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Good day, and welcome to the Exponent, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joni Konstantelos, with Riveron Consultancy. Please go ahead.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's Third Quarter 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.investor.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. 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?

Thank you, Joni, and thank you, everyone, for joining us today. I will start off by reviewing our third quarter 2025 business performance. Rich will then provide a more detailed review of our financial results and outlook, and we will then open the call for questions. Exponent delivered a strong third quarter with double-digit net revenue growth, demonstrating the strength of our diversified portfolio and our ability to deliver value across industries increasing demand for dispute-related work drove robust growth in reactive engagements across the energy, transportation, life sciences and construction sectors. Proactive engagements were led by risk management and asset integrity projects in the utility sector and regulatory consulting in the chemicals sector. While these were offset by lower activity in consumer electronics, we are encouraged by improving demand trends in this space as we enter the fourth quarter. Turning to our engagements in more detail, reactive engagements in the quarter were driven by increasing dispute-related activity across a broad range of industries. In the energy sector, we saw increased activity across generation, delivery and storage as clients seek failure analysis expertise for legacy systems as well as challenges with new technologies. The convergence of energy transition initiatives, extreme weather events and rapid growth of data centers is accelerating opportunities for Exponent's specialized expertise around the globe. In transportation, disputes regarding the design and performance of advanced vehicle technologies are becoming more prevalent and increasingly complex and the consequences of failure continue to grow. In life sciences, we saw increased reactive engagements involving complex medical devices with particular scrutiny of product safety, quality and performance. We also saw increased demand from domestic and international clients related to complex construction challenges and disputes. Our diversified portfolio and deep technical capabilities position us well to capture this demand and deliver meaningful value for our clients. Proactive engagements in the quarter were led by risk management and asset integrity projects in the utility sector, where we evaluate the resilience of critical infrastructure and help mitigate safety risks for consumers and communities. In the chemical sector, we saw strong demand for regulatory consulting, supporting clients on issues related to the impact of chemicals on human health and the environment. These gains in the third quarter were offset by lower activity in consumer electronics. However, we are encouraged by improving demand trends in this sector as we enter the fourth quarter, particularly with our human machine interaction studies. The pace of innovation is creating new opportunities for Exponent as companies seek trusted partners to help them ensure safety, reliability and performance. We are actively engaged in early-stage initiatives tied to transformative technologies that will define the next generation of products and systems. As artificial intelligence becomes increasingly delivered by a specialized hardware and integrated into safety-critical systems, complexity and risk rise just as rapidly. With that acceleration comes a greater potential for new high-consequence failure modes. Our deep roots and failure analysis are driving growth as technical challenges become more novel and complex and clients increasingly turn to Exponent for specialized expertise when the stakes are highest. We continue to advance and diversify our work evaluating human machine interaction and safety-critical systems from advanced medical devices and robotics to autonomous vehicles. The more complex the challenge, the greater the need for our expertise. Our multidisciplinary team is uniquely positioned to help clients navigate this transformation by turning technological disruption into opportunity and driving sustained growth for our business. I'll now turn the call over to Rich to provide more detail on our third quarter results as well as discuss our outlook for the fourth quarter and the full year.

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. For the third quarter of 2025, total revenues increased 8% to $147.1 million and revenues before reimbursements or net revenues, as I will refer to them from here on, increased 10% and to $137.1 million as compared to the same period of 2024. Net income for the third quarter increased to $28 million or $0.55 per diluted share as compared to $26 million or $0.50 per diluted share in the prior year period. The realized tax benefit associated with accounting for share-based awards in the third quarter of 2025 was $141,000 as compared to $533,000 in the third quarter of 2024. Inclusive of the tax benefit for share-based awards, Exponent's consolidated tax rate was 27.4% in the third quarter of 2025 as compared to 27.5% for the same period in 2024. EBITDA for the quarter increased 9% to $38.8 million, producing a margin of 28.3% of net revenues as compared to $35.8 million or 28.6% of net revenues in the same period of 2024. This year-over-year decrease in margins was primarily due to the costs associated with our managers meeting in September, which was partially offset by better utilization and a strong realized rate increase. Billable hours in the third quarter were approximately $376,000 an increase of 4% year-over-year. The average number of technical full-time equivalent employees in the third quarter was 976, up 3% as compared to 1 year ago. This increase was due to our recruiting and retention efforts. Utilization in the third quarter was 74.1%, up from 73.4% in the same period of 2024. The realized rate increase was approximately 6% for the third 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 intradisciplinary expertise. In the quarter, compensation expense after adjusting for gains and losses in deferred compensation, increased 8%. Included in total compensation expense is a gain in deferred compensation of $7 million as compared to a gain of $7.2 million in the third quarter of 2024. As a reminder, gains and losses in deferred compensation are offset to miscellaneous income and have no impact on the bottom line. Stock-based compensation expense in the third quarter was $5.3 million as compared to $5.5 million in the prior year period. Other operating expenses in the third quarter were up 6% to $12.7 million. Included in other operating expenses is depreciation and amortization expense of $2.5 million for the third quarter. G&A expenses increased 44% to $7.7 million in the third quarter. The increase was primarily due to an increase in travel and meals associated with our in-person managers meeting, we did not have a firm-wide meeting during the third quarter of 2024. Interest income decreased to $2.3 million for the third quarter, driven by lower interest rates. Miscellaneous income, excluding the deferred comp gain, was approximately $263,000 in the third quarter. During the quarter, capital expenditures were $2.7 million. We distributed $15.1 million to shareholders through dividend payments and repurchased $40 million of common stock at an average price of $70.45. Additionally, our Board approved a $100 million increase in our current stock repurchase program. This is in addition to the $21.6 million available for repurchases as of October 3, 2025, and reflects our conviction in Exponent's long-term growth trajectory. Turning to our segments. Exponent's engineering and other scientific segment represented 84% of net revenues in the third quarter. Net revenues in this segment increased 10%, driven by demand for Exponent's risk management and asset integrity management services in the utility industry and disputes related to services in the energy, automotive and medical device sectors. Exponent's environmental and health segment represented 16% of net revenues in the third quarter. Net revenues in this segment increased 9% due to an increase in regulatory consulting engagements in the chemicals industry. Turning to our outlook. For the fourth quarter of 2025 as compared to 1 year prior, we expect revenues before reimbursements to grow in the low to mid-single digits, EBITDA to be 26% to 27% of revenues before reimbursements. We are maintaining our revenue guidance and raising our margin expectation for the full year 2025. We expect revenue before reimbursements to grow in the low single digits. EBITDA to be 27.4% to 27.65% of revenues before reimbursements. As a reminder, the 13-week fourth quarter of this year will compare to a 14-week fourth quarter in fiscal year 2024. As a result, we will experience a year-over-year revenue headwind of approximately 7% due to the decrease in workdays in the fourth quarter of 2025. Our guidance represents a high single- to low double-digit growth rate when adjusted for the extra week during the fourth quarter of 2024. We expect year-over-year average technical full-time equivalent employees to be up approximately 4% in the fourth quarter. This growth in head count is a result of our recruiting activities and normalized turnover rate. We expect utilization in the fourth quarter to be 68% to 70% as compared to 68% in the same quarter last year. As a reminder, utilization is seasonally lower in the fourth quarter due to more holidays and vacations compared to other quarters. For the full year, we expect utilization to be approximately 72.5% as compared to 73% in 2024. We expect the 2025 year-over-year realized rate increase to be 4% to 5% for the fourth quarter and full year. For the fourth quarter, we expect stock-based compensation expense to be $4.9 million to $5.2 million. For the full year, we expect them to be $23.7 million to $24 million. For the fourth quarter, we expect other operating expenses to be $12.7 million to $13.2 million. For the full year, we expect other operating expenses to be $49.5 million to $50 million. As noted in prior quarters, the year-over-year increase in the full year, other operating expenses is largely driven by the extension of our Phoenix lease. For the fourth quarter, we expect G&A expenses to be $6.1 million to $6.6 million. For the full year, we expect them to be $25 million to $25.5 million. The increase in G&A for the full year is primarily due to an expense of approximately $1.8 million for our firm-wide managers meeting held in September. The meeting is an important investment in people development that brings together our multidisciplinary teams, develops our key talent and fosters the next generation of leaders and business generators. We expect interest income to be $1.5 million to $1.8 million in the fourth quarter. In addition, we anticipate miscellaneous income to be approximately $200,000 in the fourth quarter. For the remainder of 2025, we do not anticipate any additional tax benefit associated with share-based awards. For the fourth quarter of 2025, we expect the tax rate to be approximately 28% as compared to 24.7% in the same quarter a year ago. For the full year 2025, the tax rate is expected to be 28.5% as compared to 26% in 2024. The increase in the tax rate is due to a decrease in the tax benefit for share-based awards. Capital expenditures for the full year 2025 are expected to be $10 million to $12 million. In closing, we are pleased with the growth we delivered in this quarter and look forward to closing out the year strong. I will now turn the call back to Catherine for closing remarks.

Thank you, Rich. Exponent is thriving as innovation accelerates across industries. New products, connected systems and critical infrastructure are transforming how people live and work, and expectations for safety, health and the environment have never been higher. We help clients navigate this transformation and bring advancements to market responsibly, applying scientific rigor to ensure reliability, performance and trust. And when problems inevitably arise, our industry-leading expertise is increasingly sought to investigate failures, identify root causes and support litigation and regulatory matters with clear independent analysis. Artificial intelligence is one of the most powerful forces reshaping this landscape, and we are helping clients integrate it thoughtfully and rigorously while managing the new dimensions of risk that it introduces. Looking ahead, we will continue to invest in talent to keep Exponent at the forefront of science and engineering. With strong momentum moving into the final quarter of 2025 and beyond, we remain focused on helping clients meet rising expectations while delivering sustainable growth and long-term value for our shareholders. Operator, we are now ready for questions.

[Operator Instructions] First question comes from Andrew Nicholas with William Blair.

I appreciate you taking my questions. I guess, first, I wanted to ask, any early thoughts on 2026 in terms of hiring specifically? It sounds like demand has picked up some. Sequentially, utilization was good in the quarter. I know you're targeting 4% growth in headcount exiting the year, which is relatively consistent with how you've talked about the medium-term or long-term target. Just curious if there are any plans to go at the top end or exceed that normal range given the demand backdrop?

Yes. Thanks, Andrew. I can at least start in on that. I mean, we have strong momentum in recruiting right now, right? I mean we have to be recruiting now really for adding talent in the first half of 2026. And so it's a fantastic time of year. We have lots of events at our university recruiting program and things like that. And so -- look, our philosophy remains the same in terms of targeting the recruiting toward the areas where we are seeing the growth. So places like digital health, places like automated vehicles, places related to energy, whether that be legacy systems or new technologies. And look, we are still in the planning process, of course, for 2026. But I think we will be back in a more historical range, right? We've been trailing on that over the last year or 2. But this year, to get into that 4 plus, maybe it's 4% to 6%, it's something like that. I think, is a reasonable place for us to be.

Great. For my second question, I wanted to just touch on the AI topic. A lot of good detail in terms of the ways that it's starting to kind of make its way throughout your business. Is there any way to size it today? Any thoughts on just how fast it could grow over time? And then somewhat relatedly, should we think about AI-related projects as coming first via the reactive business or would you expect it to be more balanced across proactive and reactive?

Yes. Yes. Thanks for that. So look, let me sort of give a little tour around the business and focus on the kinds of things that we are doing. I think that really helps to lay the groundwork for them seeing how much it's really penetrated into the business. Major ways that we're helping clients with AI is the way they are implementing AI into their systems and them wanting to do that successfully. And that's a big part of what we're doing. They're running into challenges. They're running into failures. They're running into disputes, right? So that's 1 category. There's another category where we are really building tools, techniques and offerings that we're delivering to clients, right? These are like hybrid models and our utility risk work and things like that. If you kind of go by industry, you can see electronics, that how AI is being delivered through specialized hardware, right? So this is a key area, new form factors, new technologies on the hardware side. They're getting into regulated medical devices in terms of digital health, right? There's benchmarking of the algorithms, what is the ground truth that they really need to compare with. What are the human-machine interface issues. The strategy is around collecting the data that are going to train the algorithm and getting that right, right? You've got intellectual property issues, failure analysis. I mean over in energy, it's quantitative risk modeling. It's data center performance, driving performance critical issues on the generation side. Automotive, transportation, we're seeing continued increases in the litigation profiles for advanced driver assistance technologies and the allegations are getting more complicated. So you can kind of -- as you march down, I mean, those are our 3 biggest industries, right, consumer products, energy and transportation. And you can see how it touches in different ways. And so, to say exactly what the percentage is, is a little bit difficult, but it's clearly integrating its way into our work significantly, and it's around the product life cycle. We continue to have opportunities to expand that, of course, especially as the technology continues to accelerate, but I really do think we are seeing it on both the reactive and proactive sides of our business. We're seeing the disputes in automotive. We're seeing some of those disputes on the medical device front, for example, in consumer products, but we're also using it proactively as we help our electronics clients get their algorithms right and get their training right. So I think it's pretty balanced. Difficult to quantify, but touching the business in a lot of different dimensions.

Very helpful. And if I might just squeeze one more in here for Rich. Year-to-date, just curious if there's anything you can do to quantify kind of growth between proactive and reactive, just want to kind of have our bearings for thinking about the comps next year.

Yes. So we've clearly seen the reactive side of the business play as the real growth drivers at least through the first 3 quarters here. We ended up really seeing the peak of that here in the third quarter where we ended up with around 18% growth in the proactive -- I mean, in the reactive business and we were approximately flat in proactive. Now that proactive part saw growth in both the regulatory consulting and the risk management work that was offset by a decrease year-over-year in the proactive work that we do in consumer electronics, primarily on the hardware side. We are seeing -- we are optimistic about the activities in consumer electronics and life sciences around our work in human machine studies in the fourth quarter. So that is actually a real area of strength as we left the third quarter. So we're seeing that improving as well. So overall, I think that we are continuing to see strong demand on the disputes and reactive side and we've seen here in the third quarter already, the regulatory work year-over-year start to grow on that chemical side. And we're expecting to see growth as we get into the fourth quarter on the study side. So those are the positive trends that we have going as we start to look towards 2026.

The next question comes from Tobey Sommer with Truist.

This is Tyler Barishaw on for Toby. Just wanted to start with on the regulators. 9 months into the Trump administration. Can you just discuss the data play with regulators? How has the nature of this work changed so far? And any trends you can extrapolate over the next 3 years?

Yes. Thanks for that question. We all know that there's a lot of dynamics going on around the regulatory environment and even within the regulators themselves, and as we look across the business, look, most of our regulatory work is in the chemical sector, it's in the medical device sector. So you're looking at EPA, you're looking at FDA, you're looking at automotive, which is going to be NHTSA and also Consumer Product Safety Commission. And we have some scattered instances with clients on maybe particular projects where they might have some delays or a little bit of pause as they're waiting longer for, let's say, the FDA or EPA to get back to them with feedback around their submissions and things like that. But that has really been more around the edges. I mean, you can see that our chemical regulatory work, for example, was a good -- was a strong grower in the quarter. And that is a business that is global. It has some of it in the U.S., but probably about 2/3 of it is represented by those global regulatory frameworks, which continue to raise the bar on issues related to safety and health. And so we're seeing it around the edges. But generally speaking, when it comes to things like regulatory enforcement, we continue to see that. And in some ways, seeing that be even stronger. I mean there have been notices coming out of, for example, Consumer Product Safety Commission about how they are cracking down on various allegedly defective products and so forth. And so we see some of that in both consumer products. We're seeing that environment in FDA and medical device work. So all in all, we're watching it very closely, but the business continues to be driven by these health and safety and environmental issues. Another one thing I'll add is that we have had an opportunity in a handful of cases to recruit some additional talent, because of some of the shakeups that have happened in some of those regulatory agencies. And so we've been able to bring over in a few instances, some folks who maybe thought they had lifetime careers at one of the regulators that are now really looking around and can really convert over into good consultants.

Just on the government shutdown, any impact so far from that or expected in guidance?

Yes. So our work, just to size it, we've got 2%, 3% of our work that is federal government contracts that we perform. We are fortunate that most of the work that we have ongoing are things that were under contract already. And we're in the form and areas that they were not paused in what we did, if anything, our clients wanted to ensure that our work continued even if some of them were furloughed. So in the short term, we think that our revenues in the fourth quarter out of government will be similar to what they were in the third quarter. But obviously, if that continued or there were -- and as they work through the 2026 budget and such, we will have to see where all that falls out. But again, it's 2% to 3% of our business.

And then just one final one for me. I appreciate the commentary about headcount growth for next year, but any preliminary thoughts on revenue growth for next year that we can be thinking about at this time?

Yes. We are -- we'll be providing our 2026 guidance on revenues and margins on our call at the end of January, beginning of February. We're not in a position as we're still going through planning to give those numbers. But I think the -- we are very encouraged by the fact that we do have headcount growth going that's coming with sustained utilization here or solid utilization and such. So we think we're in a positive position to -- for growth in 2026 and beyond.

The next question comes from Josh Chan with UBS.

This is Karan Singhania on for Josh. So can you unpack for us how FTE growth trended in the quarter between proactive and reactive practices? You're just curious if there are like any notable differences in hiring behavior between the 2 of them?

Yes. So our hiring -- our practices are not organized really by proactive, reactive. We organized the firm, recruit our people and develop them in disciplines or what we call practice areas, but when you can think about environmental scientists or electrical engineers or mechanical engineers and such. Clearly, the market drivers for hiring in the areas help determine that. And that can be driven by proactive or reactive work as we stated earlier, we're seeing good demand in the reactive work and ability to really engage our staff pretty quickly as they're coming into the organization in that. So I would say that the -- in the short term, the reactive work as far as demand and filling that, sure, there -- that is part that is pushing our teams along and feeling comfortable in the hiring. In the long term, which is what our, really, hiring horizon is, it's about looking out over the next several years and longer to see where we see technologies heading, where we see risk issues developing and doing that. And clearly, those lead themselves into focuses in hiring in electrical engineering and computer science and controls in that human -- both in our human factors, people with the psychology degrees, people and biomechanics and that human machine interaction. All of those areas we're hiring during the quarter.

Got it. That's helpful. So just as a follow-up to that. I think you highlighted some of the end markets that you're starting to hire in. So I'm just curious if the mix of your hiring of the end markets is having an impact on the rate increases? And is there any reason why the current rate increase of like 6% couldn't carry on going forward?

Yes. So a couple of factors contribute to the rate increase that we did. One, over the last several years, the overall rate that we've been being able to drive through has been benefited from really the demand environment and the sort of inflationary environment for engineers and scientists in particular, in the marketplace. So one, I think we've had a very strong market driver for that. As we look to, in particular, to what's going on here in the third quarter and 2025, we've seen a strong demand in this reactive business. Our reactive business does draw upon our most seasoned people. It is about -- having a expert, a testifier, an experienced person who can go through deposition trial and all that with a strong support team along with them. But what we see is that, that, if anything, where do you see some of that utilization improvement coming. It comes at a little bit more senior level not dramatically, but just a little bit enough to make a difference in the billing rate. The other thing that contributes is when hiring is at a more modest rate, which has been even this last year, that is a lower rate of new young people coming in at the bottom, which is also an impact to dilution or blend the mix that you have. So we've had all of those things working in a positive way that has allowed us to see the rate increase at 5%, 6% here in the first 3 quarters. As we move into the fourth quarter, where I've just mentioned that we're seeing good momentum with improvement in the proactive services that can draw upon. And the good thing is really leverage our more junior entry-level consultants and as hiring continues to increase, that will bring in more entry-level people into the org. So those factors will weigh on what the realized rate is as we move forward and is why we have previously said, look, at this point in time, we're still working through each of the individual rates. But if I was to guess, I think we're going to be looking at a rate realization that's more in the historical normal range of 3%, 3.5% rate realization than we are, something that's 5% or 6% as we look at it because of all those factors.