Quarterly Report for Quarter Ending October 3, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements and notes thereto for the fiscal year ended January 3, 2025, which are contained in our fiscal 2024 Annual Report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission on February 28, 2025 and amended on April 18, 2025 (our "2024 Annual Report").

Forward-Looking Statements

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.

Business Overview

Exponent, Inc. is an engineering and scientific consulting firm providing solutions to complex problems. Our interdisciplinary organization of scientists, physicians, engineers, and business consultants draws from more than 90 technical disciplines to solve the most pressing and complicated challenges facing stakeholders today. The firm leverages over 50 years of experience in analyzing accidents and failures to advise clients as they innovate their technologically complex products and processes, ensure the safety and health of their users, and address the challenges of sustainability.

CRITICAL ACCOUNTING ESTIMATES

There have been no significant changes in our critical accounting estimates during the nine months ended October 3, 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.

RESULTS OF CONSOLIDATED OPERATIONS

Executive Summary

Revenues for the third quarter of 2025 increased 8% to $147,120,000 as compared to $136,279,000 during the same period last year. Revenues before reimbursements for the third quarter of 2025 increased 10% to $137,073,000 as compared to $125,085,000 during the same period last year. Increasing demand for dispute-related work drove 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 utilities sector and regulatory consulting in the chemical sector, offset by lower activity in consumer electronics.

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Net income increased 8% to $28,044,000 during the third quarter of 2025 as compared to $26,044,000 during the same period last year. Diluted earnings per share increased during the third quarter of 2025 to $0.55 per share as compared to $0.50 in the same period last year. The increase in net income and diluted earnings per share were primarily due to the 10% increase in revenues before reimbursements.

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.

Overview of the Three Months Ended October 3, 2025

During the third quarter of 2025, billable hours increased 4% to 376,000 as compared to 362,000 during the same period last year. Our utilization increased to 74% during the third quarter of 2025 as compared to 73% during the same period last year. Technical full-time equivalent employees increased by 3% to 976 during the third quarter of 2025 as compared to 949 during the same period last year due to our recruiting and retention efforts.

Three Months Ended October 3, 2025 compared to Three Months Ended September 27, 2024

Revenues

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hours and an increase in billing rates. During the third quarter of 2025, billable hours for this segment increased by 5% to 305,000 as compared to 291,000 during the same period last year. Utilization for this segment increased to 76% during the third quarter of 2025 as compared to 75% during the same period last year. The increase in revenues was driven by demand for our risk management and asset integrity management services in the utilities industry and dispute-related services in the energy, automotive and medical device sectors. Technical full-time equivalent employees in this segment increased 4% to 775 during the third quarter of 2025 as compared to 745 for the same period last year.

The increase in revenues for our Environmental and Health segment was due to an increase in billing rates. Utilization for this segment increased to 68% during the third quarter of 2025 as compared to 67% during the same period last year. Billable hours for this segment were 71,000 during the third quarter of both 2025 and 2024. The increase in revenue was driven by increased regulatory consulting engagements in the chemicals industry. Technical full-time equivalent employees in this segment decreased 1% to 201 as compared to 204 during the same period last year.

Compensation and Related Expenses

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The increase in compensation and related expenses during the third quarter of 2025 was due to an increase in payroll expenses, an increase in bonus expense and an increase in fringe benefits. Payroll expense increased by $3,513,000 and fringe benefits increased by $1,117,000 during the third quarter of 2025 due to impact of our annual salary adjustments and an increase in technical full-time equivalent employees. Bonus expense increased $1,604,000 during the third quarter of 2025 due to a corresponding increase to our bonus pool. Included in compensation and related expenses is a gain in the value of assets associated with our deferred compensation plan of $7,005,000 and $7,157,000 for the three months ended October 3, 2025 and September 27, 2024, respectively. The same amount is recorded as a gain in miscellaneous income, net. 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.

Other Operating Expenses

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 2025 was primarily due to an increase in technical materials of $179,000, an increase in information technology related expenses of $170,000 and an increase in depreciation expenses of $143,000. These increases were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent and make investments in our corporate infrastructure.

Reimbursable Expenses

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

General and Administrative Expenses

The increase in general and administrative expenses was primarily due to an increase in travel and meals of $2,053,000 and an increase in personnel expenses of $169,000. The increase in travel and meals was due to a company-wide managers' meeting held during the third quarter of 2025 and the increase in technical full-time equivalent employees. We did not have any company-wide meetings during the third quarter of 2024. The increase in personnel expenses was primarily due a higher relocation costs. We expect general and administrative expenses to increase as we add new talent and expand our business development and staff development initiatives.

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Operating Income

The increase in operating income for our Engineering and Other Scientific segment during the third quarter of 2025 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 billable hours and an increase in billing rates. Growth during the third quarter of 2025 was driven by risk management and asset integrity management services in the utilities industry and dispute-related services in the energy, automotive, and medical device sectors. The increase in operating income for our Environmental and Health segment was due to an increase in billing rates and an increase in utilization. The increase in revenue was driven by increased regulatory consulting engagements in the chemicals industry.

Certain operating expenses are excluded from our measure of segment operating income. These expenses include the costs associated with our human resources, legal, 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. The increase in corporate operating expenses was due to the costs associated with our company-wide managers meeting during the third quarter of 2025. We did not have any company-wide meetings during the third quarter of 2024.

Other Income, Net

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 and a decrease in interest income partially offset by an increase in a gain on foreign exchange. During the third quarter of 2025, rental income decreased by $516,000 due to the loss of a tenant in our Silicon Valley facility. The decrease in interest income of $247,000 was due to a decrease in interest rates. The increase in the gain on foreign exchange of $451,000 was due to an increase in the value of assets denominated in currencies that are not our functional currency.

Income Taxes

The increase in income tax expense was due to an increase in pre-tax income and the decrease in the excess tax benefit associated with stock-based awards. The excess tax benefit associated with stock-based awards was $141,000 during the third quarter of 2025 as compared to $532,000 during the same period last year. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.7% during the third quarter of 2025 as compared to 29.0% during the same period last year.

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Nine Months Ended October 3, 2025 compared to Nine Months Ended September 27, 2024

Revenues

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billing rates partially offset by a decrease in billable hours. During the first nine months of 2025, billable hours for this segment decreased by 2% to 896,000 as compared to 911,000 during the same period last year. Utilization for this segment decreased to 75% during the first nine months of 2025 as compared to 76% during the same period last year. The increase in revenues was driven by demand for Exponent's risk management and asset integrity management services in the utilities industry and dispute-related services in the energy, automotive and medical device sectors. Technical full-time equivalent employees in this segment decreased slightly to 764 during the first nine months of 2025 as compared to 765 for the same period last year.

The increase in revenues for our Environmental and Health segment was due to an increase in billing rates partially offset by a decrease in billable hours. During the first nine months of 2025, billable hours for this segment decreased by 4% to 215,000 as compared to 223,000 during the same period last year. Utilization in this segment was 68% during the first nine months of 2025 and 2024. The increase in revenue was driven by increased regulatory consulting engagements in the chemicals industry. Technical full-time equivalent employees in this segment decreased by 4% to 202 during the first nine months of 2025 as compared to 211 during the same period last year.

Compensation and Related Expenses

The increase in compensation and related expenses during the first nine months of 2025 was due to an increase in payroll expenses, an increase in bonus expense, an increase in fringe benefits and an increase in stock-based compensation. Payroll expense increased by $4,757,000 and fringe benefits increased by $1,652,000 during the first nine months of 2025 due to the impact of our annual salary adjustments. Bonus expense increased by $2,294,000 during the first nine months of 2025 due to a corresponding increase to our bonus pool. Stock-based compensation expense increased by $420,000 during the first nine months of 2025 due to an increase in unvested restricted stock unit grants. Included in compensation and related expenses is a gain in the value of assets associated with our deferred compensation plan of $14,632,000 and $14,299,000 for the first nine months ended October 3, 2025 and September 27, 2024, respectively. The same amount is recorded as a gain in miscellaneous income, net. 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.

Other Operating Expenses

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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 nine months of 2025 was primarily due to an increase in occupancy expense of $1,770,000, an increase in computer-related expenses of $634,000 and an increase in depreciation expense of $345,000. 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 $2,024,000 during the first nine months 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 information technology related expenses and depreciation expense 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.

Reimbursable Expenses

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

General and Administrative Expenses

The increase in general and administrative expenses was primarily due to an increase in travel and meals of $2,378,000 partially offset by a decrease in legal fees of $519,000. The increase in travel and meals was due to a company-wide managers' meeting held during the third quarter of 2025. We did not have any company-wide meetings during the first nine months of 2024. We expect general and administrative expenses to increase as we add new talent and expand our business development and staff development initiatives.

Operating Income

The increase in operating income for our Engineering and Other Scientific segment during the first nine months of 2025 as compared to the same period last year was due to an increase in revenues partially offset by an increase in other operating expenses associated with the extension of our land lease with the State of Arizona. The increase in revenues was primarily due to an increase in billing rates. The increase in operating income for our Environmental and Health segment was also due to an increase in billing rates.

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. The increase in corporate operating

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expenses during the first nine months of 2025 as compared to the same period last year was primarily due to an increase in travel and meals due to a company-wide managers' meeting held during the third quarter of 2025. We did not have any company-wide meetings during the first nine months of 2024.

Other Income, Net

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 decrease in a loss on foreign exchange. During the first nine months of 2025, rental income decreased by $1,809,000 due to the loss of a tenant in our Silicon Valley facility. The decrease in the loss on foreign exchange of $380,000 was due to a change in the value of assets denominated in currencies that are not our functional currency.

Income Taxes

During the first nine months of 2025, we realized a negative tax impact associated with stock-based awards of $354,000 as compared to a positive tax benefit of $2,204,000 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 nine months of 2025 as compared to the same period last year. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.9% during the first nine months of 2025 as compared to 28.3% during the same period last year.

LIQUIDITY AND CAPITAL RESOURCES

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.

We financed our business during the first nine months of 2025 through available cash. As of October 3, 2025, our cash and cash equivalents were $207,380,000 as compared to $258,901,000 at January 3, 2025.

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.

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

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

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.

We expect to continue our investing activities, including capital expenditures. Furthermore, cash reserves may be used to repurchase shares of common stock under our stock repurchase programs, pay dividends, or strategically acquire professional service firms that are complementary to our business.

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 $123,124,000 were recorded as a long-term liability on our unaudited condensed consolidated balance sheet at October 3, 2025. Vested amounts due under the plan of $19,158,000 were recorded as a current liability on our unaudited condensed consolidated balance sheet at October 3, 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 October 3, 2025, invested amounts under the plan of $121,437,000 were recorded as a long-term asset on our unaudited condensed consolidated balance sheet. As of October 3, 2025, invested amounts under the plan of $19,252,000 were recorded as a current asset on our unaudited condensed consolidated balance sheet.

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.

Non-GAAP Financial Measures

Regulation G, Conditions for Use of Non-Generally Accepted Accounting Principles ("Non-GAAP") Financial Measures, and other U.S. Securities and Exchange Commission ("SEC") rules and regulations define and prescribe the conditions for use of Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, net interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. The Company regards EBITDA and EBITDAS as useful measures of operating performance to complement operating income, net income and other GAAP financial performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results. These measures are used to evaluate our financial results, develop budgets and determine employee compensation. These measures, however, should be considered in addition to, and not as a substitute for or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

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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 October 3, 2025 and September 27, 2024:

The decrease in EBITDA as a percentage of revenues before reimbursements during the third quarter of 2025 as compared to the same period last year was primarily due to an increase in travel and meals related to the company-wide managers' meeting held during the third quarter of 2025. We did not have any company-wide meetings during the third quarter of 2024. The decrease was partially offset by an increase in billing rates and an increase in utilization.

The decrease in EBITDA as a percentage of revenues before reimbursements during the first nine months of 2025 as compared to the same period last year was primarily due to 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 an increase in general and administrative expenses driven by higher travel and meals related to the company-wide managers' meeting held during the third quarter of 2025. We did not have any company-wide meetings during the first nine months of 2024.

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 October 3, 2025 and September 27, 2024:

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