Exponent, Inc.

Good day and welcome to the Exponent Inc. first quarter 2025 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Joni Constantelos. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's first quarter 2025 financial results conference call. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website at investors.exponent.com. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Dr. Katherine Corrigan, President and Chief Executive Officer, and Rich Schlenker, Executive Vice President and Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements including, but not limited to, Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption Risk Factor in Exponent's most recent Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today. An exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise. And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Catherine?

Thank you, Joni, and thank you, everyone, for joining us today. I will start off by reviewing our first quarter 2025 business performance and strategic positionings. Rich will then provide a more detailed review of our financial results and outlook, and we will then open the call for questions. Exponent's first quarter results exceeded expectations, reinforcing both the resilience of our diversified business model and the value we deliver. Despite starting the year with a 5% to 6% headwind in technical full-time equivalent employees due to our focus on aligning resources with demand over the prior 18 months, We achieved approximately flat revenues due to strong activity from a few key industries. In reactive services, the demand for our failure analysis expertise drove dispute-related activities in the chemicals, transportation, and utilities industries. Our proactive engagements were led by risk management and regulatory support activities. As expected, we were impacted by easing in the consumer electronics industry due to the timing of clients' product development life cycles. We are pleased to report sequential headcount growth of 2%, due in part to lower turnover than previously expected, while at the same time achieving mid-70s utilization. While we are very mindful of the current macroeconomic uncertainty and have seen some instances of clients delaying proactive work for this reason, we continue to hire in areas where demand remains strong. Over the last three decades, Exponent has demonstrated an ability to effectively navigate challenging economic cycles. A key contributor to this resilience is our reactive work, which is driven by disputes and failure analysis investigations across the globe, which have historically been less impacted than other professional services during challenging economic cycles. Lawsuits, accidents, illnesses, and environmental impacts are constants that necessitate our specialized expertise. Clients are required to address these issues regardless of the broader economy. Our business is approximately 60% reactive and 40% proactive. The vast majority of our reactive work is litigation support. The remainder of our reactive work is accident and failure investigation, product recalls, regulatory actions and insurance investigations. Our proactive work involves product and process improvement, research and development, risk management and regulatory consulting. During 2024, we worked on over 10,000 engagements for over 2,000 clients across a range of industries. The consumer products industry represents approximately one quarter of our revenue, of which approximately two-thirds is proactive work for consumer electronics clients. Product development cycles influence the timing of our work in this industry. However, the complexity of these products and the pace of innovation required by these clients to stay competitive remain long-term growth drivers. Furthermore, shifts in global supply chains as clients navigate the tariff environment create manufacturing challenges over time for which we are well positioned to assist. The energy industry represents approximately one-fifth of our revenue. Our work in this industry is split about evenly between reactive and proactive services. Growing energy demand driven by artificial intelligence and data center investments along with the related infrastructure development, inevitably leads to disputes that fuel our reactive business. On the proactive side, our risk management work in the utility sector continues to grow independent of macroeconomic volatility as the industry experiences increasing energy demand while its infrastructure ages past its optimal use and with the consequences of failure ever increasing. The transportation industry's percentage of our revenue is in the mid-teens, of which approximately 90% is reactive. Disputes regarding the design and performance of advanced vehicle technologies are becoming more prevalent and increasingly complex, driving increased demand for our specialized expertise. The chemical industry's percentage of our revenues is in the low teens. Approximately 60% of our revenue in this industry is proactive, and remaining 40% is reactive. The vast majority of our proactive work in this industry is regulatory consulting. Our data-driven insights are critical for projects related to environmental health, process engineering, and chemical safety, such as the growing concerns about the impact of PFAS on communities and ecosystems. The life sciences industry's percentage of our revenue is in the high single digits. Our work in this industry is split about evenly between reactive and proactive services. Our experts are advising clients on the root causes of safety concerns related to medical devices and diagnostics, leveraging multidisciplinary approaches that include expertise in material science, manufacturing, human factors, and health sciences. We also assist our clients with regulatory clearance and approval. The construction industry represents 5% to 10% of our revenue, of which approximately 90% is reactive. Our multidisciplinary teams provide domestic and international clients support for complex construction challenges and disputes. It is the critical nature of our work and the unrelenting expectations around safety, health, and the environment that continue to drive reactive engagements regardless of economic cycles. While clients certainly may tighten their belts to manage costs, they still need independent expert advice to navigate the path forward. Even when an industry is applying cost pressures, this reactive work often comes back, which is what we saw in the chemical sector this quarter. Although uncertainty is pervasive in our current environment, Exponent has historically proven resilient through economic cycles. When combined with accelerating innovation and increasing expectations for safety, health, and the environment, this strategically positions us to weather economic volatility while seizing long-term sustainable growth opportunities.