. Net revenues for this segment grew 13% year-over-year, driven by strong user research activity for consumer electronics, risk management and infrastructure engagements in the utility sector, and increased reactive work across consumer products, chemicals, and transportation industries. 2. Environmental Health Segment: This segment represented 15% of Exponent's total net revenues in Q2 2026. Net revenues for this segment increased 9% year-over-year, driven by rising client demand for engagements evaluating the impact of chemicals on human health and the environment.

Risks & headwinds

- All forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from expectations. Key risk factors are disclosed in Exponent's periodic SEC filings, particularly in the Risk Factors section of the most recent Form 10-Q. - A shrinking supply of new PhD graduates in the U.S. could impact talent recruiting, though management notes Exponent recruits the top tier of graduates and has a strong value proposition for early-career talent that supports continued successful hiring. - Dependence on international PhD graduates for hiring introduces work authorization-related risks, though the company notes only approximately 5% of annual new hires require visa sponsorship. - Accelerated timelines for supply chain changes and new infrastructure deployment can increase component failure rates, though this also creates increased demand for Exponent's failure analysis and due diligence services.

Analyst Q&A

• Q: Is AI-driven demand currently only for proactive work, or is it also creating reactive demand? Does increasing work scope/complexity strengthen Exponent's competitive advantage and enable better pricing?

  A: Management confirms AI is driving demand growth in both proactive and reactive lines of business. In reactive work, AI has increased demand for product liability litigation support for advanced driver assistance systems (covering driver monitoring and human machine interface issues) and failure analysis for AI-related digital infrastructure including data center cooling systems, power inverters, and battery energy storage. In proactive work, AI has driven sharp growth in complex user research for AI-enabled physical products. Management adds that rising work complexity significantly broadens Exponent's competitive moat: while basic user research is a commodity, Exponent's ability to design bespoke studies, address untested human-machine interaction challenges, and deliver regulatory and business-aligned conclusions is a unique offering. This clear differentiation supports disciplined pricing that reflects the value Exponent delivers to clients.

• Q: What was the size and impact of the large unexpected user research engagement in Q2, and why is full-year utilization guidance conservative despite strong current demand?

  A: Management explains the large user research study was initially expected to represent 2% of Q2 net revenues, but expanded in scope to 4% of net revenues, and drove the quarterly 74% utilization rate. The study will continue through the remainder of 2026 at ~2% of net revenues per quarter. The conservative full-year utilization outlook stems from predictable seasonality: the fourth quarter consistently has lower utilization due to holiday schedules and employee vacations, while the Q3 utilization guidance of 74-75% actually represents a slight uptick from Q2's result.

• Q: Which industries currently lead proactive work, will this change over time, how do reshoring and data center growth impact Exponent, and how will a declining PhD supply affect hiring?

  A: Management notes the top industries for proactive work currently are consumer electronics (driven by user research and hardware development), chemicals (driven by proactive regulatory compliance), and utilities (driven by grid risk modeling). These are expected to remain the core proactive growth drivers, with new growth emerging in automotive regulatory work for autonomous vehicles and medical device safety/regulatory work for AI-enabled devices. For supply chain reshoring, broader supply chain changes in general drive demand for technology due diligence and failure analysis as companies qualify new suppliers, and data center development creates massive new demand across Exponent's full range of engineering and reliability disciplines. For hiring, management confirms Exponent recruits top-tier PhD graduates from leading universities, and its value proposition (working on high-impact real-world problems across diverse industries versus narrow academic research) supports continued successful attraction of talent, with only ~5% of new hires requiring visa sponsorship.