Earnings call transcript Q2 2023

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Operator

Good day. And welcome to the Exponent’s Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

to Relations. conference like Konstantelos to now Investor with would turn over the Joni I ahead. go Please

Joni Konstantelos

expressly Thank other you. financial is conference ladies simultaneously the on and Please Good company’s afternoon, Exponent that the webcast Exponent’s reproduction joining you note written taping consent. prohibited at Relations any second property us on for corporate the without of quarter section call website prior call XXXX this results is Investor call. and conference or will gentlemen. of Thank This www.exponent.com/investors.

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

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

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

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

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

Dr. Catherine Corrigan

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

earnings net quarter per revenues We diluted by XX% results, second and growing delivered expanding share. solid

and needs our strength the diverse cycles. which services ever product life client’s throughout critical demonstrate our portfolio, to and to continue adapts evolving their of We anticipates

by sector. our well moderation in I offset of for the despite specific strategic in driven life discuss capabilities electronics across proactive that saw The side chemicals moment. the demand reactive in Overall, product the in sectors, headwinds by performed increased robust was some a cycle demand industries our and offerings. quarter and the Growth sciences will mix life

Within related the to we increased litigation sectors. particular engagements reactive our strength work, and demand more Turning construction strong with our for in and consumer disputes in our saw transportation, product detail. services,

On more and design the more are battery automotive performance the side, fielding decisions become more scenarios, and are technologies prevalent artificial about we algorithms fleet accident the as in driver in advanced and intelligence complex questions made challenged. these and assistance systems more the of and by

product expert safety as and their understand related recall leveraged products. root We increased of clients also our with the engagements saw cause insights issues to

the from part large life The in caused of industry, in the increased offset staff. by the science timing the by proactive electronics was some demand sectors side by moderation regulatory coupled with the chemicals associated taken reduce benefited to product client driven disruption releases This the industry engagements. has and in with actions

development well stage These the factors as stage. subject consulting, activities the out gathering through as products their as product cycles and and research, impacted data human moved of life development into refinement

persist sector. this trends opportunities term While to the about within these we over optimistic longer few expect are next we in electronics quarters, the

innovation experience AI algorithms, and well analyzing drive well in are the AI of decisions. positioned driven to capabilities data our of intelligence role in consequences given the We artificial with physical increasing product curating performance. as our as

the safety, offerings health proactive increasing to and expectations the positions of environment. designs around portfolio capitalize associated diverse Our on next-generation with well complexities and us

proposition. of reflects employee well Improved headcount our retention, efforts recruiting as value in accelerated as XX% which the over the last year our increase a drove strength year-over-year,

Rich growth of will are focused share these resources moments. future While opportunities. on aligning our growth, a expected in color with business in talent few for remain we additional diligently headcount critical some investments on the our our and future growth our the

Turning segments. in revenues other driven the in the year. compared our to in scientific first and the strong half XX% the services by XX% XX% construction net segment second second of for the sectors. represented Exponent’s in engineering the prior and Exponent across to quarter quarter transportation Growth and our quarter, was demand increasing

the environmental X% Exponent’s Net Growth this quarter prior in net XX% around the driven in by regulatory was represented in compared health human second activity consulting and as the and the well as the company’s increased impacts the sciences environment, life segment of first quarter. in health chemicals and the segment in revenues XX% half the revenues to of on year. sector.

back challenges. we As we power line address client remain meeting the the in diverse growth solid dynamic of of needs our relationships, we of with I through growth the delivering see the complex managing our economic on of move client’s as our resources Overall, am and half clients. year, our the focused pleased business most into strengthening cycles to portfolio, the

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

Rich Schlenker

and Thank everyone. afternoon, good you, Catherine,

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

second reimbursements compared increased quarter net I as will from $XXX.X For them X.X% the to revenues second the was the $X.XX income in for on, to to $XXX.X period. here or per million diluted million million to share, to increased quarter million XXXX. compared per total revenues of XXXX, and $XX.X the before prior refer X.X% year period or of revenue Net as share or diluted same as $XX.X $X.XX

period the XXXX. was consolidated in the and was rate to XX% accounting with XXXX same tax tax Exponent’s compared second for quarter, as XX.X% of for second the realized awards The benefit in share-based immaterial of quarters XXXX. associated

as X% $XX.X $XX EBITDA was for decreased revenues, -- the was second net the an expenses $XX same normalize approximately of XX.X% margins as compared post-pandemic. margin The producing which in increase XXXX. of of second X.X% year-over-year of year-over-year. XXX,XXX, to the a anticipated in million, in XX.X% Billable than less quarter step period -- to hours million, a quarter $XX.X margin were of down

XX% X,XXX, is expectations year successful an very been the recruiting which increase technical retention exceeded equivalent to as has our quarter This average second has The of as ago. and full-time improved. employees compared were one in

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

While headcount we the expected the it utilization to decline year, from in second utilization in elevated the higher last level anticipated of lower quarter. quarter in than was our resulted

same with are mentioned, the X.X% opportunities. the second on Catherine a ago. year our The for we and of realized was As the strategically as compared pursuit growth of approximately diligently our balancing quarter business the rate increase resources focused future period to

the gain -- increased after expense, a is $XX.X XXXX. for quarter, a This million to XX.X%. $X.X adjusting as compared and gains total $XX.X swing. in same in deferred is compensation period deferred of second second in in compensation loss of a million, of expense The Included the compensation losses compensation expense million

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

in quarter million the compared million, expense to prior as second compensation year $X.X in $X.X was Stock-based the period.

other offices. by for to and second $X.X employee expense Other our depreciation operating the XX.X% expenses at primarily million activity were $XX.X increased in of amortization quarter. expenses is operating million, driven the second in Included quarter up

employees second The professional travel million development. clients for G&A return in in-person $X.X was the due to and expenses with G&A XX.X% increase to primarily to expenses quarter. as were engagement up increased

Interest second Miscellaneous driven gain, interest deferred $XXX,XXX in an income income, $X.X second quarter. in the for quarter, was the excluding million by increased compensation increase to approximately the rates.

We $XX.X payments. to ended the the capital with we shareholders through quarter quarter, and dividend cash in distributed During equivalents. million million expenditures $XXX.X million were and $X.X second cash

outlook. our to Turning

XXXX is year unchanged. full outlook Our

For EBITDA XX.X% we grow the before XX.X% margin before compared to be double quarter as to expect of the high to revenues and one year to in XXXX, single low reimbursements. digits third reimbursements prior, revenues to

the reimbursements before guidance high year digits compared year revenues to of as For to to our reimbursements. be low EBITDA to the double in maintaining revenues are to and single XX% we full grow before and margin XX.X% expect XXXX prior, one

performance As strategically remain management. our include we aligning the reducing the of increasing business. on These headcount focused hiring actions with mentioned, and growth

next each full-time employees we of result, expect quarters As a decline to two to in X%. the sequentially X% equivalent technical

nature hiring utilization surgical high quarter next two, in of areas or address the strategic Over our growth. to and will be

increased such a path on management, ongoing will employee’s in which firm if turnover. aligned resources or each increase as Performance XXXX. their they management principle less we if performance high is as Performance We better academia. XXXX are in with evaluate determining and government to our career have career skills are also a in trajectory towards or and be career management is are turnover constrained to industry, when tends

tempered by time Utilization seasonally We as to same compared headcount, expect third third well quarter during as quarter XX%, be the continue and be to XX% the summer holiday in XX% higher the in to will months. vacation year. quarter in the utilization last as increased to

as to expectations Our in for XX%, XXXX. compared XX% year to full utilization is XX.X%

still long-term We sustained mid-XXs and target as utilization headcount we based to manage believe on continue strategically utilization achievable demand. our balance is market of

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

be million to remaining the stock-based $X.X compensation $X.X expect For quarters, we to million.

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

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

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

professional development. travel business increasing G&A and post-pandemic are expenses as increases for

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

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

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

expect quarter. be approximately we addition, miscellaneous to income In per $XXX,XXX

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

will diluted than was with share the impact which So to EPS. based in XXXX, be associated awards per less $X.XX is tax benefit $X.X year-over-year million, share it

awards benefit expect we to XX.X%, XX.X% the of XXXX, our approximately to rate, share in tax be XXXX. for exclusive based compared as tax For

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

year the for inclusive to expected to For full XX.X% benefit tax XX.X%, XXXX, is share compared XXXX. rate awards be as the of in based tax the

underscore results model quarter financial position. the and second our to our closing, In of business strength continue

we growth. positioned the year, our As of we to continue profitable the look remain back half to

I back closing for the call will remarks. Catherine to now turn

Dr. Catherine Corrigan

Thank empower their to Exponent clients with you, our Rich. to and science to engineering continues critical most advance challenges. solutions

and the as expectations the we and our services profitability over team increasing complexity positioned safety, uniquely they the and remain of them drive are our ever of portfolio, society’s to our to navigate the confident by evolving long-term. shareholder around ability We advise world-class environment. Supported strength value in health

ready are we for Operator, now questions.

Operator

from ahead. Josh Our comes Instructions] UBS. question Please go [Operator Chan first from

Josh Chan

Hi. Good for the afternoon, Catherine and taking Rich. questions. Thanks

Dr. Catherine Corrigan

Hi, Josh.

Josh Chan

Hi. can the maybe start two-part guess, on demand. -- I with Hello. I I question

like feel above you then Catherine, that. brought business -- above might been and sounds So, out growth reactive tell seems helpful? hard be going what choppiness I And but guess, you a little points can guess, do the it QX. of bit But the proactive normally that a you what’s forward? is growing maybe that like it side, some decelerated first that kind broad-based driving has I like how really you grows there’s at it’s us business on normal have, secondly sustainable is it’s ballpark it way -- on side, to whether would for It the that in on

Dr. Catherine Corrigan

Yeah. Thanks, Josh.

see I I driver first the as increasing around that we So mean, assistance work. of around did on reactive products coming that real advanced Look, complexity a is the systems. reactive driver side. give example the

signals into that’s is giving automated various about as that’s making it vehicle, mixed could it be be even could device whether health, more AR around decisions VR products training be it artificial an those things. intelligence or could incorporated employee well, and human a or device reality or wearable making decisions, that’s an As

our professional and positioning we through And research teams. the of our forefront the development are at ourselves through those so of questions

is growth And don’t necessarily in in think reactive we -- blip work. our so and our this a the

addition We about that very and portfolio. product for of expansion disputes, really frameworks to the landscape drivers. in has recalls changes the very, potential are the market opportunities for think in strong the internationally and optimistic growth around those in that That around portfolio EU side we the so

that’s happened. talk On side, did of we moderation the some about the proactive

of We are where sciences, growth the example, growth into some a chemicals, place regulatory agricultural areas, and that but strength a in for side that. and a got around have of number side moderation in factors the the pharma that weighing is there industry, electronics couple on life is

reconfigure was way by There in flow in the that That industry. having takes the work quarters of sort disruption to its that of couple layoffs is the electronics, to layoffs impacted through. This caused groups stabilize. some of are and work a

back We signs of are starting stabilizing, workflow seeing to that that come through.

launch impacted are data collection -- some work, the product in life our subject But clients a human that. in It’s like a ebb refinement be big product because big work, are that life our our and There and our that and cycle. near-term and of phase these development the flow the by where phase cycle. goes can product the then in into push it can of

which clients see We also tightly, these isn’t their managing more surprising. a little budgets

we see over of So more that it expecting the are couple will -- next seeing QX, quarters. saw we it quarters. are We we and a probably, in over couple

this that long-term, is we good of focus to feel these will evolve about us has good driving industry. have, capture landscape offerings we a AI decisions quality of all that really competitive data think makes continue But of offerings those kinds opportunity. to the That that society long-term and algorithms we the in course, of it’s the long-term and training in on that’s quality and making, the the and the what

Josh Chan

good I quarter. guess, Thanks, my question And Catherine. this that. That’s appreciate second then, I margins really color like, on there.

conceptually, to you able utilization QX but Just to it were ticked down like this QX, from quarter. seems stronger going margins somehow deliver

that the help utilization could margin there? So talk improvement driving kind about you sequential didn’t even you of though have what’s

Rich Schlenker

Yes.

the balance from coming line. margin on compensation So the there is the improvement

tend a do in a have costs compensation basis. the on quarter to higher we So first stock

those So the compensation quarter. that first around million in through. grants about in in pushes about quarter for the the you million accounting the the stock-based when our issue first really that’s and -- was about that in $X.X $X of where And timing $X.X had quarter, all million we second

In that, been lot level. the addition very at entry our to of has hiring much a

benefit when balance change pushing bill the that are on rates you of with through. the compensation So that the also the you where rates versus in get area,

Josh Chan

growth for Thanks on expect revenue you. are the about think color impacts I Thanks. how for hour then, inflation? I the year, you and just per but some per you that, what billable Thank thinking seeing you are wage Okay. Rich. between hour guess, for And revenue balance? gave lastly, wondering billable you that how

Rich Schlenker

Yeah.

we X seen on, our So we substantial we have wages what we gave place seen all per there -- or haven’t and rate our those quarter. wages on a existing per a increase basis, consultant were to even pretty staff there April in second and basis though in dollar have effective the

increase because flat we a basically X% mix to of in. that across, of we the coming to down saw blended sort that rate had was That of employees

approximately had So the rates. a generated increase billing we increase mix of same up in time, to employees wage flat the slightly that at X.X% that mix the generated

Josh Chan

for you time. and Thank Thanks. thanks for your that

Operator

comes The ahead. Truist. next question Tobey Sommer from from Please go

Tobey Sommer

can growth? this to of sort on comfortable growth broad and and in maintain the expense your revenue picture, you of growth that a demand of the Are I Thanks. near-term wanted in of headcount growth. the so sort with to amount follow-up you continue revenue rate headcount excess bottomline

Dr. Catherine Corrigan

Yeah. Thanks, Tobey.

are opportunities near-term aligning and seeing. longer are we that we demand, to slow the -- sure look, that with growth. So, that we and are looking term are There that to make headcount the

two There got prongs I really side. mean, the have right? that two are approach, to -- recruiting we

of So got we a the have many in areas number business. the of areas

In strong, of fact, and are most right? them growing

meet so that we on recruiting And are the demand. constrained when can are to meet areas in that be market to those and very resources recruiting make our need and strategically we focused sure we surgically

that driver little of the capture So, about is area, management, But side working down be place mentioned through bring for side we like headcount is This and Rich a managing to that this. of a want recruiting example, to the that. the assistance business advanced performance reactive bit and other to where that right?

right? about. that we talent, best That’s all what for are We are always looking

rigorous puts path at a a all have acquiring everyone. principal process not of this the We It’s it paradigm them making day on that a growth but them, Exponent from it’s hard. consultant, one, to for as way

for there better are our And can and that reach counsel career about them where about. employees And is that’s so process them all right? management point in so performance elsewhere, we opportunities what their many can a

over down by to per back those next are balance order as X% Rich couple things what said, we doing quarter bring headcount to X% quarters into of in is again. that bringing sequentially So the two

Tobey Sommer

I you means and its you impact it speak all ultimately, how and Could your appreciate your customers, engage intelligence forms, with what that. artificial may and internally you think company, it to for demand for your how services?

Dr. Catherine Corrigan

have I of intelligence been the engaged of across mean, Yeah. Yeah. cycle engaged life and we are -- are algorithm. artificial there sort

create training It’s those right curation The that So is make diversity with that those important important data to the have data sets in you an step. of to start sets. of you feed them the demographics, sure first data that into right? very them, the order part

talked data Exponent used real of that are about insights take because We right? We to the clients the to history are from being talk matter able a and data about all of right? gain has our that expertise, ontologies and world sort the We data, and cleaning that, know of of that. world because real messy, subject

for of products, that So is of Exponent and a this talking the whatever of design different for the are the applying case really all utility, the physics their right? where decisions decisions about to AI of understand has long the decisions management we law the Tobey, of laws clients may consequences kinds when around of of to history assets physics, theme, understanding be. a is meets

to have process, cycle that for coming years. the because end in the it the that drive other the applying then the opportunities that it’s decision the many every make are are so the out the of fit using many, that to combination data of and at physics have around algorithm, And real you of you of life we laws foundation working stage is laid we product and

And so is it think, ability an us where key human industries is our incredible the that behavior really capture with -- assessments, those growth to meets physics, that needs laws where there. the I and cross positions proposition of it well with to value

Rich Schlenker

other and gaining players or And have actually a the had earlier, really to top don’t marketplace as done year have to things. work within vehicle where are automated said the or ADAS is subsystems two in those in vehicles, decision systems, even the Catherine steering need or you this in be autonomous or fully key we so, last over a already recognition the decision by those breaking the

the West decision that doing their or models of a here a particular are models that. at and resiliency what system in a been out risk decision make or make utilities It’s and in making to on about what to decision environment speed the Coast decision the winds lines do

as decisions have that And you the rely model are we doing coming weather clients where as happen in real health our changing, in upon an want understand need upon ultimately rely what inputs over into and they develop built in seek seeing be you such. those the in do are basis, to their from applications when that to those so or to feedback able have engineering to customers are time device wearable that is that they their to really coming attention technologies and can wearable medical

data want have sure and wanting as quality a finally, And AR to safety those true those VR experiences. utilizing they we reliability and to curated of the experiences make deal and into area, are the that experience have with then, and to clients real world are are moving who

are examples done. what of those have we So already

us the future significant think forward. quite for I is going

Tobey Sommer

on kind contract classically I one there you large not in. If And question last Could be contracts? should large exposure comes could opportunity sneak update or a my of defined us having the markets significant for observed which the in with all telco bound cables stock those pretty at represents lead, the legacy of firms? exposures liabilities and are in assuming news around least context Thank.

Rich Schlenker

Yeah.

to have we not X% so revenues. that project X% recently a think, single I had of is of that

up data it. different collection had there, in around of collections have area some single but engagement that We near accumulate of that not a this in areas,

and X% right, are of that achieved the those have a contaminants. history, have few you But X% been environmental history, or around of our that health revenues exposures in projects

the BP Horizon had you fit to here, back we If our for mid-XX-teens work recall such. in the Deepwater and related in -- that

haven’t past exposures So but size, lot there. we a and asbestos have of the of to this over had have two decades project not we issues, a done related work and other -- we talc

health have some and we see in the and -- that consequences issue we of the experts and will where this industry for So environmental of leading the exposure, goes.

Tobey Sommer

Thank you.

Operator

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

may disconnect. You now

Exponent (EXPO) 27 Jul 232023 Q2 Earnings call transcript