Q4 2024 Exponent Inc Earnings Call
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
Joni Constant: I would now let's turn the conference over to Joni constant tell US. Please go ahead.
Joni Constant: Thank you operator, good afternoon, ladies and gentlemen, thank.
Joni Constant: You for joining us on exponent fourth quarter and fiscal year 'twenty 'twenty four financial results conference call. Please.
Joni Constant: Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at Www Dot exponent dotcom backslash investor.
Joni Constant: This conference call is the property of exponent and any taping or other reproduction is expressly prohibited without prior written consent.
Joni Constant: 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.
Joni Constant: 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.
Joni Constant: Additional information that could cause actual results to differ from forward looking statements can be found in X month periodic SEC filings, including those factors discussed under the caption risk factor in extra on its most recent Form 10-Q.
Speaker Change: 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 and now I will turn the call over to Dr. Catherine Corrigan Chief Executive Officer Catherine.
Catherine Corrigan: Thank you Tony and thank you everyone for joining us today.
Catherine Corrigan: I will start off by reviewing our fourth quarter and fiscal year 2020 for business performance Rich will then provide a more detailed review of our financial results and outlook for 2025, and we will then open the call for questions.
Speaker Change: Exponent delivered fourth quarter results above expectations to cap off a solid 2020 for demonstrating the resilience of our business.
Speaker Change: So an effective resource management drove significantly improved utilization and EBITDA margin demand for our proactive services strengthened in the second half of the year driven by the consumer electronics and utilities industry.
Speaker Change: Both in reactive services was supported by robust activity in utilities medical devices, notably in the fourth quarter, the chemical industry improved with increased activity in both the litigation and regulatory engagement.
Speaker Change: Turning to our engagements in more detail within our proactive services. We are pleased with the increased activity in user research studies.
Speaker Change: Consulting in the consumer electronics.
Speaker Change: Along with strong demands for our risk related work and utilities clients rely on that side for our expertise across the product lifecycle, including issues related to digital health and Wearables, such as advanced sensors, and health applications as well as engagements and augmented and virtual reality.
Speaker Change: Increased activity in the utility sector was driven by our work related to asset integrity management advising clients on our risks and mitigation with respect to their infrastructure.
Speaker Change: Both of them are reactive services was also robust in the utility sector in the quarter with the increase in global demand for energy related investments and infrastructure exponent is actively involved in failure analysis.
Speaker Change: Related projects around the globe. We also saw increased reactive engagements related to medical devices involving product liability as well as regulatory nurse.
Speaker Change: Our teams are closely following the activity of the new administration in Washington, So that we can position ourselves to respond to the opportunities and challenges faced by our clients.
Speaker Change: Our work the rest at least for the federal government, which comprises approximately 3% up the business.
Speaker Change: That's largely of advanced technology evaluations and integration for the department of Defense and Department of State.
Speaker Change: Our work in these areas has not been impacted.
Speaker Change: With regard to our chemical regulatory work, while uncertainty at the EPA could slow decision, making on client products in the near term. It may also create a more permissive environment for certain substances, which shift emphasis from regulation should litigation.
Speaker Change: Our proactive chemical regulatory work represents 5% of our business of which approximately two thirds is performed outside of the United States for clients, who need to navigate a myriad of complex and global regulatory frameworks.
Speaker Change: The FDA, we anticipate the possibility of heightened scrutiny, particularly in the areas of chemicals and processed foods.
Speaker Change: With regards to our work in emerging chemicals, such as pizza.
Speaker Change: This is driven by litigation at the state and municipal levels, which has not been impacted and we would not expect it to be and in fact and going forward we.
Speaker Change: We are well positioned to support our clients as they navigate the complexities of a dynamic global regulatory environment and at the same time pursue their long term strategies.
Speaker Change: We are pleased to deliver these top line results while at the same time not being essential improvements in utilization.
Speaker Change: As rich will discuss our successful alignment of resources with demand across the business over the last 18 months positions us at the start of 2020 with a 5% to 6% headwind on year over year growth due to reductions in our head count.
Speaker Change: Our increased recruiting activity in the back half of 'twenty 'twenty four has begun to bear fruit as we turned the corner on sequential head count reductions. We are focused on growing our head count in line with our market opportunities with sequential increases each quarter in 2025.
Speaker Change: Moving into 2025, we continue to see transformation across the industry driven by a broad array of intense forces ranging from extreme weather and increased energy needs to the accelerating use of artificial intelligence and critical decision making.
Speaker Change: Technological advancements are transforming the transportation industry from powertrain electrification and automation, which of the increasing deployment of robot taxis.
Speaker Change: It'll help applications, such as wearable technologies are bringing data and insights into human health like never before.
Speaker Change: <unk> face the challenge of hardening and optimizing their grids, while maintaining safety in the midst of transitioning to a novel power sources.
Speaker Change: In the face of these challenges clients rely on export.
Speaker Change: Specialised and interconnected expertise to navigate the uncertainties, resulting from the increasing pace of technological complexity.
Speaker Change: I'll now turn the call over to rich to provide more detail on our fourth quarter and fiscal year 2024 results as well as discuss our outlook for the first quarter and the full year 2025.
Rich Schlenker: 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.
Rich Schlenker: I would like to remind everyone that the fourth quarter and fiscal year 2024 results included an extra week, which occurs every five to six year. The extra week included the new year's holiday and vacations. So the extra week contributed revenue.
Rich Schlenker: There is approximately 5% due to fourth quarter growth and 1.25% through the year growth.
Rich Schlenker: For the fourth quarter of 2024, total revenues increased 11% to $136 $8 million and revenues before reimbursements or net revenues as I will refer to them from hereon increased 9% to $123 8 million.
Rich Schlenker: The 14 week quarter as compared to the 13 week period in 2023.
Rich Schlenker: Net income for the fourth quarter was $23 6 million or 46 cents per diluted share as compared to $29 million or 41 cents per diluted share in the prior year period.
Rich Schlenker: Okay.
Rich Schlenker: The realized tax benefit associated with accounting for share based awards in the fourth quarter of 2024 was 591000.
Rich Schlenker: Or one cent per diluted share as compared to an immaterial amount in the fourth quarter of 2023.
Rich Schlenker: Inclusive of the tax benefit from share based awards <unk> consolidated tax rate was 2024, 7% in the fourth quarter as compared to 34% in the same period in 2023.
Rich Schlenker: EBITDA for the quarter was $31.2 million producing a margin of 25, 2% of net revenues as compared to $30 5 million or 26, 8% of net revenues in the same period of 2023.
Rich Schlenker: Global hours in the fourth quarter for approximately 360000, an increase of 5% year over year.
Rich Schlenker: The average technical fulltime equivalent employees in the fourth quarter were 947, which is a decrease of 6% as compared to one year ago.
Rich Schlenker: Head count is down year over year, as we have aligned our resources with demand, allowing us to achieve strong utilization and margins for the year.
While our average Ftes are down we have turned the corner and have grown our consulting head count by approximately 1.5%.
Since the end of the third quarter.
Rich Schlenker: Utilization in the fourth quarter was 68% up from 65% in the same period of 2023.
Rich Schlenker: Realized rate increase was approximately 4% for the fourth quarter as compared to the same period a year ago.
Rich Schlenker: In the fourth quarter compensation expense after adjusting for gains and losses in deferred compensation increased 11% included in total compensation expense is a gain in deferred compensation of 629000.
Rich Schlenker: Compared to a gain of $9 million in the same period of 2023.
Rich Schlenker: As a reminder gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
Rich Schlenker: Stock based compensation expense in the fourth quarter was $4 $9 million as compared to $3 2 million in the prior year period.
Rich Schlenker: Other operating expenses in the fourth quarter were up 17%.
Rich Schlenker: $12 5 million driven primarily by the increased non cash expense of our Phoenix, Arizona lease renewal.
Rich Schlenker: <unk> and other operating expenses is depreciation and amortization expense of $2 $5 million.
Rich Schlenker: G&A expenses declined 3% to $5 7 million for the fourth quarter. This decrease was primarily due to the postponement of our in person managers meeting.
Rich Schlenker: Interest income increased to $2.6 million for the fourth quarter.
Rich Schlenker: Interest income was driven by an increase in cash and cash equivalents.
Rich Schlenker: Miscellaneous income, excluding the deferred compensation gains.
Rich Schlenker: So between $900000 for the fourth quarter, which included 500000 for FX gain.
Rich Schlenker: During the quarter capital expenditures were $2 6 million and we distributed $14 2 million to shareholders through dividend payments.
Rich Schlenker: Turning to the full year results.
Rich Schlenker: For the 53 week fiscal year 2024, total revenues increased 4% to $558 5 million.
Rich Schlenker: And net revenues increased 4% to $518 5 million as compared to the 52 week fiscal year 2023.
Rich Schlenker: Net income for the year increased 9% to $109 million or $2 11 per diluted share as compared to $100 3 million or $1 94 per diluted share in 2023.
Rich Schlenker: <unk> benefit associated with accounting for share based awards in 2024 was $3 $8 million or five cents per diluted share as compared to $3 6 million or seven cents per diluted share in 2023.
Rich Schlenker: Inclusive of the tax benefit for share based awards <unk> consolidated tax rate was 26% for the full year as compared to 26, 2% in 2023.
For the year EBITDA increased to $147 1 million.
Rich Schlenker: As compared to 137 7 million during 2023, producing a margin of 28, 4% of net revenues, which is an increase of 70 basis points as compared to 2023.
Rich Schlenker: Billable hours for 2024 were approximately 1.495 million.
Rich Schlenker: Approximately flat year over year.
Rich Schlenker: Utilization for the full year was 73% up from 69% in 2023, bringing us back to a solid operating level.
Rich Schlenker: Average technical fulltime equivalent employees for the year were 967, a decrease of 8% as compared to 2023.
Rich Schlenker: The realized rate increase was approximately 4% for the year.
Rich Schlenker: Compensation expense after adjusting for gains and losses in deferred compensation increased 3%.
Rich Schlenker: Included in total compensation expense is a gain in deferred compensation of $14 $9 million.
Speaker Change: Turning to a gain of $14 3 million during 2023.
Speaker Change: Stock based compensation expense in 2024 was $23 2 million as compared to 24.
Speaker Change: $4 million in the prior year.
Speaker Change: Other operating expenses were up 11% to $46 2 million driven primarily by the increase in non cash expense of our Phoenix, Arizona lease renewal included in other operating expenses is depreciation and amortization expense of $9 7 million.
Speaker Change: For the year.
Speaker Change: G&A expenses were down 7% to $22 7 million in 2020 for the decrease in G&A expenses was <unk>.
Speaker Change: Merrily due to a reduction.
Speaker Change: The use of outsourced personnel and a decrease in travel and meals as we've postponed.
Speaker Change: Two 2025 are in person managers' meeting.
Speaker Change: Interest income increased approximately $2 9 million to $10 million for the full year higher interest income was driven by an increase in cash and cash equivalents missed.
Speaker Change: Miscellaneous income excluding deferred compensation gain was $2 9 million for 2024.
Speaker Change: Moving on to our cash flows during 2024, we generated $145 5 million cash from operations and.
Speaker Change: And capital expenditures were $6 9 million.
Speaker Change: For the full year, we distributed $58 2 million to shareholders through dividend payments.
Speaker Change: $5 7 million and share repurchases.
Speaker Change: As of year end, the company had $258 $9 million in cash and cash equivalents.
Speaker Change: Turning to our segments <unk> engineering and other scientific segment represented 83% of revenues before reimbursements in the fourth quarter and 84% of revenues before reimbursements for the full year.
Speaker Change: Revenues before reimbursements in this segment increased 8% for the 14 week fourth quarter and 5% for the 53 week full year driven by demand for exponent services across the consumer products and utilities industries.
Speaker Change: <unk> environmental and health segment represented 17% of net revenues in the fourth quarter.
Speaker Change: 16% of net revenues for the full year.
Speaker Change: Net revenues in this segment increased 11% in the 14 week fourth quarter and were approximately flat for the 53 week full year.
Speaker Change: During the fourth quarter was primarily due to a resurgence and engagement in the chemicals industry.
Speaker Change: Turning to our outlook for the first quarter and full year 2025, we are starting 2025 with five to six.
Speaker Change: 5% to 6% deficit in head count as such we expect net revenues for the first quarter of 2025 to be down in the low single digits as compared to the same period of 2024.
Speaker Change: Based on anticipated demand and hiring we expect net revenues.
Speaker Change: For the year.
Speaker Change: To grow in the low single digits for the full year 2025.
Speaker Change: As a reminder, we will return to a 52 week fiscal year end 2025, the extra week in 2024 closed a $1 two 5% headwind for the full year net revenue comparison.
Speaker Change: For the first quarter of 2025, we expect EBITDA margin to be 25% to 26% of net revenues for fiscal year 'twenty five we expect EBITDA margin to be 26 to 5% to 27% of net revenues as compared to 2012.
Speaker Change: Four.
Speaker Change: We are expecting lower full year margins due to the increased noncash expense associated with our Arizona lease renewal the companywide managers' meeting deferred to 2025 the loss of the tenant in Menlo Park facility.
And then the increase in stock based compensation.
Well, we are starting the year with a 5% to 6% headwind in technical fulltime equivalent employees, we expect.
Speaker Change: We expect increased demand and corresponding recruiting result in quarterly quarterly sequential headcount growth of approximately 1% to 2% each of the quarters of 2025 as a result, we expect year over year head count growth by the third quarter of 2025.
Speaker Change: <unk> ended the year at least 4% ahead of where we are started the year.
Speaker Change: As we return to growing head count, we expect utilization in the first quarter to be 74% to 75% as compared to 75% in the same quarter in the prior year and we expect the full year utilization to be 72% to 73%.
Speaker Change: As compared to 73% in 2024.
Speaker Change: We still believe our long term target of sustained mid Seventy's utilization is achievable as we continue to strategically manage head count and balance utilization with market demand.
Speaker Change: We expect the realized rate increase for the first quarter and full year to be 3% to three 5%.
Speaker Change: Okay.
Speaker Change: Based on the expected sequential headcount growth during 2025.
Speaker Change: Future.
Speaker Change: Realized rate increases and incremental progress towards our long term target utilization, we expect revenue growth in 2026 and beyond to be in the high single to low double digits.
Speaker Change: For the first quarter, we expect stock based compensation to be eight two to $8 5 million and each of the remaining quarters to be four six to $5 6 million for the full year, we expect stock based compensation to be 24% to 24.
Speaker Change: $5 million.
Speaker Change: We continue to believe that our stock based compensation program.
Speaker Change: To believe attract motivate and retain our top talent.
Speaker Change: For the first quarter, we expect other operating expenses to be $12 four to $12 9 million.
Speaker Change: For the full year, we expect other operating expenses to be 55 to $51 5 million.
Speaker Change: The increase in other operating expenses.
Speaker Change: Is primarily due to the extension of our Arizona lease. This will have a 1 million dollar impact on each of the first two quarters and a total of $2 million impact for the year.
Speaker Change: We are very excited to have secured this facility as we believe it will continue to be an integral part of our growth, especially with the advancement of automated vehicles.
Speaker Change: For the first quarter, we expect G&A expenses to be five eight to $6 2 million for the full year 25, we expect G&A expenses to be 25, 7% to $26 7 million.
Speaker Change: The increase in G&A is primarily due to an expense of approximately $2 million for a firm wide managers' meeting in the third quarter of 2025.
This meeting is an important investment in people development that bring together our multidisciplinary teams develop our key talent and foster the next generation of leaders in business generators.
Speaker Change: We expect interest income to be two to $2 2 million per quarter. In 2025. In addition, we anticipate miscellaneous income to be approximately 200000.
Speaker Change: Per quarter in 2025 or $800 for the full year as compared to $2 9 million in 2024, we continue to work to replace the tenant that we lost in our Menlo Park facility.
Speaker Change: For the first quarter and full year 2025, we do not expect any tax benefit associated with share based awards as compared to a tax benefit of 900000 or <unk> <unk> per diluted share in the first quarter of 2024, and $2 8 million or.
Speaker Change: <unk> per diluted share for the fiscal year 2024.
Speaker Change: As a result, we expect first quarter 2025 tax rate to be approximately 28% as compared to 25% in the same quarter a year ago for.
Speaker Change: For the full year 2025, the tax rate is expected to be 28% as compared to 26% in 2024.
Speaker Change: Capital expenditures for the full year 2025 are expected to be $10 million to $12 million.
Speaker Change: We are encouraged by the resilience and strength that our business model has demonstrated and remain confident in our ability to sustain profitable growth.
Catherine Corrigan: Now I'll turn the call back to Catherine for closing remarks, Thank you rich.
Speaker Change: 2025 represents significant market opportunities for exponent industries must continue to transform to meet market demands and stay competitive in the setting of accelerating technological change.
Speaker Change: At the same time, they must meet ever increasing societal expectations regarding the safety and health of their customers and communities.
Speaker Change: Exponent is focused on the growth and development of our unparalleled and interconnected ecosystem, our scientific and engineering talent as we stay ahead of the curve and deliver the breakthrough insights that will drive long term profitable growth.
Speaker Change: Operator, we are now ready for questions.
Speaker Change: Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Andrew Nicholas with William Blair. Please go ahead.
Andrew Nicholas: Hi, good afternoon, thanks for taking my questions.
Andrew Nicholas: Just wanted to ask on on visibility.
Speaker Change: It sounds like chemicals are a little bit better really across the board youre seeing pretty good demand proactive and reactive even against some difficult comps on the reactive side, but wanted to ask how confident you are in kind of the near term pipeline.
Speaker Change: And maybe relatedly, how we should think about.
Speaker Change: The conservatism of your guidance.
Speaker Change: With those dynamics.
Speaker Change: Involved.
Yeah, no. Thank you Andrew and you're right in your observation about the chemicals industry I am pleased with how that activity has returned and look we have.
Speaker Change: We are enthusiastic about the opportunities that we have when you think about the broad market drivers right everything from increasing power demand and thats driving a lot of the risk working utilities to everything that's going on around that digital health technology is.
Speaker Change: We saw it in the fourth quarter around electronics that we had a healthy level of activity in both our user research as well as our.
Speaker Change: Product development consulting and hardware related work.
Speaker Change: As we look into the first quarter look we're starting out at.
Rich Schlenker: 5% to 6% deficit as rich explained our ftes and we can have strong activity in Q1 of 2024. If you remember we have a bit of a tough comparison, there we have lots of litigation and regulatory activity going on in that quarter.
Rich Schlenker: So we do expect sequentially as we go into Q1 that they use their research work might be a little bit less than it was in Q4, but we see a nice pipeline going into Q2 on that.
Rich Schlenker: It's really more of the normal ebb and flow and timing of client needs more than anything.
Rich Schlenker: So look we are confident in that.
Rich Schlenker: We think we've done.
Rich Schlenker: Good job assessing a realistic pathway toward continuing to grow our head count you know knowing that that takes time and investment and effort. When you talk about hiring phds and so forth and so we are heavily engaged in that and.
Rich Schlenker: We expect that or expect that in the back half of the year, we will.
Rich Schlenker: <unk> growing that growing that head count year over year and be able to accelerate in that way.
Rich Schlenker: Yeah.
Rich Schlenker: Yeah.
Speaker Change: Our next question comes from Tobey Sommer with Truest. Please go ahead.
Rich Schlenker: Yes.
Speaker Change: Thank you.
Speaker Change: You commented some about in your prepared remarks in the press release about the energy infrastructure business I was wondering if you could spend a little bit more time.
Speaker Change: Talking about how that has performed and what the outlook is thank you.
Speaker Change: Yeah, Yeah. Thanks, Adam Thanks, Tobey when we when we talk about the energy sector, we really are talking about the utility side.
Speaker Change: As well as the generation side, if you think about oil and gas and renewables as well as the delivery side in terms of utilities.
Speaker Change: And we all know that there is increasing demand in that in the setting of needing to transition energy into new forms of power and sell this portfolio is robust on both the proactive as well as the reactive side.
Speaker Change: When you think proactively this this is not permitting and things like that.
Speaker Change: The proactive work is more around our risk work for utilities.
Speaker Change: <unk> leveraged our failure analysis expertise to.
Speaker Change: Predictive modeling to try to help utilities understand for example, when they might need to turn their power down and when they have a risk of fire Ignitions for example.
Speaker Change: And if so the proactive work is really related to that risk and safety area.
Speaker Change: The reactive side this goes across both the oil and gas world as well as the renewables world and so this is going to be your windfarm installation. If you are a battery energy storage system.
Utility scale. This is going to be here and liquefied natural gas facilities, a lot of issues related to calendar analysis as well as disputes around construction delays and these are all around the globe. We see these domestically we also Cds internationally and with the increasing use of AI.
Speaker Change: Data centers, they all need power and the reason looking at novel surface of tower like modular nuclear nuclear reactor.
Speaker Change: So our risk work applies to that area as well.
Speaker Change: So that's really the portfolio. This reactor that is proactive and it is across the various forms of energy so as we see shifts from.
Speaker Change: Oil and gas to renewables or even if we swing back toward more oil and gas.
Speaker Change: Those infrastructure investments are going to be made and we are going to be there to help them make the heat side as well as in the proactive risk side.
Josh Chan: And the next question comes from Josh Chan with UBS.
Josh Chan: Hi, good afternoon, Catherine rich thanks for taking my question.
Josh Chan: And thanks for are proactively addressing the regulatory exposure I just wanted to.
Josh Chan: Kind of close the loop on that.
Josh Chan: The chemical regulatory work and in the F D a.
Josh Chan: Is that the extent of your work with any type of regulatory bodies I guess, maybe could you kind of break if not kind of can you bracket for us kind of what percentage of your revenue do you feel like you're helping clients address kind of a regulatory concerns.
Josh Chan: Yes, so in total <unk>.
Josh Chan: <unk>.
Josh Chan: We do approximately about 10% of our work in either proactive areas.
Josh Chan: Helping people through the regulatory process with our scientific background. So as Katherine mentioned before that's related.
Josh Chan: Registering your chemicals with the appropriate safety and health assessment, but it also is for clients that are bringing a medical device or or drug to through the FDA process as well the other side of our regulatory work is really and clients responding.
Josh Chan: Two regulatory investigations.
Josh Chan: And such normally around product recalls in.
Josh Chan: <unk>.
Josh Chan: Issues, so those do span into.
Josh Chan: The consumer product safety commission into nips around the transportation area.
Josh Chan: Obviously involves an EPA as well as the FDA as well those would be the primary agencies that we would.
Speaker Change: Where we do regulatory work in total about both proactive and reactive combined is this 10% as Kathryn indicated about half of that is in the gamba goes area and about.
Speaker Change: 70% of that is of that chemicals area is international in nature.
Speaker Change: Side the U S. So our total exposure probably in the U S is somewhere between 5% to 7% that is engaged in one way or another.
Speaker Change: Where our clients are engaged with the regulatory agency.
Rich Schlenker: That's really helpful color, thanks for that rich.
Speaker Change: And then I guess for my follow up.
Obviously, you would rather kind of grow revenue faster than youre kind of guiding for the year. So I guess to the extent that that staffing is kind of a constrained.
Speaker Change: What's the opportunity to kind of accelerate recruiting I know that it's not easily done, but just kind of thinking about.
Speaker Change: To what extent that could kind of provide some upside or is that just take time to get people into the organization. Thank you.
Speaker Change: Well it does of course take time, but look there I think what's important here is that we are where.
Speaker Change: We are aligning the pace of recruiting with the demand profile that we're seeing.
Speaker Change: To ensure that we've got those you are never in perfect lockstep with us of course, we have the ability to search as you've seen in the past.
Speaker Change: To meet those client needs and not leave leave work on the table. So we absolutely continue to have that ability.
Speaker Change: And look you know you can accelerate recruiting activity, but the goal is really to be in line and to do that in a way that is sustainable.
Speaker Change: And that's going to deliver on pace for the kind of growth that we that we talk about which is this high single digit to low double digit growth.
This year because of the accident us we very much needed to take over the last 18 months.
Speaker Change: At this 5% to 6% deficit going into the year, but the pace of activity.
Speaker Change: That we have going on now around recruiting really is.
Speaker Change: And the yield that 1% to 2% per quarter. So if you. If you think about that pace of activity. It is what we need to achieve that high single to low double digit growth, but we have to of course to overcome that initial hurdle in the first couple of quarters, which we are we are on pace to hit.
Speaker Change: Okay.
Speaker Change: Thank you so much for that color and your time.
Speaker Change: Youre welcome.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question is a follow up from Tobey Sommer. Please go ahead.
Speaker Change: Thanks.
Speaker Change: Could you provide the size of the chemicals business and kind of quantify the magnitude of the increase as well as your outlook for it.
Speaker Change: Whether or not it has legs.
Speaker Change: Yes so.
Speaker Change: The chemicals business.
Speaker Change: Overall is.
Speaker Change: A little.
Speaker Change: In the low single low double digits as a percentage of our of our business overall.
Speaker Change: And the improvement was.
Speaker Change: In the in the low to mid teens as a percentage of growth rate year over year for the fourth quarter.
Speaker Change: Terrific and based on the duration of the projects typically or is there a way to assess whether the momentum as a sort of short term represents a longer term rebound.
Speaker Change: Yes so.
Speaker Change: They are typical projects for us so.
Speaker Change: They are litigation as well as proactive work.
Speaker Change: As ongoing quite a variability of the line.
Speaker Change: Our feeling is and really to be honest the look at what was coming in engaging with our staff. It's not about one or two projects are or a handful that really are driving it it is about whereas the level of activity coming back around.
Speaker Change: Remember a year ago in the fourth quarter. It was really about our clients pausing.
Speaker Change: Org or deferring work related to litigation.
Speaker Change: A lot of these are very long term litigation.
Speaker Change: Areas.
Speaker Change: That are out there so the client said continuous sort of research as well as dealing with individual cases.
Speaker Change: Those activities, we had expected a year ago, Mike come back right away early in the year in the first quarter or so.
Speaker Change: Definitely took longer.
Speaker Change: For that to come back around.
Speaker Change: And that's really more of what we saw as we progress through the year.
Speaker Change: And could you update us on your thoughts on how AI is helping.
Speaker Change: And hurting the company so far I.
Speaker Change: I guess with a particular eye on the reactive side in terms of the.
Speaker Change: Willingness of courts judges play just regulators to.
Speaker Change: Except more automated.
Speaker Change: Data.
Speaker Change: <unk> setting.
Speaker Change: Yeah, Yeah. Thanks, Colby So look we've talked before about the opportunities for our work in AI systems that are making safety critical decisions right. So our work in advanced driver assistance technologies.
Speaker Change: Work related to those.
Speaker Change: Those kinds of algorithms being used in medical devices, and so forth and this is the best driver assistance area for litigation continues to to grow and we continue to build and position more and more experts through our research and so forth.
Speaker Change: In terms of the willingness of court to accept things.
Speaker Change: The courts.
Speaker Change: Heavy layer of scrutiny.
Speaker Change: All expert testimony and data and that is something that is regularly part of the process is that any data that an expert is bringing forward as part of the foundation for their opinions you can count on it being challenged to directly by the other side.
Speaker Change: And so this is this is one of the reasons why I think Epsilon has historically.
Speaker Change: That is so strong in terms of its ability to withstand that kind of scrutiny.
Speaker Change: So even in situations, where AI is being deployed as part of those analyses you can be sure that the courts are going to be insisting on high levels of scrutiny of those because that is the judge's gatekeeping subset.
Speaker Change: And so I don't see that changing anytime soon and I know that the legal associations are very much.
Speaker Change: Looking at developing specific guidelines.
Speaker Change: There is case law and so forth so.
Speaker Change: It's just it just increases the complexity the volume of data and the type of data that can be utilized and I think epstein is positioned quite well in that regard.
Speaker Change: Thank you very much.
Speaker Change: Youre welcome.
Speaker Change: Seeing that there are no further questions in the queue. This concludes our question and answer session and the conference.
Speaker Change: Thank you for attending today's presentation you may now disconnect.