EXPONENT INC Q3 FY2024 earnings call

Catherine Corrigan started by reviewing Q3 2024 business performance, noting 6% net income growth and expanded EBITDA margin, with third consecutive quarter of increased utilization. Revenues before reimbursements were flat, with proactive business driven by consumer electronics rebound but offset by chemicals headwinds and reactive services high comps last year. Proactive engagements in consumer electronics (user experience studies, product development consulting) and utilities (asset integrity management) were highlighted. Reactive work moderated from prior year highs. Chemical sector had headwinds due to major company restructurings. The diversified portfolio provided stability.

Exponent's engineering and other scientific segment represented 84% of revenues before reimbursements in the third quarter. Revenues before reimbursements in this segment increased 2%. Exponent's environmental and health segment represented 16% of revenues before reimbursements in the third quarter. Revenues before reimbursements in this segment decreased 6%.

For Q4 2024, expect revenues before reimbursements to grow in mid single digits and EBITDA to be 23.5% - 24.5% of revenues before reimbursements. Maintain revenue guidance for full-year 2024 and raise margin expectations. Full-year 2024 expects revenue before reimbursements low to mid single digits growth and EBITDA 27.9% - 28.1% of revenues before reimbursements. Expect average technical full-time equivalent employees to slightly decline in Q4 2024, with sequential headcount growth of 1% - 2% each quarter in 2025. Utilization in Q4 expected 66% - 67%, full-year 72% - 73%. Realized rate increase 4.5% - 5% for Q4 and full-year. Stock-based compensation and other operating expenses guidance provided for Q4 and full-year.

Macro-economic conditions are uncertain. Reactive services performance was impacted by more difficult comps from prior year high engagements.

Q: Jasper Bibb asked about FTE growth cadence in 2025 and weaker reactive performance.

A: Rich Schlenker said expect 1% - 2% sequential growth per quarter in 2025; Catherine Corrigan said reactive was due to portfolio timing and completed prior year engagements.

Q: Andrew Nicholas asked about chemical comps and headcount.

A: Rich Schlenker said comps easier in Q4; Catherine Corrigan said higher turnover in Q3 affected headcount but recruiting efforts ongoing.

Q: Joshua Chan asked about reactive business trajectory and FTE impact.

A: Rich Schlenker said reactive demand still strong but fewer large engagements; Catherine Corrigan said headcount lag not immediately impacting growth as utilization allows surging.