EXPONENT INC

Previous wording

This Quarterly Report on Form 10-Q contains certain “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995, and the rules promulgated pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended) that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. When used in this document, the words “intend,” “anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to us or our management, identify such forward-looking statements. Such statements reflect the current views of us or our management with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, the absence of backlog related to our business, our ability to attract and retain key employees, the effect of tort reform and government regulation on our business and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our 2023 Annual Report under the heading “Risk Factors”. The inclusion of such forward-looking information should not be regarded as a representation by the us or any other person that the future events, plans, or expectations we contemplated will be achieved. Due to such uncertainties and risks, you are warned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not intend to release publicly any updates or revisions to any such forward-looking statements.

Current wording

This Quarterly Report on Form 10-Q contains certain “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995, and the rules promulgated pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended) that are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. When used in this document, the words “intend,” “anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to us or our management, identify such forward-looking statements. Such statements reflect the current views of us or our management with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, the absence of backlog related to our business, our ability to attract and retain key employees, the effect of tort reform and government regulation on our business and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our 2024 Annual Report under the heading “Risk Factors” and elsewhere in this report. The inclusion of such forward-looking information should not be regarded as a representation by the us or any other person that the future events, plans, or expectations we contemplated will be achieved. Due to such uncertainties and risks, you are warned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not intend to release publicly any updates or revisions to any such forward-looking statements.

Previous wording

There have been no significant changes in our critical accounting estimates during the nine months ended September 27, 2024, as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Annual Report.

Current wording

There have been no significant changes in our critical accounting estimates during the three months ended April 4, 2025, as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2024 Annual Report.

Previous wording

We remain focused on selectively adding top talent and developing the skills necessary to expand our market position and providing clients with in-depth scientific research and analysis to determine what happened and how to prevent failures or exposures in the future. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value.

Current wording

We remain focused on building our world-class engineering and scientific team to position us at the forefront of innovation and meet the ever-changing needs of our clients and the market. We also remain focused on capitalizing on emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance stockholder value.

Previous wording

During the third quarter of 2024, billable hours decreased 5% to 362,000 as compared to 380,000 during the same period last year. Our utilization increased to 73% during the third quarter of 2024 as compared to 70% during the same period last year. Technical full-time equivalent employees decreased 10% to 949 during the third quarter of 2024 as compared to 1,050 during the same period last year.

Current wording

During the first quarter of 2025, billable hours decreased 4% to 376,000 as compared to 392,000 during the same period last year. Our utilization was flat at 75% during the first quarter of 2025 and the same period last year. Technical full-time equivalent employees decreased 4% to 966 during the first quarter of 2025 as compared to 1,003 during the same period last year.

Previous wording

The decrease in revenues for our Environmental and Health segment was due to a decrease in billable hours partially offset by an increase in our billing rates. During the first nine months of 2024, billable hours for this segment decreased by 6% to 223,000 as compared to 238,000 during the same period last year. Utilization in this segment increased to 68% during the first nine months of 2024 as compared to 66% during the same period last year. The decrease in revenues for this segment was related to ongoing headwinds in the chemical and life sciences sectors. Technical full-time equivalent employees in this segment decreased by 9% to 211 during the first nine months of 2024 as compared to 232 during the same period last year.

Current wording

The decrease in revenues for our Environmental and Health segment was due to a decrease in billable hours partially offset by an increase in billing rates. Activity in this segment was primarily driven by the chemical industry. During the first quarter of 2025, billable hours for this segment decreased by 1% to 76,000 as compared to 77,000 during the same period last year. Utilization in this segment increased to 72% during the first quarter of 2025 as compared to 68% during the same period last year. Technical full-time equivalent employees in this segment decreased 6% to 204 during the first quarter of 2025 as compared to 218 during the same period last year.

Previous wording

The increase in compensation and related expenses during the third quarter of 2024 was due to a change in the value of assets associated with our deferred compensation plan, an increase in bonus expense and an increase in stock-based compensation partially offset by a decrease in payroll expense and fringe benefits. During the third quarter of 2024, deferred compensation expense increased by $9,926,000 with a corresponding increase to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $7,157,000 during the third quarter of 2024 as compared to a decrease in the value of plan assets of $2,769,000 during the same period last year. Bonus expense increased $837,000 during the third quarter of 2024 due to a corresponding increase to our bonus pool. Stock-based compensation expense increased $325,000 during the third quarter of 2024 due to an increase in unvested restricted stock unit grants. Payroll expense decreased by $1,900,000 and fringe benefits decreased by $1,075,000 during the third quarter of 2024 due to the decrease in technical full-time equivalent employees partially offset by impact of our annual salary adjustments.

Current wording

The decrease in compensation and related expenses during the first quarter of 2025 was due to a change in the value of assets associated with our deferred compensation plan, partially offset by an increase in stock-based compensation expense. During the first quarter of 2025, deferred compensation expense decreased by $15,603,000 with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $9,336,000 during the first quarter of 2025 as compared to an increase in the value of plan assets of 6,267,000 during the same period last year. During the first quarter of 2025, stock-based compensation expense increased $1,005,000 due to an increase in unvested restricted stock unit grants.

Previous wording

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses during the third quarter of 2024 was primarily due to an increase in occupancy expense of $1,062,000. Our land lease with the State of Arizona was extended on June 19, 2024. This extension resulted in additional non-cash rent expense of approximately $1,085,000 during the third quarter of 2024. This increased level of rent expense will continue through the extended lease term ending in January of 2043 with adjustments in 2033 and 2038 based on the consumer price index. We expect other operating expenses to grow as we selectively add new talent and make investments in our corporate infrastructure.

Current wording

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses during the first quarter of 2025 was primarily due to an increase in occupancy expense of $992,000 and an increase in computer-related expenses of $336,000. Our land lease with the State of Arizona was extended on June 19, 2024. This extension resulted in additional non-cash rent expense of approximately $1,085,000 during the first quarter of 2025. This increased level of rent expense will continue through the extended lease term ending in January of 2043 with adjustments in 2033 and 2038 based on the consumer price index. The increase in computer-related expenses was due to continued investments in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent and make investments in our corporate infrastructure.

Previous wording

The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects. The increase in reimbursable expenses during the third quarter of 2024 as compared to the same period last year was due to an increase in proactive projects for the consumer electronics sector.

Current wording

The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects.

Previous wording

The decrease in general and administrative expenses was primarily due to a decrease in travel and meals of $509,000 and a decrease in personnel expenses of $309,000. The decrease in travel and meals was due to the decrease in technical full-time equivalent employees and a firm-wide principals' meeting which was held in the third quarter of 2023. We did not have any firm-wide meetings during the third quarter of 2024. The decrease in personnel expenses was primarily due to lower relocation costs. We expect general and administrative expenses to increase as we add new talent and expand our business development and staff development initiatives.

Current wording

The decrease in general and administrative expenses was primarily due to a decrease in personnel expenses of $276,000, a decrease in bad debt expense of $208,000, and a decrease in legal expenses of $160,000. The decrease in personnel expenses was due to the decrease in employee meetings. The decrease in bad debt expense was due to a decrease in write-offs. We expect general and administrative expenses to increase as we selectively add new talent and expand our business development and staff development initiatives.

Previous wording

The increase in operating income for our Engineering and Other Scientific segment during the third quarter of 2024 as compared to the same period last year was due to an increase in revenues and an increase in utilization. The increase in revenues was due to an increase in billing rates partially offset by a decrease in billable hours. Growth during the third quarter of 2024 was driven by our services across the consumer electronics and utilities sectors. The slight increase in operating income for our Environmental and Health segment was due to an increase in utilization.

Current wording

The decrease in operating income for our Engineering and Other Scientific Segment during the first quarter of 2025 as compared to the same period last year was due to a decrease in utilization and an increase in other operating expenses associated with the extension of our land lease with the State of Arizona. The increase in operating income for our Environmental and Health segment during the first quarter of 2025 was due to an increase in utilization driven by increased engagements in the chemicals industry.

Previous wording

Certain operating expenses are excluded from our measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

Current wording

Certain operating expenses are excluded from our measure of segment operating income. These expenses include the costs associated with our human resources, finance, information technology, corporate and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in our allowance for contract losses and doubtful accounts.

Previous wording

The increase in corporate operating expenses during the third quarter of 2024 as compared to the same period last year was primarily due to an increase in deferred compensation. During the third quarter of 2024, deferred compensation expense increased $9,926,000, with a corresponding increase to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $7,157,000 during the third quarter of 2024 as compared to a decrease in the value of plan assets of $2,769,000 during the same period last year.

Current wording

The decrease in corporate operating expenses during the first quarter of 2025 as compared to the same period last year was primarily due to a decrease in deferred compensation expense. During the first quarter of 2025, deferred compensation expense decreased $15,603,000, with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $9,336,000 during the first quarter of 2025 as compared to an increase in the value of plan assets of $6,267,000 during the same period last year.

Previous wording

Other income, net, consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The increase in other income, net, was primarily due to a change in the value of assets associated with our deferred compensation plan. During the third quarter of 2024, other income, net, increased by $9,926,000 with a corresponding increase to deferred compensation expense, as compared to the same period last year, due to a change in the value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of the plan assets of $7,157,000 during the third quarter of 2024 as compared to a decrease in the value of the plan assets of $2,769,000 during the same period last year.

Current wording

Other income, net, consists primarily of changes in the value of assets associated with our deferred compensation plan, interest income earned on available cash, cash equivalents and short-term investments, and rental income from leasing space in our Silicon Valley and Natick facilities. The decrease in other income, net, was primarily due to a change in the value of assets associated with our deferred compensation plan and a decrease in rental income. During the first quarter of 2025, deferred compensation expense decreased $15,603,000, with a corresponding decrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. This decrease consisted of a decrease in the value of plan assets of $9,336,000 during the first quarter of 2025 as compared to an increase in the value of plan assets of $6,267,000 during the same period last year. During the first quarter of 2025, rental income decreased by $651,000 due to the loss of a tenant in our Silicon Valley facility.

Previous wording

The increase in income tax expense was due to an increase in pre-tax income and a decrease in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards was $2,204,000 during the first nine months of 2024 as compared to $3,639,000 during the same period last year. Excluding the impact of the excess tax benefit, the effective tax rate would have been 28.3% during the first nine months of 2024 as compared to 28.4% during the same period last year.

Current wording

During the first quarter of 2025, we realized a negative tax impact associated with stock-based awards of $469,000 as compared to a positive tax benefit of $946,000 during the same period last year. The change in the tax impact associated with stock-based awards was due to the change in the difference of the value of our common stock between the grant date and the release date for the restricted stock units released during the first quarter of 2025 as compared to the first quarter of 2024. Excluding the negative tax impact, the effective tax rate would have been 28.2% during the first quarter of 2025 as compared to 27.8% during the same period last year.

Previous wording

We believe our existing balances of cash, cash equivalents, and cash generated from operations will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next twelve months.

Current wording

We believe our existing balances of cash, cash equivalents, short-term investments and cash generated from operations will be sufficient to satisfy our working capital needs, capital expenditures, outstanding commitments, stock repurchases, dividends and other liquidity requirements over at least the next twelve months.

Previous wording

We financed our business during the first nine months of 2024 through available cash. As of September 27, 2024, our cash and cash equivalents were $219,708,000 as compared to $187,150,000 at December 29, 2023.

Current wording

We financed our business during the first three months of 2025 through available cash. As of April 4, 2025, our cash and cash equivalents were $245,113,000 as compared to $258,901,000 at January 3, 2025.

Previous wording

Generally, our net cash provided by operating activities is used to fund our day to day operating activities. First quarter operating cash requirements are generally higher due to payment in the first quarter of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is collections from our clients. Our primary uses of cash from operating activities are for employee related expenditures, leased facilities, taxes, and general operating expenses including marketing and travel. The increase in net cash provided by operating activities was due to an increase in net income and a smaller increase in accounts receivable during the first nine months of 2024 as compared to the same period last year.

Current wording

Generally, our net cash provided by operating activities is used to fund our day to day operating activities. First quarter operating cash requirements are generally higher due to payment in the first quarter of our annual bonuses accrued during the prior year. Our largest source of operating cash flows is collections from our clients. Our primary uses of cash from operating activities are for employee related expenditures, leased facilities, taxes, and general operating expenses.

Previous wording

The decrease in net cash used in investing activities during the first nine months of 2024, as compared to the same period last year, was due to a decrease in capital expenditures primarily due to leasehold improvements during 2023 associated with our office and lab space in Philadelphia.

Current wording

The increase in net cash used in investing activities during the first three months of 2025, as compared to the same period last year, was due to an increase in capital expenditures. The increase in capital expenditures was due to an increase in investment in our corporate infrastructure.

Previous wording

The decrease in net cash used in financing activities during the first nine months of 2024, as compared to the same period last year, was due to a decrease in repurchases of our common stock and a reduction in payroll taxes for restricted stock units partially offset by an increase in dividends.

Current wording

The decrease in net cash used in financing activities during the first three months of 2025, as compared to the same period last year, was primarily due to a decrease in repurchases of our common stock and a decrease in payroll taxes for restricted stock units partially offset by an increase in dividends.

Previous wording

On June 19, 2024, we entered into an agreement with the State of Arizona to extend our land lease for 15 years beginning on January 17, 2028. We are currently obligated to make payments under the lease of $1,009,000 per year, which obligation will continue at that level until January 16, 2028. Beginning on January 17, 2028, our payments under the lease will increase to approximately $6,183,000 per year for the 15-year extension term with adjustments to the annual rent payment in 2033 and 2038 based on the consumer price index. As a result of this extension, we added an additional right-of-use asset in exchange for an operating lease liability of $48,683,000 during the second quarter of 2024.

Current wording

We lease office, laboratory, and storage space in 13 states and the District of Columbia, as well as in China, Germany, Hong Kong, Ireland, Singapore, Switzerland, and the United Kingdom under non-cancellable operating lease arrangements that expire at various dates through 2033. On June 19, 2024, we entered into an agreement with the State of Arizona to extend our land lease for 15 years beginning on January 17, 2028. We are currently obligated to make payments under the lease of $1,009,000 per year, which obligation will continue at that level until January 16, 2028. Beginning on January 17, 2028, our payments under the lease will increase to approximately $6,183,000 per year for the 15-year extension term with adjustments to the annual rent payment in 2033 and 2038 based on the consumer price index.

Previous wording

We maintain a nonqualified deferred compensation plan for the benefit of a select group of highly compensated employees. Vested amounts due under the plan of $115,527,000 were recorded as a long-term liability on our unaudited condensed consolidated balance sheet at September 27, 2024. Vested amounts due under the plan of $12,195,000 were recorded as a current liability on our unaudited condensed consolidated balance sheet at September 27, 2024. Our assets that are earmarked to pay benefits under the plan are held in a rabbi trust and are subject to the claims of our creditors. As of September 27, 2024, invested amounts under the plan of $113,225,000 were recorded as a long-term asset on our unaudited condensed consolidated balance sheet. As of September 27, 2024, invested amounts under the plan of $13,569,000 were recorded as a current asset on our unaudited condensed consolidated balance sheet.

Current wording

We maintain nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Vested amounts due under the plans of $111,922,000 were recorded as a long-term liability on our unaudited condensed consolidated balance sheet at April 4, 2025. Vested amounts due under the plans of $14,143,000 were recorded as a current liability on our unaudited condensed consolidated balance sheet at April 4, 2025. Company assets that are designated to fund the benefits under the plans are held in a rabbi trust and are subject to the claims of our creditors. As of April 4, 2025, invested amounts under the plans of $109,799,000 were recorded as a non-current asset on our unaudited condensed consolidated balance sheet. As of April 4, 2025, invested amounts under the plans of $14,268,000 were recorded as other current assets on our unaudited condensed consolidated balance sheet.

Previous wording

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The

Current wording

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Previous wording

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for the three and nine months ended September 27, 2024 and September 29, 2023:

Current wording

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for the three months ended April 4, 2025 and March 29, 2024: