EXPONENT INC

Previous 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.

Current wording

There have been no significant changes in our critical accounting estimates during the six months ended July 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

Revenues for the first quarter of 2025 increased slightly to $145,507,000 as compared to $144,933,000 during the same period last year. Revenues before reimbursements for the first quarter of 2025 increased slightly to $137,437,000 as compared to $137,207,000 during the same period last year. Our failure analysis expertise drove increased dispute-related activities in the chemicals, transportation and utilities industries. Proactive engagements were led by risk management and regulatory support activities. As expected, we were impacted by easing in the consumer electronics industry due to the timing of clients' product development life cycles.

Current wording

Revenues for the second quarter of 2025 increased 1% to $141,962,000 as compared to $140,536,000 during the same period last year. Revenues before reimbursements for the second quarter of 2025 increased slightly to $132,868,000 as compared to $132,434,000 during the same period last year. Our failure analysis expertise drove increased dispute-related activities in the construction, automotive and medical device sectors. Proactive engagements were led by risk management work in the utilities sector, offset by softer demand in chemical regulatory work.

Previous wording

Net income decreased 12% to $26,650,000 during the first quarter of 2025 as compared to $30,142,000 during the same period last year. Diluted earnings per share decreased to $0.52 per share during the first quarter of 2025 as compared to $0.59 during the same period last year. The decrease in profitability was due to an increase in other operating expenses associated with the extension of our land lease with the State of Arizona, an increase in stock-based compensation, and a decrease in the tax benefit associated with stock-based awards. 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.

Current wording

Net income decreased 9% to $26,553,000 during the second quarter of 2025 as compared to $29,227,000 during the same period last year. Diluted earnings per share decreased to $0.52 per share during the second quarter of 2025 as compared to $0.57 in the same period last year. The decrease in profitability was due to an increase in compensation expense associated with our annual salary adjustments, an increase in other operating expenses associated with the extension of our land lease with the State of Arizona and a decrease in the tax benefit associated with stock-based awards. During the second quarter of 2025, the tax impact associated with share-based awards was immaterial as compared to a tax benefit of $726,000 recognized during the same period last year.

Previous 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.

Current wording

During the second quarter of 2025, billable hours decreased 6% to 359,000 as compared to 381,000 during the same period last year. Our utilization decreased to 72% during the second quarter of 2025 as compared to 75% during the same period last year. Technical full-time equivalent employees decreased 2% to 958 during the second quarter of 2025 as compared to 975 during the same period last year.

Previous wording

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billing rates offset by decrease in billable hours. Activity in this segment was primarily driven by demand for our services across the transportation and utilities industries. During the first quarter of 2025, billable hours for this segment decreased by 5% to 300,000 as compared to 315,000 during the same period last year. Utilization for this segment decreased to 76% during the first quarter of 2025 as compared to 77% during the same period last year. Technical full-time equivalent employees in this segment decreased 3% to 762 during the first quarter of 2025 as compared to 785 for the same period last year.

Current wording

The increase in revenues for our Engineering and other scientific segment was due to an increase in billing rates offset by a decrease in billable hours. The increase in revenues was driven by demand for our dispute related services in the construction, automotive, and medical device sectors. During the second quarter of 2025, billable hours for this segment decreased by 5% to 291,000 as compared to 306,000 during the same period last year. Utilization for this segment decreased to 74% during the second quarter of 2025 as compared to 77% during the same period last year. Technical full-time equivalent employees in this segment decreased 1% to 756 during the second quarter of 2025 as compared to 765 for the same period last year.

Previous 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.

Current wording

The increase in compensation and related expenses during the second quarter of 2025 was due to a change in the value of assets associated with our deferred compensation plan, an increase in payroll expenses from the impact of our annual salary adjustments and an increase in fringe benefits. During the second quarter of 2025, deferred compensation expense increased by $16,088,000 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 $16,963,000 during the second quarter of 2025 as compared to an increase of $875,000 during the same period last year. During the second quarter of 2025 payroll expenses increased $1,003,000 and fringe benefits increased $809,000 due to the impact of our annual salary increase partially offset by a decrease in technical full-time equivalent employees. We expect our compensation expense, excluding the change in value of deferred compensation plan assets, to increase as we selectively add new talent and adjust compensation to market conditions.

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 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.

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 second quarter of 2025 was primarily due to an increase in occupancy expense of $692,000 and an increase in computer-related expenses of $128,000. 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 $939,000 during the second 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 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.

Current wording

The decrease in operating income for our Engineering and other scientific segment during the second 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 decrease in operating income for our Environmental and health segment during the second quarter of 2025 was due to a decrease in utilization.

Previous 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.

Current wording

The increase in corporate operating expenses during the second quarter of 2025 as compared to the same period last year was primarily due to an increase in deferred compensation expense. During the second quarter of 2025, deferred compensation expense increased $16,088,000, 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 $16,963,000 during the second quarter of 2025 as compared to an increase in the value of plan assets of $875,000 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 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.

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. The decrease in revenues was due to a lower level of activity for proactive projects in the life sciences sector. During the first six months of 2025, billable hours for this segment decreased by 5% to 144,000 as compared to 152,000 during the same period last year. Utilization in this segment was flat at 68% during the first six months of 2025 and 2024. Technical full-time equivalent employees in this segment decreased by 5% to 203 during the first six months of 2025 as compared to 214 during the same period last year.

Previous 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.

Current wording

The decrease in general and administrative expenses was primarily due to a decrease in legal fee of $543,000 and a decrease in bad debt expense of $293,000. The decrease in bad debt expense was due to a decrease in our allowance for bad debt. We expect general and administrative expenses to increase as we expand our business development and staff development initiatives.

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 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.

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 decrease in rental income partially offset by a change in the value of assets associated with our deferred compensation plan. During the first six months of 2025, rental income decreased by $1,293,000 due to the loss of a tenant in our Silicon Valley facility. During the first six months of 2025, deferred compensation expense increased $485,000 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 increase in the value of plan assets of $7,627,000 during the first six months of 2025 as compared to an increase in the value of plan assets of $7,142,000 during the same period last year.

Previous 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.

Current wording

During the first six months of 2025, we realized a negative tax impact associated with stock-based awards of $485,000 as compared to a positive tax benefit of $1,672,000 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 six months of 2025 as compared to the same period last year. Excluding the tax impact, the effective tax rate would have been 28.0% during the first six months of 2025 and 2024.

Previous 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.

Current 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.

Previous 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.

Current wording

We financed our business during the first six months of 2025 through available cash. As of July 4, 2025, our cash and cash equivalents were $231,801,000 as compared to $258,901,000 at January 3, 2025.

Previous 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.

Current wording

The increase in net cash used in investing activities during the first six 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 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.

Current wording

The increase in net cash used in financing activities during the first six months of 2025, as compared to the same period last year was due to an increase in repurchases of our common stock.

Previous 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.

Current 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 $117,555,000 were recorded as a long-term liability on our unaudited condensed consolidated balance sheet at July 4, 2025. Vested amounts due under the plan of $17,386,000 were recorded as a current liability on our unaudited condensed consolidated balance sheet at July 4, 2025. 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 July 4, 2025, invested amounts under the plan of $114,929,000 were recorded as a long-term asset on our unaudited condensed consolidated balance sheet. As of July 4, 2025, invested amounts under the plan of $17,386,000 were recorded as a current asset on our unaudited condensed consolidated balance sheet.

Previous wording

The following table shows EBITDA (determined as shown in the reconciliation table below) as a percentage of revenues before reimbursements for the three months ended April 4, 2025 and March 29, 2024:

Current wording

The following table shows EBITDA (determined as shown in the reconciliation table below) as a percentage of revenues before reimbursements for the three and six months ended July 4, 2025 and June 28, 2024:

Previous wording

The decrease in EBITDA as a percentage of revenues before reimbursements, during the first quarter of 2025 as compared to the same period last year, was primarily due to an increase in stock-based compensation resulting from an increase in unvested restricted stock unit grants, an increase in occupancy expense associated with the extension of our land lease with the State of Arizona, and a decrease in rental income due to the loss of a tenant in our Silicon Valley facility.

Current wording

The decrease in EBITDA as a percentage of revenues before reimbursements during the three and six months ended July 4, 2025 as compared to the same periods last year was primarily due to a decrease in utilization, an increase in payroll expense from annual salary adjustments, an increase in occupancy expense associated with the extension of our land lease with the State of Arizona and a decrease in rental income due to the loss of a tenant in our Silicon Valley facility.

Previous 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:

Current wording

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for the three and six months ended July 4, 2025 and June 28, 2024: