Exponent's Q3 2025: Contradictions Emerge on AI's Impact and Growth, Hiring Strategy, and Rate Realization

Date of Call: October 30, 2025

Financials Results

• Revenue: $137.1M net revenues, up 10% YOY (total revenues $147.1M, up 8% YOY)
• EPS: $0.55 per diluted share (net income $28M), up from $0.50 ($26M) YOY

Guidance:

• Q4 revenue before reimbursements expected to grow low- to mid-single digits YOY (13-week Q4 vs 14-week prior-year Q4 creates ~7% headwind).
• Q4 EBITDA expected 26%–27% of revenues before reimbursements; full-year EBITDA expected 27.4%–27.65%.
• FY revenue before reimbursements expected to grow low single digits (adjusted for extra week = high single- to low double-digit growth).
• Q4/full-year realized rate increase expected 4%–5%; Q4 utilization 68%–70% (FY ~72.5%).
• Q4 stock‑based comp $4.9M–$5.2M; FY $23.7M–$24M; FY capex $10M–$12M.
• Q4 interest income $1.5M–$1.8M; Q4 misc income ~$200k; Q4 tax rate ~28% (FY 28.5%).

Business Commentary:

* Revenue Growth and Market Demand: - Exponent, Inc. reported a strong third quarter with double-digit net revenue growth, with revenues before reimbursements increasing 10% to $137.1 million compared to the same period in 2024. - The growth was driven by increasing dispute-related work across various industries, such as energy, transportation, life sciences, and construction.

• Proactive and Reactive Engagements:
• Reactive engagements were led by disputes in energy, transportation, life sciences, and construction, while proactive engagements were driven by risk management and asset integrity projects in the utility sector and regulatory consulting in the chemicals sector.

• The growth in reactive engagements was due to rising demand for failure analysis expertise and complex medical device scrutiny, while proactive growth was attributed to growing demand for safety risk evaluation and regulatory compliance.

• Utilization and Realized Rate Increase:

• The average utilization rate was 74.1%, up from 73.4% in the same period last year, with a realized rate increase of approximately 6%.

• This was due to better utilization and a strong realized rate increase, supported by the company's premium position in the marketplace and its unparalleled talent.

• AI Integration and Growth Opportunities:

• Exponent is actively engaged in AI integration, with AI becoming increasingly delivered by specialized hardware and integrated into safety-critical systems.

• This integration is creating new opportunities, driving growth in technical challenges and demanding specialized expertise, particularly in energy, transportation, and consumer electronics sectors.

• Recruiting and Headcount Growth:

• The company experienced a 3% increase in the average number of technical full-time equivalent employees, driven by recruiting and retention efforts.
• The growth is targeted towards areas with strong demand, such as digital health, automated vehicles, and energy, to support anticipated growth in 2026 and beyond.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Exponent delivered a strong third quarter with double-digit net revenue growth." CFO: "We are maintaining our revenue guidance and raising our margin expectation for the full year 2025." CEO closing: "With strong momentum moving into the final quarter of 2025 and beyond, we remain focused on... delivering sustainable growth."

Q&A:

• Question from Andrew Nicholas (William Blair & Company L.L.C., Research Division): I appreciate you taking my questions. I guess, first, I wanted to ask, any early thoughts on 2026 in terms of hiring specifically? It sounds like demand has picked up some. Sequentially, utilization was good in the quarter. I know you're targeting 4% growth in headcount exiting the year, which is relatively consistent with how you've talked about the medium-term or long-term target. Just curious if there are any plans to go at the top end or exceed that normal range given the demand backdrop?
  Response: Recruiting momentum is strong; planning 2026 hiring focused on growth areas (digital health, automated vehicles, energy) and targeting FTE growth in a historical range around ~4%–6%.

• Question from Andrew Nicholas (William Blair & Company L.L.C., Research Division): For my second question, I wanted to just touch on the AI topic. A lot of good detail in terms of the ways that it's starting to kind of make its way throughout your business. Is there any way to size it today? Any thoughts on just how fast it could grow over time? And then somewhat relatedly, should we think about AI-related projects as coming first via the reactive business or would you expect it to be more balanced across proactive and reactive?
  Response: AI is materially integrating across industries and the product lifecycle; difficult to precisely quantify today but is driving both reactive (disputes, failures) and proactive (tooling, benchmarking, risk) work and is broadly balanced across both.

• Question from Andrew Nicholas (William Blair & Company L.L.C., Research Division): Year-to-date, just curious if there's anything you can do to quantify kind of growth between proactive and reactive, just want to kind of have our bearings for thinking about the comps next year.
  Response: Reactive was the primary driver—about ~18% growth in the reactive business in Q3; proactive was roughly flat, with regulatory and risk management up but consumer electronics down.

• Question from Tyler Barishaw (Truist Securities, Inc., Research Division): This is Tyler Barishaw on for Toby. Just wanted to start with on the regulators. 9 months into the Trump administration. Can you just discuss the data play with regulators? How has the nature of this work changed so far? And any trends you can extrapolate over the next 3 years?
  Response: Regulatory work (chemicals, medical devices, automotive) remains strong and increasingly global; some agency delays on the margins, enforcement intensity appears to be rising, and this environment is driving demand and occasional recruiting of former regulators.

• Question from Tyler Barishaw (Truist Securities, Inc., Research Division): Just on the government shutdown, any impact so far from that or expected in guidance?
  Response: Minimal short-term impact—federal contracts are ~2%–3% of revenue, most work remains under contract and Q4 government revenue should be similar to Q3; will monitor if disruption continues.

• Question from Tyler Barishaw (Truist Securities, Inc., Research Division): And then just one final one for me. I appreciate the commentary about headcount growth for next year, but any preliminary thoughts on revenue growth for next year that we can be thinking about at this time?
  Response: No numerical 2026 revenue guidance now; company will provide 2026 revenue and margin guidance in late January/early February and is encouraged by headcount growth and solid utilization for 2026.

• Question from Karandeep Singhania (UBS Investment Bank, Research Division): This is Karan Singhania on for Josh. So can you unpack for us how FTE growth trended in the quarter between proactive and reactive practices? You're just curious if there are like any notable differences in hiring behavior between the 2 of them?
  Response: Hiring is organized by practice/discipline rather than proactive/reactive; short-term hiring is driven by reactive demand, while longer-term hiring targets electrical/computer science and human‑factors expertise.

• Question from Karandeep Singhania (UBS Investment Bank, Research Division): Got it. That's helpful. So just as a follow-up to that. I think you highlighted some of the end markets that you're starting to hire in. So I'm just curious if the mix of your hiring of the end markets is having an impact on the rate increases? And is there any reason why the current rate increase of like 6% couldn't carry on going forward?
  Response: Recent 5%–6% realized rate increases were driven by senior-heavy demand and modest entry‑level hiring; as hiring normalizes and more juniors join, management expects rate realization to trend toward historical ~3%–3.5% rather than sustain 5%–6%.

Contradiction Point 1

AI Growth and Impact

It highlights differing perspectives on the growth potential and impact of AI across the company's proactive and reactive business segments, which could influence strategic planning and investor expectations.

How should we assess AI's current market potential and projected growth rate? Will AI projects initially focus on reactive business or be balanced between proactive and reactive? - Andrew Nicholas (William Blair & Company L.L.C., Research Division)

2025Q3: Major ways that we're helping clients with AI is the way they are implementing AI into their systems and them wanting to do that successfully...another category where we are really building tools, techniques and offerings that we're delivering to clients...as you march down, I mean, those are our 3 biggest industries, right, consumer products, energy and transportation...it's touching the business in a lot of different dimensions...we are seeing it on both the reactive and proactive sides of our business. - Catherine Corrigan(CEO)

What are the size and growth expectations for AI-related projects in proactive and reactive businesses? - Andrew Nicholas (William Blair & Company L.L.C., Research Division)

2025Q3: AI is significantly impacting our business across industries in consumer products, energy, and transportation. Its integration touches various dimensions, with disputes in automotive and medical devices, and proactive work in electronics. Growth potential is strong as technology accelerates, with AI penetration balanced between reactive and proactive work. - Catherine Corrigan(CEO)

Contradiction Point 2

Rate Realization and Hiring Trends

It involves differing expectations regarding the sustainability of the company's current rate increase, driven by inflationary demand and a mix of senior and junior hires, which could impact financial projections and hiring strategies.

Is there any reason the current 6% growth rate couldn't continue? - Karandeep Singhania (UBS Investment Bank, Research Division)

2025Q3: We've had...a strong market driver for that...as we see hiring increase, that will bring in more entry-level people into the organization, so those factors will weigh on what the realized rate is as we move forward...we're looking at a rate realization that's more in the historical normal range of 3%, 3.5% rate realization than we are, something that's 5% or 6% as we look at it because of all those factors. - Richard Schlenker(CFO)

Will the 6% rate increase continue, and what factors are influencing it? - Josh Chan (UBS)

2025Q3: Rate increase was driven by inflationary demand and a mix of senior and junior hires. As hiring increases and more junior people join, future rate realization may normalize to 3% to 3.5%. - Rich Schlenker(CFO)

Contradiction Point 3

Headcount Growth and Hiring Strategy

It involves the company's hiring strategy and expectations for headcount growth, impacting long-term planning and financial projections.

Do you have early thoughts on 2026 hiring given increased demand? - Andrew Nicholas (William Blair & Company L.L.C., Research Division)

2025Q3: We have strong momentum in recruiting right now...we have to be recruiting now really for adding talent in the first half of 2026...our philosophy remains the same in terms of targeting the recruiting toward the areas where we are seeing the growth...places like digital health, places like automated vehicles, places related to energy...we will be back in a more historical range, right?...I think, is a reasonable place for us to be. - Catherine Corrigan(CEO)

Can you comment on next year's revenue outlook? - Tyler David Barishaw (Truist Securities, Inc., Research Division)

2025Q2: We expect to start the year with approximately 4% headcount growth. Utilization is expected to be around 72% for the year, providing a strong foundation for future growth. We are positioning ourselves for a good outlook going forward. - Richard L. Schlenker(CFO)

Contradiction Point 4

AI and Industry Impact

It highlights differing perspectives on the impact and growth potential of AI across the company's business segments, which could influence strategic planning and investor expectations.

How should we assess AI's current size and growth potential, and whether AI-related projects will prioritize reactive business or balance proactive and reactive approaches? - Andrew Nicholas (William Blair & Company L.L.C., Research Division)

2025Q3: Major ways that we're helping clients with AI is the way they are implementing AI into their systems and them wanting to do that successfully...another category where we are really building tools, techniques and offerings that we're delivering to clients...as you march down, I mean, those are our 3 biggest industries, right, consumer products, energy and transportation...it's touching the business in a lot of different dimensions...we are seeing it on both the reactive and proactive sides of our business. - Catherine Corrigan(CEO)

Can you share any initial revenue guidance for next year? - Tyler David Barishaw (Truist Securities, Inc., Research Division)

2025Q2: Exponent is excited about future growth opportunities, particularly in wearables and sensors, energy, automotive, and AI integration. The company is seeing early engagements and diversification in client bases, and they are well-positioned to benefit from these trends. - Catherine Ford Corrigan(CEO)