Exponent's Q3 2025: Contradictions Emerge on Hiring Strategy, Regulatory Environment, and AI Integration

Date of Call: October 30, 2025

Financials Results

• Revenue: Net revenues (revenues before reimbursements) $137.1M, up 10% YOY; Total revenues $147.1M, up 8% YOY
• EPS: $0.55 per diluted share, up from $0.50 in prior-year period (net income $28M vs $26M)
• Operating Margin: EBITDA margin 28.3% of net revenues, compared to 28.6% in the prior year (YOY decrease primarily due to managers meeting costs)

Guidance:

• Q4 revenue before reimbursements expected to grow low- to mid-single digits (13-week Q4 vs 14-week prior-year Q4 implies ~7% calendar headwind)
• Q4 EBITDA expected 26%–27% of revenues before reimbursements
• Full-year revenue before reimbursements expected to grow low single digits; full-year EBITDA 27.4%–27.65%
• Q4 utilization expected 68%–70% (vs 68% LY); full-year utilization ~72.5% (vs 73% LY)
• Realized rate increase 4%–5% for Q4 and full year
• Q4 stock-based comp $4.9M–$5.2M; full-year $23.7M–$24M
• Q4 other operating expenses $12.7M–$13.2M; full-year $49.5M–$50M
• Q4 G&A $6.1M–$6.6M; full-year $25M–$25.5M
• Q4 tax rate ~28%; full-year tax rate 28.5%; no additional tax benefit from share-based awards expected
• Full-year capital expenditures $10M–$12M

Business Commentary:

* Revenue Growth and Market Demand: - Exponent, Inc. reported net revenue growth of 10% to $137.1 million in Q3 2025, compared to the same period in 2024. - The growth was driven by strong demand for Exponent's risk management and asset integrity services in the utility industry, disputes in energy, automotive, and medical device sectors, and regulatory consulting in the chemicals industry.

• Reactive Engagements and Utilization Growth:
• Reactive engagements across various industries, such as energy, transportation, life sciences, and construction, were significant drivers of growth.

• Utilization increased to 74.1% in Q3 2025, compared to 73.4% in Q3 2024, indicating strong demand for Exponent's expertise in dispute resolution and reactive services.

• Proactive Services and Regulatory Consulting:

• Proactive services were led by risk management and asset integrity projects in the utility sector and regulatory consulting in the chemicals sector, contributing to overall growth.

• Although offset by lower activity in consumer electronics, proactive services saw growth in regulatory consulting engagements, particularly in the chemicals industry.

• Realized Rate Increase and Talent Retention:

• Exponent realized a rate increase of approximately 6% in Q3 2025, compared to the same period in 2024.
• This increase is attributed to the company's premium position in the market, unparalleled talent, and differentiated interdisciplinary expertise, as well as a strong demand in the reactive business for experienced staff.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Exponent delivered a strong third quarter with double-digit net revenue growth"; CFO: EBITDA up 9% to $38.8M and Board approved $100M increase in repurchase program; CEO: "We are pleased with the growth we delivered in this quarter and look forward to closing out the year strong."

Q&A:

• Question from Andrew Nicholas (William Blair & Company L.L.C., Research Division): Any early thoughts on 2026 in terms of hiring specifically? Any plans to exceed normal range given the demand backdrop?
  Response: Recruiting momentum is strong; targeting hires in digital health, automated vehicles and energy; planning 2026 headcount growth likely in a historical range around 4%–6%.

• Question from Andrew Nicholas (William Blair & Company L.L.C., Research Division): Any way to size AI today? How fast could it grow and will AI-related projects be more reactive or proactive?
  Response: Difficult to quantify today; AI is materially integrating across industries and the product lifecycle and is balanced across both reactive (disputes/failures) and proactive (design/validation) engagements.

• Question from Andrew Nicholas (William Blair & Company L.L.C., Research Division): Year-to-date, can you quantify growth between proactive and reactive to help think about comps next year?
  Response: Reactive has been the primary growth driver—~18% growth in reactive in Q3—while proactive was approximately flat, though proactive studies (e.g., human-machine) are improving into Q4.

• Question from Tyler Barishaw (Truist Securities, Inc., Research Division): How has the regulatory/data work changed under the current administration and any multi-year trends?
  Response: Regulatory demand remains strong—especially in chemicals and medical devices—and global regulatory frameworks are raising the bar, producing continued regulatory consulting work despite some isolated delays.

• Question from Tyler Barishaw (Truist Securities, Inc., Research Division): Any impact so far from the government shutdown or expected in guidance?
  Response: Minimal near-term impact—federal work is ~2%–3% of revenue, most work was under contract and Q4 government revenues expected to be similar to Q3.

• Question from Tyler Barishaw (Truist Securities, Inc., Research Division): Any preliminary thoughts on revenue growth for next year?
  Response: Will provide 2026 guidance at year‑end/early‑year call; management is encouraged by headcount growth and solid utilization and expects to be positioned for growth but is not providing numeric guidance now.

• Question from Karandeep Singhania (UBS Investment Bank, Research Division): How did FTE growth trend in the quarter between proactive and reactive practices—any differences in hiring behavior?
  Response: Firm hires by discipline not by proactive/reactive; near-term hiring is being driven by reactive demand but long‑term hiring focuses on electrical, CS, controls, human factors and biomechanics to meet future technology trends.

• Question from Karandeep Singhania (UBS Investment Bank, Research Division): Is the mix of hiring affecting rate increases and could the ~6% rate increase continue?
  Response: Recent 5%–6% realized rate increases reflect strong demand and a slightly more senior mix plus limited entry‑level dilution; management expects future realized rate growth to normalize toward historical ~3%–3.5% rather than sustain 5%–6%.

Contradiction Point 1

Hiring and Staffing Strategy

It involves the company's approach to hiring and staffing, which directly impacts operational efficiency and financial projections.

What are your initial 2026 hiring plans and how do they align with the demand outlook? - Andrew Nicholas(William Blair & Company L.L.C., Research Division)

2025Q3: We have strong momentum in recruiting and are planning for talent additions in early 2026. Targeting growth in areas like digital health, automated vehicles, and energy technologies. We will likely be in a more historical range for hiring, around 4% to 6% growth for 2026. - Catherine Corrigan(CEO)

What is your preliminary revenue outlook for next year? Will growth return to high single-digit to low double-digit or remain in mid-single-digit? - Tyler David Barishaw(Truist Securities, Inc., Research Division)

2025Q2: We're planning to start 2026 with a 4% headcount growth and potentially increase that to 4% to 8% as we move through the year. - Richard L. Schlenker(CFO)

Contradiction Point 2

Regulatory Environment

It involves the company's assessment of the regulatory environment, which impacts business operations and client demand.

How has the regulatory environment changed under the current administration, and what trends do you see over the next 3 years? - Tyler Barishaw(Truist Securities, Inc., Research Division)

2025Q3: Some delays in feedback from regulators, but overall, regulatory work is growing. Stricter enforcement and notices from agencies like FDA and CPSC. We're seeing opportunities to recruit from agencies due to shakeups. - Catherine Corrigan(CEO)

How has the regulatory environment changed? How is it affecting demand? - Karandeep Singhania(UBS Investment Bank, Research Division)

2025Q2: The regulatory environment around EPA has seen some slowdown due to staff layoffs and turnover, leading to delays in decisions. - Catherine Ford Corrigan(CEO)

Contradiction Point 3

AI Integration and Impact on Business

It involves differing perspectives on the impact and integration of AI in the company's operations, which can influence strategic planning and market positioning.

Can you quantify AI's impact on your business and its growth potential? - Andrew Nicholas(William Blair & Company L.L.C., Research Division)

2025Q3: AI is significantly integrating into our work, impacting both reactive and proactive sides. Key areas include electronics, energy, and transportation. It touches products across their life cycles. Growth potential is high, especially as AI continues to accelerate. - Catherine Corrigan(CEO)

Where is talent demand highest, and what trends or areas should we focus on? - Karandeep Singhania(UBS Investment Bank, Research Division)

2025Q1: We're seeing quite a bit more work in the electrical engineering, computer sciences area, as well as aggregate and human-machine interaction. - Richard Schlenker(CFO)

Contradiction Point 4

Hiring and Headcount Growth

It involves differing statements about hiring plans and headcount growth, which are critical for understanding the company's future expansion and capacity to meet demand.

Can you discuss 2026 hiring plans and how they align with market demand? - Andrew Nicholas(William Blair & Company L.L.C., Research Division)

2025Q3: We have strong momentum in recruiting and are planning for talent additions in early 2026. Targeting growth in areas like digital health, automated vehicles, and energy technologies. We will likely be in a more historical range for hiring, around 4% to 6% growth for 2026. - Catherine Corrigan(CEO)

How confident are you in your near-term pipeline visibility given strong demand across sectors like chemicals? How conservative is your guidance considering these dynamics? - Andrew Nicholas(William Blair)

2024Q4: We are, as you know, already at a higher head count than we were 4 quarters ago. In fact, we have increased our head count by about 6% in the last 2-plus years, and we are planning to increase it by another 3% to 4% by the end of this year. - Richard Schlenker(CFO)