Exponent (EXPO) 24 Oct 242024 Q3 Earnings call transcript

Good afternoon, everyone, and welcome to the Exponent Inc. Q3 2024 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Joni Konstantelos, Managing the Director with Riveron. Please go ahead.

you. Thank and ladies gentlemen. afternoon, Good you Exponent's Results Quarter Financial joining Call. Thank Third Conference XXXX for Please call corporate that Relations note this section the webcast of Investor on the company's website www.investors.exponent.com. will at be simultaneously call other is or conference any written without reproduction is Exponent expressly of This and property taping prior prohibited consent. the

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

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

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

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

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

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

utilization with continue operating third efficient and We the third demand, are of This expanded the pleased we in our resource model drove quarter market margin quarter. X% consecutive as to with our of income management. increased EBITDA alignment which commitment net growth the year-over-year marks

in were revenues the expected, before reimbursements flat As quarter.

the a in last in year-over-year over sector reactive this returned chemical XX% of year. growth, electronics in growth and offset by driven to but business persistent exceptionally proactive benchmark an healthy headwinds rebound high by was largely our consumer Our services

a dynamic stability operating portfolio diversified to environment. of strength inherent continued The in provide our

for Turning Exponent machine data when detail. development at and quarter by Proactive products, features in work issues well that to consumer training cycle, more materials. Clients turn experience were expertise whether in development risk-related electronics stage, our and across studies engagements in to product breadth as driven the engagements or user as sector curating utilities. in to our consulting addressing the the learning adding life sustainable the increased is incorporating product novel of existing more performance electronics

sciences. wearable health mitigate electronics are to which We of capitalizing of but the applications our diversify the are timing. are not driving is only intersection use and cycle increased These life applications sensors to related and in product serving life opportunities portfolio healthcare-related at on driving challenges to also future growth,

on infrastructure regulatory high since systems. the the driven consulting included advising product and related to safety change. battery in clients the continues In litigation advanced work completed. management driven evaluations been by the growth prior assistance from our growth our by significant and the transportation Engagements technologies as exceptionally reactive sector, utility engagement, increased asset climate face scrutiny Activity to resilience regulatory our of they their moderate integrity was and challenges and several performance in have liability projects, in including quarter the driver industry, year, of in which

energy disputes storage. energy, large-scale In wind, and on we infrastructure consulted solar involving

occurring work. chemicals as the clients quarter, budgets moderating regulatory major see in significant we with several This resulted to companies well in the sector. During near-term among as this restructuring Consistent continued the some litigation space. headwinds in

long-term and for to routes. diverse across performance industries complex growth our challenges services in deep seek While the and year-over-year our a comparisons advice supporting the our challenging, array leading analysis Clients and stability grounded market our are position doors, regulatory in reactive of potential. most in continue safety failure technologies,

to our and before increased driven before scientific Exponent's in the in quarter. engineering by the Revenues reimbursements before segment reimbursements health in headwinds X%, consumer XX% this revenues represented sectors. of Exponent's electronics Turning reimbursements other quarter. and segment due represented services segment reimbursements Revenues before in segments. chemicals third segment demand third revenues and XX% the utility in of X%, and decreased Exponent the life across sectors. sciences for environmental to this

made have strategically to market significant we to strides demand. year, resources align our This

a of this months of the for plan guidance our last for the maintaining full over XX% first raising has Considering robust have our quarters, in margin XXXX. this year. executed rate it several and while we guidance We revenue the are resulted X utilization progress,

While our head recruitment our third count count of focus quarter demand. efforts anticipating continue meet each will in head we quarter, was sequential to strategic the lower than growth anticipated XXXX market in on

As preparing out while needs solve focused the are diligently we for we our to delivering exceptional future close service year, clients' current challenges. on their

safety, for to We the continue upon environment multidisciplinary to forward. as business our health the expertise build drive increasing and expectations our

conditions strengthened increasingly macroeconomic While by our future us navigate while breadth portfolio, allows and challenges of certain, depth growth never is the to pursuing opportunities. are which Exponent diverse

Looking trends we into meet our our next to of as the evolving year, to we expand offerings clients. remain encouraged continue needs about market

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

and everyone. Catherine, good you, Thank afternoon,

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

increased same income them diluted awards Net million. realized before I million for quarter the net revenues or benefit in an Exponent's awards, compared rate of consolidated year prior XXXX $XX.X per X% of as as immaterial to share, quarter $X.XX or impact per of XXXX, $XXX.X the were in XXXX third share, the to $X.XX as Revenues million or to compared XXXX. for the producing tax $X.XX revenues, of XXXX, $XXX,XXX to share-based to in end period. quarter of million diluted $XX.X to net per in flat quarter quarter compared tax of reimbursements the with revenues associated of margin or EBITDA refer to at third the the For The $XXX.X third here for to as million, on, total share XXXX. XX.X% in XX.X% $XX the X% will accounting of XX.X% XXXX. revenues third period was the same quarter million of net the as to from of increased or the compared was period from tax same benefit increased for $XX.X XX.X% period as diluted third inclusive share-based compared a

the in decrease a down of year-over-year. decrease to is Utilization XX.X% XXXX. by were for quarter in us which quarter achieve third in year-over-year in third demand, the technical The approximately compared was third full-time we $XXX,XXX, of allowing ago. the utilization rate period to third as have during our This same utilization increase quarter equivalent as an quarter compared in XX.X%, year-over-year quarter resources of ago. X approximately strong same from and a margins. aligned average year XX% margins The increase X% is was up the Headcount of was increase realized driven to Billable in X% third with XXX, period year the the hours in as a XXXX. employees were the

$X.X expense after losses third $X.X to gains deferred quarter, of XXXX, X%. million is compensation deferred decreased gain as in of adjusting of compensation a in generating million third compensation, total and a a quarter in loss Included expense for million compared the compensation In in $XX the variance.

line. to As deferred bottom as no was in compensation Stock-based operating Arizona the compared lease the operating expense increased gains compensation million, $XX miscellaneous expenses renewal. Other the X% our impact depreciation amortization have for third Phoenix, in the million on of third primarily income expenses quarter $X.X by the a $X.X and Included and prior third to quarter in in the million losses period. reminder, in of is year and to up were are million expense offset noncash expense driven other $X.X quarter.

meeting, This XX% in expenses decrease the the gain which was quarter. the to third and September. in $X.X the million managers quarter. deferred due third a excluding at for Interest as by our for income, driven $X.X was in-person end rates typically Miscellaneous to an is the $XXX,XXX to approximately G&A we primarily travel compensation postponed in to meals decrease XXXX, held declined third interest of income increase increased million quarter year-over-year.

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

our to Turning outlook.

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

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

revenues of mid-single for occurs and sixth every the is revenues X.X% are in XXXX. to extra For XXXX, before approximately year in EBITDA to we current quarter of additional net which to compared year. be week revenue fourth or contribute and in grow as our previous low- year X.X% to to estimated to fiscal an before XX.X% XX.X% fiscal guidance reimbursements digits and reimbursements inclusive year the Both the XX.X% expect the for to fourth the quarter,

holiday margins. Since extra New has Year's utilization the the a week significant includes and impact and on negative vacations, it

-- wait technical to year recruiting start. XXXX. of activity employees until expect quarter sequentially typically new new slightly our equivalent the be the We Despite hires to fourth full-time as decline increased average to in

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

to X% on year Our year-over-year X% basis. FTEs down a approximately be average full will

We quarter XXX with than to approximately will first the FTEs which X% be of X% lower XXXX. the end year will

to approximately our expect X% head in result growth count to We X% increasing recruiting of quarterly sequential each quarter XXXX. of effort

growth expect count we result, in a of year-over-year As the quarter head third XXXX.

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

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

full to long-term to balance of XXXX. achieved our sustained demand. utilization XX% believe be year be as continue based to utilization we target as manage the head expect and utilization We count compared XX% XX% market can strategically to still mid-XXs on We in

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

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

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

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

million full For the to to $XX.X be million. we other expenses $XX.X year, expect operating

Arizona. in XXXX, center on quarter As in option of impact $X.X the XX, Phoenix, exercised This the for expense and million we lease fourth testing rent resulted our an the have engineering will during in our in early and a similar increase quarter. a an noncash extend June again reminder, third to

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

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

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

the to in be rental tenant $XXX,XXX due addition, income an fourth In Menlo loss quarter. decrease owned the in a sequential $XXX,XXX building. income This of in the we Park our anticipate includes to fourth in miscellaneous to expected quarter

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

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

year increase in XX.X% The For to first expected the from is to the benefit the less tax awards due full tax quarter. rate as to XX.X% in tax be compared XX.X% is share-based XXXX. the to in XXXX, rate

we market are remain the with alignment with back to I the turn closing, pleased In the of long-term we demand, closing for model operating Catherine focused remarks. will growth. now on and call our

Thank you, Rich.

challenges. health human in are breakneck and the electronic beings many: expertise accelerating the new never deployed vehicle make the safety, places like deployment complex. of more all and data decisions. at electric to examples form insights its between powertrains . the intelligence can into factors into them. human world of radically use health penetration the artificial impacts eyeglasses more a critical few safety the These insights and where cities power-hungry The and add innovation are in will . The industries critical and of spreads before. sensors that electric with around fleet data bringing the as more Exponent's of to that grid value. world. the of face ways Robotaxi capacity the grows speed, intelligence engage transforming of around are the artificial The wearable sophisticated platforms transform increasing like just and the being with devices of As Novel increasingly technologies, safety-related nexus boost environmental novel centers,

we capabilities, Looking long-term in are growth. profitable our we team focused expanding ready and growing confident are our now for to we ability Operator, and are ahead, deliver questions. our on

Tobey from our And today Instructions] Truist. [Operator first comes question Sommer from

Jasper just for is to Bibb wanted This from clarify something on prepared Tobey. the I remarks.

the would are guess your potentially as expectation back, accurate, your there I look recruiting ramp in say FTE the kind You from of -- what efforts year if ending that's of and the an is next where second for FTEs year cadence growth up stepping you of guidance? XQ like growth half 'XX FTE in

Yes.

year expect we is expect around sequentially XXXX quarters across yes, the So at that that X% FTEs. indicated of what those. gain each end would in the we XXX we to of X% We would to

that's expectation X% that So from base we our grow X% is a will that quarter. to

quarter. differently? Okay. difficult just I about more ask between during function just year? a more this reactive primarily clients And Is performance then of manage wanted to the to comps anything Or -- has weaker that spend changed that gauges last with

Jasper, It it we in of forth. frankly, is -- well. growth have see QX XXXX position We analysis to of continue to product right? XXXX The investigations, strong really work, in portfolio litigation incredibly failure and about when comes so you, disputes that and and question. strong Thank growth really QX about as market Yes. for our strong pretty an the timing, did defect and

earlier had engagements had talked also year about the we're late across of sector sciences number around renewables. life a couple really speed, full in since at this completed arenas. a energy that last We and in and We engagements year have which different of going in

have are our got see flow continues come continuing of of so along we to And the business opportunities We lot that there talk units. some completion. that things those activity to to as a in. We've

the do we rather kind than about is so of change fundamental the there in And comparison some it's really, think market.

as out this chemicals. into underlying How called industry a out sense. was year? having next industry strength particular also Should electronics stabilized year? trends into Last as to headwind about should in as think point? -- we me. weakness think about that You for makes of obviously, question group consumer 'XX, your group far we levels lower at call or the were And That this anything heading

Yes.

to going a of but what sequential we're sort a electronics nice of that to very back we're feeling seen. we've growth sort consider kinds We're at we're the the how few of at in what increases of around level a electronics I I is happy look our the to now able were with in examples toward be back healthy that we peak well And we late about the highlighted future. asking forward. heard where I level. So product new as industry chemicals about and going that think devices terms of of are sort that things side in gotten that seeing 'XX, toward human necessarily we're on We've not glasses. in as oriented and the that the We're new wellness of are seeing the pipeline, health applications. Yes,

to we position. that continued and place opportunity And and good the build nice to of algorithms so drives think yet that our growth. well as another continue features gives is we AI-related continue clients of this of the trains the where products course, data as us a rollout diversity performance around those And there's challenges and curating market

their their belts, almost of as bleed forward. a they they we've happened their happens, schedules the teams kind enthusiastic restructuring. chemicals is we're differently the one starting various us of forth undergoing lot they months of of to players and ago I seeing to to industry, seen little are uncertainty. this tighten it projects their XX a I'm XX going industry, what now, and X years like does or electronics to significant in side bit where over guess The the having impact sort restructure when that And think about because so this So about electronics ago major for

that nonetheless, as of we about our consumer environmental to and more electronics not a it's emphasis related litigation I around with and industry tightening are, operations regulation that their away making business health belt term, as But that smaller on I an will soon of chemicals. because the regard not the some regulatory sustainable. effects as is level their going of some products There when as impact and anytime big the about be to look, on longer on on well always But is. challenges health side incredible the seeing with alleged of So it's safety, regard work. fights to go see has effects. the This pressures industry think

so We're we for And drivers And that. over engaged around we're clients the think our that. those positioned fully well long fundamental market be term. there with that will

Our from next Nicholas Blair. question comes from Andrew William

least of first time a chemical of it's getting these your still fourth such part the expect leg than of this was maybe to I up easier want headwind -- it I wouldn't big piece. bit quarter and it there the mentioned the term? at or think electronics. year. about 'XX? you're to business in lower fourth that to are the optimistic consumer is a comps the be -- over smaller a some pressures understand that quarter as we start you on follow medium new little last But realize that to recognizing be you wouldn't it are Or Is -- I a

hurdle think I the lower you definitely. Andrew, that quarter, Yes, is the as get -- fourth to

I early certain of in what larger will was saw spend time at litigation fourth in that really that we the And the message with litigation the portfolios. pausing matters likely that the think on some year. come or back quarter those --

regulatory body. to people and back will needs down, of disruption as I and through is remain their of to to the think challenges they now a has or and and that we've described, in to think to economic Catherine I -- work that who work which their what led through have and workforce, out broader seen industry get settle back itself products set need restructuring go push

they that. will with have portfolio move And They that they to deal have litigation through to have. the will

different little at but sort development moving of little where environment, to electronics and bit things back needed product bit and to design a a in to what similar they product we saw So just the get forward.

So I -- a in the lower in ago XXXX. the third in the area. was quarter quarter of of of segment of think here bar revenues our the a XX% XX% that's third This about in that quarter third than was of year that is fourth the chemicals about is our business

and expectations, headcount, And count not then for believe color expected follow-up Got question. I'm count through you that this thought year I that both on year-end I appreciate into said quarter it. had all heading growth you But least on 'XX. I maybe if the last mistaken, sequential my head so growth throughout or quarter. at third head

mentioned talent, be thoughts any until that to So any explanation on prune? Are fruition? -- professionals any there's some to all bit helpful? new recruit longer kind little to to of it come But I'm Or color didn't would any that the maybe onboarding? you wanting just curious little of I you areas previously why the taking pruning year, maybe timing it. bit know in wait the is you for end expect a if that's that there didn't of a of

No, higher Andrew. there And saw anticipated. thanks, bit Yes. QX we is a had -- in than turnover we

we to have the -- recruiting on are the increase We efforts side. and continue

good of process. is very that leading to we're for consistent interviews. demand higher units the that our And going are are do out We recruiting, and out for of seeing, and business indicator our a in recruiting strong the yields getting us is example, business rates this

is particular the proposition marketplace our mean, think than do expected so related little value any in forth. strong. employee talent really I higher turnover remains bit than and or more change it a to I challenge So rather

growth. activity that forward the able in recruiting good count have going return level we be we And we that head increase confidence to to will as

comes Chan Our from next UBS. from question Josh

debt? for the QX quarters? thoughts like first expect into have was reactive kind you that perhaps on little sounds comes. that mid-single digits yes, of business the into the of what's It 'XX, For you us with realize kind the business, it review quarter embedded example, in in that visibility coming if and turned the But reactive within I trajectory to what reactive it be a the shape in it negative. any you could

Yes.

indicated XX-plus the So year-over-year even second were had definitely, -- growth at year 'XX. last as we we we, we a in percent year, over quarters and of in ago, 'XX third

at year, As quarter we was growth of a into the was year-over-year first the mid-teens last 'XX. still rate. got quarter that fourth in That still

reactive seen growth the in digits we've business high mid- this So grow rate. to single historically

engagement. were energy We recall, transportation X%, few if are that were into the but -- X.X% running life the X%, -- engagements engagements few them materialized we had got a in sciences of the a there not X%, a a them sector, a one we It them the group we're revenue big engagements sector, was of X% diversified that revenues, few of of of in in sector. you

ongoing a that high just were us, calls still seen coming were nothing many strong we size. for clearly, We have when more that as but getting at is but they as size. many things just were of and right the particular the were We don't now but don't unusual, the volume. little that a the we've that seeing demand was are So engagements still stakes are we What have in.

the And volume point things to third, underlying it in But this And time. we're that. -- that's I next we'll going quarter laying long-term would even continue of little here into out start the and year lower at above company we're normal. reactive out and first the the that So the sort over that -- through for into grow to growth to work than business. year-over-year where time expect of in still future see while are of of hurdle and think to is I bit I is business the us sort quarter to a fourth in the our expect

multidisciplinary We're we're Exponent many the called is our by why our complex. market leading because teams more when which continuing getting need complex, encouraged just issues issues There's are the to think clients I get got more evolving because are we're and -- the position. and why of too services we've quite

sense. makes That

than I forward? less-than-expected I think less FTE how growth think the the could FTE about growth impact It's I FTE, expected. you utilization now, just outlook there a given where point the thinking driving wonder was this level? the second but going you're obviously the staffing is is guess, where quarter to good On start

think we have Yes. well. needs mean, to right, to to that, head are with when is a utilization, for driver other still this count growth, the we obviously do Well, drivers whatever the thank but ability doing surge regard is you, We about meet -- sort Josh. I are big our on of clients as team they accustomed ready it to that. takes and there

-- look, so ability and And the the operate year. for we've XX% demonstrated to at

lagging, even as if demand that count capitalize that demand. to we have so And is growth on the head ability the increases,

Yes.

term, In delayed that meet -- short if So -- a something, the is in begin as demand. in the or the the -- there quarter yes. that need quarter, also that we continue say, as short long that I can't we we model your forever. you we can will term, term, take growth and demand, was long-term that hit think but assessment into meaning we right fourth need need of the to you on the can't the But people to turned first we

conference we'll everyone well And call. gentlemen, today's session and ladies as as question-and-answer for We be attending. thank today's with do that, concluding

now You lines. your disconnect may