Q1 2025 Exponent Inc Earnings Call
Good day and welcome to the exponent, Inc. First quarter 2025 earnings conference call.
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Speaker Change: I would now like to turn the conference over to Joni constant Telus.
Speaker Change: Please go ahead.
Speaker Change: Thank you good afternoon, ladies and gentlemen, thank you for joining us on exponents first quarter 2025 financial results Conference call.
Speaker Change: Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at investors that exponent Dot Com. This conference call is the property of exponent and any taping or other reproduction is expressly prohibited without prior written consent.
Speaker Change: Joining me on the call today are Doctor, Catherine Corrigan, President and Chief Executive Officer, and Rich Schlenker, Executive Vice President and Chief Financial Officer.
Speaker Change: Before we start I would like to remind you that the following discussion contains forward looking statements, including but not limited to ex Kona 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.
Speaker Change: Some forward looking statements can be found in exponent periodic SEC filings, including those factors discussed under the caption risk factor in exponents. 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 I will start off by reviewing our first quarter 2025 business performance and strategic positioning Rich will then provide a more detailed review of our financial results and outlook and we will then open the call for questions.
Catherine Corrigan: Excellent first quarter results exceeded expectations reinforcing both the resilience of our diversified business model and the value we deliver.
Catherine Corrigan: Starting the year with a five 6% headwind in technical fulltime equivalent employees due to our focus on aligning resources with demand over the prior 18 months, we achieved approximately flat revenues due to strong activity from a few key industry.
Catherine Corrigan: In reactive services, but demand for our failure analysis expertise drove dispute related activities in the chemicals transportation and utilities industries are proactive engagements were led by risk management and regulatory support activities.
Catherine Corrigan: As expected we were impacted by easing in the consumer electronics industry due to the timing of clients product development lifecycle.
Catherine Corrigan: We are pleased to report sequential headcount growth of 2% due in part to lower turnover than previously expected while at the same time, achieving mid seventy's utilization. While we are very mindful of the current macroeconomic uncertainty and have seen some instances clients delaying proactive work for this reason.
Catherine Corrigan: We continue to hire in areas where demand remains strong.
Catherine Corrigan: Over the last three decades, Exelon has demonstrated an ability to effectively navigate challenging economic cycles are.
Catherine Corrigan: A key contributor to this resilience is our reactive work, which is driven by disputes in failure analysis investigations across the globe, which have historically been less impacted than other professional services during challenging economic cycles.
Catherine Corrigan: Suits accidents illnesses and environmental impacts are constants that necessitate our specialized expertise.
Catherine Corrigan: Clients are required to address these issues regardless of the broader economy.
Catherine Corrigan: Our business is approximately 60% reactive and 40% proactive.
Catherine Corrigan: The vast majority of our reactive work is the litigation support.
Catherine Corrigan: The remainder of our reactive work is accident and failure investigation product recalls regulatory actions and insurance investigations.
Catherine Corrigan: Our proactive work involves products and process improvement research and development risk management and regulatory consulting.
Catherine Corrigan: During 2024, we worked on over 10000 engagements for over 2000 clients across a range of industries.
Catherine Corrigan: The consumer products industry represents approximately one quarter of our revenue of which approximately two thirds is proactive work for consumer electronics clients.
Development cycles influenced the timing of our work in this industry. However, the complexity of these projects products and the pace of innovation required by these clients to stay competitive remain long term growth drivers.
Catherine Corrigan: Are there more shifts in global global supply chains as clients navigate the tariff environment create manufacturing challenges overtime for which we are well positioned to assess.
Catherine Corrigan: The energy industry represents approximately one fifth of our revenue our work in this industry is split about evenly between reactive and proactive services.
Catherine Corrigan: Growing energy demand driven by artificial intelligence and data center investments along with the related infrastructure development inevitably leads to disputes that fuel our reactive business.
Catherine Corrigan: On the proactive side, our risk management work in the utility sector continues to grow independent of macroeconomic volatility.
Catherine Corrigan: The industry experiences increasing energy demand, while its infrastructure ages past its optimal use and what the consequences of failure ever increasing.
Catherine Corrigan: The transportation industry as percentage of our revenue was in the mid teens of which approximately 90% is reactive.
Speaker Change: Youth regarding the design and performance of advanced vehicle technologies are becoming more prevalent and increasingly complex driving increased demand for our specialized expertise.
Speaker Change: The chemical industry as percentage of our revenues is in the low teens approximately 60% of our revenue in this industry is proactive and the remaining 40% is reactive the vast majority of our proactive work in this industry is regulatory consulting our data driven insights are.
Speaker Change: For projects related to environmental health process engineering, and chemical safety, such as the growing concerns about the impact of key Foss on communities and ecosystems.
Speaker Change: The life Sciences industry as percentage of our revenue is in the high single digits.
Speaker Change: Our work in this industry is split about evenly between reactive and proactive services. Our experts are advising clients on the root causes of safety concerns related to medical devices and diagnostics leveraging multidisciplinary approaches that include expertise in material science manufacturing human factors.
And health Sciences, we also assist our clients with regulatory clearance and approval.
Speaker Change: The construction industry represents 5% to 10% of our revenue of which approximately 90% is reactive our multidisciplinary teams provides domestic and international clients support for complex construction challenges and disputes.
Speaker Change: It is the critical nature of our work and the unrelenting expectations around safety health and the environment that continues to drive reactive engagements, regardless of economic cycles, while clients certainly make tightened their belts to manage costs, they still need independent expert advice to navigate the path forward.
Speaker Change: Even when an industry is applying cost pressures. This reactive work often comes back which is what we saw in the chemical sector. This quarter.
Speaker Change: Although uncertainty is pervasive in our current environment exponent has historically proven resilient through economic cycles, when combined with accelerating innovation and increasing expectations for safety health and the environment. This strategically positions us to weather economic volatility, while seizing long term.
Sustainable growth opportunities.
Speaker Change: Okay.
Speaker Change: Rich.
Rich: 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: For the first quarter of 2025 total revenues were approximately flat at $145 $5 million and revenues before reimbursements or net revenues as I will refer to them from Hereon were also approximately flat at 137 4 million.
Rich: As compared to the same period in 2024.
Rich: Net income for the first quarter.
Rich: Decreased to $26 7 million or <unk> 52 cents per diluted share as compared to $31 million or 59 cents per diluted share in the prior year period.
Rich: During the quarter, we realized a negative tax impact associated with accounting for share based awards of $500000 or <unk> <unk> per share as compared to a tax benefit of $900000 or two cents per share in the first quarter of 2024.
Rich: Sure.
Rich: The change in the tax impact associated with share based awards was due to the difference in the value of the common stock between the grant date and the release date for the restricted stock units.
Rich: Inclusive of the tax impact for share based awards.
Rich: Exponent consolidated tax rate was 29, 4% in the first quarter of 2025 as compared to 25, 4% for the same period in 2024.
Rich: EBITDA for the quarter decreased 6% to $37.5 million producing a margin of 27, 3% of net revenues as compared to $41 million or 29, 2% of net revenues in the firm.
Rich: Quarter of 2020 for.
Rich: This year over year decrease in margins was driven by an increase in stock based compensation and an increase in the other operating expenses, primarily associated with the Phoenix land lease renewal during the second quarter of 2024.
Rich: And the loss of a tenant in our Menlo Park facility.
Rich: Billable hours in the first quarter were approximately 376000, a decrease of 4% year over year.
Rich: Average technical fulltime equivalent employees in the first quarter were 966, which is a decrease of 4% as compared to one year ago.
Rich: Head count is down year over year, as we have aligned our resources with demand.
Rich: Sequentially fulltime equivalent employees increased 2% as compared to the fourth quarter of 2024 due to our recruiting and retention efforts.
Rich: Utilization in the first quarter was 75% approximately flat compared to the same period in 2024.
Rich: The realized rate increase was approximately 4% for the first quarter of 2025 as compared to the same period a year ago.
Rich: In the first quarter compensation expense after adjusting for gains and losses in deferred compensation increased 1%.
Rich: Included in total compensation expense is a loss in deferred compensation of $9 $3 million as compared to a gain of $6 3 million in the same period of 2024.
Rich: As a reminder gains and losses in deferred compensation.
Rich: Are offset in miscellaneous income and have.
Rich: No impact on the bottom line.
Rich: Stock based compensation expense in the first quarter was $8 2 million as compared to seven 3 million in the prior year period.
Rich: Other operating expenses in the first quarter were up 15% to $12 $1 million driven primarily by the increased non cash expense associated with our Phoenix lease renewal and investments in our infrastructure.
Rich: Included in other operating expenses is depreciation and amortization expense of $2 $5 million for the first quarter.
Rich: Okay.
Rich: G&A expenses declined 11% to $5 million for the first quarter. The decrease in G&A expenses was primarily due to lower expenses for professional development bad debt and legal.
Rich: Interest income increased to $2 7 million for the first quarter higher interest income was driven by an increase in cash and cash equivalents.
Rich: Miscellaneous expenses, excluding the deferred compensation loss were approximately 50000 for the first quarter, which included a $250000 foreign exchange loss and rental income of 190 <unk>.
Rich: During the quarter capital expenditures were $1 $8 million.
Rich: We distributed $16 $4 million to shareholders through dividend payments and repurchased $5 million of comp.
Rich: Common stock at an average price of $77.31.
Rich: Turning to our segments expanded its engineering and scientific segment represented 84% of revenues before reimbursements in the first quarter.
Rich: Revenues before reimbursements in this segment were approximately flat in the first quarter.
Rich: Activity during the quarter was driven by <unk>.
Rich: The expanded services across transportation and utilities industries.
Speaker Change: Thanks, Brent its environmental and health segment represented 16% of revenues before reimbursements in the first quarter revenues before reimbursements in this segment increased 2% for the first quarter.
Speaker Change: Growth in this segment was driven primarily by the increase in engagements in the chemicals industry.
Speaker Change: Turning to our outlook for.
Speaker Change: For the second quarter as compared to one year. Prior we expect revenue before reimbursements to be down in the low single digits and EBIT door to be 26% to 27% of revenues before reimbursements.
Speaker Change: For fiscal 2025, the year, we are maintaining our revenue and margin guidance.
Speaker Change: We expect revenues before reimbursements to grow in the low single digits and EBIT.
Speaker Change: To be.
Speaker Change: $26, two 5% to 27% of revenues before reimbursements as.
Speaker Change: As a reminder, we are returning to a 52 week fiscal year end 2025.
Speaker Change: Extra week in 2024 post a 1.25% headwind for the full year net revenue comparisons.
Speaker Change: We started the year with a 5% to 6% headwind and technical fulltime equivalent employees.
Speaker Change: Due to the gains made during the first quarter, we expect year over year technical fulltime equivalent employees to be down approximately 1% in the second quarter.
Speaker Change: At year end, we expect head count to be approximately 4% greater than we started the year with.
Speaker Change: We expect utilization in the second quarter to be 71% to 73% as compared to 75% in the same quarter last year.
Speaker Change: Approximately 150 basis points of the decline in utilization is because the second quarter of fiscal 2025.
Speaker Change: Includes the July 4th holiday, which was part of the third quarter in 2024.
Speaker Change: We continue to expect the full year utilization to be 72% to 73% as compared to 73% <unk> 24.
Speaker Change: We expect the year over year realized rate increase to be 3% to three 5% for the second quarter and full year.
Speaker Change: For the second quarter of 2025, we expect stock based compensation to be five 1% to $5 4 million.
Speaker Change: For the full year 2025, we expect stock based compensation to be 23, 7% to 20 $24 2 million.
Speaker Change: We continue to believe that our stock based compensation program effectively attract motivate and retain our top talent.
Speaker Change: For the second quarter, we expect the other other operating expenses to be $12 1 million to $12 6 million.
Speaker Change: For the full year, we expect other operating expenses to be 49 $5 million to $55 million.
Speaker Change: As a reminder, the increase in other operating expenses is primarily due to the extension of our Phoenix suites. 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.
Speaker Change: Of course.
Speaker Change: For the second quarter, we expect G&A expenses to be five eight to $6 3 million for the full year, we expect G&A expenses to be $24 $825 8 million.
Speaker Change: The increase in G&A expenses for the full year is primarily due to an expense of approximately $2 million for the firm wide managers meeting in the third quarter of 2025. This meeting is an important investment and people development that will bring together our multi disk.
Speaker Change: <unk> teams develop our key talent and foster the next generation of leaders of business generators.
Speaker Change: We expect interest income to be two to $2 2 million.
Speaker Change: Her quarter during 2025 in addition.
Speaker Change: We anticipate miscellaneous income to be approximately $200000 per quarter for the remainder of 2025, we continue to work to replace the rental income that we lost in our Menlo Park facility.
Speaker Change: For the remainder of 2025, we do not expect any additional tax benefit or loss associated with share based awards.
Speaker Change: For the second quarter of 2025, we expect our tax rate to be approximately 28% as compared to 26% in the same quarter one year ago for the full year 2025, the tax rate is expected to be 28, 5% as compared to 26 <unk>.
Speaker Change: In 2020 for.
Speaker Change: The increase in the tax rate is due to the decrease in tax benefit from share based awards.
Speaker Change: Capital expenditures for the full year 2025 are expected to be $10 million to $12 million.
Speaker Change: Our team continues to closely monitor the activities of the new administration in Washington, So that we can position ourselves to respond to the opportunities and challenges faced by our clients are work directly for the federal government, which comprises approximately three.
Speaker Change: 3% of our business consists largely of advanced technology evaluations and integrations for the department of Defense and Department of state.
Speaker Change: To date this work has not been impacted.
Speaker Change: With regard to our regulatory consulting work, we have experienced some slower responses from federal regulators regarding our clients' products.
Speaker Change: Our regulatory consulting and compliance work represents approximately 11% of business.
Speaker Change: This includes our regulatory consulting and compliance work for the chemicals industry, which represents 6% of our business of which approximately two thirds is performed outside the United States for clients, who need to navigate and merit of complex global.
Speaker Change: And regulatory frameworks.
Speaker Change: The remainder of our regulatory consulting and compliance work, which represents 5% of our business is split between consumer products food and beverage life Sciences energy and transportation industries.
Speaker Change: At the FDA, we anticipate the possibility of heightened scrutiny, particularly in the area of chemicals and processed foods.
Speaker Change: With regard to our emerging chemicals, such as P boss much of this.
Speaker Change: This is driven by litigation at the state and municipal levels, which has not been impact.
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 product strategies.
Catherine Corrigan: In closing we remain confident in our ability to generate long term profitable growth I will now turn the call back to Catherine for closing remarks. Thank.
Catherine Corrigan: Thank you rich.
Catherine Corrigan: <unk> in the face of change, whether it's driven by innovation or disruption.
Catherine Corrigan: Transformation of industries continues unabated, driven by powerful forces, including the accelerating use of artificial intelligence and critical decision, making increased energy demand and extreme weather.
Catherine Corrigan: Technological advancements are revolutionizing safety critical products and human health risk is of ever increasing concern.
Speaker Change: As our clients navigate increasing complexity, we remain focused on advancing our capabilities investing in top talent and delivering trusted insights that help our clients adapt lead and grow in dynamic environments.
Catherine Corrigan: Operator, we are now ready for questions.
Speaker Change: Certainly we will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: 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.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Tobey Sommer with Truest. Please go ahead.
Jeff: Hey, Good afternoon. This is Jeff for Gabon for Tobey.
Jeff: I was just hoping maybe you could contrast for us the growth rates and proactive.
Jeff: Reactive work this quarter as well as maybe what.
Jeff: Share of reactive work is in the portfolio today.
Jeff: Yeah. So.
Jeff: We are we ended up seeing that we had.
Jeff: The growth in the reactive business was in the in the low single digits, which was then.
Jeff: Offset by slight.
Jeff: Slight decline in the proactive.
Jeff: Services overall.
Jeff: Okay.
Jeff: Terms of your question just about the proportion Jeff.
Jeff: You know we run now about 60% is reactive.
Jeff: 40% is proactive and of that 60% reactive most of that probably 80% 90% of that is going to be litigation or dispute driven.
Jeff: Okay. Thanks.
Jeff: Helpful and then I.
Jeff: I guess, just curious if you're seeing any changes in the pace of productivity across maybe certain end markets in the past few months I mean, I think in the past we've talked about supply chain changes potentially driving demand. So im curious if theres been any change in what youre seeing with the reassuring agenda, namely.
Jeff: Penetration.
Jeff: Yeah, Yeah. So thanks for that I mean look we do in general over time, when our clients are facing.
Jeff: James.
James: No supply chain disruption decisions about.
Speaker Change: Using different materials because of that supply chain disruption. These are the kinds of changes that can impact the reliability and the quality and the performance and safety of their products.
Speaker Change: So as our clients across industries, including consumer products, including electronics, including medical devices look to diversify their supply chains, we do see opportunity in that now that does take some time to manifest itself.
Speaker Change: They don't change their supply chains on a dime and so we certainly are seeing a scenario where clients are exploring those opportunities and they are looking toward diversification strategy.
Speaker Change: And so we are.
Speaker Change: Making sure that we are in close relationships with them regarding that and are engaged in positioning ourselves.
Speaker Change: To assist them, if and when they do decide to make those changes.
Speaker Change: Just to add to that that where we've seen it specifically again, it's not it's still at the edges today because we're early in this but.
Speaker Change: We are seeing is.
Speaker Change: For our clients that have over time here over the last several years.
Speaker Change: <unk> to move our activities to other parts of Asia from China.
Speaker Change: That work as you move into those new manufacturing environment, you and new supplier relationships.
Speaker Change: You do see an increase in demand from those clients around.
Speaker Change: Around doing additional evaluations and testing and run into more.
Speaker Change: Defects during that early manufacturing phase and so we are seeing some increases of that right now.
Speaker Change: And that has led to.
Speaker Change: To.
Speaker Change: Some increased activity on that front on the life Sciences side, particularly in the medical device area again as clients, depending on what phase they're in a we've had a few clients who are still in the last month or two at a point, where they could consider a <unk>.
Different supplier and material for their device and we have been engaged by a couple of clients and.
Speaker Change: And helping them evaluate those different materials and suppliers in that sense and that again. So those are current real time examples again.
Speaker Change: <unk> not moving the needle one way or another as you can tell from our results here in the first quarter, but they those activities are real and are happening.
Speaker Change: Thanks for taking the questions.
Speaker Change: The next question comes from Andrew Nicholas with William Blair. Please go ahead.
Andrew Nicholas: Hi, good afternoon, thanks for taking my questions.
Andrew Nicholas: I'm curious if you can unpack the second quarter.
Andrew Nicholas: Look a little bit further it looks like.
Andrew Nicholas: Richie said, there is a headwind to utilization.
Speaker Change: From the July 4th holiday, but it's still even excluding that a little bit softer compared to what you.
Speaker Change: You saw in Q1 in the first half of last year. So just wondering understanding that there are some some areas here, where youre seeing an uptick in interest. If there are kind of obvious examples that you've seen over the last month, where where the softness is is maybe more pronounced or if anything else.
Speaker Change: <unk> been there that are now contemplating.
Andrew Nicholas: Yeah, So Andrew.
Speaker Change: Andrew.
Speaker Change: We definitely have the other the utilization is a point or two.
Below being on an apples to apples basis, even with.
Speaker Change: Where it was last year. So first of all for everybody to repeat a comment that I made in my prepared remarks, which is.
Speaker Change: The first 150 to 200 basis points.
Speaker Change: Difference there is really related to the fourth of July holiday week being part of our second quarter, which includes holiday and extra vacation taken.
Speaker Change: Into that time frame and bring us there so that's part of it.
That would take you to.
Speaker Change: 75% to 73%.
Speaker Change: They're being slightly below that is.
Speaker Change: It is based on the <unk>.
Speaker Change: Inputs from the organization relative.
Speaker Change: Relative to.
Speaker Change: The what's going on in the market I will say that the adjusted U T.
Speaker Change: You know when we're talking about it for going from the first quarter to the second quarter is would put us right in that 72% range. So from when you're adjusting for holidays and vacations and timing on that the adjusted you'd see at 72% is right on with.
Speaker Change: Where it was but I.
Speaker Change: I think that our people as we go out to them to each individual and business units are seeing a few of these instances on the edges, where are the work for our life Sciences clients, who are going through a regulatory process in an approval.
Speaker Change: We are seeing that it takes a few weeks longer too and it's unpredictable when they follow up meeting.
Speaker Change: Confer with the FDA might occur not that it's going to go away the clients are clearly.
Speaker Change: Addressed is still committed to it it's just a little bit of uncertainty there.
Speaker Change: We have seen in some.
Speaker Change: Areas on some proactive testing on a battery technology for a client in the consumer products area, where the client again are uncertain.
Speaker Change: Where theyre going to be able to what theyre going to be importing spend from where they are going to be doing that so they were going through a <unk>.
Speaker Change: Battery assessment of our new supplier they put that on hold because they wanted to wait until they figure it out where they were going to be moving that production to so again not we're talking about maybe that's impacted peoples.
Speaker Change: Forecast by 100 basis points, maybe most 200 basis points, where they're seeing those things around the edges. So I do think you are seeing.
Speaker Change: Some guidance here that reflects that.
Speaker Change: That little bit of.
Speaker Change: Negative activity and.
Speaker Change: Uncertainty coming through.
Speaker Change: Got it. Thank you that's helpful and then I guess.
Speaker Change: Sorry to belabor the point.
Speaker Change: Yes, the numbers here, but just in terms of <unk>.
Speaker Change: Our guidance or our U S.
Speaker Change: Assuming that goes edge cases remain edge cases for the back half of the year or do those delays kind of worked themselves out just kind of wondering from a visibility perspective, how much maybe you would need to change or improve or even get worse at the bottom end of your guidance.
Speaker Change: Just so we kind of have a.
Speaker Change: The guidance conservatism.
Speaker Change: No.
Speaker Change: Completely understood and I appreciate it.
Speaker Change: Look I think that our guidance as it was back in February and we're we're maintaining it now.
Speaker Change: It includes what we see is the current sort of environment.
Speaker Change: Being the I'd say, where these are edge cases, where we.
Speaker Change: We expect.
Speaker Change: The clients on the reactive side are tightening their belts, a little bit but are going to continue forward with all the work and do it.
Speaker Change: That clients on our utility risk work.
Speaker Change: And there that's part of the proactive will continue forward full steam that our clients in the consumer electronics area, where we've seen a little bit of slide but those that work will get done here in 2025 that it's not pushed out and we don't have any indication right now.
Speaker Change: Those clients that it will it's just always a matter of when do they have.
Speaker Change: Hardware ready to be able to evaluate and do that.
Speaker Change: And then the last part of our proactive and the regulatory segments that it stays at this.
Speaker Change: Sort of level, where youre seeing some short are moderate.
Speaker Change: Pauses in some work, but it's not having a major impact on the overall business. So those are the things that we're we're considering.
Speaker Change: As we give both the quarter and full year guidance, but.
Speaker Change: If things are obviously turned a lot worse and such then.
Speaker Change: Obviously anybody would have to reconsider that but we have to.
Speaker Change: Taking into account the current sort of environment and what we're seeing as the impact.
Speaker Change: Perfect and maybe if I could just squeeze one more in and maybe talking on the other side of the coin you highlighted a few areas where.
Speaker Change: Uptick and interest.
Speaker Change: Or I guess demand.
Speaker Change: Could come.
Catherine Corrigan: Catherine you said it does take some time is that something that could positively impact to you as soon as the second half or is that more of.
Speaker Change: 2026.
Speaker Change: I ask just to kind of get a sense for maybe what the lag is on some of that.
Speaker Change: Cross border changes or supply chain.
Speaker Change: Reconfigurations. Thanks again, yeah, Yeah, no I do think Andrew that there is ups.
Andrew Nicholas: Upside potential in that in 2025.
Speaker Change: When you think about the implications of the supply chain shifts I mean, there are there are aspects of <unk>.
Andrew Nicholas: This is well if you think about that.
Andrew Nicholas: The department of health and human services, the increasing scrutiny around chemicals and food.
Andrew Nicholas: A lot of hard work and pesticides is if you think about P. Foss as another example, I mean these are all areas of significant concern that are wrapped around human health risk.
Andrew Nicholas: And these are areas that we we are.
Andrew Nicholas: Arent seeing necessarily those concerns abating at all.
Andrew Nicholas: Tend to be following the trend.
Andrew Nicholas: As the bar being raised.
Andrew Nicholas: So.
Andrew Nicholas: There is definitely opportunity for us in 2025 to realize that.
Andrew Nicholas: Thanks again.
Speaker Change: We have our next question from the line of Josh Chan with UBS. Please go ahead.
Josh Chan: Hi, Good afternoon, Catherine you rich.
Josh Chan: I guess, so far you've talked about the impacts from some of the government policies, but I think in the prepared remarks, you also mentioned.
Josh Chan: Some macro related impacts. So I was wondering if you could talk about what youre seeing there and how impactful do you think the macro environment is competing for a customer decision, making thank you.
Speaker Change: Yeah, maybe I'll just start off at the highest level and then let Catherine sort of give.
Speaker Change: Give a little dive back into some of the comments that you provided earlier.
Speaker Change: Look we wanted to make sure that on this call.
Speaker Change: Is since Yo the environment, the tariffs or other economic things.
Speaker Change: Would be very broad based.
Speaker Change: Outside of sort of the energy area and utilities.
Speaker Change: Of our clients produce the products, they manufacture and get supplies from around the world and we wanted to make sure that.
Speaker Change: Investors had the benefit of understanding the size of those industries, how much of them is really where the concentration in proactive versus reactive is and.
Speaker Change: And where that impact.
Speaker Change: Might lie.
Speaker Change: As we've stated.
Speaker Change: A lot of 60% of our work is reactive in nature clients in those areas.
Speaker Change: I don't.
Speaker Change: Need to proceed and find third party experts to help them with that work and do it can you tighten the belt, yes, what we are.
Speaker Change: What we've seen over decades is that clients tightened their belt, but they still proceed with all of those matters.
Speaker Change: They have to in those circumstances and do it and when you turn over to our proactive side.
Speaker Change: We've got utilities clients that are responding to risks and wildfires and other natural events.
And doing it and we've got in the chemicals industry in life Sciences, and others. It well it there is disruption to the regulatory environment right. Now these are heavily regulated industries and will remain heavily regulated industries.
Speaker Change: The well will be there and can.
Speaker Change: They'll have some impact but they won't continue to go so we're trying to do premise whatever the impact.
Speaker Change: Broader basis be you at least have the information understand our exposure.
Speaker Change: Yeah, and look I would just add the transformation that is going on across so many of the industries that we serve.
Speaker Change: Whether that's in electronics with human health and wearable technology, whether that's utilities meeting too.
Speaker Change: Improve that.
Speaker Change: Integrity of their assets to withstand extreme weather, whether that's there.
Speaker Change: That pharma industry trying to demonstrate the value of their medicines or have better real world evidence vehicle automation and electrification.
Speaker Change: These complex transformations are going I have a lot of confidence that these will continue.
Speaker Change: And what's happening now from the standpoint of the economy and Caspian. This is introducing even more complexity, but that ways to innovate.
Speaker Change: The safety critical nature of the innovations that are coming through that societal expectation around safety and health and the environment.
Speaker Change: Those are still they are global regulatory frameworks.
Speaker Change: <unk> continue to rise and we see that work we came over in the EU globally.
Speaker Change: That is that is something that continues to happen in cell.
Speaker Change: Yes in the short term, we have uncertainty on our clients' back they do turn to us as they are transforming their products to help them ensure the safety and.
Speaker Change: The health of their ultimate users.
Speaker Change: Look we've yes.
Speaker Change: What we saw happen all the way back in the financial crisis was.
Speaker Change: Yes clients tighten their belt, we went from you know.
Speaker Change: Mid to high single digit growth.
Speaker Change: Two being flat no nine but back to growth in 2010.
Speaker Change: We definitely saw the tightening of the belts and re resetting of things in the consumer electronics industry back in late 'twenty two in early 'twenty, three and we've seen that come.
Come back around already.
Speaker Change: In 2024, we saw that really stabilized for us and come back we've been through a little bit of belt tightening in the chemicals industry in late 'twenty three in early 'twenty, four and again I've seen the clients' need.
Speaker Change: To come back in and still address their litigation and regulatory issues. So we think the resiliency is there you can never predict.
Speaker Change: Every little bit every quarter, but we've got a very diverse portfolio here, that's really helped us.
Speaker Change: Through some of these more challenging times.
Speaker Change: That's really helpful color and I appreciate the percentages at the beginning of the call too that that's really helpful.
Speaker Change: Maybe my last question is on the FTE growth I guess in the midst of this environment.
Speaker Change: How do you think about the pace of FTE growth.
Speaker Change: Going into a potentially choppy or less visible type of environment is there anything that would cause you to kind of look at that again.
Speaker Change: So look we as we look out into the rest of the year, we are continuing our plan which is around hiring.
Speaker Change: Sure we are hiring in those areas of the business, where we see them.
Speaker Change: Increasing demand what are some of these areas. The automated vehicle space. This is a place, particularly on the litigation side with advanced driver assistance technologies, but also some of the safety case related work as this industry transitions from nominally level two automation to level three auto.
Nation that is a big big technological staff with a lot of risk there.
Speaker Change: There's a lot of movement in that industry, and we are seeing a lot of ability to acquire talent there.
Speaker Change: We are acquiring talent on the on asset risk side people, who understand how to use these sophisticated engineering models two two.
Speaker Change: To understand the risks associated with all kinds of hazard, whether that's extreme weather or or induction issues and transmission or what have you and we're hiring in the digital health side and Wearables because that is a transformative technology when it comes to our understanding of human health right.
Speaker Change: So we're very focused on strategically hiring.
Speaker Change: We do believe has as rich indicated as we get to the end of the year that we estimate will be about 4% ahead.
Speaker Change: Head count of where we were when the year started.
Speaker Change: So we've been closing that gap you know we started the year of 5% to 6% behind them, we anticipate in Q3 the year over year FTE.
Speaker Change: Difference will be minus 1% so as we progress through the year, we do believe that we've got the market drivers and.
Speaker Change: Great employee value proposition thats going to allow us to grow that head count.
Speaker Change: Thank you for the color and thanks for that time.
Josh Chan: Thanks, Josh.
Speaker Change: Thank you.
Speaker Change: We have no further questions, ladies and gentlemen.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
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