Q3 2023 Exponent Inc Earnings Call

Good day and welcome to the exponents third quarter fiscal year 2023 earnings conference call.

Participants will be in 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'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Joni constant tell us of Investor Relations. Please go ahead.

Thank you good afternoon, ladies and gentlemen, thank you for joining us on X tone in third quarter 2023 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 Www Dot exponent dot com backslash investors.

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

Joining me on the call today are Dr. Catherine 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 ex tourist 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 exponents periodic SEC filings, including those factors discussed under the caption risk factor in exponents. Most recent Form 10-Q the.

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

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

Thank you Tony.

Thank you everyone for joining us today.

I'll start off by reviewing our third quarter 2023 business performance Rich will then provide a more detailed review of our financial results and outlook.

And then open the call for questions.

During the third quarter, we once again delivered broad based revenue growth and earnings with our diversified portfolio of services supporting growth across nearly all industries we serve.

The deliberate investments we've made to expand capabilities and stay ahead of the pace of innovation continue to pay off.

Our ability to anticipate client needs throughout the product or assets or technology lifecycle is and will continue to be a significant differentiator for exponent of course uncertainty exists in the broader markets, we serve with our exceptional team of integrated experts and our expansive capabilities.

Provide us the ability to remain nimble and adapt our business to align with these dynamics and market trends.

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

Our proactive engagements were driven by increased demand in the chemicals and life sciences sectors offset by continued moderation in the consumer electronics sector. Overall I am pleased with the strength, we are seeing across the majority of the business.

Within our reactive services, we continue to see robust demand for domestic and international dispute related offerings involving large capital projects in the energy utilities and transportation sectors spanning various geographic regions. Additionally, consumer and automotive product liability and recall.

<unk> increased in the quarter.

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

Operator: Good day, and welcome to the exponents 3rd quarter fiscal year 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

We saw declines in data collection, and human subject research engagements as well as product development consulting while we do expect this moderation to continue we are optimistic about the long term market drivers in this sector and we remain well positioned to support our clients as these challenges begin to abate in 2020.

Operator: After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Joni Konstantelos: I would now like to turn the conference over to Joni Konstantelos of Investor Relations. Please go ahead. Thank you.

Sure.

With regard to our segments exponents engineering and other scientific segment represented 83% of our net revenues in the third quarter, increasing 8% in the third quarter and 10% for the first three quarters compared to the prior year.

Joni Konstantelos: Good afternoon ladies and gentlemen. Thank you for joining us on exponents 3rd quarter 2023 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 www.exponents.com backslash investors. This conference call is a property of exponent in any taping or other reproduction is expressly prohibited without prior written consent.

Growth in the quarter was driven by strong demand for exponent services across the transportation energy and construction sectors.

<unk> environmental and health segment represented 17% of our net revenues in the third quarter, increasing 13% in the third quarter and 7% for the first three quarters compared to the prior year.

Joni Konstantelos: Joining me on the call today are Dr. Catherine 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 exponents market opportunities and future financial results that involve 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 exponents periodic SEC filings, including those factors discussed under the caption risk factor in exponents post-recent form 10Q. The forward-looking statements and risks in this conference call are based on current expectations as of today and exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise.

If all the regulatory requirements drove increased safety related engagements evaluating the impacts of chemicals on human health and the environment and we also saw increased activity in the life Sciences sector.

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

Of experts to address their most complex needs.

Further managing resources in line with the growth of the business remains top of mind to that end as we expected fulltime equivalent employees in the third quarter decreased two 5% compared to the second quarter as we continued to strategically align our resources with demand across the business. We are taking a <unk>.

Catherine Corrigan: And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Catherine? Thank you, Johnny. And thank you everyone for joining us today. I will start off by reviewing our third quarter 2023 business performance, Rich will then provide a more detailed review of our financial results and outlook, and we will then open the call for questions. During the third quarter, we once again delivered broad-based revenue growth and earnings with our diversified portfolio of services supporting growth across nearly all industries we serve.

Two pronged approach to ensuring our head count is aligned with not only current demand, but also with the longer term demand and opportunities we are seeing.

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

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

Catherine Corrigan: The delivered investments we've made to expand capabilities and stay ahead of the pace of innovation continue to pay off. Our ability to anticipate client needs throughout the product or asset or technology life cycle is and will continue to be a significant differentiator for excellence. Of course, uncertainty exists in the broader markets we serve, but our exceptional team of integrated experts and our expansive capabilities provide us the ability to remain nimble and adapt our business to align with these dynamic market trends.

In summary, exponent continues to position itself at the forefront of innovation as a trusted advisor to our clients across the product lifecycle market drivers, including the increasing complexities around safety health and the environment remains strong and continue to drive opportunity across our business.

We remain focused on expanding our capabilities strengthening our relationships and driving profitable growth and value for our shareholders.

I'll now turn the call over to rich to provide more detail on our third quarter results as well as discuss our outlook for the fourth quarter and full year 2023.

Catherine Corrigan: Now into our third quarter in a bit more detail, growth in the quarter was driven by continued strong demand for our reactive services. Our proactive engagements were driven by increased demand in the chemicals and life sciences sectors, offset by continued moderation in the consumer electronic sector. Overall, I am pleased with the strength we are seeing across the majority of the Business. Within our reactive services, we continue to see robust demand for domestic and international dispute-related offerings involving large capital projects in the energy, utilities, and transportation sectors spanning various geographic regions.

Thank you Catherine and good afternoon, everyone.

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

For the third quarter of 2023 total revenues increased four 8% to $133 3 million.

And revenues before reimbursements or net revenues as I will refer to them from here on increased eight 5% to 100.

$25 million.

As compared to the same period of 2022.

Catherine Corrigan: Additionally, consumer and automotive product liability and recall-related work increased in the quarter. Our proactive engagements were driven by increased demand for regulatory consulting work in the chemicals industry and engagements in the life sciences sector. This was offset by ongoing migration in the consumer electronics industry, doing part to the timing of product life cycles, as well as ongoing macroeconomic headwinds. As a result, we saw declines in data collection and human subject research engagements, as well as product development consulting.

This includes a decline of approximately $8 million and our consumer electronics business, which created a 6% to 7% headwind as compared to the third quarter of 2022.

Net income for the third quarter was $24 5 million or <unk> 48 cents per diluted share as compared to $24 4 million or <unk> 47 cents per diluted share in the prior year period.

<unk> consolidated tax rate was 27, 9% in the third quarter as compared to 27.0 for the same period in 2022.

Catherine Corrigan: While we do expect this moderation to continue, we are optimistic about the long-term drivers in this sector, and we remain well positioned to support our clients as these challenges begin to abate in 2024. With regard to our segments, exponents engineering and other scientific segment represented 83 percent of our net revenues in the third quarter, increasing 8 percent in the third quarter and 10 percent for the first three quarters compared to the prior year.

EBITDA for the quarter was $34 5 million producing March a margin of 27, 6% of net revenues as compared to $34 6 million or 30% of net revenues in the same period of 2022.

This year over year decline in margins was anticipated as expenses normalize post pandemic and utilization was lower due to the growth in head count.

Catherine Corrigan: Growth in the quarter was driven by strong demand for exponent services across the transportation, energy and construction sectors. Exponents environmental and health segment represented 17 percent of our net revenues in the third quarter, increasing 13 percent in the third quarter and 7 percent for the first three quarters compared to the prior year. Evolving regulatory requirements drove increased safety-related engagements, evaluating the impacts of chemicals on human health and the environment, and we also saw increased activity in the life sciences sector.

Billable hours in the third quarter were approximately 380000, an increase of four 1% year over year, which is <unk>.

Significant considering the headwinds in electronics.

The average technical fulltime equivalent employees in the third quarter were 1050.

Which is an increase of nine 6% as compared to one year ago.

Catherine Corrigan: As we close out the year, we remain focused on excellence in execution and expanding our differentiated capabilities to meet the dynamic needs of our clients. The investment I mentioned earlier will continue to be a priority to drive organic growth and development within excellence and to foster the essential trust our clients placed in our team of experts to address their most complex needs. Further, managing resources in line with the growth of the business remains top of mind.

This was the result of successful recruiting efforts in the second half of 2020 do coupled with improved retention in 2023.

As Katherine mentioned fulltime equivalent employees decreased two 5% compared to the second quarter of 2023, reflecting our progress on strategically aligning our resources with the current and long term demand opportunities.

Catherine Corrigan: To that end, as we expected, full-time equivalent employees in the third quarter decreased to 1.5 percent compared to the second quarter as we continue to strategically align our resources with demand across the business. We are taking a two-pronged approach to ensuring our headcount is aligned with not only current demand, but also with the longer-term demand and opportunities we are seeing. First, we are focused on recruiting in areas of the business where resources are constrained, but where we see opportunity to meet current and future market demands.

Utilization in the third quarter was 70% down from 73% in the same period of 2022.

The realized rate increase was approximately four 4% for the third quarter as compared to the same period a year ago.

In the third quarter after adjusting for gains and losses.

And in and deferred compensation expense compensation expense increased 13, 4%.

Catherine Corrigan: Second, we continue to focus on performance management to ensure that our retained consultants are on a strong development path that will contribute to the future growth of the firm. In summary, expelment continues to position itself at the forefront of innovation as a trusted advisor to our clients across the product life cycle. Market drivers, including the increase in complexities around safety, health, and the environment, remain strong and continue to drive opportunity across our business. Business. Remain focus on expanding our capabilities, strengthening our relationships, and driving profitable growth and value for our shareholders.

Included in total compensation expense is a loss in deferred compensation of 2.8.

<unk> 8 million as compared to a loss of <unk>.

$4 9 million in the third quarter of 2022.

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

Stock based compensation expense in the third quarter was $4 9 million as.

As compared to $4 6 million in the prior year period other operating expenses in the third quarter were up 24, 7% to $11 million driven primarily by increased employee engagement and our offices included in other operating expenses is depreciation and amortization.

Richard Schlenker: I'll now turn the call over to Rich to provide more detail on our third quarter results, as well as discuss our outlook for the fourth quarter and the full year 2023. Thank you, Catherine, and good afternoon, everyone. Let me start by saying all comparisons will be on a year-over-year basis unless otherwise noted. For the third quarter of 2023, total revenues increased 4.8 percent to 133.3 million, and revenues before reimbursements, or net revenues as I will refer to them for me or on, increased 8.5 percent to 125 million, as compared to the same period of 2022.

<unk> expense of $2 4 million for the third quarter.

G&A expenses declined 10, 6% to $6 million for the third quarter. This decrease was due to a reduction in the use of outsourced personnel and a smaller annual company meeting.

Interest income increased to $1 9 million for the third quarter, driven by an increase in interest rates.

Miscellaneous expenses, excluding deferred compensation loss was approximately $1 million.

Richard Schlenker: This concludes a decline of approximately 8 million dollars in our consumer electronics business, which created a 6 to 7 percent headwind as compared to the third quarter of 2022. Net income for the third quarter was 24.5 million, or 48 cents per deleted share, as compared to 24.4 million, or 47 cents per deleted share in the prior year period. Exponents consolidated tax rate was 27.9 percent in the third quarter, as compared to 27.0 for the same period in 2022.

During the quarter capital expenditures were $3 $3 million, we distributed $13 2 million to shareholders through dividend payments and repurchased $17 million in common stock. We ended the third quarter with $137 1 million in cash and.

Cash equivalents.

Turning to our outlook for the fourth quarter of 2023 as compared to one year. Prior we expect revenues before reimbursements to grow in the middle single digits.

And EBITDA margin to be 26% to 27% of revenue before reimbursements for the full year of 2023 as compared to one year. Prior we expect revenue before reimbursements to grow in the high single digits and EBITDA margin to be 27, 4%.

Richard Schlenker: EBITDA for the quarter was 34.5 million, producing a margin of 27.6 percent of net revenues, as compared to 34.6 million, or 30 percent of net revenues in the same period of 2022. This year-over-year decline in margins was anticipated as expenses normalized post-pandemic, and utilization was lower due to the growth in headcount. The old blowers in the third quarter were approximately 380,000, and increased a 4.1 percent year-over-year, which is significant considering the headwinds in electronics.

To 27, 8% of revenues before reimbursements.

This assumes approximately the same headwinds of 6% to 7% from consumer electronics business in the fourth quarter as we experienced in the third quarter.

For the full year margins remain at or above pre pandemic levels.

As Katherine mentioned, we are taking action noble steps.

Richard Schlenker: The average technical full-time equivalent employees in the third quarter were 1,050, which is an increase of 9.6 percent as compared to one year ago. This was the result of successful recruiting efforts in the second half of 2022 coupled with improved retention in 2023. As Catherine mentioned, full-time equivalent employees decreased 2.5 percent compared to the second quarter of 2023, reflecting our progress on strategically aligning our resources with the current and long-term demand opportunities.

We align our resources with the current and long term demand trends within our business through targeted recruiting and ongoing performance management. As a result, we expect our average technical fulltime equivalent employees to decline sequentially, 2% in the fourth quarter.

We expect utilization in the fourth quarter to be 66% to 68% as compared to 69% in the same quarter last year.

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

Our expectations for full year utilization is in the range of 69 to 69, 5% as compared to 73, 8% in 2022.

Richard Schlenker: Utilization in the third quarter was 70 percent, down from 73 percent in the same period of 2022. The realized rate increase was approximately 4.4 percent for the third quarter as compared to the same period a year ago, in the third quarter, after adjusting for gains and losses and in and deferred compensation expense, compensation expense increased 13.4%. Included in total compensation expenses of loss in deferred compensation of 2.8 million as compared to a loss of 4.9 million in the third quarter of 2022.

We still believe our long term target of sustained mid Seventy's utilization is achievable as we continue to strategically manage account and balance utilization based on market demands.

We expect the 2023 year over year realized rate increase to be $4 75 to five 5%.

For the fourth quarter, we expect stock based compensation to be four $5 million to $5 million for the full year, we expect stock based compensation to be 21, 5% to $22 million.

Richard Schlenker: As a reminder, gains and losses in deferred compensation are offset to miscellaneous income and have no impact on the bottom line. Stock-based compensation expense in the third quarter was 4.9 million dollars as compared to 4.6 million in the prior year period. Other operating expenses in the third quarter were up 24.7% to 11 million dollars driven primarily by increased employee engagement at our offices. Included in other operating expenses is depreciation and amortization expense of 2.4 million for the third quarter.

For the fourth quarter, we expect other operating expenses to be 11 to $11 7 million.

For the full year, we expect other operating expenses to be 42 to $42 5 million as.

As we as in office activities continue to pick up.

For the fourth quarter of 2023, we expect G&A expenses to be six $6 million to $7 million for the full year, we expect G&A expenses to be 25, 1% to $25 $5 million.

We expect interest income to be approximately $1 8 million for the fourth quarter in.

Richard Schlenker: GNA expenses declined 10.6% to 6 million dollars for the third quarter. This decrease was due to a reduction in the use of outsource personnel and a smaller annual company meeting. Interesting income increased to 1.9 million dollars for the third quarter driven by an increase in interest rates. Miscellaneous expenses, excluding deferred compensation loss, was approximately 1 million dollars. During the quarter capital expenditures were 3.3 million dollars. We distributed 13.2 million to shareholders through dividend payments and repurchased 17 million dollars in common stock.

In addition, we expect miscellaneous income to be approximately $750000 in the fourth quarter.

For the remainder of 2023, we do not anticipate any of that additional tax benefit from share based awards.

So the year over year tax benefit associated with share based awards.

Are expected to be $2 $4 million lower than they were in 2022, which is a <unk> <unk> per diluted share impact to EPS.

For the fourth quarter of 2023, we expect our tax rate to be approximately 28, 2% as compared to 26, 2% in the same quarter a year ago for the full year 2023, the tax rate inclusive of the tax benefit from share based awards is expected to.

Richard Schlenker: We ended the third quarter with 137.1 million in cash and cash equivalents. Turning to our outlook for the fourth quarter of 2023 as compared to 1 year prior, we expect revenues before reimbursements to grow in the middle single digits. And EBITDAM margin to be 26 to 27% of revenue before reimbursements. For the full year 2023 as compared to 1 year prior, we expect revenue before reimbursements to grow in the high single digits in EBITDAM margin to be 27.4% to 27.8% of revenues before reimbursements.

25, 7% as compared to 22, 6% in 2022.

In closing, we continue to be confident in the strength of the business and our ability to drive further profitable growth I will now turn the call back to Catherine for closing remarks.

Thank you rich for many years excellent that has been a trusted advisor and supporting our clients throughout the product lifecycle as the complexities of innovation, creating new challenges exponent will leverage our world class team of experts in diversified services portfolio to guide our clients through the dynamic changes in their industry.

Richard Schlenker: This assumes approximately the same headwinds of 6 to 7% from consumer electronics business in the fourth quarter as we experience in the third quarter. The full year margins remain at or above pre-pandemic levels. As Catherine mentioned, we are taking actionable steps to strategically align our resources with the current and long-term demand trends within our business through targeted recruiting and ongoing performance management. As a result, we expect our average technical full-time equivalent employees to decline sequentially 2% in the fourth quarter.

We remain confident in our ability to drive long term profitability and value for our shareholders. Operator, we are now ready for questions.

Thank you we will now begin the question and answer session.

Quick question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we'll pause momentarily to assemble our roster.

Our first question comes from Tobey Sommer from Truest. Please go ahead.

Richard Schlenker: We expect utilization in the fourth quarter to be 66% to 68% as compared to 69% in the same quarter last year. As a reminder, utilization is seasonably lower in the fourth quarter due to more holidays and vacations compared to other quarters. Our expectations for full-year utilization is in the range of 69 to 69.5%, as compared to 73.8% in 2022. We still believe our long-term target of sustained mid-70s utilization is act achievable as we continue to strategically manage account and balance utilization based on market demands.

Thank you.

What sort of run rate do you think that the company may be on in terms of billable head count growth.

As you exit the fourth quarter into next year.

Yes.

I anticipate that we will end the year with a head count that puts us right around <unk>.

Give or take around 1025 is where we'll end the year at.

And then we will.

<unk> continued to I would expect that hopefully that puts us in a good position.

To be able to grow throughout 2024.

We are still in our planning phase, we're sort of in the middle of that.

Richard Schlenker: We expect the 2023 year-over-year realized rate increase to be 4.75 to 5.25%. For the fourth quarter, we expect stock-based compensation to be 4.5 to 5 million dollars. For the full year, we expect stock-based compensation to be 21.5 to 22 million dollars. For the fourth quarter, we expect other operating expenses to be 11.2 to 11.7 million dollars. For the full year, we expect other operating expenses to be 42 to 42.5 million, as in office activities continue to pick up.

Our business units are working on their 2024 plans in and.

<unk> team will be meeting with each of those business units.

Later on this quarter and but our expectations is based on the.

The demand environment that we have across a number of our industries that that will set us up in a good position to.

To be able to really grow in those areas, where the demand is increasing.

Thanks Kathy.

Catherine.

The company doesn't often.

Expectations.

Richard Schlenker: For the fourth quarter of 2023, we expect G&A expenses to be 6.67 million dollars. For the full year, we expect G&A expenses to be 25.1 to 25.5 million dollars. We expect interest income to be approximately $1.8 million for the fourth quarter. In addition, we expect miscellaneous income to be approximately $750,000 in the fourth quarter. For the remainder of 2023, we do not anticipate any additional tax benefit from share-based awards. So, the year-over-year tax benefit associated with share-based awards are expected to be $2.4 million lower than they were in 2022, which is a $5 per diluted share impact to EPS.

And I was wondering if you could describe that the changes in demand.

Throughout the quarter, whether it was just sort of a.

A bit at a time in each of the months.

And then to perhaps October as well or was there.

Sort of.

An episode or a month at which men.

Many things changed and then sort of leveled off from there.

Yes, yes, thanks Tobey.

It's important to sort of look at this from a portfolio perspective.

And when I do that.

We're very much focused in terms of the headwinds in the consumer electronics sector is as rich described.

And even even more granularly around some of that human subjects type of work.

That we've been doing around data collection machine learning and things like that it's very much related to the.

Richard Schlenker: For the fourth quarter, 2023, we expect our tax rate to be approximately 28.2%, as compared to 26.2% in the same quarter a year ago. For the full year 2023, the tax rate, inclusive of the tax benefit from share-based awards, is expected to be 25.7%, as compared to 22.6% in 2022.

Product lifecycle timing that we've been seeing.

And also by some of those macroeconomic headwinds, but I think the.

As I look across the business.

What I'm seeing is a portfolio that is.

Reforming well and as the design because what we've done is really design a portfolio that is diverse across industries right and so we're seeing growth in just about every one of those other industries, whether that's transportation, which is very strong you know whether that's the life sciences side, whether that's the NRG.

Richard Schlenker: In closing, we continue to be confident in the strength of the business and our ability to drive further profitable growth.

Catherine Corrigan: I will now turn the call back to Catherine for closing remarks. Thank you, Rich. For many years, Exponent has been a trusted advisor in supporting our clients throughout the product life cycle. As the complexities of innovation create new challenges, Exponent will leverage our world-class team of experts and diversified services portfolio to guide our clients through the dynamic changes in their industries. We remain confident in our ability to drive long-term profitability and value for our shareholders. Operator, we are now ready for...

Operator: Thank you.

The construction side.

And being up eight 5% despite the headwinds I think really exemplifies the strength of that portfolio.

Being able to.

Deliver profitability, that's at or above where we were pre pandemic without with all of those expenses layered back in so it is a it is a focused area where there are certainly.

Some moderation and we expect that to continue in Q4, but we also are seeing some nice activity in the pipeline. We've got requests coming in for scopes of work and proposals and so that pipeline of Sterling and.

Operator: We will now begin the question and answer session. That's a question you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To draw your question, please press star then two. At this time, we'll pause momentarily to symbol our roster.

And Thats why we feel like these headwinds are going to start to abate. Once we hit Q1 of 2024, and then progressed even further into 2024.

Tobey Sommer: Our first question comes from Tobey Sommer from truest. Please go ahead. Thank you.

Yes, Tobey I would just add that a little bit of granularity on to those numbers.

Catherine Corrigan: What sort of run rate do you think that the company may be on in terms of billable headcount growth as you exit the fourth quarter in the next year? Yeah, I anticipate that we will end the year with a headcount that puts us right around, you know, give or take around a 1025 is where we'll end the year at. And then we will continue to, I would expect it hopefully that puts us in a good position to be able to grow throughout.

Mentioned there.

We had about $8 million headwind I think we thought that would probably be.

Closer to 6 million.

In July when we put together the quarter.

And in addition to that.

We thought that would be.

Slightly less again.

In the in the fourth quarter instead of holding at that level, we based on what we understood of timing of some projects coming in we expected those projects to start in Q4 that are now going to come in.

Catherine Corrigan: Throughout 2024, you know, we are still in our planning phase, we're sort of in the middle of that part where our business units are working on their 2024 plans and and, you know, the executive team will be meeting with each of those business units. Later on this quarter and but our expectations is based on the demand environment that we have across the number of our industries that that will set us up in a good position to be able to really grow in those areas where the demand is increasing.

In the in the first quarter at least that's what we expect now so.

Those.

That provided that additional.

Sort of headwind in the fourth quarter.

Thanks.

And if I could follow up on what you said about.

Sort of visibility into new projects as you go into 'twenty four.

If you could describe how much visibility and how.

How much insight you have into customer planning and sort of.

Catherine Corrigan: Thanks and Catherine, the company doesn't often miss expectations. And I was wondering if you could describe the changes in demand throughout the quarter, whether it was just sort of a bit at a time in each of the month and into perhaps October as well. Or was there sort of an episode or a month at which many things changed and then sort of leveled off from there? Yeah, yeah, thanks to the, you know, it's important to sort of look at this from a portfolio perspective.

Looking out over the horizon to the extent your customers.

Involve you in that.

Just kind of give us a sense for.

How you can.

Struck the view for 2024 and that in the consumer.

Tronox area that did demonstrate a little bit soft.

Yes, and look I mean across the business Tobey.

There's quite a bit of variability in that I mean, you can imagine the reactive work that we do have.

A lot less visibility.

But even on the proactive side that sort of product development consulting can often be driven by things like early field failures for example, and so there is a.

Catherine Corrigan: And when I do that, you know, we're very, we're very much focused in terms of the headwinds in the consumer electronic sector as rich described and even more granularly, you know, around some of that human subject type of work that we've been doing around data collection, machine learning and and things like that. It's very much related to the product lifecycle timing that we've been seeing, you know, and also by some of those macroeconomic headwinds.

There is a piece of that that the client is not necessarily able to foresee as they are moving into their product to launch let's say sell.

That can limit our ability to sort of see what that pipeline looks like.

And that even on the machine learning and human data collection side again. They are often there are iterating and that product lifecycle based on aspects of that that they may or may not be able to visualize themselves right. So I think what I'm really trying to say is that there.

Catherine Corrigan: But I think the, you know, as I look across the business, what I'm seeing is a portfolio that is performing well and as designed because what we've done is really design a portfolio that is diverse across industries. Right, and so we're seeing growth in just about every one of those other industries, whether that's transportation, which is very strong, you know, whether that's the life sciences side, whether that's the energy side or the construction side.

We do the best we can to sort of understand where the client is heading and of course, we're in dialogue with them, but there is an element of the type of work that we do that is driven.

That's through some some level of uncertainty.

Understood.

Switching gears I, just have two more questions and I'll get back in the queue.

Catherine Corrigan: You know, and, you know, being up eight and a half percent despite the headwinds, you know, I think really exemplifies the strength of that portfolio and, you know, being able to, you know, deliver profitability that, you know, add or above where we were pre pandemic without, you know, with all of those expenses later back in. And so, you know, it is a, it is a focused area where there's some some moderation and, you know, we expect that to continue in queue for, but we also are seeing some nice activity in the pipeline, you know, we've got requests coming in for scopes of work and proposals.

In the.

In your business can you talk to.

The key for.

Yes.

Opportunity and what you see there.

And then.

I'm curious what the composition of your projected book looks like relative to large projects. Your question that I often ask you about on these calls to assess whether there is sort.

Sort of upside large project risk or represents a mutual or downside risk. Thank you.

Yeah, Thanks, Tobey and maybe I'll cover the <unk> and then I can let rich cover the large project piece.

Catherine Corrigan: And so that pipeline is filling and that's why we feel like, you know, these headwinds are going to start to evade, you know, once we hit queue one of 2024 and then progress even further into 2024. And Tobey I just had a little bit of granularity on to those numbers, you know, as I mentioned there, we had about $8 million headwind. I think we thought that that would probably be closer to $6 million in July when we put together the quarter.

So we absolutely are continuing to see increased activity around forever chemicals talked about key phosphate perfluorinated substances.

And.

It kind of starts at the original the original chemical manufacturers, but then what we're seeing is that the issues are cascading down into the supply chain. So these chemicals are used in consumer products and clothing in food packaging.

Catherine Corrigan: And in addition to that, we thought that would be slightly less again in the fourth quarter. Instead of holding at that level, we based on what we understood of timing of some projects coming in. We expected those projects to start in Q4 that are now going to come in in the first quarter, at least that's what we expect now. So those, you know, that provided that additional sort of headwind in the fourth quarter.

And various other applications and carpeting and Teflon Tan.

Name. It is there and so what we're seeing is really that cascade down into that.

Into that supply chain and we're seeing it in the reactive sentence.

<unk> litigation environment. So what is the impact on the environment, we're seeing it in the regulatory arena. When you we talk about that type of work in the chemicals industry and we're also seeing it more proactively and earlier in the product lifecycle. When you think about product stewardship claim.

Catherine Corrigan: Thanks. Thanks, and if I could follow up on what you said about sort of visibility into new projects as you go into 24. How, if you could describe how much visibility and how much insight you have into customer planning and sort of looking out over a horizon to the extent your customers involved you in that to just kind of give us a sense for how you can construct a view for 2024 and that in that consumer electronics area that did demonstrate a little bit of service.

It's you need to evaluate potential substitution for piece off in their products and they're looking at those sorts of things and we are we're seeing those engagements. So.

<unk>, a great opportunity to bring that interdisciplinary team together of our health Sciences are environmental scientists, our exposure chemists and our material scientists.

To really help clients in that area.

Yeah.

Tobey in relation to the <unk>.

Large projects, we don't have any any projects today that historically, we've talked about large projects when they've been in that 4% to 5% range.

And really our portfolio in this past quarter has been made up of projects.

Catherine Corrigan: Yeah, and look, I mean, across the business to be the, there's quite a bit of variability in that. I mean, you can imagine the reactive work that we do has, you know, a lot less visibility, you know, but even on the proactive side, you know, that sort of product development consulting can often be driven by things like early field failures, for example. And so there is a, you know, there's a piece of that that the client is not necessarily able to foresee as they're moving into their product launch, let's say.

There are 2% or less.

And what we're doing.

That fits into the normal portfolio. Some of those will they're part of a litigation matter and they will end in the quarter and something else will grow up to that level or a couple projects will replace that but it's.

It's more of a a much more of a normal portfolio.

But at this point.

Thank you very much.

The next question comes from Josh Chan from UBS. Please go ahead.

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

Hi, good afternoon, Catherine and rich.

Thanks for giving the color on the consumer electronics impact.

Yes.

Sexually either if you did eight 5% growth in Q3 with $8 million headwind and then I guess with the same amount of headwind youre not expecting mid single digit growth in Q4. So it is something else outside of consumer electronics slowing maybe could you talk about the demand outside of that sector I guess.

Yeah, maybe I'll start off and Katherine can.

Fill in.

Really.

The the difference, let's say there of pick your mid point on that.

The three point difference is really a combination of.

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

<unk>.

Where the business was last year in the fourth quarter as well.

What that level of hurdle was which was pretty strong that the business was blowing out at that time and just in the mix I mean last year that head count was very much ramping in the fourth quarter that utilization was holding together in extremely strong.

So.

Overall, I'd say, we're not seeing.

Any material difference.

In other parts of the business, but Katherine maybe you want to double click on that yeah, yeah, no. Thanks, rich and thanks, Josh for that question.

Catherine Corrigan: Thank you. Yeah, thanks, Tobey. And maybe I'll cover the PFAS and then I can let Rich cover the large project piece. So, you know, we absolutely are continuing to see increased activity around forever chemicals. You know, we talked about PFAS, these perforated substances. And, you know, it kind of starts at the original, you know, the original chemical manufacturers. But then what we're seeing is that the issues are cascading down into the supply chain.

Catherine Corrigan: So, you know, these chemicals are used in consumer products, in clothing, in food packaging, in, you know, in various other applications, you know, in carpeting and teflon pans and, you know, you name it, it's there. And so, what we're seeing is really that cascade down into that, you know, into that supply chain. And we're seeing it in the reactive sense around the litigation environment. So, what is the impact on the environment?

Look there is a I cannot refer to the portfolio.

Have ebbs and flows in that when we go out and we we ask our folks about what theyre seeing.

What's the dispute landscape in and what are the kinds of projects either.

<unk> offer coming on and when we do that.

And we compare to the fourth quarter of last year, we sort of come out where we are but when we look broadly just in terms of the business and what's strong I mean transportation is a great example of an area that is very robust when we think about the litigation around advanced driver assistance, we're looking at.

Inquiries were getting around electric vehicles.

Look at what's going on in life Sciences, we look at our risk work in utilities.

We're generally.

Feeling good about where the portfolio is over the long term we have to go with the ebbs and flows sort of in that quarter to quarter basis.

Catherine Corrigan: We're seeing it in the regulatory arena when we talk about that type of work in the chemical industry. And we're also seeing it more proactively, even earlier in the product life cycle, when you think about product stewardship, clients who need to evaluate potential substitutions for PFAS in their products. And they're looking at those sorts of things and we're seeing those engagements. So, definitely a great opportunity to bring that interdisciplinary team together of our health scientists, our environmental scientists, our exposure chemists and our material scientists to really help clients in that area.

Okay. That's that's helpful. Thank you.

And then on the on the staffing levels.

Given the little bit slower demand than they expected.

Do you still expect to achieve this back to normal or desire utilization levels around the start of the year next year or does that timeline gets pushed out a little bit.

Look I think that.

We are as we've made points here today, our objective is to bring our head count in line with the demand and the environment.

Catherine Corrigan: Yeah, Toby, in relation to the large projects, we don't have any, any projects today that, you know, historically, we've talked about large projects when they've been in that four to five percent range. And really our portfolio in this past quarter has been made up of projects that are, you know, two percent or less in what we're doing. So, that fits into the normal portfolio. Some of those will, you know, they're part of a litigation manner and they'll end in the quarter and something else will grow up to that level or a couple projects will replace that. But it's more of a much more of a normal portfolio project at this point done.

As such definitely began to see an improvement in the utilization.

We're not complete with our plan and an exact and ready to sort of give guidance around.

Tobey Sommer: Thank you very much.

That level of granularity as it relates to the first quarter or next year, but are very much our focus.

Is to see our utilization improve.

In 2024.

Great. Thank you both for your time.

The next question comes from Andrew Nicholas Nicholas from William Blair. Please go ahead.

Hi, good afternoon, thanks for taking my questions.

I wanted to take another shot at the consumer products commentary and maybe more so try to quantify which piece of that business I think in your K you disclosed how much of revenue is tied to consumer consumer products is is this relatively widespread within.

Joshua Chan: The next question comes from Josh Chan from UBS, please go ahead. Hi, good afternoon, Catherine and Rich. Thanks for giving the color on the consumer electronics impact. I guess conceptually, you know, if you did eight and a half percent growth in Q3 with the eight million headwind. And then I guess with the same amount of headwind, you're now expecting mid single digit growth in Q4. So if something else outside of consumer electronics slowing, maybe could you talk about the demand outside of that sector?

What I think was 31% of mix number or is there a slice of this that's down.

Drastically just trying to kind.

Kind of piece together.

The moving parts here, if you could help me there.

Yes so.

Joshua Chan: Yes. Yeah, maybe I'll start off in Catherine can fill in. Really, you know, the difference, let's say, there of a figure midpoint on that of a three point difference is really a combination of, you know, where the business was last year in the fourth quarter as what that level of hurdle was which was pretty strong that the business was blowing out at that time and just in the mix. I mean, last year that head count was very much ramping in the fourth quarter that utilization was holding together and extremely strong.

It is.

It is focused.

Primarily it's focused on the consumer electronics side, we're not seeing.

A decline in the more general consumer products areas. So its focus there.

It's predominantly in.

Are almost solely in the data collection a.

Human subjects study area.

So it is very much around that which are which and it is primarily focused around where the clients are in that product lifecycle, but clearly there has been some impact from where clients have been going through organizationally and deciding what.

Joshua Chan: So, you know, overall I'd say we're not seeing any material difference in other parts of the business, but Catherine, maybe you want a double click on that. Yeah, yeah, no thanks, Rich, and thanks, Josh, for that question. You know, look, there's a, again, a third of the portfolio. You know, we have ebbs and flows in that when we go out and we, you know, we ask our folks about what they're seeing, you know, what's the dispute landscape and what are the kinds of projects, either, you know, flowing off or coming on, you know, and when we do that, and we compare to the fourth quarter of last year, you know, we sort of come out where we are, but when we look broadly just in terms of the business and what's strong, I mean, transportation is a great example of an area that is very robust.

Projects to continue and how to staff things and manage costs.

The market turn but this is consumer electronics.

The majority of it is in the data collection user study area.

And primarily about where they are in the product lifecycle.

Okay.

Okay. Thanks, Rich and then maybe for my follow up on on margin.

Can you help me bridge the gap in terms of kind of the revenue guide down versus the margin guide down it looks like you're still kind of high single digit expectation for full year 'twenty three on the top line.

I realize that that's below what you were at before at the midpoint, but still still within that full year range and yet guidance for for margins is below the prior range. If I'm if I'm not mistaken is there any other kind of outsized expenses that have come through since you last spoke with us or.

Joshua Chan: When we think about the litigation around advanced strider assistance, we're looking at inquiries we're getting around electric vehicles, you know, we look at what's going on in life sciences, we look at our risk work in utilities, you know, we're generally, I'm feeling good about where the portfolio is over the long term, you know, we have to go with the ebbs and flows sort of in that quarter to quarter basis. Okay, that's helpful. Thank you.

Or anything else to call out or is it just a function of the fact that you are kind of hanging in there with.

Fixed costs and people in the consumer products business the expectation that that comes back around at some point next year.

Yes. So look it is it's almost it's all driven by that.

Catherine Corrigan: And then on the staffing levels, given the little bit slower demand than expected, do you still expect to achieve this back to normal or desired utilization levels around the start of the year next year, or does that timeline get pushed out a little bit? Look, I think that we are, as we've made points here today, our objective is to bring our headcount in line with the demand in the environment. And as such, definitely begin to see an improvement in the utilization.

Being a few million dollars less in the in the revenue line.

We are.

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

Indicated where we thought we would make some adjustments in that and did it.

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

Is quite high.

Catherine Corrigan: You know, we're not complete with our plan and and and exact and ready to sort of give guidance around that level of granularity as it relates to the first quarter or next year, but our very much our focus is to see our utilization improve in 2024. Great.

So.

This is really just about as I indicated.

If you take a look at this at the last quarter.

If that 8 million was only six six to six and a half million dollars.

Which is sort of what I would have expected in this third quarter.

Youll, probably a million of that waterfall.

<unk> to the margin line and you would have.

Joshua Chan: Thank you both for your time.

Would have been on.

On the upper half of our EBITDA margin and the same goes for the fourth quarter.

Andrew Nicholas: The next question comes from Andrew Nicholas from William Blair. Please go ahead. Hi, good afternoon. Thanks for taking my questions. I want to take another shot at the Consumer Products commentary, and maybe more so try to quantify which piece of that business I think in your case you disclose how much of revenue is tied to consumer, consumer products. Is this relatively widespread within what I think was kind of a 31% a mix number or is there a slice of this that's down pretty drastically just trying to kind of piece together all the moving parts here if you can help me there?

We are expecting probably about 3 million more of revenues in that in that quarter would have ended up with us three or $4 million that would have put us up in the high single digits, let's say.

Hitting that range and as such you would've ended up seeing.

A couple of million dollars more and in EBITDA and.

And returned gotten yourself.

Another.

The 80 basis points.

Makes sense, thanks, rich thanks Catherine.

This concludes our question and answer session and the conference is now concluded.

Andrew Nicholas: Yeah, so it is focused primarily. It's focused on the consumer electronic side. We're not seeing a decline in the more general consumer products areas. So it's focused there. It's predominantly in or almost solely in the data collection human subjects study area. So it's very much around that which are which and it is primarily focused around where the clients are in that product life cycle, but clearly there's been some impact from where clients have been going through organizationally in deciding which projects to continue and how to stop things and manage costs in the market turn. But this is consumer electronics. The majority of it is in the data collection user study area and primarily about where they are in the product life cycle.

Thank you for attending today's presentation you may now disconnect.

Okay.

[music].

Okay.

Richard Schlenker: Thanks Rich. And then maybe for my follow-up on margin, can you help me bridge the gap in terms of kind of the revenue guide down versus the margin guide down. It looks like you're still kind of high single digit expectation for full year and 23 on the top line which I realize that's below what you were at before at the midpoint, but still within that full year range and yet guidance for margins is below the prior range if I'm not mistaken.

Richard Schlenker: Is there any other kind of outsized expenses that have come through since you last spoke with us or anything else to call out or is it just a function of the fact that you're kind of hanging in there with you know fixed costs and people in the consumer products business to the expectation that that comes back around at some point next year. Yeah, so look it is it's almost thought it's all driven by that you know being a few million dollars less in the in the revenue line you know we are we're hitting on about where we expected the the level of staffing to be.

Richard Schlenker: So we had indicated where we thought we would make some adjustments in that and did it the fact that we have slightly lower revenues is led to slightly lower utilization and you know the leverage you get out of that is is quite high. So it this is really just about as I indicated you know if you take a look at this at the last quarter if you know if that eight million was only six six six the six and a half million which is sort of what I would have expected in in this third quarter you know probably a million of that would have fall fall to the margin line and you would have you know you would have been on the upper half of of our EBITDA margin and the same goes for the fourth quarter.

Richard Schlenker: You know we are expecting probably about three million more of revenues in that in that quarter would have ended up with us three or four million that would have put us up in the high single digits let's say had us hitting that range and and as such you would have ended up seeing you know a couple million dollars more in in EBITDA and in in return got yourself you know another 50 to 80 basis points makes sense.

[music].

[music].

Good day and welcome to the exponents third quarter fiscal year 2023 earnings Conference call. All participants will be in 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'll be an opportunity to ask questions.

Note. This event is being recorded I would now like to turn the conference over to Joni constant tell us of Investor Relations. Please go ahead.

Thank you good afternoon, ladies and gentlemen, thank you for joining us on exponents third quarter 2023 financial results Conference call. Please.

Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at Www Dot exponent dot com backslash investors.

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. Catherine 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 export its 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.

The results to differ from forward looking statements can be found in exponents periodic SEC filings, including those factors discussed under the caption risk factor in exponents. Most recent Form 10-Q.

Forward looking statements and risks in this conference call are based on current expectations as of today and excellent assumes no obligation to update or revise them, whether as a result of new developments or otherwise and now I will call turn the call over to Dr. Catherine Corrigan, Chief Executive Officer Catherine.

Okay.

Thank you Tony and thank you everyone for joining us today I will start off by reviewing our third quarter 2023 business performance Rich will then provide a more detailed review of our financial results and outlook. We will then open the call for questions.

During the third quarter, we once again delivered broad based revenue growth and earnings with our diversified portfolio of services supporting growth across nearly all industries we serve.

The deliberate investments we've made to expand capabilities and stay ahead of the pace of innovation continue to pay off our ability to anticipate client needs throughout the product or asset or technology lifecycle is and will continue to be a significant differentiator for excellent of course.

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

On to our third quarter in a bit more detail growth in the quarter was driven by continued strong demand for our reactive services. Our proactive engagements were driven by increased demand in the chemicals and life sciences sectors offset by continued moderation in the consumer electronics sector overall I am pleased with the strength.

We are seeing across the majority of the business.

Within our reactive services, we continue to see robust demand for domestic and international dispute related offerings involving large capital projects in the energy utilities and transportation sectors spanning various geographic regions. Additionally, consumer and automotive product liability and recall really.

<unk> increased in the quarter.

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

<unk>, we saw declines in data collection and human subject research engagements as well as product development consulting while we do expect this moderation to continue we are optimistic about the long term market drivers in this sector and we remain well positioned to support our clients as these challenges begin to abate in 2020.

Sure.

With regard to our segments exponents engineering and other scientific segment represented 83% of our net revenues in the third quarter, increasing 8% in the third quarter and 10% for the first three quarters compared to the prior year growth in the quarter was driven by strong demand for exponent services.

The transportation energy and construction sectors.

Exponents environmental and health segment represented 17% of our net revenues in the third quarter, increasing 13% in the third quarter and 7% for the first three quarters compared to the prior year.

Richard Schlenker: Thanks, Richard Schlenker.

Evolving regulatory requirements drove increased safety related engagements evaluating the impacts of chemicals on human health and the environment and we also saw increased activity in the life Sciences sector.

As we close out the year, we remained focused on excellence in execution and expanding our differentiated capabilities to meet the dynamic needs of our clients. The investments I mentioned earlier, we will continue to be a priority to drive organic growth and development within exponent and to foster the essential trust our clients place that are.

<unk> experts to address their most complex needs.

Further managing resources in line with the growth of the business remains top of mind to that end as we expected fulltime equivalent employees in the third quarter decreased two 5% compared to the second quarter as we continued to strategically align our resources with demand across the business. We are taking are too.

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

Operator: You may now disconnect.

Pronged approach to ensuring our head count is aligned with not only current demand, but also with the longer term demand and opportunities we are seeing.

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

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

In summary, exponent continues to position itself at the forefront of innovation as a trusted advisor to our clients across the product lifecycle market drivers, including the increasing complexities around safety health and the environment remains strong and continue to drive opportunity across our business.

A focus on expanding our capabilities strengthening our relationships and driving profitable growth and value for our shareholders.

I'll now turn the call over to rich to provide more detail on our third quarter results as well as discuss our outlook for the fourth quarter and full year 2023.

Thank you Catherine and good afternoon, everyone.

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

For the third quarter of 2023 total revenues increased four 8% to $133 3 million.

And revenues before reimbursements or net revenues as I will refer to them from here on increased eight 5% to $125 million.

Paired to the same period of 2022.

This includes a decline of approximately $8 million and our consumer electronics business, which created a 6% to 7% headwind as compared to the third quarter of 2022.

Net income for the third quarter was $24 5 million or <unk> 48 cents per diluted share as compared to $24 4 million or <unk> 47 per diluted share in the prior year period.

<unk> consolidated tax rate was 27, 9% in the third quarter as compared to <unk> 27.

For the same period in 2022.

EBITDA for the quarter was $34 5 million.

<unk> March a margin of 27, 6% of net revenues as compared to $34 6 million or 30% of net revenues in the same period of 2022.

This year over year decline in margins was anticipated as expenses normalize post pandemic and utilization was lower due to the growth in head count.

Billable hours in the third quarter were approximately 380000, an increase of four 1% year over year.

Cheers.

Significant considering the headwinds in electronics.

The average technical fulltime equivalent employees in the third quarter were 1050.

Which is an increase of nine 6% as compared to one year ago.

This was the result of successful recruiting efforts in the second half of 2020 do coupled with improved retention in 2023.

As Katherine mentioned fulltime equivalent employees decreased two 5% compared to the second quarter of 2023, reflecting our progress on strategically aligning our resources with the current and long term demand opportunities.

Utilization in the third quarter was 70% down from 73% in the same period of 2022.

The realized rate increase was.

Four 4% for the third quarter as compared to the same period a year ago.

In the third quarter after adjusting for gains and losses.

And and deferred compensation expense compensation expense increased 13, 4%.

Included in total compensation expense is a loss in deferred compensation of 2.8.

<unk> 8 million as compared to a loss of <unk>.

$4 9 million in the third quarter of 2022.

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

Stock based compensation expense in the third quarter was $4 9 million as.

As compared to $4 6 million in the prior year period other operating expenses in the third quarter were up 24, 7% to $11 million driven primarily by increased employee engagement on our offices included in other operating expenses is depreciation and amortization.

Operator: The New York City Council of the United States of America and the United States of America[inaudible] America and the United States of America and the United States of America and the United States of America and the United States of America and the United States of America and the United States of America[inaudible] Conference Call.

<unk> expense of $2 4 million for the third quarter.

Joni Konstantelos: Please note that this call will be simultaneously webcasts on the Investor Relations section of the company's corporate website at www.exponents.com-investors.

<unk> expenses declined 10, 6% to $6 million for the third quarter. This decrease was due to a reduction in the use of outsourced personnel and a smaller annual company meeting.

Joni Konstantelos: This conference call is the property of exponent in any taping or other reproduction is expressly prohibited without prior written consent.

Interest income increased to $1 9 million for the third quarter, driven by an increase in interest rates.

Joni Konstantelos: Joining me on the call today are Dr. Catherine 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 exponents 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 exponents periodic SEC filings, including those factors discussed under the caption risk factor in exponents most recent form 10Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise.

Miscellaneous expenses, excluding deferred compensation loss was approximately $1 million.

Catherine Corrigan: And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Thank you, Johnny, and thank you everyone for joining us today. I will start off by reviewing our third quarter 2023 business performance, Rich will then provide a more detailed review of our financial results and outlook, and we will then open the call for questions. During the third quarter, we once again delivered broad-based revenue growth and earnings with our diversified portfolio of services supporting growth across nearly all industries we serve.

During the quarter capital expenditures were $3 3 million.

We distributed $13 2 million to shareholders through dividend payments and repurchased $17 million in common stock.

Catherine Corrigan: The delivered investments we've made to expand capabilities and stay ahead of the pace of innovation continue to pay off. Our ability to anticipate client needs throughout the product or assets or technology life cycle is and will continue to be a significant differentiator for exponent. Of course, uncertainty exists in the broader markets we serve, but our exceptional team of integrated experts and our expansive capabilities provide us the ability to remain nimble and adapt our business to align with these dynamic market trends.

We ended the third quarter with $137 1 million in cash and cash equivalents.

Turning to our outlook for the fourth quarter of 2023 as compared to one year prior.

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

Expect revenues before reimbursements to grow in the middle single digits.

27, 8% of revenues before reimbursements.

Assumes approximately the same headwinds of 6% to 7% from consumer electronics business in the fourth quarter as we experienced in the third quarter.

Catherine Corrigan: Additionally, consumer and automotive product liability and recall-related work increased in the quarter. Our proactive engagements were driven by increased demand for regulatory consulting work in the chemicals industry and engagements in the life sciences sector. This was offset by ongoing moderation in the consumer electronics industry due in part to the timing of product life cycles as well as ongoing macroeconomic headwinds. As a result, we saw declines in data collection and human subject research engagements, as well as product development concerns, consulting.

Full year margins remain at or above pre pandemic levels.

As Katherine mentioned, we are taking action steps.

Chicle align our resources with the current and long term demand trends within our business through targeted recruiting and ongoing performance management. As a result, we expect our average technical fulltime equivalent employees to decline sequentially, 2% in the fourth quarter.

We expect utilization in the fourth quarter to be 66% to 68% as compared to 69% in the same quarter last year.

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

Our expectations for full year utilization is in the range of 69 to 69, 5% as compared to 73, 8% in 2022.

We still believe our long term target of sustained mid Seventy's utilization is achievable as we continue to strategically manage headcount and balanced utilization based on market demands.

We expect the 2023 year over year realized rate increase to be $4 75 to five 5%.

For the fourth quarter, we expect stock based compensation to be four $5 million to $5 million for the full year, we expect stock based compensation to be 21, 5% to $22 million.

For the fourth quarter, we expect other operating expenses to be 11 to $11 7 million for the full year. We expect other operating expenses to be 42 to $42 5 million as.

As we as in office activities continue to pick up.

For the fourth quarter of 2023, we expect G&A expenses to be six $6 million to $7 million.

For the full year, we expect G&A expenses to be 25, 1% to $25 5 million.

We expect interest income to be approximately $1 8 million for the fourth quarter. In addition, we expect miscellaneous income to be approximately $750000 in the fourth quarter.

For the remainder of 2023, we do not anticipate any of that additional tax benefit from share based awards.

So the year over year tax benefit associated with share based awards.

Are expected to be $2 $4 million lower than they were in 2022, which is a <unk> <unk> per diluted share impact to EPS.

For the fourth quarter 2023, we expect our tax rate to be approximately 28, 2% as compared to 26, 2% in the same quarter a year ago for the full year 2023, the tax rate inclusive of the tax benefit from share based awards is expected to.

Catherine Corrigan: While we do expect this moderation to continue, we are optimistic about the long-term drivers in this sector, and we remain well positioned to support our clients as these challenges begin to abate in 2024. With regard to our segments, Exponent's engineering and other scientific segment represented 83 percent of our net revenues in the third quarter, increasing 8 percent in the third quarter, and 10 percent for the first three quarters, compared to the prior year.

25, 7% as compared to 22, 6% in 2022.

Catherine Corrigan: Growth in the quarter was driven by strong demand for Exponent services across the transportation, energy, and construction sectors. Exponent environmental and health segment represented 17 percent of our net revenues in the third quarter, increasing 13 percent in the third quarter, and 7 percent for the first three quarters, compared to the prior year. Evolving regulatory requirements drove increased safety-related engagements, evaluating the impacts of chemicals on human health and the environment, and we also saw increased activity in the life sciences sector.

In closing, we continue to be confident in the strength of the business and our ability to drive further profitable growth I will now turn the call back to Catherine for closing remarks.

Thank you rich for many years exponent has been a trusted advisor and supporting our clients throughout the product lifecycle as the complexities of innovation creates new challenges exponent will leverage our world class team of experts in diversified services portfolio to guide our clients through the dynamic changes in their industry.

We remain confident in our ability to drive long term profitability and value for our shareholders. Operator, we are now ready for questions.

Catherine Corrigan: As we close out the year, we remain focused on excellence in executions and expanding our differentiated capabilities to meet the dynamic needs of our clients. The investments I mentioned earlier will continue to be a priority to drive organic growth and development within excellence and to foster the essential trust our clients placed in our team of experts to address their most complex needs. Further, managing resources in line with the growth of the business remains top of mind.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we'll pause momentarily to assemble our roster.

Catherine Corrigan: To that end, as we expected, full-time equivalent employees in the third quarter decreased to 1.5 percent compared to the second quarter, as we continue to strategically align our resources with demand across the business. We are taking a two-pronged approach to ensuring our headcount is aligned with not only current demand, but also with the longer-term demand and opportunities we are seeing. First, we are focused on recruiting in areas of the business where resources are constrained, but where we see opportunity to meet current and future markets demands.

Our first question comes from Tobey Sommer from Truest. Please go ahead.

Thank you.

What sort of run rate do you think that the company may be on in terms of billable head count growth.

Exit the fourth quarter into next year.

Yes.

And just debate that we will end the year with a head count that puts us right around <unk>.

Give or take around 1025 is where we'll end the year at.

And.

Then we will.

<unk> continued to I would expect that hopefully that puts us in a good position.

To be able to grow throughout 2024.

We are still in our planning phase, we're sort of in the middle of that part.

Part, where our business units are working on their 2024 plans in and.

The executive team will be meeting with each of those business units.

Later on this quarter, but our expectations is based on.

The demand environment that we have across a number of our industries that that will set us up in a good position to.

Be able to really grow in those areas, where the demand is increasing.

Thanks Kathy.

Catherine.

The.

He doesn't often.

Expectations.

And I was wondering if you could describe that the changes in demand.

Throughout the quarter, whether it was just sort of a.

A bit at a time in each of the months.

Perhaps October as well or was there sort of a.

An episode or a month at which <unk>.

Many things changed and then sort of leveled off from there.

Yes, yes, thanks Tobey.

It's important to sort of look at this from a portfolio perspective.

And when I do that we're very we're very much focused in terms of the headwinds in the consumer electronics sector is as rich described.

And even even more granularly around some of that human subject type of work.

That we've been doing around data collection machine learning and things like that it's very much related to the.

Product lifecycle timing that we've been seeing.

And also by some of those macroeconomic headwinds, but I think the.

As I look across the business.

What I'm seeing is a portfolio that is.

Performing well and as a designed because what we've done is really design a portfolio that is diverse across industries right and so we're seeing growth in just about every one of those other industries, whether that is transportation, which is very strong whether that's the life sciences side, whether that's the NRG.

The construction side.

Catherine Corrigan: Second, we continue to focus on performance management to ensure that our retained consultants are on a strong development path that will contribute to the future growth of the firm. In summary, expelment continues to position itself at the forefront of innovation as a trusted advisor to our clients across the product life cycle. Market drivers, including the increase in complexities around safety, health, and the environment, remain strong and continue to drive opportunity across our business. We remain focused on expanding our capabilities, strengthening our relationships, and driving profitable growth and value for our shareholders.

And being up eight 5% despite the headwinds I think really exemplifies the strength of that portfolio.

Richard Schlenker: I will now turn the call over to Rich to provide more detail on our third quarter results, as well as discuss our outlook for the fourth quarter and the full year 2023. Thank you, Catherine, and good afternoon, everyone. Let me start by saying all comparisons will be on a year-over-year basis unless otherwise noted. For the third quarter of 2023, total revenues increased 4.8 percent to 133.3 million, and revenues before reimbursements, or net revenues as I will refer to them for me or on, increased 8.5 percent to 125 million, as compared to the same period of 2022.

Being able to.

Deliver a profitability that's at or above where we were pre pandemic without with all of those expenses layered back in so it is a it is a focused area where there are certainly some moderation and we expect that to continue in Q4, but we also are seeing.

Richard Schlenker: This includes a decline of approximately $8 million in our consumer electronics business, which created a 6% to 7% headwind as compared to the third quarter of 2022. Net income for the third quarter was $24.5 million or 48 cents per diluted share as compared to $24.4 million or $47 cents per diluted share in the prior year period. Exponents consolidated tax rate was 27.9% in the third quarter as compared to $27.0 for the same period in 2022.

Richard Schlenker: EBITDA for the quarter was $34.5 million, producing a margin of 27.6% of net revenues as compared to $34.6 million or 30% of net revenues in the same period of 2022. This year over year decline in margins was anticipated as expenses normalized post-pandemic and utilization was lower due to the growth in head count. The old blowers in the third quarter were approximately $380,000, an increase of 4.1% year over year, which is significant considering the headwinds in electronics.

Some nice activity in the pipeline we have.

Got requests coming in for scopes of work and proposals and so that pipeline of Sterling.

That's why we feel like these headwinds are going to start to abate. Once we hit Q1 of 2024, and then progressed even further into 2024.

Yes, Tobey I, just said add a little bit of granularity on to those numbers as I mentioned, there we had about $8 million headwind I think we thought that would probably be.

Richard Schlenker: The average technical full-time equivalent employees in the third quarter were $1,050, which is an increase of 9.6% as compared to 1 year ago. This was the result of successful recruiting efforts in the second half of 2022 coupled with improved retention in 2023. As Katherine mentioned, full-time equivalent employees decreased 2.5% compared to the second quarter of 2023 reflecting our progress on strategically aligning our resources with the current and long-term demand opportunities. Utilization in the third quarter was 70% down from 73% in the same period of 2022.

Richard Schlenker: The realized rate increase was approximately 4.4% for the third quarter as compared to the same period a year ago. In the third quarter after adjusting for gains and losses and deferred compensation expense, compensation expense increased 13.4%. Included in total compensation expense is a loss in deferred compensation of 2.8 million as compared to a loss of 4.9 million in the third quarter of 2022. As a reminder, gains and losses in deferred compensation are offset to miscellaneous income and have no impact on the bottom line.

Closer to $6 million.

In July when we put together the quarter.

And in addition to that.

We thought that would be.

Slightly less again.

Richard Schlenker: Stock-based compensation expense in the third quarter was $4.9 million as compared to $4.6 million in the prior year period. Other operating expenses in the third quarter were up 24.7% to $11 million driven primarily by increased employee engagement at our offices. Included in other operating expenses is depreciation and amortization expense of 2.4 million for the third quarter. Declined $10.6% to $6 million for the third quarter. This decrease was due to a reduction in the use of outsource personnel and a smaller annual company meeting.

In the in the fourth quarter instead of holding at that level, we based on what we understood. The timing of some projects coming in we expected those projects to start in Q4 that are now going to come in.

Richard Schlenker: Interest income increased to $1.9 million for the third quarter driven by an increase in interest rates. Miscellaneous expenses, excluding deferred compensation loss, was approximately $1 million. During the quarter capital expenditures were $3.3 million. We distributed $13.2 million to shareholders through dividend payments and repurchased $17 million in common stock. We ended the third quarter with $137.1 million in cash and cash equivalents. Turning to our outlook, for the fourth quarter of 2023 as compared to one year prior, we expect revenues before reimbursements to grow in the middle single digits.

Richard Schlenker: And EBITDAM margin to be 26% to 27% of revenue before reimbursements. For the full year 2023 as compared to one year prior, we expect revenue before reimbursements to grow in the high single digits and EBITDAM margin to be 27.4% to 27.8% of revenues before reimbursements. This assumes approximately the same headwinds of 6% to 7% from consumer electronics business in the fourth quarter as we experienced in the third quarter. The full year margins remain at or above pre-pandemic levels.

In the first quarter at least that's what we expect now so.

Richard Schlenker: As Catherine mentioned, we are taking actionable steps to strategically align our resources with the current and long-term demand trends within our business through targeted recruiting and ongoing performance management. As a result, we expect our average technical full-time equivalent employees to decline sequentially 2% in the fourth quarter. We expect utilization in the fourth quarter to be 66% to 68% as compared to 69% in the same quarter last year. As a reminder, utilization is seasonably lower in the fourth quarter due to more holidays and vacations compared to other quarters.

Is.

That provided that additional.

Sort of headwind in the fourth quarter.

Thanks.

And if I could follow up on what you said about.

Richard Schlenker: Our expectations for full year utilization is in the range of 69 to 69.5%, as compared to 73.8% in 2022. We still believe our long-term target of sustained mid-70s utilization is act achievable as we continue to strategically manage account and balance utilization based on market demands. We expect the 2023 year-over-year realized rate increase to be 4.75 to 5.25%. For the fourth quarter, we expect stock-based compensation to be 4.5 to 5 million dollars.

Sort of visibility into new projects as you go into 'twenty four.

If you could describe how much visibility and how.

How much insight you have into customer planning and sort of.

Richard Schlenker: For the full year, we expect stock-based compensation to be 21.5 to 22 million dollars. For the fourth quarter, we expect other operating expenses to be 11.2 to 11.7 million dollars. For the full year, we expect other operating expenses to be 42 to 42.5 million, as we, as in office activities continue to pick up. For the fourth quarter of 2023, we expect G&A expenses to be $6.67 million. For the full year, we expect G&A expenses to be 25.1 to 25.5 million dollars.

Looking out over the horizon to the extent your customers involve you in that.

Just kind of give us a sense for.

How you can constructive view for 2024 and that.

The consumer electronics area that did demonstrate a little bit soft.

Yes, and look I mean across the business Tobey.

There is quite a bit of variability in that I mean, you can imagine the reactive work that we do have.

A lot less visibility.

Richard Schlenker: We expect interest income to be approximately $1.8 million for the fourth quarter. In addition, we expect miscellaneous income to be approximately $750,000 in the fourth quarter. For the remainder of 2023, we do not anticipate any additional tax benefit from share based awards. So, the year-over-year tax benefit associated with share based awards are expected to be $2.4 million lower than they were in 2022, which is a $5 per diluted share impact to EPS.

But even on the proactive side that sort of product development consulting can often be driven by things like early field failures for example, and so there is a.

Richard Schlenker: For the fourth quarter, 2023, we expect our tax rate to be approximately 28.2%. As compared to 26.2% in the same quarter a year ago. For the full year 2023, the tax rate, inclusive of the tax benefit from share based awards, is expected to be 25.7%, as compared to 22.6% in 2022.

Piece of that that the client is not necessarily able to foresee as they are moving into their product to launch let's say so.

That can limit our ability to sort of see what that pipeline looks like.

And that even on the machine learning and human data collection side again, they are often they're iterating and that product lifecycle based on aspects of that that they may or may not be able to visualize themselves right. So I think what I'm really trying to say is that there.

Richard Schlenker: In closing, we continue to be confident in the strength of the business and our ability to drive further profitable growth.

We do the best we can to sort of understand where the client is heading and of course, we're in dialogue with them, but there is an element of the type of work that we do that is driven.

Catherine Corrigan: I will now turn the call back to Catherine for closing remarks. Thank you, Rich. For many years, Exponent has been a trusted advisor in supporting our clients throughout the product life cycle. As the complexities of innovation create new challenges, Exponent will leverage our world-class team of experts and diversified services portfolio to guide our clients through the dynamic changes in their industries. We remain confident in our ability to drive long-term profitability and value for our shareholders.

It's through some some level of uncertainty.

Understood.

Switching gears I, just have two more questions and ill get back into queue.

In the.

Yes.

In your business could you talk to.

The T force opportunity and what you see there.

Then.

I'm curious.

The composition of your projected book looks like relative to large projects a question that I often ask about on these calls to assess whether there is.

Catherine Corrigan: Operator, we are now ready for questions. Thank you. We will now begin the question and answer session. That's a question you may press star than one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To draw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Toby Somer from truest.

Sort of upside large project risk or represents mutual or downside risk. Thank you.

Catherine Corrigan: Please go ahead. Thank you. What sort of run rate do you think that the company may be on in terms of billable head count growth as you exit the fourth quarter in the next year? Yeah, I anticipate that we will end the year with a head count that puts us right around, you know, give or take around a thousand twenty five is where we'll end the year at. And then we will continue to, I would expect it.

Yes, Thanks, Tobey and not maybe I'll cover the <unk> and then I can let rich cover the large project piece.

Catherine Corrigan: And hopefully that puts us in a good position to be able to grow throughout twenty twenty four. You know, we are still in our planning phase. We're sort of in the middle of that part where our business units are working on their twenty twenty four plans. And the executive team will be meeting with each of those business units later on this quarter. And but our expectations is based on the demand environment that we have across a number of our industries that that will set us up in a good position to be able to really grow in those areas where the demand is increased.

So we absolutely are continuing to see increased activity around forever chemicals talked about key phosphate perfluorinated substances.

Catherine Corrigan: Catherine, the company doesn't often miss expectations and I was wondering if you could describe the changes in demand throughout the quarter, whether it was just a bit at a time in each of the months and perhaps October as well, or was there sort of an episode or a month at which many things changed and then sort of leveled off from there? Yeah, thanks Tobey. You know, it's important to sort of look at this from a portfolio perspective and when I do that, you know, we're very much focused in terms of the headwinds in the consumer electronic sector as rich described and even more granularly, you know, around some of that human subject type of work that we've been doing around data collection, machine learning and things like that.

And.

It kind of starts at the original the original chemical manufacturers, but then what we're seeing is that the issues are cascading down into the supply chain. So these chemicals are used in consumer products and clothing in food packaging.

Catherine Corrigan: It's very much related to the product life cycle timing that we've been seeing, you know, and also by some of those macroeconomic headwinds. But I think the, you know, as I look across the business, what I'm seeing is a portfolio that is performing well and as designed because what we've done is really design a portfolio that is diverse across industries, right? And so we're seeing growth in just about every one of those other industries, whether that's transportation, which is very strong, you know, whether that's the life sciences side, whether that's the energy side or the construction side, you know, and, you know, being up eight and a half percent despite the headwinds, you know, I think really exemplifies the strength of that portfolio and, you know, being able to, you know, deliver profitability that, you know, adder above where we were pre-tandemic without, you know, with all of those expenses layered back in.

Catherine Corrigan: So, you know, it is a, it is a focused area where there's some, some moderation and, you know, we expect that to continue in Q4, but we also are seeing some nice activity in the pipeline. You know, we've got requests coming in for scopes of work and proposals, and so that pipeline is filling. And that's why we feel like, you know, these headwinds are going to start to evate, you know, once we hit Q1 of 2024, and then progress even further into 2024.

And various other applications and carpeting and teflon pans and <unk>.

Name. It is there and so what we're seeing is really that cascade down into that.

Catherine Corrigan: And Toby, I'd just add a little bit of granularity onto those numbers, you know, as I mentioned there, we had about $8 million headwind. I think we thought that that would probably be, you know, closer to $6 million in July when we put together the quarter. And in addition to that, we thought that would be slightly less, again, in the fourth quarter. Instead of holding at that level, we based on what we understood of timing of some projects coming in, we expected those projects to starting Q4 that are now going to come in in the first quarter, at least that's what we expect now.

Into that supply chain and we're seeing it in the reactive sentence around litigation environment. So what is the impact on the environment. We're seeing it in the regulatory arena. When you we talk about that type of work in the chemicals industry and we're also seeing it more.

Catherine Corrigan: So, those, you know, that provided that additional sort of headwind in the fourth quarter. Thanks. And if I could follow up on what you said about sort of visibility into new projects as you get going to 24, how if you could describe how much visibility and how much insight you have into customer planning and sort of looking out over a horizon to the extent your customers involved you in that to just kind of give us a sense for how you can construct a view for 2024 and that in that consumer electronics area that did demonstrate a little bit of this office.

Proactively and earlier in the product lifecycle, when you think about product stewardship clients, who need to evaluate potential substitution for piece off in their products and they are looking at those sorts of things and where we're seeing those engagements. So.

Definitely a great opportunity to bring that interdisciplinary team together of our health scientists are environmental scientists, our exposure chemists and our material scientists.

To really help clients in that area.

Yes.

In relation to the.

Large projects, we don't have any any projects today that historically, we've talked about large projects when they've been in that 4% to 5% range.

And really our portfolio in this past quarter has been made up of projects.

Catherine Corrigan: Yeah, and look, I mean across the business, Toby, there's quite a bit of variability in that. I mean, you can imagine the reactive work that we do has a lot less visibility. But even on the proactive side, that sort of product development consulting can often be driven by things like early field failures, for example. And so there is a piece of that that the client is not necessarily able to foresee as they're moving into their product launch, let's say.

Our 2% or less.

And what we're doing.

That fits into the normal portfolio. Some of those will they're part of a litigation matter and they will end in the quarter and something else will grow up to that level or a couple projects will replace that but.

It's more of a much more of a normal portfolio projects at this point.

Thank you very much.

The next question comes from Josh Chan from UBS. Please go ahead.

Catherine Corrigan: So you know, that that can limit our ability to sort of see what that pipeline looks like. And that, you know, even on the machine learning and the human data collection side, again, they are often, you know, they're iterating in that product life cycle based on aspects of that that they may or may not be able to visualize themselves, right? So I think what I'm really trying to say is that there, you know, we do the best we can to sort of understand where the client is heading.

Hi, good afternoon, Catherine and rich.

Thanks for giving the color on the consumer electronics impact.

Yes.

And separately if you did eight 5% growth in Q3 with $8 million headwind and then I guess with the same amount of headwind you are not expecting mid single digit growth in Q4. So is it something else outside of consumer electronics slowing maybe could you talk about the demand outside of that sector I guess.

Catherine Corrigan: And of course, we're in dialogue with them, but there is an element of the type of work that we do that is driven, you know, through some level of uncertainty. Understood. Switching years, I just have two more questions and I'll get back in with you. In the, in your business, could you talk to the Keef Haas opportunity and what you see there. And then I'm curious what the composition of your project book looks like relative to large projects.

Yes, maybe I'll start off and Kathryn.

Fill in.

Really.

The the difference, let's say their pick your mid point on that.

Three point difference is really a combination of yes.

No.

Where the business was last year in the fourth quarter as well.

What that level of hurdle was which was pretty strong that the business was blowing out at that time.

And just in the <unk>.

Mix I mean last year that head count was very much ramping in the fourth quarter that utilization was holding together in extremely strong.

Catherine Corrigan: A question that I often ask about on these calls to assess whether there's sort of upside-large project risk or represents neutral or downside risk. Thank you. Yeah, thanks, Sylvie. And maybe I'll cover the PFAS and then I can let Rich cover the large project piece. So, you know, we absolutely are continuing to see increased activity around forever chemicals. You know, we talked about PFAS, these perforated substances. And, you know, it kind of starts at the original, you know, the original chemical manufacturers.

So.

Overall, I'd say, we're not seeing.

Any material difference.

In other parts of the business, but Katherine maybe you want to double click on that yeah, yeah, no. Thanks, rich and thanks, Josh for that question.

Catherine Corrigan: But then what we're seeing is that the issues are cascading down into the supply chain. So, you know, these chemicals are used in consumer products, in clothing, in food packaging, in, you know, in various other applications, you know, in carpeting and tussle on pans. And, you know, you name it, it's there. And so, what we're seeing is really that cascade down into that, you know, into that supply chain. And we're seeing it in the reactive sense around the litigation environment.

Look there is a again refer to the portfolio, we have ebbs and flows in that when we go out and we we ask our folks about what theyre seeing.

What's the dispute landscape then.

What are the kinds of projects either.

Going off are coming on and when we do that.

And we compare to the fourth quarter of last year, we sort of come out where we are but when we look broadly just in terms of the business and what's strong I mean transportation is a great example of an area that is very robust when we think about the litigation around advanced driver assistance, we're looking at.

Inquiries were getting around electric vehicles.

Look at what's going on in life Sciences, we look at our risk working utilities.

Catherine Corrigan: So, what is the impact on the environment? We're seeing it in the regulatory arena when we talk about that type of work in the chemical industry. And we're also seeing it more proactively even earlier in the product life cycle when you think about product stewardship. Clients who need to evaluate potential substitutions for PFAS in their products, and they're looking at those sorts of things, and we're seeing those engagements. So, definitely a great opportunity to bring that interdisciplinary team together of our health scientists, our environmental scientists, our exposure chemists, and our material scientists, to really help clients in that area.

We're generally.

Feeling good about where the portfolio is over the long term we have to go with the ebbs and flows sort of in that quarter to quarter basis.

Okay. That's helpful. Thank you.

And then on the on the staffing levels.

Given the little bit slower demand than expected.

Do you still expect to achieve this back to normal or desire utilization levels.

Around the start of the year next year or does that timeline got pushed out a little bit.

Look I think that.

We are as we've made points here today, our objective is to bring our head count in line with the demand and the environment.

Catherine Corrigan: Yeah, Tobey in relation to the large projects, we don't have any projects today that historically we've talked about large projects when they've been in that 4 to 5% range and really our portfolio in this past quarter has been made up of projects that are 2% or less in what we're doing. So that fits into the normal portfolio. Some of those will, yep, they're part of a litigation manner and they'll end in the quarter and something else will grow up to that level or a couple projects will replace that but it's much more of a normal portfolio project at this point done.

As such definitely began to see an improvement in the utilization.

We're not complete with our plan and exact and ready to sort of give guidance around.

That level of granularity as it relates to the first quarter or next year, but.

Our very much our focus.

Is two <unk>.

Our utilization improve.

In 2024.

Okay.

Great. Thank you both for your time.

The next question comes from Andrew Nicholas Nicholas from William Blair. Please go ahead.

Hi, good afternoon, thanks for taking my questions.

Let me take another shot at the consumer products commentary and maybe more so try to quantify which piece of that business I think in your K you disclosed how much of revenue is tied to consumer consumer products is is this relatively widespread within.

Catherine Corrigan: Thank you very much. The next question comes from Josh Chan from UBS. Please go ahead. Hi, good afternoon, Catherine and Rich. Thanks for giving the color on the consumer electronic impact. I guess conceptually, if you did 8.5% growth in Q3 with 8 million headwind and then I guess with the same amount of headwind you're now expecting mid single digit growth in Q4 so it's something else outside of consumer electronic slowing maybe could you talk about the demand outside of that sector I guess?

What I think was kind of a 31% of mix number or is there a slice of this that's down.

Pretty drastically just trying to kind.

Kind of piece together.

The moving parts here, if you could help me there.

Yes so.

Catherine Corrigan: Yeah, maybe I'll start off in Catherine can fill in. Really the difference let's say there of a figure midpoint on that of a three point difference is really a combination of you know where the business was last year in the fourth quarter as what that level of hurdle was which was pretty strong that the business was blowing out at that dime and just in the mix. I mean that last year that headcount was very much ramping in the fourth quarter that utilization was holding together and extremely strong so overall I'd say we're not seeing any material difference in other parts of the business but Catherine maybe you want double click on that.

It is.

It is focused.

Primarily it's focused on the consumer electronics side, we're not seeing.

A decline in the more general consumer products areas. So its focus there.

It's predominantly in.

Are almost solely in the data collection.

Human subjects study area.

So it is very much around that which are which and it is primarily focused around where the clients are in that product lifecycle, but clearly there has been some impact from where clients have been going through organizationally and deciding what.

Projects to continue and how to staff things and manage costs.

The market turn but this is consumer electronics.

Catherine Corrigan: Yeah, yeah, no thanks Rich and thanks Josh for that question. Look, there's a, again I'm referred to the portfolio you know we have ebbs and flows in that when we go out and we you know we ask our folks about what they're seeing you know what's the dispute landscape and what are the kinds of projects either you know flowing off or coming on you know and when we do that and we compare to the fourth quarter of last year you know we sort of come out where we are but when we look broadly just in terms of the business and what's strong I mean transportation is a great example of an area that is very robust when we think about the litigation around advanced strider assistance we're looking at inquiries we're getting around electric vehicles you know we look at what's going on in life sciences we look at our risk working utilities you know we're generally I'm feeling good about where the portfolio is over the long term you know we have to go with the ebbs and flows sort of in that quarter to quarter basis.

The majority of it is in the data collection user study area.

Primarily about where they are in the product lifecycle.

Okay.

Okay. Thanks, Rich and then maybe for my follow up on on margin.

Can you help me bridge the gap in terms of kind of the revenue guide down versus the margin guide down. It looks like you are still kind of high single digit expectation for full year and <unk> 23 on the top line, which I realize that's below what you were at before at the mid point, but still still within.

In that full year range and yet guidance for for margins is below the prior range. If I'm if I'm not mistaken is there any other kind of outside of the expenses that have come through since you last spoke with us or anything else to call out or is it just a function of the fact that you are kind of hanging in there.

With.

Fixed cost and people in the consumer products business the expectation that that comes back around at some point next year.

Catherine Corrigan: Okay, that's helpful. Thank you. And then on the staffing levels, given the little bit slower demand than expected, do you still expect to achieve this back to normal or desired utilization levels around the start of the year next year, or does that timeline get pushed out a little bit? Look, I think that we are, as we've made points here today, our objective is to bring our headcount in line with the demand and the environment.

Yes. So look it is it's almost it's all driven by that.

Being a few million dollars less in the in the revenue line.

We are.

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

Indicated where we thought we would make some adjustments in that and did it.

The fact that we have slightly lower revenues has led to slightly lower utilization.

Catherine Corrigan: And as such, definitely begin to see an improvement in the utilization. We're not complete with our plan and exactly ready to sort of give guidance around that level of granularity as it relates to the first quarter or next year, but very much our focus is to see our utilization improve in 2024. Great. Thank you both for your time. The next question comes from Andrew Nicholas from William Blair. Please go ahead. Hi, good afternoon.

The leverage you get out of that is.

Is quite high.

So this is really just about as I indicated if you take a look at this at the last quarter.

If that $8 million was only six 6%.

$5 million.

Which is sort of what I would have expected in the third quarter.

Youll, probably $1 million of that waterfall.

To the margin line and you would have.

You would have been.

On the upper half of our EBITDA margin and the same goes for the fourth quarter.

We are expecting probably about 3 million more of revenues in that in that quarter would have ended up with us three or $4 million that would have put us up in the high single digits, Let's say had is hitting that range.

Catherine Corrigan: Thanks for taking my questions. I want to take another shot at the consumer products commentary and maybe more so try to quantify which piece of that business. I think in your case, you disclose how much of revenue is tied to consumer, consumer products. Is this relatively widespread within what I think was 31% a mix number or is there a slice of this that sounds pretty drastically just trying to kind of piece together all the moving parts here if you can help me there?

As such you would've ended up seeing.

A couple of million dollars more in.

And EBITDA and <unk>.

And return gotten yourself.

Another.

The 80 basis points.

Makes sense, thanks, rich thanks Catherine.

This concludes our question and answer session and the conference is now concluded.

Catherine Corrigan: Yeah, so it is focused primarily. It's focused on the consumer electronics side. We're not seeing a decline in the more general consumer products area, so it's focused there. It's predominantly in, or almost solely in the data collection, human subjects study area. So it's very much around that, which and it is primarily focused around where the clients are in that product life cycle. But clearly there's been some impact from where the clients have been going through organizationally in deciding which projects to continue and how to staff things and manage costs in the market turn.

Thank you for attending today's presentation you may now disconnect.

Catherine Corrigan: But this is consumer electronics. The majority of it is in the data collection user study area and primarily about where they are in the product life cycle. Okay, thanks Rich. And then maybe for my follow-up on margin, can you help me bridge the gap in terms of kind of the revenue guide down versus the margin guide down? It looks like you're still kind of out there. That's below what you were at before at the midpoint, but still within that full-year range and yet guidance for margins is below the prior range if I'm not mistaken.

Catherine Corrigan: Is there any other kind of outsized expenses that have come through since you last spoke with us or anything else to call out or is it just a function of the fact that you're kind of hanging in there with fixed costs and people in the consumer products business, the expectation that that comes back around at some point next, here. Yeah, so look, it is, it's almost thought, it's all driven by that, you know, being a few million dollars less in the, in the revenue line.

Catherine Corrigan: You know, we are, we're hitting on about where we expected the, the level of staffing to be. So we indicated where we thought we would make some adjustments in that and did it. The fact that we have slightly lower revenues is led to slightly lower utilization. And, you know, the leverage you get out of that is, is quite high. So it, this is really just about as I indicated, you know, if you take a look at this at the last quarter, if, you know, if that eight million was only six, six, the six and a half million, which is sort of what I would have expected in, in this third quarter, you know, probably a million of that would have fall, fall to the margin line.

Catherine Corrigan: And you would have, you know, you would have been on the upper half of our EBITDA margin. And the same goes for the fourth quarter. You know, we are expecting probably about three million more of revenues in that, in that quarter would have ended up with us three or four million. That would have put us up in the high single digits, let's say, how to sitting that range. And, and as such, you would have ended up seeing, you know, a couple million dollars more in, in EBITDA and in, in return, got yourself, you know, another 50 to 80 basis points. Makes sense. Thanks, Rick. Thanks, Catherine. This concludes our question and answer session and the conference has now concluded. Thank you for attending today's presentation. Give me an out-to-