Exponent (EXPO) 26 Oct 232023 Q3 Earnings call transcript

Good day, and welcome to the Exponent Third Quarter Fiscal Year 2023 Earnings Conference Call.

[Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joni Konstantellos of investigations. Please go ahead.

you. Thank and ladies gentlemen. afternoon, Good you us XXXX Exponent's Quarter joining Results Thank Conference on Financial Call. Third for Please note website that the this call will be section the Investor simultaneously of company's www.expone.com/investors. corporate at Relations webcast on

other is call prior Exponent taping prohibited property This reproduction conference expressly the is consent. and of any or written without

call are Officer. Catherine Rich President Chief Financial Corrigan, Executive me Schlenker, and Chief Joining Vice today on President the and Dr. Executive Officer; and

forward-looking involve that Before including, we and like would limited differ following those here. Exponent's but may statements, start, uncertainties materially contains to, to remind not discussed to that the future discussion you actual financial risks I market and results from cause opportunities results and that

excellent today, can And factors in now in are including based call Form be a Chief Dr. otherwise. Corrigan, new SEC filings, Additional or on most under in turn statements discussed -- periodic and found whether developments them, or risks result this to that information cause Catherine? current obligation statements actual of Executive Exponent's those could caption The forward-looking recent Catherine of results as I expectations Exponent's conference and Risk the update XX-Q. revise Factor forward-looking Officer. to call differ assumes to over the as will no from

more call by a Joni, now open you, provide will third our reviewing quarter and for off review today. and will outlook, questions. XXXX financial start then results Thank thank performance. we will you, us everyone, of joining the I and business Rich our for detailed

across all deliberate earnings with continue to again delivered services industries once we innovation, made revenue of off. of our supporting expand investments pace third and to we've and of The quarter, capabilities stay the growth the we pay During serve. diversified portfolio nearly ahead growth broad-based

to for or to continue life client significant Exponent. is be differentiator a throughout assets the or technology ability product and Our needs anticipate cycle will

markets nimble to business broader align of our adapt exceptional exists we ability team serve, and but in capabilities integrated with market Of remain the our experts and trends. the course, uncertainty expansive us dynamic our these to provide

quarter reactive demand to in driven Growth Turning was our strong for by in more third detail. services. continued the a bit our quarter

by for strength engagements proactive Overall, the across by we sectors, in seeing driven moderation were consumer transportation geographic majority dispute-related sector. am life of demand increased projects our reactive we regions. in see various chemicals the are demand offerings pleased large services, in business. sectors domestic spanning continue international Our offset and the the and utilities Within energy, with to I involving capital the continued electronics and robust sciences the

consumer the recall-related quarter. product liability and in increased automotive work and Additionally,

Our This by consumer by the increased the the of proactive in offset product timing the life engagements industry industry electronics life driven in was work for engagements in regulatory as and ongoing sciences headwinds. chemicals macroeconomic demand sector. well in as moderation ongoing due were consulting to cycles part

engagements product we result, well development subject collection a consulting. data as research human saw As in as and declines

revenues X quarter market and long-term moderation Exponent's regard sector, XXXX. do segment quarters third for support XX% we the other well year. to in increasing engineering in drivers are represented of and third first prior net to these begin positioned segments, our as the we the and With clients optimistic compared to quarter, in to expect scientific this remain continue, about our we challenges While abate the X% to XX% this our in the

increasing our on the safety-related X the life first for regulatory across engagements, in health driven human Evolving the increased strong by XX% sector. year. and activity to Health was sciences third and in saw we net increased of drove represented third the the segment in and requirements chemicals Growth & transportation, demand in quarter, quarter Exponent Exponent's sectors. also prior energy of the construction the services Environmental the and XX% quarter environment, impacts quarters compared for evaluating X% the revenues

on of remain needs within to most to organic out address clients of excellence continue execution and meet close year, growth and drive and be to a the priority focused the The our their and will dynamic our differentiated place needs. essential complex I development and we to capabilities foster As our our expanding Exponent investments trust earlier to the we team clients. mentioned experts

in X.X% in strategically of second To the decreased as with realign growth the of line as business. resources the remains full-time quarter business that with mind. we the employees the resources managing our compared demand top quarter to Further, third to expected, equivalent across end, we continue

approach ensuring a only the to are with headcount with but demand and are taking opportunities current demand our not we longer-term aligned is two-pronged We seeing. also

demand. on areas constrained, and First, are to where we resources but opportunity we the are business focused market meet current recruiting in of see future where

our continue to future firm. consultants are a that to that the the we path to on retained development contribute performance management of will focus ensure Second, strong growth on

and discuss provide the value capabilities, at the innovation opportunity our full to business. turn product well and and We clients In as profitable cycle. environment remain fourth as continue drivers, now Market our growth complexities and the for life shareholders. on summary, trusted remain around across to focused quarter results adviser as over of the Exponent itself the to across detail the for quarter expanding more including safety, position the strong forefront and third our call XXXX. our a our health I'll Rich our strengthening year on outlook drive continues driving increasing to our relationships to

Thank Catherine, everyone. afternoon, good and you,

all saying otherwise unless be comparisons by year-over-year start noted. basis on me will a Let

revenues increased million period to third increased to or I X.X% from X.X% to reimbursements them XXXX, year and million revenues, the compared of to $XXX total quarter before refer For will of revenues the $XXX.X as as net on XXXX. same

as consolidated quarter year-over-year business, the in income revenues net Net headcount. consumer anticipated margins the of of third for per million $X.XX and which compared as in or and in created increase to as as a This in Billable XXXX. to includes is our the approximately technical in XXXX. XX.X% which in which compared electronics margin $XX.X share $X the the EBITDA to in lower XX.X% in or million, decline producing was $XX.X in expenses hours decline X% XX% headwinds prior headwind utilization period million, $XX.X third electronics. quarter tax XXXX. normalize was revenues growth X% to considering a of compared quarter to year share period a significant $X.XX increase or for in to X,XXX, of as of Exponent's third year-over-year, were XX.X% the same as period. the average of year $XXX,XXX, The diluted was quarter diluted quarter to the for quarter third of the was $XX.X were the million an same ago. compared per rate equivalent X This an due employees full-time of X.X% third post-pandemic, net was compared X.X% is approximately the million

was with in XXXX, recruiting This coupled efforts the of second half in of XXXX. improved retention successful the result

on expense The equivalent full-time realized compared of X.X% strategically compared compensation quarter long-term in quarter expense the quarter, Included the approximately Utilization second loss for adjusting total X.X% from XX% period and is in Catherine XX.X%. compensation in in As deferred progress $X.X of a a increase same compensation XXXX, million in to employees third of third the XXXX. our third year demand compensation and to and reflecting of was mentioned, as losses the In the quarter current million loss with same XXXX. of deferred compared as rate XX%, the the opportunities. period increased the after $X.X quarter aligning ago. was to our for and gains expense, resources down decreased a third

and reminder, to a compensation losses line. no on gains offset bottom the income deferred As have impact are in and miscellaneous

quarter. at declined million outsourced Included in $XX $X company quarter, Stock-based a were offices. meeting. personnel compensation operating for reduction million interest the excluding Interest of quarter the third an was annual the amortization smaller quarter $X.X engagement was employee XX.X% depreciation expenses, increased Miscellaneous approximately prior compensation our is income operating other the $X.X third for was expenses a expense the driven $X.X the G&A million. by in use in to decrease and expense in due $X.X million XX.X% increase deferred to in third $X to quarter. of for million loss compared up increased as the expenses by third in This to primarily to period. and rates. driven Other million million year expenses third

in $XX.X the and quarter, million $X.X repurchased capital shareholders we million, expenditures to payments dividend through million distributed During stock. common $XX were

equivalents. third the cash million ended $XXX.X cash quarter with and in We

outlook. our to Turning

XXXX we in fourth to digits revenues reimbursements. reimbursements revenue grow the middle XX% the X XX% expect before For before be year to quarter compared EBITDA and of prior, of single to margin to as

margins headwinds the same quarter. X% reimbursements full year to For pre-pandemic X% revenue to digits be XX.X% the to as or grow remain the consumer in X XXXX in to business approximately expect third before of electronics in year we EBITDA the compared XX.X% quarter before of full assumes This The experienced high levels. and we from year as fourth at margin above the single prior, revenues to reimbursements.

recruiting demand current our are performance ongoing and Catherine to long-term management. strategically we As targeted align mentioned, trends our taking the steps through within actionable resources business with and

As average full-time in technical a fourth result, expect X% the quarter. equivalent employees sequentially decline we our to

year. to in XX% utilization quarter last in be XX% compared the fourth as XX% quarter same expect to We the to

holidays a due to other As in quarter fourth to and is more lower reminder, utilization vacations seasonally the quarters. compared

for to and XXXX. mid-XXs XX.X% to full our to the compared we target continue XX.X% is range in balance as achievable utilization utilization sustained manage long-term expectations believe of XX% We year in Our based market strategically demands. utilization headcount on still of is as

year-over-year be realized increase to We to rate XXXX expect the X.XX%. X.XX%

$X.X to For stock-based compensation million. expect $X quarter, we the to be million fourth

be full we compensation year, million stock-based to the to $XX For $XX.X million. expect

to be For we quarter, $XX.X other the million expenses operating million. expect to fourth $XX.X

other as $XX activities year, pick up. continue operating expenses full office to we to as million -- we to the be in million For expect $XX.X

quarter XXXX, of the we million to For to G&A $X million. $X.X expect expenses be fourth

full year, the For $XX.X to million expenses we be G&A million. to $XX.X expect

income quarter. fourth interest million $X.X be for approximately the to expect We

In addition, income approximately expect the quarter. be miscellaneous we fourth $XXX,XXX to in

share-based from we benefit additional awards. XXXX, not any of remainder the tax For anticipate do

are per year-over-year with EPS. awards were to they diluted lower So which in share-based is a than share benefit the XXXX, tax be $X.X expected to million associated impact $X.XX

year our as For tax expect a quarter be we the XX.X% approximately fourth XX.X% quarter in ago. rate to XXXX, same the to compared

to ability year share-based we growth. closing, In strength to continue turn further of the from as full the the closing now XXXX, the drive awards XX.X% be in Catherine rate, the to remarks. of tax and benefit be is call in back XXXX. X% expected compared the business For will tax our profitable I inclusive for to to confident

Rich. you, Thank

throughout For trusted many Exponent supporting cycle. clients years, in has a adviser life product the been our

innovation create ready diversified As long-term their for in the through team new our challenges, profitability industries. the complexities services our for our drive questions. remain in leverage Exponent and changes of shareholders. guide portfolio ability to We value experts confident Operator, to we our will now dynamic clients of and world-class are

We will question session. now First Truist. Tobey question-answer the Sommer [Operator from comes from begin Instructions]

exit What on quarter sort as year? think you company next into of you rate growth fourth of billable do terms may headcount you. in that Thank run the be the

is throughout give to end at. Yes. or -- hopefully, headcount would around, will then XXXX. position we to will we'll the a in end that where with I a year the X,XXX year we And right puts continue able I us be anticipate grow that, good puts expect that take, to around that us

our phase. are We our part in We're of units working planning of on XXXX are middle plans. the still business their that in sort where

areas later And good And be based demand to is have quarter. a where in position meeting able each but really is expectations in be that -- grow up environment will units number with set those the a our executive the business us across that, increasing. we that team on of those of our demand the to will this on industries

then a expectations. And doesn't demand a And the bit I wondering was at the throughout often sort into could in Catherine, whether the miss at a months each off leveled episode things there well? many October or and an of changes it quarter, you describe sort time of changed was month company from was Or and as in if just there. of which of sort perhaps

described, life like subject the related of Toby. and as machine Thanks, macroeconomic even seeing learning look we're consumer that Yes. of of things to sort been around portfolio to when that. very of I those and sector, some that Rich much electronics It's focused collection, some timing headwinds type around data perspective. in the and at human from this important product the do And more in a by terms very also that, that we've It's work of been much doing we've cycle headwinds. granularly

at as is is is those seeing look And think I designed industries, the a done and and strong, headwinds, that layered that's seeing diverse or all well able being without is really side, -- sciences the I above across in. construction performing about side portfolio what life X.X% strength whether across we that a expenses that prepandemic portfolio that's deliver which really is the the the right? just portfolio very to energy every in -- the side, think I exemplifies But we've or profitability one I'm what back whether were that's that's growth the design transportation, business, despite so those we're with where because of industries, whether being and of other up as of

So in pipeline. but QX, We've it there we of some got also And activity area is a moderation. proposals. where in some seeing in to requests we is nice scopes coming that and the expect work for continue are focused

pipeline we we to are start headwinds progress why into and so is feel further XXXX. these And and even like going to that's once hit XXXX abate of QX then that filling

those granularity I'd numbers. little Yes. just on a Toby, bit And add to of

$X As million there, headwind. we had I about mentioned

would coming of to that thought would $X together less, in the closer we probably we put projects quarter. that to based of in addition level, -- that we in understood, of holding be slightly instead we million And thought timing when that, think July some that, I at on the we fourth in. again, what quarter be

come going now. quarter, We in to now QX to that's expected the start projects least those that first at are expect we what

of that fourth headwind -- that sort quarter. additional those provided So in the

customers consumer go And what into little a if up looking for did planning for insight involve on over could you how you that visibility 'XX. a customer out horizon to area the -- us you much a new said that and just of How view into you your XXXX could and in visibility sort the much in I have follow of into as you sense construct you sort about if give of how describe extent that electronics kind softness. to demonstrate can bit projects

mean a Yes. And look, development side, of I sort that. product mean, field example. often early across the business, things a Tobey, the even the variability failures, we driven by -- there's I But bit less the for be of visibility. that that reactive like on quite imagine lot can has proactive can you work consulting in do

so into that, And necessarily of moving client the not there's piece they're a as is to their that launch, let's say. foresee product able

them, is dialogue but of work element I I'm where the do like. that in often that client that may to sort the data collection that can to trying think or they're an pipeline driven side, understand sort that, life are on that some right? looks of in there the can human of of themselves, course, to say based with even again, cycle what what aspects -- level we the machine uncertainty. learning of really of and they be visualize that not we're do And we they is that iterating may So able on there limit is see to So heading. type through is product we ability the best that of

queue. opportunity see gears. I'll get could X And represents to you composition risk. risk In large that large and of what downside just neutral assess or -- curious calls project business, I'm ask in I on a the you back of the your the project the book there's your relative what more questions, to these about talk Switching and or upside like looks in question PFAS have Understood. I then to whether there? projects, often sort

can cover I'll And large and Rich Toby. PFOS Thanks, project I the Yes. the then let cover maybe it.

about absolutely into substances. we chemicals. perfluorinated to seeing the at supply is activity see the are what kind original increased it are So we're around Poste talked And starts the manufacturers. But issues chain. chemical cascading that I forever of then continuing down

So it's chemicals there. these are in in products in used -- food it, various teflon consumer in you name clothing other packaging applications in and and pans carpeting

into that chain, really And that the and sense, is it environment. the litigation seeing down so cascade what in seeing reactive supply around we're we're

talk work you to the earlier PFOS at on arena substitutions we're more impact are of the environment. for cycle. And in product we proactively, the about chemicals and also looking in We're regulatory product evaluate seeing seeing of industry. they're who the need the clients we life it engagements. that is sorts what when think So their When products, type seeing in in potential it about stewardship, and those those things, even

opportunity scientists, great our of exposure So to interdisciplinary health and help environmental team scientists chemists that material bring that definitely really clients in our to our a area. together scientists, our

portfolio. Yes. we're talked when that fits up That have large to that Toby, in X% we our less large X% quarter in that in portfolio any to what the of projects has X% today really, range. relation they've into don't been historically, been are projects, made And normal doing. this projects we've or in past about the projects

matter, they'll will to Some level. quarter they're will in and up end the part those that a else -- of grow litigation of something and

time. in replace a more but normal will of a more point much this -- projects projects of of couple at it's Our portfolio that,

comes next question UBS. from from The Josh Chan

And the amount same of did X.X% in in growth the headwind, consumer I guess color guess, with with headwind. you now impact the if growth Thanks I electronics you're $X QX expecting mid-single-digit million for then on QX. giving conceptually,

Maybe sector, So guess? outside something that consumer of electronics the talk else I you outside demand could slowing? of about

start where can Maybe the difference, business let's say, and a is there, strong extremely was, your the of pick that holding quarter headcount business was Catherine just really, combination really much utilization mean, time. X-point in as difference out I quarter that in was last that that off year, was mix. I'll was the the was very level fourth flowing of together pretty midpoint last fourth ramping what hurdle Yes. an on and in fill in. year the of that that which a the strong. at

say So any other overall, material in you double-click business. maybe on want parts I'd we're seeing to Catherine, difference not But of that. the

Yes. No, to refer thanks, question. that Rich, -- thanks, and the there's I'll Look, portfolio. for again, Josh,

We that they're folks the when the seeing, what and we And of landscape what on. our do have dispute flows in compare ebbs go are off and kinds when that either we out and fourth we coming about is projects we and we of strong, transportation ask what's or to an quarter the year, the business and very area example I But terms robust. of a just -- that where is what's come of look of we out mean, sort great are. last flowing broadly when in

Life at the what's long we portfolio feeling assistance, risk we're good advanced over driver I'm look the litigation electric about our in We look in Sciences. -- We about where is at inquiries When around at we're generally going getting the vehicles. we're work around utilities term. on think looking

the with on flows go quarter-to-quarter that sort and ebbs to have basis. We of

of out the this levels, demand line desired staffing around little levels bit the little pushed slower Or or the year? year achieve on expect does the given bit? than to a to then still normal do that utilization And next you start get back expected, time helpful. That's

ready today, complete quarter focus -- is line relates improvement next an to of give with XXXX. to our improve it Look, headcount our guidance first definitely the utilization as exact bring year, is the but such, around to we're much to I And the as in think our environment. or that to our are and very are the of that made plan here granularity objective as and with in see points we've demand level in sort utilization, begin our we in not see

comes Next Blair. Andrew from Nicholas from question William

shot maybe business. I more piece consumer want another of quantify try commentary take to which and the that at products to so

drastically is pretty of number? K the I of think relatively a you there of down was here, just your of you how or to much to together trying consumer think mix piece slice moving disclose widespread products. all kind is if in there. this I consumer help could within that's XX% revenue this kind Or Is of parts what tied -- me the

Yes.

a it's consumer on consumer seeing side. in not So more area. the electronics general it decline the products focused focused is primarily, We're

collection So in predominantly it's human in focused almost solely there. the study area. subject or It's data --

that, But are area So focused continue the product and around been is user in how projects about and impact much it -- to which manage is that the some cycle. the it's around collection very to where in electronics, been the it costs which clients what staff market consumer clearly, in going -- clients in product are life study from deciding things are there's this But primarily turn. through is where primarily majority have organizationally they life the in data and and of cycle.

follow-up full guide for in revenue high guide on the and range, you're terms full then year year kind prior the below realize margin bridge I'm which midpoint, at that's the still of were kind within help but the versus margin. below range the margins mistaken. expectation you that for what still And of I down? gap down not maybe the Can single-digit looks for yet like in my on 'XX line, you at me of top guidance before if is It

people that expectation last with hanging since of the call a costs -- else the comes fact just is there it in through kind Is you spoke Or that Or us? kind and business, outsized that you're out? of products that, have to anything expenses there other with any fixed come the of in function consumer

some around next back year? at point

Yes.

a few the million in that it's line. -- is it look, revenue dollars driven being all less by So

where we expected we're of be. level hitting We the to on staffing about are

we and where indicated we make adjustments it. some So had in we thought did would that

we that led and lower revenues the you is a fact out that leverage lower of get has slightly The quite utilization high. have to slightly

it would have last expected this which at quarter. $X the only a that And $X of quarter, look take at as I if in indicated, to really And would been million sort line. just on is goes upper $X million, would margin this our of to probably is what if fall $X.X was the -- I So about, you EBITDA the the the for that third you half have same margin. of million the quarter. fourth million

had expecting probably seeing have We would million in of a up got more hitting ended yourself range. up more put in as million. in points. digits, another you ended would EBITDA of $X and us that And in to such, return million $X XX up couple quarter dollars say, basis with XX that are revenues single have us the about That would let's have or high us

and today's question-and-answer has This the concludes you now attending conference Thank session, presentation. for our concluded.

now may You disconnect.