EXPONENT INC Q1 FY2025 earnings call

• Exponent's first quarter results exceeded expectations, with approximately flat revenues despite a 5%-6% headwind in technical full-time equivalent employees.
• Reactive services saw demand from chemicals, transportation, and utilities industries due to failure analysis expertise. Proactive engagements were led by risk management and regulatory support.
• Sequential headcount growth of 2% with mid-70s utilization. Business is 60% reactive (litigation support, accident/failure investigation, etc.) and 40% proactive (product/process improvement, etc.).
• Over 10,000 engagements for over 2,000 clients in 2024 across various industries.

Exponent's engineering and scientific segment represented 84% of revenues before reimbursement in the first quarter, with revenues before reimbursements approximately flat. The environmental and health segment represented 16% of revenues before reimbursement in the first quarter, with revenues before reimbursements increasing 2%.

• Second quarter revenue before reimbursements expected to be down in the low single digits, EBITDA margin 26%-27% of revenues before reimbursement.
• Full year 2025: revenue before reimbursements expected to grow in the low single digits, EBITDA margin 26.25%-27% of revenues before reimbursement.
• Q2 utilization expected 71%-73%, full year 72%-73%.
• Stock-based compensation: Q2 $5.1M-$5.4M, full year $23.7M-$24.2M.
• Other operating expenses: Q2 $12.1M-$12.6M, full year $49.5M-50.5M.
• G&A expenses: Q2 $5.8M-$6.3M, full year $24.8M-$25.8M.
• Tax rate increase due to less tax benefits from share-based awards.
• Capital expenditures full year 2025 expected $10M-$12M.

• Macroeconomic uncertainty causing clients to delay proactive work.
• Slower responses from federal regulators regarding regulatory consulting work.
• Impact on regulatory consulting and compliance work, particularly in chemicals, consumer products, etc.

Q: Could you contrast the growth rates in proactive and reactive work this quarter and the proportion of reactive work?

A: Reactive business had low single digit growth, proactive services slightly declined. Currently, about 60% reactive, 40% proactive, with most reactive being litigation-driven.

Q: Could you unpack the second quarter outlook, including visibility on edge cases?

A: Second quarter utilization affected by July 4th holiday and edge cases like regulatory delays in life sciences and supply chain uncertainty in consumer products. Guidance reflects current edge cases but expects them to remain edge cases.

Q: How do you think about FTE growth in a choppier environment?

A: Strategically hiring in areas like automated vehicles, asset risk, and digital health. Anticipate year-end headcount to be ~4% higher than start of year, with Q3 year-over-year FTE difference minus 1%.