Exponent (EXPO) 25 Jul 242024 Q2 Earnings call transcript

Good afternoon, and welcome to the Exponent Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joni Konstantelos, Managing Director, Riveron Consulting. Please go ahead.

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

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

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

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

in under that those actual Additional could Exponent's caption from the results SEC cause forward-looking filings, XX-Q. Factor recent factors Form differ most including in be Exponent's discussed information to periodic Risk found statements can

obligation as them, new current otherwise. statements and Exponent forward-looking based are developments The on no update risks call and of result of today, conference as a this to or expectations or in assumes whether revise

Dr. And to the will Corrigan, Chief turn call over Officer. now Executive I Catherine

to results efforts and of will margin then of second Thank will we demand. XXXX results you, open thank our in reflecting the for our everyone, We us with business delivered I and of outlook, Joni, expanded and will market EBITDA XX% the more reviewing off second performance, call you, today. Rich income detailed a growth then start financial provide joining operating review questions. and net quarter for the our model quarter, align

a headwinds our chemical in the [indiscernible] during moderated and due last tough the and reactive year. work comparison [indiscernible] consumer in against growth ongoing to growth sectors revenue expected, As quarter

mid-single-digit these sectors. Despite transportation, our and utilities reactive across medicalized the delivered growth fueled demand business by challenges,

continued work, in engagements year-over-year Our strong [indiscernible] partially systems, regulatory detail and investigations. the we to in more matters. onactive by utility implications consumer electronics, the railway liability driver in our and experience growth product safety offset saw business advanced to related well softness transporting of sector. performance proactive modest battery evaluating failure These within demand as and as included technologies assistance to

In causes and understand device to The to continued medical large-scale engineering, safety facts storage. root energy infrastructure team as solar the Sciences, facing leverage be manufacturing and energy of to transition we concerns. human driver Life our disputes advised clients a involve continued their

integrity utility quarter, the engagements work. we litigation the services, [indiscernible] sector. as to proactive Within driven clients During continued quarter headwinds caused in see the sector work our in our asset were some by near-term

infrastructure For and ignition evaluating for example, emissions risks mitigations electrical evaluating vehicle and technologies. in transportation

continued cycle While timing related in signs headwinds industry of impacts, stabilization. industry seeing life consumer product we to we're electronics more broader and to experience

uptick engagements. encouraged an Our product development began consulting in in and to the quarter [indiscernible] human by subject research were activities

of revenues our segments. demand sectors. and transportation quarter. Turning in scientific in represented Exponent's reimbursements before by reimbursements Exponent's the to segment driven health XX% this Exponent's the quarter. XX% second and in segment other Revenues second and increased X%, represented engineering segment across environmental before energy of services the for reimbursements revenues before

this Revenues segment the decreased before due to in sector. chemicals reimbursements ongoing headwinds in X%

of in future. path energy clients sector create will well with insights to transformation the From positioned [indiscernible] in transportation. towards for challenges to support preparing market technology to the the current industries remains resilience Looking life infrastructure attractive data and ahead, Exponent our and across accelerating while groundbreaking opportunities. renewables applications and continue automation vital sciences,

us expectations. full details will revenue in and Rich performance of the XXXX raising take our through the for outlook and Considering year, first we are half the remainder of the margin the encouraging of that. our

reactive unusually in still headwinds strong services. comparisons on as well in based sector our as we tough growth chemical the face prior However, year

our last agility both adapting consulting team ongoing talent the to demonstrated several marketplaces. Over and incredible our in quarters, our in dynamics has

upon of and will we market leverage diversified our forward, meet portfolio to talent and we continue demands. Going build flex capabilities to as

over our as Rich discuss turn second quarter to more to as the for and detail well and full results on year provide quarter I'll our [indiscernible] the call XXXX. the now third outlook

good Thank you, Catherine, and afternoon, everyone.

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

them quarter or at flat were revenues net of the reimbursements For revenues, approximately to refer the on, second as X% before as will compared to increased same million. in $XXX.X XXXX. XXXX, to And revenue from $XXX.X here I million total period

] per or diluted second increased as million in [ benefit awards the associated was 'XX The quarter per of for as $XXX,XXX share-based share tax was consolidated share, XXXX. realized to share diluted of XX% XXXX. XX.X% second second of compared quarter per the or to Inclusive to impact in benefit the period period. $X.XX to million $X.X quarter with for of prior an immaterial in Net XXXX the $X.XX income $X.XX accounting $XX.X second as rate in for or the diluted share-based compared quarter awards, in Exponent's tax the same year compared tax the

second in were revenues increase employees hours a to in year-over-year the year-over-year. producing was studies of past This [ decrease in an of XXXX. compared the to a driven in were we have of X% year-over-year resources $XXX,XXX, average decrease a during for year the XX.X% decline utilization X% [ The $XX.X EBITDA the demand consumer of of in second margin with for to was our as machine approximately decrease million the primarily strategically by quarter XX.X% revenues aligned of million, as in the which margins XXXX. X full-time income electronics clients. or increased as of quarter data This same the second $XX.X ago, learning compared is ] over to quarter net related X% XXX], quarter net period year. technical equivalent Billable

in same XX% up was Utilization period from of XX%, the in the XXXX. second quarter

In quarter market efforts our expanding $XXX,XXX the also selectively [indiscernible] ago. compensation same the deferred compensation to utilization as As approximately capabilities by to and gains compensation operating in the second a same Included a as to deferred while of in total adjusting back was demand mentioned, period gain realized compared rate drove The for after compared to historical our norms. is approximately Catherine flat. year $X.X losses, X% align and second to gain of the compensation the quarter, XXXX. expense million expense, model our period for a increase of

and Other Stock-based compared to in second compensation bottom compensation million the income miscellaneous offset and As impact was and our in period. $X.X the second offices $X.X quarter no primarily infrastructure. prior as operating $XX.X expenses a engagement reminder, investment year gains in driven the line. to expense are increased in up losses deferred were and on corporate in have our quarter the by at X% million million,

debt compensation in the and income declined by of an Included the Interest in million G&A amortization million in meals million deferred bad due Miscellaneous to travel approximately increased the interest excluding was for $X.X and to for to increase is second other primarily the quarter. quarter. expenses second expense $XXX,XXX $X.X for was decrease second income, rates. operating gain, $X quarter. expense. the and in quarter, driven second X% expenses depreciation This decrease

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

our Turning to outlook.

be reimbursements compared and expect revenues of revenues to to X reimbursement. to be we XXXX year quarter, as For to flat approximately EBITDA the before XX.X% XX.X% before third prior,

we Catherine mentioned, year margin full and for raising As are revenue expectations the our XXXX.

XX.X% fiscal to to XX.X% fiscal be as the digits. for in year XXXX, we low reimbursements revenues mid-single And XXXX. before For revenues of expect to to EBITDA before reimbursements to grow XX% compared

our an net previous Both guidance quarter in additional are sixth X% to estimated current every revenues X.XX% the the the week approximately which fourth contribute inclusive of in quarter, the occurs is or for to fourth year. which year, and extra

quarter. by We expect sequential third be employees in The quarter. the headcount growth of sequential end in average of full-time in than -- quarter will the equivalent approximately X% the second third technical revenue less XXXX the

]% As [ quarter for third FTEs down will the a approximately be average result, X year-over-year.

quarter FTEs in be X% X% the in year-over-year fourth and headcount expect the quarter, fourth to on grow down year-over-year We sequentially to basis. average a to

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

be We as We XX.X% we sustained in based continue strategically to long-term utilization headcount to target still utilization full on achievable XX.X% expect 'XX. believe of compared to manage to balance XX% our year and mid-XXs as the utilization [indiscernible]. margin is

realized expect rate third year-over-year to We for XXXX the quarter X.X% to full X% and the increase year. be

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

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

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

we XXXX, million. the our $XX.XX full be exercised the be early $XX.XX engineering noted Phoenix, to that year, to option and we For Arizona. June other lease operating center on XX, to expect It should in an for testing extend expenses million

to we our Although pricing current wanted at this lock XXXX, time. doesn't in lease expire until the

Although rent each of the an expense will This million second period. during and noncash any quarters. rules in not the immediate to the of expense we lease $XXX,XXX during increase in pay recalculate accounting new and rent lease fourth the XXXX, us of until of our length resulted $X.X require the quarter increase higher for the an rent third

be as will excited facility our are part to integral very it We to of an believe continue this secure we growth.

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

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

We income be million to per remainder for quarter interest of expect $X.X to XXXX. million $X the

own. for miscellaneous loss In Park and rental quarter. the the which $XXX,XXX due we $XXX,XXX a income to of be XXXX the in decrease an addition, to $XXX,XXX $XXX,XXX we sequential the in approximately in Menlo expected to to tenant fourth and [indiscernible] fourth This quarters our includes income building, anticipate third of in third

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

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

focused pleased now due XX.X% is full I the to call profitability awards balance -- remarks. for In in the be the tax to and tax closing, from we maintaining our compared between expanded quarter benefit remain model as market expected rate tax Catherine with and closing the share-based are less will to operating demand. back XX.X% is [indiscernible] growing The in XXXX, the first in the XXXX. rate increase the on year to quarter. For and this turn

in of abounds In that capabilities, Thank variety expanded of top the technologies on fueling you, team. and environment talent the growth our products, future we of applications, are Excellent safety-critical focused and innovation recruitment this development of relentless Rich. through exceptional and regulations. engines

cutting forward, our questions. for of value. will [indiscernible] to Looking steadfast position Operator, in long-term strategic and now deliver sustained our innovation, ready we ability shareholder edge profitability in are maintain remains we

comes question William Andrew Nicholas first with Instructions] The [Operator from Blair.

increased a maybe we I ask about the better the second previously wanted of it of the that and on growth what fourth in any product what's driving optimism consumer thought kind I'm half outlook. gives expecting than It be in to the and it visibility momentum in in on increased specific conditions? that. more the side? conviction is wondering looks back third color Is quarter. you're bit Just half some more And great. first just any growth like you year, Is would specific had

in start of Andrew. QX in learning Rich Yes. is our QX sequential the and really thinking add on have improvements the part that studies equation I'll certainly the seen machine user of around to and research in our We're Yes. here. about data course, work and But very here. pleased -- electronics Thank electronics. side, can, last you,

signs We to sort looks continue into them some some of half improvement. trend and with more client a of the visibility close sequential QX. -- group continuing to those back We're about that of talking of year what lot like. getting seeing in with be that We're the conversations

another in more And And we've modest and on of work. seen house hardware where the side of sort related electronics, some is the product the area there. of the development improvement other consulting upticks, work some that's this

there are there And side coming signals so good of is market. -- from the that

equation. that's that. the with And pleased we're part certainly of so And

I electrification would and automation work transportation of we're you look by that encouraged well our well. drivers other into reactive as the the around are doing This back market we're work has we half business, as general technologies. doing year. areas and look given the assistance at And outlook in some encouragement, when and in driver advanced on say, We the wearables us the of as

work out would that we last I through -- knew clearly real that, reactive that the to consumer some electronics we in business. strong headwinds to yes, question relative growth to being had is of in rate that we come trying able where to were there Yes. chemicals. biggest a how end just we the would to exceptional we But thing still year some a had needed add, forecast up areas would really relative we and

now -- I we've Something year, second doing here last years to quarter for XX the years, growth able been reactive be XX%. XX, having -- XX to guess. that And was

of this time encouraged area we and by higher mean not -- to we plethora continuing that grow year-over-year that The than fourth jobs the be that in some to think of on I even we're and forward. what high realized that were good-sized in to that teens going in where XXs able basis into for very the we had that being a during even quarter the third modest. fact and The that low period quarter. here was fact the [indiscernible] And

on when Last -- and see net overall the prior performance had want we was better over too. we're year. of year's growth, the QX the and growth -- at in surface. but not revenues it market even -- look But are X% that we've be not QX inspiring to you That that realized circumstances last the the several. getting don't We the and X% in flat in growth and over negative We strong there. been growth guidance

very So long public underlying to held the we're encouraging got a But demonstrating periods. long we're there's very company. to term, the term. know these we're timing. the for think I We've -- encouraged. We But accountable demand quarters. through is We're this work that is just always

us ambitions headcount And maybe then and follow-up you to as around into and little talk helpful. about to turning commentary, headcount like It are improving growth. certainly hiring to to if things could that lean a a enough the just bit Very on back want front. seems

hesitant aligns do it you with absent about talk that, or about to a it. would you're thinking not could you're multi-quarter, or I that maybe just If whether how if appreciate

Andrew. Thanks, Yes.

always is philosophy, absolutely the we of strategic as where areas that mode. recruiting recruiting has But we for target individuals know, growth the see And our it [ in been areas because are X they in engines opportunities. we those market growth it's you So those of the the ] future. our develop, key based this on as true

utilization balance to be, are so we're in able getting ripples we to get some back like And the where count, through been that head would we to hiring. of and it our we've and

PhDs, the coming We of important universities. not into important the hire year that time a one. a really fall season for That is of really at are recruiting it's us, new year time the but only we

And are And on toxicologists side, batteries those are interviewing we so we sensor areas, key technology. all of are need already areas and automation those in we where and epidemiologists, are running those over health and and vehicle engines. disciplines these the growth engines

are So in for we sure, that mode.

Yes.

all didn't game. that to I turn It's you there And is it's But got market I longer just -- that was we that, a keeping our things. got we those always it's ourselves and recognition year, it's it in to high low last for of growth the but in headcount XXXX were second QX other But it. important was XX%. yes, of there. remember. quarter, and rates it's things, acceptance And into We that came turnover lots doing and up PhDs let -- and there. -- recruiting around. think -- back from on year-over-year the

to where place I of really it which But a in all we led we did we are as X and We take to sort moderating gradually management performance adjustment to that that. off back. described, make do [ of that, need think, that now didn't down an came way Catherine prudent a in But ]% the to, healthy tried we've recruiting.

the I QX third of the better holidays utilization. the the We points of are fourth more slightly and for up in vacations the There's and down step timing first utilization quarter tick slight than in a then and XX% another quarter means but again vacations. a with it's equal -- holidays, of than when admissions then in because first that in in couple takes in quarter, think it second adjust the quarter second and and which is utilization you holidays

down. be think because position and I business came comfortable ourselves head hiring the leaning into overall, our gives a slightly it's that units But more good getting recruiting and Now balance a count where into was can the process.

The Chan next with question from Josh UBS. is

will expect already. growth Maybe low XXXX? any year on possibly the that how in position headcount feel -- you topic, utilization projected exit guess your rate you XXs exiting you're QX you in I for do like the

into count So next head just year versus going of about you're how growth thinking kind curious again.

Yes.

address all, you're obviously, trying because, model. of of that part to I'll First keep the that utilization

what around expect. for what I quarter. we're in we or give expecting in only what quarter. in additional is it's because of are, yes, holidays would third That's have think occur And that judge. vacations we're but guiding lower, utilizations that and it's fourth the we Adjusted what a take, here that the

not -- we're we're expecting that. So

us or be, are just have here in sequential We'll will will it that down. the predict to will on because it would this lap bit on up. started get those trying early year going of this we've little along that that it's we -- the I'm we still And at stepped year-over-year down up a we've area. see where to where in within QX prepared gotten even a where based the Secondly, that it brought step we'll do to relative or still our be downs time, be fall that have on not exit, to catch to will -- to having still momentum growth this on in that's XXXX got progressing, because I and planning expect how about are moving we sequential have where again, where far

I months come able fourth up the early few quarter. probably think up be lined for we acceptances to need what until won't we've got and we've we see out and into a of to get what lined more year we XXXX, to the have got that into

growth the slightly gets reactive maybe And tougher, wonder the behind Perfect. know versus why mentioned little in on QX Is second QX in any QX growth guidance. that QX? if I but there's down any comp I my is you reasons the question moderate there slows than. reason more other a growth

think -- well, I about It the it X is is comparison Yes. things. it first comp here. of all, really One, is

if look in what the I QX's overall the third did, versus the about -- X% in you an including growth we at XX%, drop was year had grew a reactive business you there. rate business. we as XXs fact we the a If And consumer talked -- quarter that rate overall, ago growth fact low electronics that XXXX -- as company, a in in

So had a that area X%. negative

XX%. ex ago, had So year electronics that a consumer of sort we

strong, very of of period. lot other very, stuff, that a strong very litigation So lot in activity a were

So -- do addition stepping third quarter. those a couple down in a are had that in the of we the we few areas in comparisons good that quarter second have to in projects that,

so well. step have accounted we've headwind, we little of provided activities, And as of a we little that and bit bit those of a off for

with Instructions] Tobey question [Operator is next The Truist. Sommer from

perspective X, that of on if X decreasing. is and business? to for X, often maybe I your coming the driver topic was for interested in What and updated as it's a in quarters expectation how increasing new or ago, AI-related might relevance business how compare it that your your up getting projects, is

Yes. Thanks, Toby.

our coming failure One using of decisions artificial to traditional system that continue in, oriented about but talked We've toward AI see different intelligence. work, in ways. analysis is these some making before. a we is So

area you that technologies grow did our and as is to That questions transportation. systems your whether more perform into properly with had assistance they vehicle this is even continues an equipped transition question So of complex that it. vehicle your now advanced that the of driver

signs seeing that testing early trends we're around encouraging And in area. of

novel of the part [indiscernible] very business methodologies our mentioned. is that test some investment Rich And drawing around Phoenix facility this developing been in are side have our that. that for We

of fairly of reactive still the in the So curve it there. We're we're around questions terms around device the in side early AI business. seeing medical

coming. making are -- that about the But opportunities or what that the think, machine problems health-related that have artificial learning we There system we glucose leverage that is, and I or in are to is places also is decisions intelligence for is algorithm. you, way more an seeing This wearable where aspects monitoring using clients. more solve the

shipping, that So to journey they and testing durability of make to machine come use us can to packaging decisions robust in of of massive that amounts take be data during and what exposed with question about a order during about that about the learning exposure to the to their in its packaging packaging needs be we application.

great So our for creating efficiencies clients.

questions. the answer then tools So the the questions the we're just the course, also, using and developing algorithms about to tools there of fundamental And are themselves.

as a software areas and medical And that. device like

on days more those capabilities our of early problems. and relatively some proactive still applications encouraged our by of solve our learning to So areas, of development am in continued machine the I increasing but use

Yes.

medical or need to think enough applications on X really doing add our in the it. in to device I think other they're things what health understand are do doing. applications and data questions standard back and and we can client a real versus studies help do I gathering -- our in are other the training a or algorithms around client gold versus what are how that performing that X really and benchmark coming help back coming us to X about increasingly we the there. what -- are And the

So out that get benchmark it. of that so augment you continue then can improvement and to

there. the learning hardware Is that algorithm, you're the it improved sensor? and is Or machine the tool it doing improved

other And multiple that applications. deep one in multiple we've area. been big clients, in a the one, that's and So

building off utility so and their -- happening algorithms reliable the shut in help make our they is and decisions and in the can power the with and them in the in reliability to one other as relying the data gather extreme sector models really decision is is here that risk more upon of able here robust we're validating The to about clients environment. events. systems models decision to in are that And build weather what when

conversations guess with elections global when assumption, I the senior respond but the about What because question bit we're are you're impact let is already I'll cater snap more hearing you are towards process. your And hearing globally now my having? that we've had In new any consultants. customers from you I unanticipated and of elections relatively middle surprise proactive our in with some election outcomes own a

Yes. Thanks, Toby. Certainly, and not always paying when attention Historically, to these hasn't company with a nature. administrations time the been sorts seen there that swings things of we've has significant things. changing -- of

on changes course, have we expectations an but absolutely don't And to change frameworks. environment. perhaps -- counterbalanced around And ease Of regulation the society's around efforts even globe on be and over tend time with health of find to also overnight. regulatory safety, we that the administration can they find that impact increasing

more driving of the parts because of on is whereas portfolio, things side And let's our and of That pullback we're more nature. regulation, in building and you're human exposure and around we say, that there there's to deep different higher work then opportunities disputes, our some of pipelines. chemicals the in regulations around of get more able reactive also increase area bars if construction can

tracking that the is it and a related impact on case question be we're of empowers to potential and and hasn't to by different -- absolutely they're overturning But far. any there it aspect decision some the Court, getting the engineering. how regulated entities balancing science challenge been grounded so in regulations in the found we've in really question Chevron the asked case, another So that Supreme based of Chevron

tracking a or with seen and like increasing closely. environment, of questions of step see we these And kinds that, there change no material positioned anything to be our clients and capitalize so safety again, certainly a And kind wouldn't the and questions we'll engaged on But surprised function look, foundations and well in way. regulations. the be there health but scientific about change about complicated We're we're time to are get regulations those when we're haven't that. over step in of

I appreciate you I because was that's into where going right next. leading Chevron

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

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