Exponent Q4 2025 Exponent Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Exponent Inc Earnings Call
Speaker #1: Good day, and welcome to the Exponent Inc. Q4 and fiscal year 2025 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.
Operator: Good day, and welcome to the Exponent, Inc. Q4 and fiscal year 2025 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 will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Joni Konstantelos, Managing Director at Riveron. Please go ahead.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone.
Speaker #1: To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Joni Konstantelos, Managing Director at Riveron.
Speaker #1: Please go ahead.
Speaker #2: Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's fourth quarter and fiscal year 2025 financial results conference call.
Joni Konstantelos: Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's Q4 and fiscal year 2025 financial results conference call. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website at www.exponent.com. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Dr. 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, Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Joni Konstantelos: Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's Q4 and fiscal year 2025 financial results conference call. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website at www.exponent.com. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Dr. 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, Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Speaker #2: Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at www.exponent.com. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent.
Speaker #2: Joining me on the call today are Dr. Catherine Corrigan, President and Chief Executive Officer, and Richard Schlenker, Executive Vice President and Chief Financial Officer.
Speaker #2: Before we start, I would like to remind you that the following discussion contains forward-looking statements, including but not limited to Exponent's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.
Speaker #2: Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings including those factors discussed under the caption risk factor in Exponent's most recent Form 10Q.
Joni Konstantelos: Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption Risk Factor in Exponent's most recent Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, 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?
Joni Konstantelos: Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption Risk Factor in Exponent's most recent Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, 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?
Speaker #2: 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.
Speaker #2: And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Catherine?
Speaker #3: Thank you, Joni, and thank you everyone for joining us today. I will start off by reviewing our fourth quarter and fiscal year 2025 business performance.
Catherine Corrigan: Thank you, Joni, and thank you, everyone, for joining us today. I will start off by reviewing our fourth quarter and fiscal year 2025 business performance. Rich will then provide a more detailed review of our financial results and outlook for 2026, and we will then open the call for questions. We delivered a strong finish to 2025, reflecting the strength, diversification, and resilience of our portfolio. During the fourth quarter, we saw growth in proactive engagements, driven by increased demand for user research and consumer electronics, along with continued expansion of our risk management work in the utility sector. Growth in our reactive services was driven by failure analysis and dispute-related engagements across a broad range of industries, including energy, construction, transportation, and life sciences.
Catherine Corrigan: Thank you, Joni, and thank you, everyone, for joining us today. I will start off by reviewing our fourth quarter and fiscal year 2025 business performance. Rich will then provide a more detailed review of our financial results and outlook for 2026, and we will then open the call for questions. We delivered a strong finish to 2025, reflecting the strength, diversification, and resilience of our portfolio. During the fourth quarter, we saw growth in proactive engagements, driven by increased demand for user research and consumer electronics, along with continued expansion of our risk management work in the utility sector. Growth in our reactive services was driven by failure analysis and dispute-related engagements across a broad range of industries, including energy, construction, transportation, and life sciences.
Speaker #3: Rich will then provide a more detailed review of our financial results and outlook for 2026, and we will then open the call for questions.
Speaker #3: We delivered a strong finish to 2025, reflecting the strength, diversification, and resilience of our portfolio. During the fourth quarter, we saw growth in proactive engagements, driven by increased demand for user research and consumer electronics, along with continued expansion of our risk management work in the utility sector.
Speaker #3: Growth in our reactive services was driven by failure analysis and dispute-related engagement across a broad range of industries, including energy, construction, transportation, and life sciences.
Speaker #3: Turning to our engagements in more detail, growth in proactive engagements in the fourth quarter reflected continued diversification across a broader mix of clients and an expanding range of products and technologies.
Catherine Corrigan: Turning to our engagements in more detail, growth in proactive engagements in Q4 reflected continued diversification across a broader mix of clients and an expanding range of products and technologies.... In consumer electronics, we saw increased demand for user research engagements, driven by the need to evaluate product performance and user interaction as artificial intelligence becomes increasingly embedded in both everyday and novel devices. We also saw continued growth in risk management and asset integrity services for utilities, supported by rising energy demand and increased focus on grid reliability. In life sciences, engagements increased across regulatory compliance, product performance, and safety consulting for medical devices, as these safety-critical technologies continue to become more complex.
Catherine Corrigan: Turning to our engagements in more detail, growth in proactive engagements in Q4 reflected continued diversification across a broader mix of clients and an expanding range of products and technologies.... In consumer electronics, we saw increased demand for user research engagements, driven by the need to evaluate product performance and user interaction as artificial intelligence becomes increasingly embedded in both everyday and novel devices. We also saw continued growth in risk management and asset integrity services for utilities, supported by rising energy demand and increased focus on grid reliability. In life sciences, engagements increased across regulatory compliance, product performance, and safety consulting for medical devices, as these safety-critical technologies continue to become more complex.
Speaker #3: In consumer electronics, we saw increased demand for user research engagements, driven by the need to evaluate product performance and user interaction as artificial intelligence becomes increasingly embedded in both everyday and novel devices.
Speaker #3: We also saw continued growth in risk management and asset integrity services for utilities, supported by rising energy demand and increased focus on grid reliability.
Speaker #3: In life sciences, engagements increased across regulatory compliance, product performance, and safety consulting for medical devices, as these safety-critical technologies continue to become more complex.
Speaker #3: Turning to our reactive engagements, demand for Exponent's failure analysis and dispute-related services drove growth in the fourth quarter, reflecting the essential role our engineers and scientists play when systems do not perform as expected.
Catherine Corrigan: Turning to our reactive engagements, demand for Exponent's failure analysis and dispute-related services drove growth in the fourth quarter, reflecting the essential role our engineers and scientists play when systems do not perform as expected. In transportation, we saw increased failure analysis work tied to electrification and battery systems in commercial vehicles as customers addressed performance, safety, and reliability challenges. We expanded our failure investigation work in data center infrastructure, for example, addressing board-level cooling and thermal management issues, where multidisciplinary teams are required to determine the root cause of failure. Across the energy sector, we continued to see robust demand in dispute-related engagements spanning hydroelectric facilities, wildfire-related losses, battery energy storage systems, and wind and solar projects. Exponent continues to benefit from powerful long-term market drivers.
Catherine Corrigan: Turning to our reactive engagements, demand for Exponent's failure analysis and dispute-related services drove growth in the fourth quarter, reflecting the essential role our engineers and scientists play when systems do not perform as expected. In transportation, we saw increased failure analysis work tied to electrification and battery systems in commercial vehicles as customers addressed performance, safety, and reliability challenges. We expanded our failure investigation work in data center infrastructure, for example, addressing board-level cooling and thermal management issues, where multidisciplinary teams are required to determine the root cause of failure. Across the energy sector, we continued to see robust demand in dispute-related engagements spanning hydroelectric facilities, wildfire-related losses, battery energy storage systems, and wind and solar projects. Exponent continues to benefit from powerful long-term market drivers.
Speaker #3: In transportation, we saw increased failure analysis work tied to electrification and battery systems in commercial vehicles, as customers addressed performance, safety, and reliability challenges.
Speaker #3: We expanded our failure investigation work in data center infrastructure, for example, addressing board-level cooling and thermal management issues where multidisciplinary teams are required to determine the root cause of failure.
Speaker #3: Across the energy sector, we continued to see robust demand in dispute-related engagements spanning hydroelectric facilities, wildfire-related losses, battery energy storage systems, and wind and solar projects.
Speaker #3: Exponent continues to benefit from powerful long-term market drivers. As artificial intelligence and other complex technologies are increasingly incorporated into novel products, infrastructure, and safety-critical systems, demand is growing for our science and engineering expertise to support and enhance algorithm performance.
Catherine Corrigan: As artificial intelligence and other complex technologies are increasingly incorporated into novel products, infrastructure, and safety-critical systems, demand is growing for our science and engineering expertise to support and enhance algorithm performance. Sensor-based systems that demand the highest level of trust are also frequently found in the most challenging, disrupted, or intermittent connectivity environments, creating settings where security and safety are inseparable. While AI delivers value by learning and predicting based on historical data, many of the most consequential challenges arise in physical systems, where edge cases, novel conditions, and complex interactions fall outside of prior experience. Exponent thrives at the edge, where AI meets the laws of physics, in high-stakes environments where reliability, performance, and security cannot be compromised. These dynamics underpin sustained long-term demand for Exponent's multidisciplinary expertise.
Catherine Corrigan: As artificial intelligence and other complex technologies are increasingly incorporated into novel products, infrastructure, and safety-critical systems, demand is growing for our science and engineering expertise to support and enhance algorithm performance. Sensor-based systems that demand the highest level of trust are also frequently found in the most challenging, disrupted, or intermittent connectivity environments, creating settings where security and safety are inseparable. While AI delivers value by learning and predicting based on historical data, many of the most consequential challenges arise in physical systems, where edge cases, novel conditions, and complex interactions fall outside of prior experience. Exponent thrives at the edge, where AI meets the laws of physics, in high-stakes environments where reliability, performance, and security cannot be compromised. These dynamics underpin sustained long-term demand for Exponent's multidisciplinary expertise.
Speaker #3: Sensor-based systems that demand the highest level of trust are also frequently found in the most challenging, disrupted, or intermittent connectivity environments, creating settings where security and safety are inseparable.
Speaker #3: While AI delivers value by learning and predicting based on historical data, many of the most consequential challenges arise in physical systems, where edge cases, novel conditions, and complex interactions fall outside of prior experience.
Speaker #3: Exponent thrives at the edge where AI meets the laws of physics, in high-stakes environments where reliability, performance, and security cannot be compromised. These dynamics underpin sustained, long-term demand for Exponent's multidisciplinary expertise.
Speaker #3: Our teams apply deep capabilities in engineering, physics, biology, chemistry, material science, cybersecurity, human behavior, and more, to help clients validate and enhance system performance identify risk, ensure security at the asset level, and apply scientific judgment where complexity and uncertainty exceed the limits of algorithms alone.
Catherine Corrigan: Our teams apply deep capabilities in engineering, physics, biology, chemistry, material science, cybersecurity, human behavior, and more to help clients validate and enhance system performance, identify risk, ensure security at the asset level, and apply scientific judgment where complexity and uncertainty exceed the limits of algorithms alone. As AI-enabled systems are deployed, deployed more broadly, failures, whether at the algorithm or the physical system level, are becoming more complex, more difficult to diagnose, and more consequential. Determining the root cause of these failures demands rigorous investigation that integrates physical sciences, engineering, data science, and human factors to reconstruct real-world conditions and system behavior. Exponent's long-standing failure analysis expertise uniquely positions us to support clients as they navigate these situations, delivering independent, science-based insight that informs remediation, accountability, and innovation.
Catherine Corrigan: Our teams apply deep capabilities in engineering, physics, biology, chemistry, material science, cybersecurity, human behavior, and more to help clients validate and enhance system performance, identify risk, ensure security at the asset level, and apply scientific judgment where complexity and uncertainty exceed the limits of algorithms alone. As AI-enabled systems are deployed, deployed more broadly, failures, whether at the algorithm or the physical system level, are becoming more complex, more difficult to diagnose, and more consequential. Determining the root cause of these failures demands rigorous investigation that integrates physical sciences, engineering, data science, and human factors to reconstruct real-world conditions and system behavior. Exponent's long-standing failure analysis expertise uniquely positions us to support clients as they navigate these situations, delivering independent, science-based insight that informs remediation, accountability, and innovation.
Speaker #3: As AI-enabled systems are deployed more broadly, failures, whether at the algorithm or the physical system level, are becoming more complex, more difficult to diagnose, and more consequential.
Speaker #3: Determining the root cause of these failures demands rigorous investigation that integrates physical sciences, engineering, data science, and human factors to reconstruct real-world conditions and system behavior.
Speaker #3: Exponent's longstanding failure analysis expertise uniquely positions us to support clients as they navigate these situations, delivering independent, science-based insight that informs remediation, accountability, and innovation.
Speaker #3: As artificial intelligence and other complex technologies increasingly intersect with performance and safety-critical applications, this capability remains a core and differentiating component of the long-term value that we provide.
Catherine Corrigan: As artificial intelligence and other complex technologies increasingly intersect with performance and safety-critical applications, this capability remains a core and differentiating component of the long-term value that we provide. At the same time, we are leveraging artificial intelligence within our operations to add value and support our teams as demand for our expertise continues to grow. These tools enable our experts to work more effectively, focused on the highest value aspects of their work, and deploy their capabilities where they matter most. Looking ahead, Exponent continues to benefit from powerful long-term market drivers, including increasing complexity, rapid technological innovation, and rising expectations around safety, health, and the environment. As artificial intelligence and other advanced technologies become more deeply embedded in novel products and critical systems, clients are facing an expanding set of complex, high-stakes challenges.
Catherine Corrigan: As artificial intelligence and other complex technologies increasingly intersect with performance and safety-critical applications, this capability remains a core and differentiating component of the long-term value that we provide. At the same time, we are leveraging artificial intelligence within our operations to add value and support our teams as demand for our expertise continues to grow. These tools enable our experts to work more effectively, focused on the highest value aspects of their work, and deploy their capabilities where they matter most. Looking ahead, Exponent continues to benefit from powerful long-term market drivers, including increasing complexity, rapid technological innovation, and rising expectations around safety, health, and the environment. As artificial intelligence and other advanced technologies become more deeply embedded in novel products and critical systems, clients are facing an expanding set of complex, high-stakes challenges.
Speaker #3: At the same time, we are leveraging artificial intelligence within our operations to add value and support our teams as demand for our expertise continues to grow.
Speaker #3: These tools enable our experts to work more effectively, focus on the highest-value aspects of their work, and deploy their capabilities where they matter most.
Speaker #3: Looking ahead, Exponent continues to benefit from powerful long-term market drivers, including increasing complexity, rapid technological innovation, and rising expectations around safety, health, and the environment.
Speaker #3: As artificial intelligence and other advanced technologies become more deeply embedded in novel products and critical systems, clients are facing an expanding set of complex high-stakes challenges.
Speaker #3: This environment is driving increasing demand for independent multidisciplinary expertise, and is supporting continued diversifications across technologies, products, and clients, as reflected in our results.
Catherine Corrigan: This environment is driving increasing demand for independent, multidisciplinary expertise and is supporting continued diversifications across technologies, products, and clients, as reflected in our results. Together, these dynamics position Exponent to deliver rigorous, science-based insights across the full product life cycle and support long-term growth. I'll now turn the call over to Rich to provide more detail on our Q4 and fiscal year 2025 results, as well as discuss our outlook for the Q1 and the full year 2026.
Catherine Corrigan: This environment is driving increasing demand for independent, multidisciplinary expertise and is supporting continued diversifications across technologies, products, and clients, as reflected in our results. Together, these dynamics position Exponent to deliver rigorous, science-based insights across the full product life cycle and support long-term growth. I'll now turn the call over to Rich to provide more detail on our Q4 and fiscal year 2025 results, as well as discuss our outlook for the Q1 and the full year 2026.
Speaker #3: Together, these dynamics position Exponent to deliver rigorous, science-based insight across the full product lifecycle, and support long-term growth. I'll now turn the call over to Rich to provide more detail on our fourth quarter and fiscal year 2025 results, as well as discuss our outlook for the first quarter and the full year.
Speaker #2: 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: 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. I would like to remind everyone that we returned to a 13-week fourth quarter and a 52-week fiscal year in 2025, compared to a fiscal year 2024, which included an extra week that occurs every fifth or sixth year. The extra week poses a headwind to revenues of approximately 7% in the fourth quarter and 1.3% to the year. For the fourth quarter of 2025, total revenues increased 8% to $147.4 million, and revenues before reimbursements, or net revenues, as I will refer to them from here on, increased 5% to $129.4 million as compared to the same period in 2024.
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. I would like to remind everyone that we returned to a 13-week fourth quarter and a 52-week fiscal year in 2025, compared to a fiscal year 2024, which included an extra week that occurs every fifth or sixth year. The extra week poses a headwind to revenues of approximately 7% in the fourth quarter and 1.3% to the year. For the fourth quarter of 2025, total revenues increased 8% to $147.4 million, and revenues before reimbursements, or net revenues, as I will refer to them from here on, increased 5% to $129.4 million as compared to the same period in 2024.
Speaker #2: I would like to remind everyone that we return to a 13-week fourth quarter and a 52-week fiscal year in 2025, compared to fiscal year 2024, which included an extra week that occurs every fifth or sixth year.
Speaker #2: The extra week poses a headwind to revenues of approximately 7% in the fourth quarter, and 1.3% to the year. For the fourth quarter 2025, total revenues increased 8% to $147.4 million.
Speaker #2: And revenues before reimbursements or net revenues as I will refer to them from here on increased 5% to $129.4 million. As compared to the same period in 2024.
Speaker #2: So if you adjust for the one less week, net revenues would have grown in the low double digits. Net income for the fourth quarter was $24.8 million, or $0.49 per diluted share, as compared to $23.6 million, or $0.46 per diluted share, in the prior year period.
Rich Schlenker: So if you adjust for the one week- one less week, net revenues would have grown in the low double digits. Net income for the fourth quarter was $24.8 million, or $0.49 per diluted share, as compared to $23.6 million or $0.46 per diluted share in the prior year period. The realized tax benefit associated with accounting for share-based awards in the fourth quarter was $99,000, as compared to $591,000 in the fourth quarter of 2024. Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 27.4% in the fourth quarter, as compared to 24.7% for the same period in 2024.
Rich Schlenker: So if you adjust for the one week- one less week, net revenues would have grown in the low double digits. Net income for the fourth quarter was $24.8 million, or $0.49 per diluted share, as compared to $23.6 million or $0.46 per diluted share in the prior year period. The realized tax benefit associated with accounting for share-based awards in the fourth quarter was $99,000, as compared to $591,000 in the fourth quarter of 2024. Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 27.4% in the fourth quarter, as compared to 24.7% for the same period in 2024.
Speaker #2: The realized tax benefit associated with accounting for share-based awards in the fourth quarter was $99,000, as compared to $591,000 in the fourth quarter of 2024.
Speaker #2: Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 27.4% in the fourth quarter, as compared to 24.7% for the same period in 2024.
Speaker #2: EBITDA for the quarter was $34.7 million, producing a margin of 26.8% of net revenues, as compared to $31.2 million or 25.2% of net revenues in the same period of 2024.
Rich Schlenker: EBITDA for the quarter was $34.7 million, producing a margin of 26.8% of net revenues, as compared to $31.2 million or 25.2% of net revenues in the same period of 2024. Billable hours in Q4 were approximately 357,000, a decrease of 1% year-over-year. If you adjust for the one less week, billable hours would have been up approximately 6%. The average number of technical full-time equivalent employees in Q4 was 992, which is an increase of 5% as compared to one year ago. This increase was due to our recruiting and retention efforts. Utilization in Q4 was 69%, up from 68% in the same period of 2024.
Rich Schlenker: EBITDA for the quarter was $34.7 million, producing a margin of 26.8% of net revenues, as compared to $31.2 million or 25.2% of net revenues in the same period of 2024. Billable hours in Q4 were approximately 357,000, a decrease of 1% year-over-year. If you adjust for the one less week, billable hours would have been up approximately 6%. The average number of technical full-time equivalent employees in Q4 was 992, which is an increase of 5% as compared to one year ago. This increase was due to our recruiting and retention efforts. Utilization in Q4 was 69%, up from 68% in the same period of 2024.
Speaker #2: Billable hours in the fourth quarter were approximately 357,000, a decrease of 1% year over year. If you adjust for the one less week, billable hours would have been up approximately 6%.
Speaker #2: The average number of technical full-time equivalent employees in the fourth quarter was 992, which is an increase of 5% compared to one year ago.
Speaker #2: This increase was due to our recruiting and retention efforts. Utilization in the fourth quarter was 69%, up from 68% in the same period of 2024.
Speaker #2: The realized rate increase was approximately 5% for the fourth quarter, as compared to the same period a year ago. This is a result of our premium position in the marketplace, unparalleled talent, and differentiated interdisciplinary expertise.
Rich Schlenker: The realized rate increase was approximately 5% for Q4 as compared to the same period a year ago. This is a result of our premium position in the marketplace, unparalleled talent, and differentiated interdisciplinary expertise. In Q4, compensation expense, after adjusting for gains and losses in deferred compensation, was approximately flat. Included in total compensation expense is a gain in deferred compensation of $2.7 million, as compared to a gain of $629,000 in the same period of 2024. As a reminder, gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line. Stock-based compensation expense in Q4 was $5 million, as compared to $4.9 million in the prior year period.
Rich Schlenker: The realized rate increase was approximately 5% for Q4 as compared to the same period a year ago. This is a result of our premium position in the marketplace, unparalleled talent, and differentiated interdisciplinary expertise. In Q4, compensation expense, after adjusting for gains and losses in deferred compensation, was approximately flat. Included in total compensation expense is a gain in deferred compensation of $2.7 million, as compared to a gain of $629,000 in the same period of 2024. As a reminder, gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line. Stock-based compensation expense in Q4 was $5 million, as compared to $4.9 million in the prior year period.
Speaker #2: In the fourth quarter, compensation expense after adjusting for gains and losses in deferred compensation was approximately flat. Included in total compensation expense is a gain in deferred compensation of $2.7 million, as compared to a gain of $629,000 in the same period of 2024.
Speaker #2: As a reminder, gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line. Stock-based compensation expense in the fourth quarter was $5 million, as compared to $4.9 million in the prior year period.
Speaker #2: Other operating expenses in the fourth quarter were up 1% to $12.6 million. Included in other operating expenses is the depreciation and amortization expense of $2.5 million.
Rich Schlenker: Other operating expenses in the fourth quarter were up 1% to $12.6 million. Included in other operating expenses is depreciation and amortization expense of $2.5 million. G&A expenses increased 17% to $6.7 million for the fourth quarter due to an increase in travel and meals associated with business development, professional development, and increased recruiting activity. Interest income decreased to $1.9 million for the fourth quarter, driven by a decrease in cash and lower interest rates. Miscellaneous income, excluding deferred compensation gain, was approximately $296,000 for the fourth quarter. During the quarter, capital expenditures were $2.7 million. We distributed $14.9 million to shareholders through dividend payments and repurchased $25.1 million of common stock at an average price of $70.57. Turning to the full year results.
Rich Schlenker: Other operating expenses in the fourth quarter were up 1% to $12.6 million. Included in other operating expenses is depreciation and amortization expense of $2.5 million. G&A expenses increased 17% to $6.7 million for the fourth quarter due to an increase in travel and meals associated with business development, professional development, and increased recruiting activity. Interest income decreased to $1.9 million for the fourth quarter, driven by a decrease in cash and lower interest rates. Miscellaneous income, excluding deferred compensation gain, was approximately $296,000 for the fourth quarter. During the quarter, capital expenditures were $2.7 million. We distributed $14.9 million to shareholders through dividend payments and repurchased $25.1 million of common stock at an average price of $70.57. Turning to the full year results.
Speaker #2: G&A expenses increased 17% to $6.7 million, for the fourth quarter. Due to an increase in travel and meals, associated with business development, professional development, and increased recruiting activity.
Speaker #2: Interest income decreased to $1.9 million for the fourth quarter, driven by a decrease in cash and lower interest rates. Miscellaneous income excluding deferred compensation gain was approximately $296,000 for the fourth quarter.
Speaker #2: During the quarter, capital expenditures were $2.7 million. We distributed $14.9 million to shareholders through dividend payments and repurchased $25.1 million of common stock at an average price of $70.57.
Speaker #2: Turning to the full year results, total revenues increased at total revenues and net revenues grew 4% to $582 million, and $536.8 million respectively, as compared to 2024.
Rich Schlenker: Total revenues increased and total, total revenues and net revenues grew 4% to $582 million and $536.8 million, respectively, as compared to 2024. Net income for the year decreased 3% to $106 million, or $2.07 per diluted share, as compared to $109 million, or $2.11 per diluted share in 2024. During the year, we realized a negative tax impact associated with accounting for share-based awards of $255,000, as compared to a tax benefit of $2.8 million in 2024.
Rich Schlenker: Total revenues increased and total, total revenues and net revenues grew 4% to $582 million and $536.8 million, respectively, as compared to 2024. Net income for the year decreased 3% to $106 million, or $2.07 per diluted share, as compared to $109 million, or $2.11 per diluted share in 2024. During the year, we realized a negative tax impact associated with accounting for share-based awards of $255,000, as compared to a tax benefit of $2.8 million in 2024.
Speaker #2: Net income for the year decreased 3% to $106 million, or $2.07 per diluted share, compared to $109 million, or $2.11 per diluted share, in 2024.
Speaker #2: During the year, we realized a negative tax impact associated with accounting for share-based awards of $255,000, as compared to a tax benefit of $2.8 million in 2024.
Speaker #2: Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 28% for the full year, as compared to 26% in 2024. For the year, EBITDA increased to $148.1 million, as compared to $147.1 million during the prior year.
Rich Schlenker: Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 28% for the full year, as compared to 26% in 2024. For the year, EBITDA increased to $148.1 million as compared to $147.1 million during the prior year, producing a margin of 27.6% of net revenues, which is a decrease of 80 basis points as compared to 2024. This year-over-year decrease in margins was expected primarily due to the cost associated with our managers meeting during 2025 and the renewal of our Phoenix land lease in June 2024. Billable hours for 2025 were approximately 1,468,000, a 2% decrease year-over-year.
Rich Schlenker: Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 28% for the full year, as compared to 26% in 2024. For the year, EBITDA increased to $148.1 million as compared to $147.1 million during the prior year, producing a margin of 27.6% of net revenues, which is a decrease of 80 basis points as compared to 2024. This year-over-year decrease in margins was expected primarily due to the cost associated with our managers meeting during 2025 and the renewal of our Phoenix land lease in June 2024. Billable hours for 2025 were approximately 1,468,000, a 2% decrease year-over-year.
Speaker #2: Producing a margin of 27.6% of net revenues, which is a decrease of 80 basis points as compared to 2024. This year-over-year decrease in margins was expected primarily due to the cost associated with our managers' meeting during 2025 and the renewal of our Phoenix land lease in June of 2024.
Speaker #2: Billable hours for 2025 were approximately $1,468,000, a 2% decrease year-over-year. Utilization $72.5%, down for the full year was from $72.9% in the same period of 2024.
Rich Schlenker: Utilization for the full year was 72.5%, down from 72.9% in the same period of 2024. Average technical full-time equivalent employees for the year were 973, an increase of 1% as compared to 2024. The realized rate increase was approximately 5% for the year. Compensation expense, after adjusting for gains and losses in deferred compensation, increased 3%. Included in total compensation expense is a gain in deferred compensation of $17.4 million, as compared to a gain of $14.9 million during 2024. Stock-based compensation expense in 2025 was $23.8 million, as compared to $23.2 million in the prior year. Other operating expenses were up 7% to $49.5 million, driven primarily by an increased non-cash expense of our Phoenix lease renewal.
Rich Schlenker: Utilization for the full year was 72.5%, down from 72.9% in the same period of 2024. Average technical full-time equivalent employees for the year were 973, an increase of 1% as compared to 2024. The realized rate increase was approximately 5% for the year. Compensation expense, after adjusting for gains and losses in deferred compensation, increased 3%. Included in total compensation expense is a gain in deferred compensation of $17.4 million, as compared to a gain of $14.9 million during 2024. Stock-based compensation expense in 2025 was $23.8 million, as compared to $23.2 million in the prior year. Other operating expenses were up 7% to $49.5 million, driven primarily by an increased non-cash expense of our Phoenix lease renewal.
Speaker #2: Average technical full-time equivalent employees for the year were 973, an increase of 1% as compared to 2024. The realized rate increase was approximately 5% for the year.
Speaker #2: Compensation expense, after adjusting for gains and losses in deferred compensation, increased 3%. Included in total compensation expense is a gain in deferred compensation of $17.4 million.
Speaker #2: As compared to a gain of $14.9 million during 2024. Stock-based compensation expense in 2025 was $23.8 million, as compared to $23.2 million in the prior year.
Speaker #2: Other operating expenses were up 7% to $49.5 million, driven primarily by an increased non-cash expense of our Phoenix lease renewal. Included in other operating expenses is the depreciation and amortization expense of $10.1 million.
Rich Schlenker: Included in other operating expenses is depreciation and amortization expense of $10.1 million. G&A were up 12% to $25.5 million in 2025. The increase in G&A expenses was primarily due to an increase in travel and meals related to our in-person managers meeting in September, which was postponed in 2024. Interest income decreased approximately $694,000 to $9.3 million for the full year. Lower interest income was driven by a decrease in cash and lower interest rates. Miscellaneous income, excluding the deferred compensation, was approximately $840,000 in 2025. Moving to our cash flows. During 2025, we generated $131.7 million from operations, and capital expenditures were $9.4 million.
Rich Schlenker: Included in other operating expenses is depreciation and amortization expense of $10.1 million. G&A were up 12% to $25.5 million in 2025. The increase in G&A expenses was primarily due to an increase in travel and meals related to our in-person managers meeting in September, which was postponed in 2024. Interest income decreased approximately $694,000 to $9.3 million for the full year. Lower interest income was driven by a decrease in cash and lower interest rates. Miscellaneous income, excluding the deferred compensation, was approximately $840,000 in 2025. Moving to our cash flows. During 2025, we generated $131.7 million from operations, and capital expenditures were $9.4 million.
Speaker #2: G&A were up 12% to $25.5 million, in 2025. The increase in G&A expenses was primarily due to an increase in travel and meals related to our in-person managers' meeting in September, which was postponed in 2024.
Speaker #2: Interest income decreased approximately $694,000 to $9.3 million for the full year. Lower interest income was driven by a decrease in cash and lower interest rates.
Speaker #2: Miscellaneous income excluding the deferred compensation was approximately $840,000 in 2025. Moving to our cash flows, during 2025, we generated $131.7 million from operations, and capital expenditures were $9.4 million.
Speaker #2: For the full year, we distributed $61.5 million to shareholders through dividend payments and repurchased $97.8 million of common stock at an average price of $72.22.
Rich Schlenker: For the full year, we distributed $61.5 million to shareholders through dividend payments and repurchased $97.8 million of common stock at an average price of $72.22. As of year-end, the company had $221.9 million in cash and cash equivalents. Turning to our segments. Exponent's engineering and other scientific segment represented 85% of net revenues during Q4 and 84% for the year 2025. Net revenues in this segment increased 7% for Q4 and 4% for the full year, driven by proactive services, including risk management work for the utility industry as clients address energy infrastructure challenges stemming from rising power demands and extreme weather events, regulatory support services for medical device clients, and user research services for clients in the consumer electronics industry.
Rich Schlenker: For the full year, we distributed $61.5 million to shareholders through dividend payments and repurchased $97.8 million of common stock at an average price of $72.22. As of year-end, the company had $221.9 million in cash and cash equivalents. Turning to our segments. Exponent's engineering and other scientific segment represented 85% of net revenues during Q4 and 84% for the year 2025. Net revenues in this segment increased 7% for Q4 and 4% for the full year, driven by proactive services, including risk management work for the utility industry as clients address energy infrastructure challenges stemming from rising power demands and extreme weather events, regulatory support services for medical device clients, and user research services for clients in the consumer electronics industry.
Speaker #2: As of year-end, the company had $221.9 million in cash and cash equivalents. Turning to our segments, Exponent's engineering and other scientific segment represented 85% of net revenues during the fourth quarter, and 84% for the year 2025.
Speaker #2: Net revenues in this segment increased 7% for the fourth quarter and 4% for the full year. This was driven by proactive services, including risk management work for the utility industry as clients addressed energy infrastructure challenges stemming from rising power demands and extreme weather events.
Speaker #2: Regulatory support services for medical device clients and user research services for clients in the consumer electronics industry. Growth during the quarter was also driven by disputes-related services for the construction, energy, and transportation industries, as clients rely on Exponent in critical, high-stakes situations.
Rich Schlenker: Growth during the quarter was also driven by disputes-related services for the construction, energy, and transportation industries as clients rely on Exponent in critical, high-stakes situations. Exponent's environmental and health segment represented 15% of net revenue during the fourth quarter and 16% of net revenues during fiscal year 2025. Revenues before reimbursements in this segment decreased 5% for the fourth quarter and were approximately flat for the full year. The decline during the fourth quarter was primarily due to having 1 less week during the fourth quarter of fiscal year 2025 as compared to 2024. Turning to the outlook for the first quarter and full year 2026. We expect net revenues for the first quarter and full year 2026 to grow in the high single digits as compared to the same periods in 2025.
Rich Schlenker: Growth during the quarter was also driven by disputes-related services for the construction, energy, and transportation industries as clients rely on Exponent in critical, high-stakes situations. Exponent's environmental and health segment represented 15% of net revenue during the fourth quarter and 16% of net revenues during fiscal year 2025. Revenues before reimbursements in this segment decreased 5% for the fourth quarter and were approximately flat for the full year. The decline during the fourth quarter was primarily due to having 1 less week during the fourth quarter of fiscal year 2025 as compared to 2024. Turning to the outlook for the first quarter and full year 2026. We expect net revenues for the first quarter and full year 2026 to grow in the high single digits as compared to the same periods in 2025.
Speaker #2: Exponent's Environmental and Health segment represented 15% of net revenues during the fourth quarter and 16% of net revenues during fiscal year 2025. Revenues before reimbursements in this segment decreased 5% for the fourth quarter and were approximately flat for the full year.
Speaker #2: The decline during the fourth quarter was primarily due to having one less week during the fourth quarter of fiscal year 2025, as compared to 2024.
Speaker #2: Turning to the outlook for the first quarter and full year 2026, we expect net revenues for the first quarter and full year 2026 to grow in the high single digits as compared to the same periods in 2025.
Speaker #2: For the first quarter of 2026, we expect EBITDA margin to be 27.5% to 28.5% of net revenues, as compared to 27.3% in the first quarter of 2025.
Rich Schlenker: For Q1 2026, we expect EBITDA margin to be 27.5 to 28.5% of net revenues, as compared to 27.3% in Q1 2025. For fiscal year 2026, we expect EBITDA margin to be 27.6 to 28.1% of net revenues, as compared to 27.6% in 2025. We expect increased demand and corresponding recruiting to result in average technical full-time equivalent employees increasing approximately 4% year-over-year in Q1 2026, and 4 to 5% for the full year 2026 as compared to 2025. We expect utilization in the first quarter to be 75 to 76%, as compared to 75% in the same quarter in the prior year.
Rich Schlenker: For Q1 2026, we expect EBITDA margin to be 27.5 to 28.5% of net revenues, as compared to 27.3% in Q1 2025. For fiscal year 2026, we expect EBITDA margin to be 27.6 to 28.1% of net revenues, as compared to 27.6% in 2025. We expect increased demand and corresponding recruiting to result in average technical full-time equivalent employees increasing approximately 4% year-over-year in Q1 2026, and 4 to 5% for the full year 2026 as compared to 2025. We expect utilization in the first quarter to be 75 to 76%, as compared to 75% in the same quarter in the prior year.
Speaker #2: For fiscal year 2026, we expect EBITDA margin to be 27.6 to 28.1% of net revenues, as compared to 27.6% in 2025. We expect increased demand and corresponding recruiting to result in our average technical full-time equivalent employees increasing approximately 4% year-over-year in the first quarter of 2026 and 4 to 5% for the full year 2026, as compared to 2025.
Speaker #2: We expect utilization in the first quarter to be 75% to 76%, as compared to 75% in the same quarter in the prior year. And we expect the full-year utilization to be 72.5% to 73%, as compared to 72.5% in 2025.
Rich Schlenker: We expect the full year utilization to be 72.5 to 73%, as compared to 72.5% in 2025. We still believe our long-term target of sustained mid-70s utilization is achievable as we continue to strategically manage headcount and balance utilization with market demand. We expect the realized rate increase for Q1 to be 3.5 to 4%, and for the full year to be 3 to 3.5%. The lower rate realization for the year is based on a historical trend as hiring rates increase. For Q1, we expect stock-based compensation to be $8.6 to 9 million, and each of the remaining quarters to be $5.5 to 6.3 million.
Rich Schlenker: We expect the full year utilization to be 72.5 to 73%, as compared to 72.5% in 2025. We still believe our long-term target of sustained mid-70s utilization is achievable as we continue to strategically manage headcount and balance utilization with market demand. We expect the realized rate increase for Q1 to be 3.5 to 4%, and for the full year to be 3 to 3.5%. The lower rate realization for the year is based on a historical trend as hiring rates increase. For Q1, we expect stock-based compensation to be $8.6 to 9 million, and each of the remaining quarters to be $5.5 to 6.3 million.
Speaker #2: We still believe our long-term target of sustained mid-70s utilization is achievable, as we continue to strategically manage headcount and balance utilization with market demand.
Speaker #2: We expect the realized rate increase for the first quarter to be 3.5% to 4%, and for the full year to be 3% to 3.5%.
Speaker #2: The lower rate realization for the year is based on a historical trend as hiring rates increase. For the first quarter, we expect stock-based compensation to be 8.6 to 9 million dollars, and each of the remaining quarters to be 5.5 to 6.3 million dollars.
Speaker #2: For the full year 2026, we expect stock-based compensation to be $26 million to $26.5 million. We continue to believe that our stock-based compensation program effectively attracts, motivates, and retains our top talent.
Rich Schlenker: For the full year 2026, we expect stock-based compensation to be $26 to 26.5 million. We continue to believe that our stock-based compensation program effectively attracts, motivates, and retains our top talent. For Q1, we expect other operating expenses to be $12.7 to 13.2 million. For the full year, we expect other operating expenses to be $53.5 to 54 million. For Q1, we expect G&A expenses to be $5.4 to 5.8 million. For the full year 2026, we expect G&A expenses to be $27.1 to 28.1 million. We expect interest income to be $1.7 to 1.9 million per quarter in 2026.
Rich Schlenker: For the full year 2026, we expect stock-based compensation to be $26 to 26.5 million. We continue to believe that our stock-based compensation program effectively attracts, motivates, and retains our top talent. For Q1, we expect other operating expenses to be $12.7 to 13.2 million. For the full year, we expect other operating expenses to be $53.5 to 54 million. For Q1, we expect G&A expenses to be $5.4 to 5.8 million. For the full year 2026, we expect G&A expenses to be $27.1 to 28.1 million. We expect interest income to be $1.7 to 1.9 million per quarter in 2026.
Speaker #2: For the first quarter, we expect other operating expenses to be 12.7 to 13.2 million. For the full year, we expect other operating expenses to be 53.5 to 54 million dollars.
Speaker #2: For the first quarter, we expect G&A expenses to be $5.4 million to $5.8 million. For the full year 2026, we expect G&A expenses to be $27.1 million to $28.1 million.
Speaker #2: We expect interest income to be 1.7 to 1.9 million per quarter in 2026. In addition, we anticipate miscellaneous income to be approximately 300,000 per quarter in 2026 or 1.2 million dollars for the full year as compared to 840,000 in 2025.
Rich Schlenker: In addition, we anticipate miscellaneous income to be approximately $300,000 per quarter in 2026, or $1.2 million for the full year, as compared to $840,000 in 2025. We expect our Q1 2026 tax rate to be approximately 30.4%, as compared to 29.4% in the same quarter a year ago. For the full year 2026, the tax rate is expected to be 28.5%, as compared to 27.9% in 2025. Capital expenditures for the full year 2026 are expected to be $12 to 14 million.
Rich Schlenker: In addition, we anticipate miscellaneous income to be approximately $300,000 per quarter in 2026, or $1.2 million for the full year, as compared to $840,000 in 2025. We expect our Q1 2026 tax rate to be approximately 30.4%, as compared to 29.4% in the same quarter a year ago. For the full year 2026, the tax rate is expected to be 28.5%, as compared to 27.9% in 2025. Capital expenditures for the full year 2026 are expected to be $12 to 14 million.
Speaker #2: We expect our first quarter 2026 tax rate to be approximately 30.4%, as compared to 29.4% in the same quarter a year ago. For the full year 2026, the tax rate is expected to be 28.5%, as compared to 27.9% in 2025.
Speaker #2: Capital expenditures for the full year 2026 are expected to be $12 to $14 million. We remain encouraged by the opportunities across our markets and believe we are well positioned to drive improved growth in 2026, while executing against our long-term financial objectives of high single-digit to low double-digit organic growth and margin expansion.
Rich Schlenker: We remain encouraged by the opportunities across our markets and believe we are well positioned to drive improved growth in 2026, while executing against our long-term financial objectives of high single digit to low double-digit organic growth and margin expansion. I will now turn the call back to Catherine for closing remarks.
Rich Schlenker: We remain encouraged by the opportunities across our markets and believe we are well positioned to drive improved growth in 2026, while executing against our long-term financial objectives of high single digit to low double-digit organic growth and margin expansion. I will now turn the call back to Catherine for closing remarks.
Speaker #2: I will now turn the call back to Catherine for closing remarks. Thank you, Rich. Looking ahead, we remain encouraged by the enduring market drivers that support Exponent's long-term opportunities.
Catherine Corrigan: Thank you, Rich. Looking ahead, we remain encouraged by the enduring market drivers that support Exponent's long-term opportunities. As the pace of innovation continues to accelerate and systems become more complex, expectations for safety, reliability, and performance will only continue to rise. With a differentiated multidisciplinary platform and a proven ability to support clients across both proactive and reactive engagements, Exponent is well positioned to navigate these trends and deliver sustainable growth and long-term value for our shareholders. Operator, we are now ready for questions.
Catherine Corrigan: Thank you, Rich. Looking ahead, we remain encouraged by the enduring market drivers that support Exponent's long-term opportunities. As the pace of innovation continues to accelerate and systems become more complex, expectations for safety, reliability, and performance will only continue to rise. With a differentiated multidisciplinary platform and a proven ability to support clients across both proactive and reactive engagements, Exponent is well positioned to navigate these trends and deliver sustainable growth and long-term value for our shareholders. Operator, we are now ready for questions.
Speaker #2: As the pace of innovation continues to accelerate and systems become more complex, expectations for safety, reliability, and performance will only continue to rise. With a differentiated multidisciplinary platform and a proven ability to support clients across both proactive and reactive engagements, Exponent is well positioned to navigate these trends and deliver sustainable growth and long-term value for our shareholders.
Speaker #2: Operator, we are now ready for
Speaker #2: questions. Thank you.
Operator: 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 you're using a speakerphone, please pick up your handset before pressing the keys. 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. The first question comes from Andrew Nicholas with William Blair. Please go ahead.
Operator: 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 you're using a speakerphone, please pick up your handset before pressing the keys. 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. The first question comes from Andrew Nicholas with William Blair. Please go ahead.
Speaker #3: We will now begin the question-and-answer session. To ask a question, you may press star, then one, on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker #3: 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 #3: The first question comes from Andrew Nicholas with William Blair. Please go ahead.
Speaker #3: ahead. Hi, good afternoon.
Andrew Nicholas: Hi, good afternoon. Appreciate you taking my questions. I guess first, I was hoping you could hone in a little bit more on the consumer electronics piece of your proactive business. That was something that has been a little bit more challenged the past couple of years. I know last quarter, you spoke to some early signs of improvement there. So any additional commentary on how that business performed in the quarter and maybe what the near-term outlook looks like for that business in particular?
Andrew Nicholas: Hi, good afternoon. Appreciate you taking my questions. I guess first, I was hoping you could hone in a little bit more on the consumer electronics piece of your proactive business. That was something that has been a little bit more challenged the past couple of years. I know last quarter, you spoke to some early signs of improvement there. So any additional commentary on how that business performed in the quarter and maybe what the near-term outlook looks like for that business in particular?
Speaker #4: Appreciate you taking my questions. I guess first I was hoping you could hone in a little bit more on the consumer electronics piece of your proactive business.
Speaker #4: That was something that has been a little bit more challenged the past couple of years. I know last quarter you spoke to some early signs of improvement there.
Speaker #4: So any additional commentary on how that business performed in the quarter and maybe what the near-term outlook looks like for that business in
Speaker #4: particular? Yeah, thanks, Andrew.
Catherine Corrigan: Yeah, thanks, Andrew. You know, that particular part of the business is really primarily two-pronged. You know, we've got a kind of a hardware product development consulting piece of that, and then we've got a user research-oriented piece of that, where we do work around, you know, human subjects, human interaction with novel devices. And so one of the things we're really seeing is an uptick, particularly on the user research side. A number of these applications and engagements relate to health-related products, for example. They also relate to products that are very novel, where artificial intelligence is being delivered via novel form factors. So,...
Catherine Corrigan: Yeah, thanks, Andrew. You know, that particular part of the business is really primarily two-pronged. You know, we've got a kind of a hardware product development consulting piece of that, and then we've got a user research-oriented piece of that, where we do work around, you know, human subjects, human interaction with novel devices. And so one of the things we're really seeing is an uptick, particularly on the user research side. A number of these applications and engagements relate to health-related products, for example. They also relate to products that are very novel, where artificial intelligence is being delivered via novel form factors. So,...
Speaker #2: That particular part of the business is really primarily two-pronged. We've got kind of a hardware product development consulting piece of that, and then we've got a user research-oriented piece of that where we, around human subject, human interaction, one of the things we're really seeing is an uptick, particularly on the user research side.
Speaker #2: A number of these applications and engagements relate to health-related products, for example. They also relate to products that are very novel where artificial intelligence is being delivered via novel form factors.
Speaker #2: So you can think of traditional screen-oriented devices, or you can think of things like glasses or headsets or even things that use primarily audio instead of having a screen or using a visual input.
Catherine Corrigan: You know, you can think of, you know, traditional screen-oriented devices, or you can think of things like glasses or headsets or even, even things that use primarily audio instead of having a screen, you know, or using a visual input. So both the health side as well as the kind of consumer product side is a lot of what was driving that. You know, there's diversification in the product base, and there's also diversification across the client base. There's more and more, there are more and more entrants into this arena of trying to deliver artificial intelligence via these novel hardware platforms.
Catherine Corrigan: You know, you can think of, you know, traditional screen-oriented devices, or you can think of things like glasses or headsets or even, even things that use primarily audio instead of having a screen, you know, or using a visual input. So both the health side as well as the kind of consumer product side is a lot of what was driving that. You know, there's diversification in the product base, and there's also diversification across the client base. There's more and more, there are more and more entrants into this arena of trying to deliver artificial intelligence via these novel hardware platforms.
Speaker #2: So both the health side, as well as the kind of consumer product side, is a lot of what was driving that. There's diversification in the product base, and there's also diversification across the client base, as more and more, there are more and more entrants into this arena of trying to deliver artificial intelligence via these novel hardware.
Speaker #2: platforms. Very helpful.
Andrew Nicholas: Very helpful. Thank you. And then maybe a question for Rich, on the guidance, specifically. I think this quarter, second straight quarter of effectively, like, double-digit growth, if you, if you adjust for, the extra week, last year. Looks like your, your outlook for utilization in the first quarter is, you know, as, as high as it's been, I think, in some time. So just curious on overall visibility and the achievability of guidance, how you think about some conservatism in there, to the extent there is any, and, and maybe areas of upside or, or downside to the outlook. Thank you.
Andrew Nicholas: Very helpful. Thank you. And then maybe a question for Rich, on the guidance, specifically. I think this quarter, second straight quarter of effectively, like, double-digit growth, if you, if you adjust for, the extra week, last year. Looks like your, your outlook for utilization in the first quarter is, you know, as, as high as it's been, I think, in some time. So just curious on overall visibility and the achievability of guidance, how you think about some conservatism in there, to the extent there is any, and, and maybe areas of upside or, or downside to the outlook. Thank you.
Speaker #4: Thank you. And then maybe a question for Rich. On the guidance specifically, I think this quarter second straight quarter of effectively double-digit growth, if you adjust for the extra week last year, looks like your outlook for utilization in the first quarter is as high as it's been I think in some time.
Speaker #4: So just curious on overall visibility and the achievability of guidance. How do you think about some conservatism in there, to the extent there is any?
Speaker #4: And maybe areas of upside or downside to the outlook. Thank you.
Speaker #5: Yeah. So, our business—I think what we have good visibility into is these broader market demands and trends that Catherine has talked about in her comment.
Rich Schlenker: Yeah. So, you know, our business, you know, I think what we have, good, you know, visibility into is these broader market demands and trends that Catherine has talked about in her comment. And I think we are actually seeing real work come in that are related to AI and novel technologies, and continuing to see that the complexity of these issues are increasing. As we've said before, I mean, we go out to our business units, all the way down to the individuals, and as we're getting forecasts, I think our people, you know, have good visibility out over, you know, 6, 8 weeks, a little bit lighter after that. But the trends of what we're seeing are positive.
Rich Schlenker: Yeah. So, you know, our business, you know, I think what we have, good, you know, visibility into is these broader market demands and trends that Catherine has talked about in her comment. And I think we are actually seeing real work come in that are related to AI and novel technologies, and continuing to see that the complexity of these issues are increasing. As we've said before, I mean, we go out to our business units, all the way down to the individuals, and as we're getting forecasts, I think our people, you know, have good visibility out over, you know, 6, 8 weeks, a little bit lighter after that. But the trends of what we're seeing are positive.
Speaker #5: And I think we are actually seeing real work come in that is related to AI and novel technologies, and continuing to see that the complexity of these issues is increasing.
Speaker #5: As we've said before, I mean, we go out to our business units all the way down to the individuals, and as we're getting forecasts, I think our people have good visibility out over six, eight weeks—a little bit lighter after that.
Speaker #5: But the trends of what we're seeing are positive. As we enter 2026, the reason on our guidance that we have here of high single-digit growth is really as we entered last year, we had good headcount growth.
Rich Schlenker: You know, as we enter 2026, the reason that, you know, we've landed on our guidance that we have here of high single-digit growth is really as we, you know, entered last year, we had good headcount growth. You know, we had 2% sequential in the Q1 of last year, which is very strong. It came down a little bit in the Q2, and then we closed out the year strong. But we're feeling good about really, you know, where we can be in the headcount. We're feeling that demand is there. That's why we said the utilization will be slightly better than it was a year ago. But all those things combined landed us into that range that we have.
Rich Schlenker: You know, as we enter 2026, the reason that, you know, we've landed on our guidance that we have here of high single-digit growth is really as we, you know, entered last year, we had good headcount growth. You know, we had 2% sequential in the Q1 of last year, which is very strong. It came down a little bit in the Q2, and then we closed out the year strong. But we're feeling good about really, you know, where we can be in the headcount. We're feeling that demand is there. That's why we said the utilization will be slightly better than it was a year ago. But all those things combined landed us into that range that we have.
Speaker #5: We had 2% sequential in the first quarter of last year, which is very strong. It came down a little bit in the second quarter, and then we closed out the year strong.
Speaker #5: But we're feeling good about really where we can be in the headcount, we're feeling that that demand is there. That's why we've said the utilization will be slightly better than it was a year ago.
Speaker #5: all those things combined But range. That we landed us for into that have. Is there opportunity for upside? Yeah, I think the demand environment is strong out there, but at this time, this is the best estimate that we have.
Rich Schlenker: You know, is there opportunity for upside? Yeah, I think the demand environment is strong out there. But at this time, this is the best estimate that we have, and we're delivering that with, you know, a good growth and margin improvement, and we'll take it from there.
Rich Schlenker: You know, is there opportunity for upside? Yeah, I think the demand environment is strong out there. But at this time, this is the best estimate that we have, and we're delivering that with, you know, a good growth and margin improvement, and we'll take it from there.
Speaker #5: with And we're delivering that good growth and margin improvement, and we'll take it from there.
Andrew Nicholas: Makes sense. Thank you very much.
Andrew Nicholas: Makes sense. Thank you very much.
Speaker #4: much.
Operator: The next question comes from Tomo Sano with J.P. Morgan. Please go ahead.
Operator: The next question comes from Tomo Sano with J.P. Morgan. Please go ahead.
Speaker #3: Tomo Sano, the JP Morgan. The next question comes from Makes sense.
Speaker #3: Please go Thank you very ahead.
Tomo Sano: Hi, good afternoon, everyone.
Tomo Sano: Hi, good afternoon, everyone.
Speaker #6: everyone. Hi, good afternoon,
Speaker #5: afternoon to you.
Rich Schlenker: Good afternoon to you.
Rich Schlenker: Good afternoon to you.
Speaker #6: you. For taking my questions. From a management perspective, how would Thank Good you characterize 2026 compared to 2025? And especially what do you see as the most significant changes or drivers for revenue growth and margin improvement internally and externally, please?
Tomo Sano: Thank you for taking my questions. From management perspectives, how would you characterize 2026 compared to 2025? And specifically, what do you see as the most significant changes or drivers for revenue growth and margin improvement, internally and externally, please?
Tomo Sano: Thank you for taking my questions. From management perspectives, how would you characterize 2026 compared to 2025? And specifically, what do you see as the most significant changes or drivers for revenue growth and margin improvement, internally and externally, please?
Speaker #2: Yeah, thanks for that, Tomo. Clearly, we are seeing on a year-over-year basis some acceleration of growth and of the demand environment that we have across a broad swath of the business.
Catherine Corrigan: Yeah, thanks. Thanks for that, Tomo. Clearly, we are seeing, you know, on a year-over-year basis, some acceleration of growth and of the demand environment that we have across a broad swath of the business. I think that the consumer electronics arena is an important one to call out in this regard. You know, we've saw strength in Q4. We do have, you know, a good, pretty good outlook into Q1, that is helping to drive that. You know, it gets a little less clear after that.
Catherine Corrigan: Yeah, thanks. Thanks for that, Tomo. Clearly, we are seeing, you know, on a year-over-year basis, some acceleration of growth and of the demand environment that we have across a broad swath of the business. I think that the consumer electronics arena is an important one to call out in this regard. You know, we've saw strength in Q4. We do have, you know, a good, pretty good outlook into Q1, that is helping to drive that. You know, it gets a little less clear after that.
Speaker #2: consumer electronics arena is an I think that the important one to call regard. We've saw strength in out in this the fourth quarter. We do have good, pretty good outlook into Q1 that is helping to drive that.
Speaker #2: after that, but again, with It gets a little less clear the diversification across the products, across clients, and form factors and things, we do expect in that electronics arena, both for user research as well as the hardware side, to be part of those drivers, especially as AI is being delivered and making decisions in safety-critical applications like health-related wearables, regulated medical devices, and things like that.
Catherine Corrigan: But again, with the diversification across the products, across clients, form factors, and things, we do expect in that electronics arena, both for user research as well as the hardware side, to be part of those drivers, especially as AI is being delivered and making decisions in safety-critical applications like health-related wearables, regulated medical devices, and things like that. We also see the energy side as a really important driver for 2026, and this was, you know, happening in 2025 to some extent, but we believe can continue to strengthen. This is around utility-related work. We mentioned the risk management work that we're doing. That continues to grow and diversify across clients. The regulatory environment continues to grow.
Catherine Corrigan: But again, with the diversification across the products, across clients, form factors, and things, we do expect in that electronics arena, both for user research as well as the hardware side, to be part of those drivers, especially as AI is being delivered and making decisions in safety-critical applications like health-related wearables, regulated medical devices, and things like that. We also see the energy side as a really important driver for 2026, and this was, you know, happening in 2025 to some extent, but we believe can continue to strengthen. This is around utility-related work. We mentioned the risk management work that we're doing. That continues to grow and diversify across clients. The regulatory environment continues to grow.
Speaker #2: Also, see the energy side as a really important driver for 2026. And this was happening in 2025 to some extent, but we believe it can continue to strengthen—this is around utility-related work.
Speaker #2: We mentioned the risk management work that we're doing that continues to grow and diversify across clients. The regulatory environment continues to grow the bar continues to go up in terms of that with relationship to grid resilience to extreme weather, and things of that nature.
Catherine Corrigan: You know, the bar continues to go up in terms of that, with relationship to grid resilience, to extreme weather, and things of that nature. We're seeing it on the reactive side in energy, too, as the demand for power is driving the need for new technologies to be utilized in a lot of these capital projects, whether that's wind, whether that's solar, whether that's fuel cells. You've got data center operators building their own gas-powered plants. You have multi-year-long waiting lists for gas turbines. And so the risk issues and the disputes that arise in the building out of those energy systems are a piece of this as well.
Catherine Corrigan: You know, the bar continues to go up in terms of that, with relationship to grid resilience, to extreme weather, and things of that nature. We're seeing it on the reactive side in energy, too, as the demand for power is driving the need for new technologies to be utilized in a lot of these capital projects, whether that's wind, whether that's solar, whether that's fuel cells. You've got data center operators building their own gas-powered plants. You have multi-year-long waiting lists for gas turbines. And so the risk issues and the disputes that arise in the building out of those energy systems are a piece of this as well.
Speaker #2: We're seeing it on the reactive side in energy too as the demand for power is driving the need for new technologies to be utilized in a lot of these capital projects, whether that's wind, whether that's solar, whether that's fuel cells, you've got data center operators building their own gas-powered plants.
Speaker #2: have multi-year-long waiting lists for gas You turbines. And so the risk issues and the disputes that arise in the building out of those energy systems are a piece of this as well.
Catherine Corrigan: You know, the data center piece, we're doing more and more, you know, failure analysis type work, whether it's around the cooling systems, whether it's around the backup battery supply systems. You know, the performance critical nature of those data centers really means that they need some, you know, powerful multidisciplinary expertise to diagnose some of those issues. You can go over to the chemical side of the business, things like PFAS, and its effects on human health and the environment are another area where we expect to continue to increase, you know, the increasing demand as, as the year goes on. So that's, that's a few examples. I think electrification, automation, and transportation maybe kind of round out, that collection of things that we see in 2026.
Catherine Corrigan: You know, the data center piece, we're doing more and more, you know, failure analysis type work, whether it's around the cooling systems, whether it's around the backup battery supply systems. You know, the performance critical nature of those data centers really means that they need some, you know, powerful multidisciplinary expertise to diagnose some of those issues. You can go over to the chemical side of the business, things like PFAS, and its effects on human health and the environment are another area where we expect to continue to increase, you know, the increasing demand as, as the year goes on. So that's, that's a few examples. I think electrification, automation, and transportation maybe kind of round out, that collection of things that we see in 2026.
Speaker #2: center piece, we're doing more and more failure And the data analysis-type work, whether it's around the cooling systems, whether it's around the backup battery performance-critical nature of those data supply systems, the centers really means that they need some powerful multidisciplinary expertise to diagnose some of those issues.
Speaker #2: chemical side of the business, things like You can go over to the PFOS, in the and its effects on human health and the environment are another area where we expect to continue to increase the increasing demand as the year goes on.
Speaker #2: So that's a few examples. I think electrification and automation and transportation maybe kind of round out that collection of things that we see in—
Speaker #2: 2026. Thank you,
Tomo Sano: Thank you, Kathleen. And follow up on AI, you already touched, in a prepared remarks, but I wanted to get your thoughts, especially potential risks of commoditization in certain litigation support or investigation services due to automations. But also you talk, I think, is the significant opportunity to leverage AI for new value-added offerings and margin improvement. Could you talk about that more, specifically about the litigation support or investigation services, the space, please?
Tomo Sano: Thank you, Kathleen. And follow up on AI, you already touched, in a prepared remarks, but I wanted to get your thoughts, especially potential risks of commoditization in certain litigation support or investigation services due to automations. But also you talk, I think, is the significant opportunity to leverage AI for new value-added offerings and margin improvement. Could you talk about that more, specifically about the litigation support or investigation services, the space, please?
Speaker #6: Catherine. And follow up on AI, you already touched in a prepared remarks, but I wanted to get your thoughts especially potential risks of commoditization in certain litigations support or investigation services due to automations but also you talk I think it's the significant opportunity to leverage AI for new value-added offerings and margin improvement.
Speaker #6: more specifically about the Could you talk about that litigation support or investigation services space,
Speaker #6: more specifically about the Could you talk about that litigation support or investigation services space, please? Yeah,
Catherine Corrigan: Yeah, absolutely. So, you know, there are a number of tools, clearly, with large language models that we have been incorporating into our operations, that are allowing our teams to engage with larger and larger data sets in an even more efficient sort of manner. You know, being able to have an AI application pull the data out of a police report, let's say, if you're reconstructing a vehicle accident, you know, these are the types of things that can be further automated, and we're seeing more efficiency in that regard and really welcome that. You know, but what we're also seeing is, as you alluded to in your question, the higher value coming out at the other end.
Catherine Corrigan: Yeah, absolutely. So, you know, there are a number of tools, clearly, with large language models that we have been incorporating into our operations, that are allowing our teams to engage with larger and larger data sets in an even more efficient sort of manner. You know, being able to have an AI application pull the data out of a police report, let's say, if you're reconstructing a vehicle accident, you know, these are the types of things that can be further automated, and we're seeing more efficiency in that regard and really welcome that. You know, but what we're also seeing is, as you alluded to in your question, the higher value coming out at the other end.
Speaker #2: absolutely. So there are a number of tools clearly with large language models that we have been incorporating into our operations that are allowing our teams to engage with larger and larger data sets in an manner.
Speaker #2: even more efficient sort of Being able to have an AI application pull the data out of a police report, let's say, if you're reconstructing a vehicle accident, these are the types of things that can be further automated.
Speaker #2: seeing more efficiency in that regard. And really And we're welcome that. But what we're also question, the higher seeing is, as you alluded to in your value coming out at the other end, the ability to put a large language model application against an increasingly large data set of complex material which is what we've seen happen over time.
Catherine Corrigan: You know, the ability to put a large language model application against an increasingly large data set of complex material, which is what we've seen happen over time. You know, when I first started doing litigation work a couple of decades ago, you could fit everything in a black three-ring binder that was a couple of inches thick. And now, 20 or 25 years later, you've got, you know, gigabytes and terabytes of data. If you think about that vehicle that's in that accident, the data coming off of all of those sensors create a very complex and large data environment that needs to be analyzed, right?
Catherine Corrigan: You know, the ability to put a large language model application against an increasingly large data set of complex material, which is what we've seen happen over time. You know, when I first started doing litigation work a couple of decades ago, you could fit everything in a black three-ring binder that was a couple of inches thick. And now, 20 or 25 years later, you've got, you know, gigabytes and terabytes of data. If you think about that vehicle that's in that accident, the data coming off of all of those sensors create a very complex and large data environment that needs to be analyzed, right?
Speaker #2: When I first started doing litigation work a couple of decades ago, you could fit everything in a black three-ring binder. That was a couple of inches thick.
Speaker #2: And now, 20 or 25 years later, you've got gigabytes and terabytes of data. If you think about that vehicle that's in that accident, the data coming off of all of those sensors creates a very complex and large data environment that needs to be analyzed, right?
Speaker #2: So while we're gaining efficiencies at that sort of lower level, we're also unlocking the ability to differentiate ourselves even further because of the complexity and our ability with our PhD-level talent to be able to break that down and understand in a hypothetical situation if the design were changed, would the product have performed better?
Catherine Corrigan: So while we're gaining efficiencies at that sort of lower level, we're also unlocking the ability to differentiate ourselves even further because of the complexity and our ability with our PhD level talent, to be able to break that down and understand, you know, in a hypothetical situation, if the design were changed, would the product have performed better? So, you know, so far, our reactive business continues to grow. The litigation support piece of the business continues to grow. Automotive is the place where, you know, we're seeing the most directly AI relevant work in our reactive business, and the complexity there with the testing and those sorts of systems is continuing to grow. So, you know, and with our population of PhD entry-level talent, this is different than all of our competitors.
Catherine Corrigan: So while we're gaining efficiencies at that sort of lower level, we're also unlocking the ability to differentiate ourselves even further because of the complexity and our ability with our PhD level talent, to be able to break that down and understand, you know, in a hypothetical situation, if the design were changed, would the product have performed better? So, you know, so far, our reactive business continues to grow. The litigation support piece of the business continues to grow. Automotive is the place where, you know, we're seeing the most directly AI relevant work in our reactive business, and the complexity there with the testing and those sorts of systems is continuing to grow. So, you know, and with our population of PhD entry-level talent, this is different than all of our competitors.
Speaker #2: So far, our reactive business continues to grow. The litigation support piece of the business continues to grow. Automotive is the place where we're seeing the most directly AI-relevant work in our reactive business.
Speaker #2: And the complexity there with the testing and those sorts of systems is continuing to grow. So and with our population of PhD entry-level talent, this is different than all of our competitors.
Catherine Corrigan: You know, many of our competitors have lower-level talent. They've invested perhaps in those lower-level commodity tasks as an important part of their, of their value proposition. That hasn't been the direction that Exponent has taken. You know, that's why we hire PhDs as our entry-level folks, people who know how to solve that unstructured problem, that edge case. So I really do believe that the use of these sorts of tools will make us more efficient, and it'll unlock even greater value.
Catherine Corrigan: You know, many of our competitors have lower-level talent. They've invested perhaps in those lower-level commodity tasks as an important part of their, of their value proposition. That hasn't been the direction that Exponent has taken. You know, that's why we hire PhDs as our entry-level folks, people who know how to solve that unstructured problem, that edge case. So I really do believe that the use of these sorts of tools will make us more efficient, and it'll unlock even greater value.
Speaker #2: have lower-level talent. Many of our competitors They've invested perhaps in those lower-level commodity tasks. As an important part of their value proposition, that hasn't been the direction that Exponent has taken.
Speaker #2: PhDs as our entry-level That's why we hire folks, people who know how to solve that unstructured problem, that edge case. So I really do believe that the use of these sorts of tools will make us more efficient, and it'll unlock even greater
Speaker #2: value. Thank
Speaker #6: you very much for appreciate
Tomo Sano: Thank you. Very helpful. I appreciate it.
Tomo Sano: Thank you. Very helpful. I appreciate it.
Speaker #2: You're
Catherine Corrigan: You're welcome.
Catherine Corrigan: You're welcome.
Speaker #2: welcome.
Speaker #1: The next question comes from Toby Salmer with Truist. Please go ahead.
Operator: The next question comes from Toby Sommer with Truist. Please go ahead.
Operator: The next question comes from Toby Sommer with Truist. Please go ahead.
Speaker #7: Thank you very much. What are your expectations for net headcount growth in '26? And could you maybe highlight the areas where you expect to add the most and any areas that you may expect to have fewer heads throughout the year?
Toby Sommer: Thank you very much. What are your expectations for net headcount growth in 2026? And could you maybe highlight the areas where you expect to add the most and any areas that you may, you know, expect to have fewer heads throughout the year?
Toby Sommer: Thank you very much. What are your expectations for net headcount growth in 2026? And could you maybe highlight the areas where you expect to add the most and any areas that you may, you know, expect to have fewer heads throughout the year?
Speaker #8: Yeah. So our expectation is that in line with that guidance, we would expect that the headcount growth would be somewhere in the net 40 to doing you're going 50 growth.
Rich Schlenker: Yeah. So, our expectation is that, in line with that guidance, we would expect that the headcount growth would be somewhere in the net 40, you know, to 50 growth. What we're doing, you know, you're going to acquire those over the year, that, you know, we'd be in that range. It could get up as high as 60, but it's somewhere in that range. Look, the areas of focus and the areas that are seeing the most net growth are really in these growth areas that Catherine highlighted earlier. Every one of our practices is actually recruiting and bringing people in.
Rich Schlenker: Yeah. So, our expectation is that, in line with that guidance, we would expect that the headcount growth would be somewhere in the net 40, you know, to 50 growth. What we're doing, you know, you're going to acquire those over the year, that, you know, we'd be in that range. It could get up as high as 60, but it's somewhere in that range. Look, the areas of focus and the areas that are seeing the most net growth are really in these growth areas that Catherine highlighted earlier. Every one of our practices is actually recruiting and bringing people in.
Speaker #8: And what we're to acquire those over the year that we'd be in that range. It could get up as high as 60, but it's somewhere in that range.
Speaker #8: Look, the areas of focus and the areas that are getting seen the most net growth are really in these growth areas that Catherine highlighted earlier.
Speaker #8: Every one of our practices is actually recruiting and bringing people in. Just as part of our natural part of a consulting firm, we do have turnover.
Rich Schlenker: Just as part of our natural part of a consulting firm, we do have turnover that occurs, and as such, you're always looking to bring in new talent. Those PhDs that have just done their you know once you know never solved before issue that they did their PhD thesis in, and integrating them into every single one of our practices every year. But the areas that we'll see the growth are in that higher growth will be in that transportation area, the energy area, battery storage, automation, cybersecurity, and actually into that chemicals area that Catherine mentioned around PFAS.
Rich Schlenker: Just as part of our natural part of a consulting firm, we do have turnover that occurs, and as such, you're always looking to bring in new talent. Those PhDs that have just done their you know once you know never solved before issue that they did their PhD thesis in, and integrating them into every single one of our practices every year. But the areas that we'll see the growth are in that higher growth will be in that transportation area, the energy area, battery storage, automation, cybersecurity, and actually into that chemicals area that Catherine mentioned around PFAS.
Speaker #8: That occurs. And as such, you're always looking to bring in new talent, those PhDs that have just done their once never solved before issue that they did their PhD thesis in and integrating them into every single one of our practices every year.
Speaker #8: But the areas that we'll see the growth are in that higher growth will be in the transportation, the energy area, battery storage, automation, cybersecurity, and actually into that chemicals area that Catherine mentioned around PFAS.
Speaker #7: And associated with that headcount, that pace of headcount growth, is it so much so as to have company margin—negative margin—implications? Or, since you revived growth in the not-too-distant past, is that behind us and not necessarily reflective of any requisite margin compression?
Toby Sommer: And associated with that, headcount, that pace of headcount growth, is it so much so as to have accompanying, you know, margin, negative margin implications? Or since you revived growth in the not too distant past, is that behind us in not necessarily reflective of any-
Toby Sommer: And associated with that, headcount, that pace of headcount growth, is it so much so as to have accompanying, you know, margin, negative margin implications? Or since you revived growth in the not too distant past, is that behind us in not necessarily reflective of any-
Rich Schlenker: Yeah
Rich Schlenker: Yeah
Toby Sommer: ... requisite margin compression?
Toby Sommer: ... requisite margin compression?
Speaker #8: Yeah. expectation is that we Our are going to have margins be flat or up. And that is because we expect to be able to do this level of hiring into the organization based on demand while seeing our utilization be maintained or improved in
Rich Schlenker: Yeah, our expectation is that we are going to have margins be flat or up, and that is because we expect to be able to do this level of hiring into the organization based on demand, while seeing our utilization be maintained or improved in 2026.
Rich Schlenker: Yeah, our expectation is that we are going to have margins be flat or up, and that is because we expect to be able to do this level of hiring into the organization based on demand, while seeing our utilization be maintained or improved in 2026.
Speaker #8: 2026. Appreciate
Toby Sommer: Appreciate that. And if I could, I appreciated your prepared remarks, Catherine, on AI with the discussion there, so clearly it's, you know, so topical. I wanna just ask another simple question. Near term and recent actual results, do you think AI is a net benefit or drag to the total company's growth?
Toby Sommer: Appreciate that. And if I could, I appreciated your prepared remarks, Catherine, on AI with the discussion there, so clearly it's, you know, so topical. I wanna just ask another simple question. Near term and recent actual results, do you think AI is a net benefit or drag to the total company's growth?
Speaker #7: appreciated your prepared that. If I could, I remarks, Catherine, on AI with a discussion there. So clearly, it's also topical. I wanted to just ask another simple question.
Speaker #7: Near-term and recent actual results do you think AI is a net benefit or drag to the total company's growth?
Speaker #2: Yeah, I think it is a net benefit. If you think about the failure analysis work around advanced driver assistance technologies and automated vehicles, that's directly driven by artificial intelligence making safety-critical decisions.
Catherine Corrigan: Yeah. I think it is a net benefit. If you think about, you know, the failure analysis work around advanced driver assistance technologies and automated vehicles, you know, that's, that's directly driven by artificial intelligence making safety-critical decisions. The work that I highlighted early in the Q&A around the user research in the electronics industry, this is all about the data collection, benchmarking, and validation for devices that are utilizing AI algorithms to make some kind of decision or, or have some kind of signal, whether it's to tell you your heart isn't beating properly or, you know, lots of other, you know, what your blood pressure is or, or so forth. And the same on the hardware side and the data center side, right?
Catherine Corrigan: Yeah. I think it is a net benefit. If you think about, you know, the failure analysis work around advanced driver assistance technologies and automated vehicles, you know, that's, that's directly driven by artificial intelligence making safety-critical decisions. The work that I highlighted early in the Q&A around the user research in the electronics industry, this is all about the data collection, benchmarking, and validation for devices that are utilizing AI algorithms to make some kind of decision or, or have some kind of signal, whether it's to tell you your heart isn't beating properly or, you know, lots of other, you know, what your blood pressure is or, or so forth. And the same on the hardware side and the data center side, right?
Speaker #2: The work that I highlighted early in the Q&A around the user research in about the data collection and benchmarking and validation for devices that are utilizing AI algorithms to make some kind of decision or have some kind of signal, whether it's to tell you your heart isn't beating properly or lots of other what your blood pressure is or so forth.
Speaker #2: And the same on the hardware side. And the data center side, right? AI is directly driving those increases in energy demand, which we believe is part of what's driving our energy sector in its growth, and especially on the dispute side, but also on the proactive side with the risk management work and utilities.
Catherine Corrigan: AI is directly driving those increases in energy demand, which we believe is part of what's driving our energy sector in its growth, and especially on the dispute side, but also on the proactive side with the risk management work in utilities. So it's not directly in the project, perhaps, but it's a fundamental driver, you know, that need for energy in the setting of a crumbling infrastructure.
Catherine Corrigan: AI is directly driving those increases in energy demand, which we believe is part of what's driving our energy sector in its growth, and especially on the dispute side, but also on the proactive side with the risk management work in utilities. So it's not directly in the project, perhaps, but it's a fundamental driver, you know, that need for energy in the setting of a crumbling infrastructure.
Speaker #2: So it's not directly in the project, perhaps, but it's a fundamental driver—that need for energy in the setting of a crumbling infrastructure.
Speaker #8: I mean, just on that area, again, we're seeing it drive through—if it is thermal management at the board level, or it's the heavy change in demands, the amount of infrastructure on these racks—these are all things that fit into Exponent's expertise that we are getting business related to.
Rich Schlenker: I mean, just, on that area again, you know, we're seeing it drive through, if it is thermal management, at the, at the, you know, board level or it's, you know, the change in demands that the amount of infrastructure on these racks have, they're all things that, you know, fit into Exponent's expertise, that will drive... That, you know, we are getting business related to. So, you know, we're not seeing a change in demand for, you know, the amount of time or something that we're putting into, again, processing data or doing it.
Rich Schlenker: I mean, just, on that area again, you know, we're seeing it drive through, if it is thermal management, at the, at the, you know, board level or it's, you know, the change in demands that the amount of infrastructure on these racks have, they're all things that, you know, fit into Exponent's expertise, that will drive... That, you know, we are getting business related to. So, you know, we're not seeing a change in demand for, you know, the amount of time or something that we're putting into, again, processing data or doing it.
Speaker #8: So we're not seeing a change in demand for the amount of time or something that we're putting into again, processing data or doing it.
Speaker #8: The data sets are growing so much that the clients just want to do more and learn more from it. And it's harder to understand why something made a decision that they are chasing.
Rich Schlenker: The data sets are growing so much that the clients just want to do more and learn more from it, and it's harder to understand why this, you know, something made a decision that they are chasing. So, that's what we've been seeing over 2025, and continued into Q4.
Rich Schlenker: The data sets are growing so much that the clients just want to do more and learn more from it, and it's harder to understand why this, you know, something made a decision that they are chasing. So, that's what we've been seeing over 2025, and continued into Q4.
Speaker #8: So that's what we've been seeing over 2025 and continued into the fourth quarter.
Speaker #7: Thanks. And I have one follow-up based on that. At what point in recent history do you think AI started becoming a net contributor to growth?
Toby Sommer: Thanks. And I have one follow-up based on that.
Toby Sommer: Thanks. And I have one follow-up based on that.
Rich Schlenker: Mm-hmm.
Rich Schlenker: Mm-hmm.
Toby Sommer: At what point in recent history do you think AI started becoming a net contributor to growth? And I might be asking an impossible second part of this, but of the low double-digit year-over-year growth in the quarter, ex the extra week, is there a way to get a sense for how impactful AI factors are in that year-over-year growth?
Toby Sommer: At what point in recent history do you think AI started becoming a net contributor to growth? And I might be asking an impossible second part of this, but of the low double-digit year-over-year growth in the quarter, ex the extra week, is there a way to get a sense for how impactful AI factors are in that year-over-year growth?
Speaker #7: impossible second part of And I might be asking an this, but of the low double-digit year-over-year growth in the quarter, x the extra week, is there a way to get a sense for how impactful AI factors are in that year-over-year growth?
Speaker #8: Well, yeah, I think it's important to recognize that Exponent has been talking and working on systems that were leveraging the early parts of AI and machine learning in what we've been doing over the last decade or so. When we were working with the automotive industry in its early days of steering control or braking, or whatever may be coming into it, to where we are today, where we're all seeing actual robotaxis on the road and doing it.
Rich Schlenker: Well, yeah, I think it's important to recognize that it's been talking and working on systems that were leveraging the early parts of AI and machine learning in what we've been doing over the last decade or so. When we were working with the automotive industry in its early days of, you know, steering control or braking or whatever may be coming into it to where we are today, where, you know, we're all seeing the actual robotaxis on the road and doing it. So it's definitely growing. You know, it is driving growth in our transportation area, and we expect that to continue going forward. The same goes around user research.
Rich Schlenker: Well, yeah, I think it's important to recognize that it's been talking and working on systems that were leveraging the early parts of AI and machine learning in what we've been doing over the last decade or so. When we were working with the automotive industry in its early days of, you know, steering control or braking or whatever may be coming into it to where we are today, where, you know, we're all seeing the actual robotaxis on the road and doing it. So it's definitely growing. You know, it is driving growth in our transportation area, and we expect that to continue going forward. The same goes around user research.
Speaker #8: So it's definitely growing. It is driving growth in our transportation area and we expect that to continue going forward. The same goes around user research.
Rich Schlenker: You know, back in the day, we had clients that were really trying to understand how to make sure that they were developing inclusive products around, you know, facial recognition and technology like that, and then driving that into other technologies. That is where we got into doing user research and such, and then much more into its performance in other health or other applications. But again, been at that for nearly 10 years that we've been doing it, but it's been growing. You know, same goes around...
Rich Schlenker: You know, back in the day, we had clients that were really trying to understand how to make sure that they were developing inclusive products around, you know, facial recognition and technology like that, and then driving that into other technologies. That is where we got into doing user research and such, and then much more into its performance in other health or other applications. But again, been at that for nearly 10 years that we've been doing it, but it's been growing. You know, same goes around...
Speaker #8: Back in the day, we had clients that were really trying to understand how to make sure that they were developing inclusive products around facial recognition and technology like that.
Speaker #8: And then driving that in to other technologies research and such. And then much more into its performance in other health or other applications. But again, then at that for nearly 10 years that we've been doing it, but it's been growing.
Speaker #8: Same goes around what I would say in the utilities industry is we've been developing in the risk model area which actually playing into why is that somewhat AI-related now of our risk is actually that our clients have choices.
Rich Schlenker: What I would say in the utilities industry is we've been developing in the risk model area, which, actually playing into why is that somewhat AI related now of our risk, is actually that our clients have choices, and some of them have chosen a, let's say, at times, a less expensive AI-type model that isn't giving them, a refined or accurate enough answer for them to rely upon or justify the actions they took or did, or did not take, in situations that are now, asking our help in refining those and bringing physics and bringing that, higher level of engineering, so that we can move AI models, to a level of reliability, that can be in a safety-critical environment. So all of those things are going on today.
Rich Schlenker: What I would say in the utilities industry is we've been developing in the risk model area, which, actually playing into why is that somewhat AI related now of our risk, is actually that our clients have choices, and some of them have chosen a, let's say, at times, a less expensive AI-type model that isn't giving them, a refined or accurate enough answer for them to rely upon or justify the actions they took or did, or did not take, in situations that are now, asking our help in refining those and bringing physics and bringing that, higher level of engineering, so that we can move AI models, to a level of reliability, that can be in a safety-critical environment. So all of those things are going on today.
Speaker #8: And some of them have chosen a, let's say, at times, a less expensive AI-type model that isn't giving them a refined or accurate enough answer for them to rely upon or justify the actions they took or did or did not take in situations that are now asking our help in refining those and bringing physics and bringing that higher level of engineering so that we can move AI models to a level of reliability that can be in safety-critical environments.
Speaker #8: So all of those things are going on. Today, I think we've got a long ways a lot of upward ramp to go. Probably today, somewhere in the mid-teens as a percentage of our business is related to AI, probably either directly or one step removed, not saying all energy stuff or any of that, but really things that we can target in that close immediate or near vicinity that relates to that.
Rich Schlenker: You know, I think we've got a long ways, a lot of, upward ramp to go. Probably today, you know, somewhere in the mid-teens%, as a percentage of our business is related to AI, probably either directly or one step removed, not, you know, saying all energy stuff or any of that, but really things that we can target in that close, immediate, or near vicinity that relates to that.
Rich Schlenker: You know, I think we've got a long ways, a lot of, upward ramp to go. Probably today, you know, somewhere in the mid-teens%, as a percentage of our business is related to AI, probably either directly or one step removed, not, you know, saying all energy stuff or any of that, but really things that we can target in that close, immediate, or near vicinity that relates to that.
Speaker #7: Thank you very much.
Tomo Sano: Thank you very much.
Tomo Sano: Thank you very much.
Speaker #9: Again, if you have a question, please press star then one. The next question comes from Josh Chan. Was UBS. Please
Operator: Again, if you have a question, please press star then one. The next question comes from Josh Chan with UBS. Please go ahead.
Operator: Again, if you have a question, please press star then one. The next question comes from Josh Chan with UBS. Please go ahead.
Speaker #10: Hi, good afternoon. Thanks for taking my questions. I guess, following up on Richard's comment just now, have you seen any evidence of clients potentially trying to use AI themselves to solve problems?
Josh Chan: Hi, good afternoon. Thanks for taking my questions. I guess following up on Rich's comment just now, I guess, have you seen any evidence of clients potentially trying to use AI themselves to solve problems? I know in some situations it's completely impossible, but, but have you seen any evidence of that kind of occurring at your customer base?
Josh Chan: Hi, good afternoon. Thanks for taking my questions. I guess following up on Rich's comment just now, I guess, have you seen any evidence of clients potentially trying to use AI themselves to solve problems? I know in some situations it's completely impossible, but, but have you seen any evidence of that kind of occurring at your customer base?
Speaker #10: I know in impossible. But have you seen any evidence of that kind of occurring at your customer base?
Catherine Corrigan: Certainly our... Look, I mean, our customers are absolutely looking to incorporate AI into their operations. You know, there are situations, I mean, Rich just mentioned one, where they've, you know, on the utility side, incorporated those into risk models and have found that AI alone simply is not good enough. And so, you know, but we see that, you know, in the medical device environment with sort of software as a medical device, we get pulled in on the regulatory side of that, right? Where they're trying to develop their plan of attack for getting through the FDA in terms of approval on that. So yeah.
Speaker #4: Certainly, look, I mean, our customers are absolutely looking to incorporate AI into their operations. There are situations. I mean, Rich just mentioned one where they've on the utility side incorporated those into risk models and have found that AI alone simply is not good enough.
Catherine Corrigan: Certainly our... Look, I mean, our customers are absolutely looking to incorporate AI into their operations. You know, there are situations, I mean, Rich just mentioned one, where they've, you know, on the utility side, incorporated those into risk models and have found that AI alone simply is not good enough. And so, you know, but we see that, you know, in the medical device environment with sort of software as a medical device, we get pulled in on the regulatory side of that, right? Where they're trying to develop their plan of attack for getting through the FDA in terms of approval on that. So yeah.
Speaker #4: And so, but we see that in the medical device environment, with sort of software as a medical device, we get pulled in on the regulatory side of that, right, where they're trying to develop their plan of attack for getting through the FDA in terms of approval on that.
Speaker #4: So yeah, yes. I mean, our electronics clients are putting artificial intelligence into all kinds of different form factor devices. And they're asking us for our help in benchmarking and user research.
Catherine Corrigan: Yes, I mean, our electronics clients are putting artificial intelligence into all kinds of different form factor devices, and they're asking us for our help in benchmarking and user research. So it's really everywhere we turn. You know, there are different levels of confidence that clients have in it. You know, some are more sort of skeptical, others, you know, want to dive right in, but they're coming to us for advice, and sort of reality checking, if you will, in a lot of these applications.
Catherine Corrigan: Yes, I mean, our electronics clients are putting artificial intelligence into all kinds of different form factor devices, and they're asking us for our help in benchmarking and user research. So it's really everywhere we turn. You know, there are different levels of confidence that clients have in it. You know, some are more sort of skeptical, others, you know, want to dive right in, but they're coming to us for advice, and sort of reality checking, if you will, in a lot of these applications.
Speaker #4: So it's really everywhere we turn. There are different levels of confidence that clients have in it. Some are more sort of skeptical. Others want to dive right in.
Speaker #4: But they're coming to us for advice and sort of reality-checking if you will in a lot of these
Speaker #4: applications. Okay.
Josh Chan: Okay. Yeah, thanks for that color, Catherine. And then maybe just a quick follow-up on next year, 2026. Is there anything different about how free cash flow will work in 2026 than it worked in 2025? Anything to kind of flag there, or is that a pretty normal conversion?
Josh Chan: Okay. Yeah, thanks for that color, Catherine. And then maybe just a quick follow-up on next year, 2026. Is there anything different about how free cash flow will work in 2026 than it worked in 2025? Anything to kind of flag there, or is that a pretty normal conversion?
Speaker #10: Yeah, thanks for that color, Catherine. And then maybe just a quick follow-up on next year. On 2026, is there anything different about how free cash flow will work in '26 than it worked in '25?
Speaker #10: Anything to kind of flag there, or is that a pretty normal
Speaker #10: conversion? Our
Rich Schlenker: Our expectation is that we may be able to improve upon that conversion. The area we had a, you know, sort of a heavy amount of reimbursables there at the end of the year, tied in with the studies, which made DSOs a little bit higher than the average or where we would want to end the year. So I would expect that that would naturally and through some efforts we're making come into more balance, so there might be able to bring down DSOs by a few days, and that will help us move to a steady state and improve cash flows going forward.
Rich Schlenker: Our expectation is that we may be able to improve upon that conversion. The area we had a, you know, sort of a heavy amount of reimbursables there at the end of the year, tied in with the studies, which made DSOs a little bit higher than the average or where we would want to end the year. So I would expect that that would naturally and through some efforts we're making come into more balance, so there might be able to bring down DSOs by a few days, and that will help us move to a steady state and improve cash flows going forward.
Speaker #8: expectation is that we may be able to improve upon that conversion the area we had sort of a heavy amount of reimbursables there at the end of the year, tied in with the studies which made DSOs a little bit higher than the average or where we would want to end the year.
Speaker #8: So, I would expect that that would naturally, and through some efforts we're making, come into more balance. So, that might be able to bring down DSOs by a few days.
Speaker #8: And that will help us move to a steady state and improve area to improve cash flows going
Speaker #8: forward. Great.
Josh Chan: Great. Thank you for the color, and I appreciate the time.
Josh Chan: Great. Thank you for the color, and I appreciate the time.
Speaker #10: Thank you for the color and appreciate the time.
Speaker #4: Thanks. Thank
Catherine Corrigan: Thanks.
Catherine Corrigan: Thanks.
Rich Schlenker: Thank you.
Rich Schlenker: Thank you.
Speaker #8: you. The conference is now
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
