Conference Transcript - EXPO 2026-06-09

Dan Maul, Other

It's good to see you and thanks for coming to the Wells Fargo Industrials Conference. I'm Dan Maul, Managing Director here in the Investment Bank, and I'm joined today by the management team of Exponent, which is great to have Dr. Catherine Corrigan, CEO. We have Dr. John Pye, the President. We have Rich Schlenker, the Executive Vice President, right next to me, and then Eric Anderson, the Chief Financial Officer, joining us today. So we're going to step through a couple things and we'll take some time. We'll go through the format at the end. We'd love to open up. Maybe we'll leave five to ten minutes for some Q&A at the end. So we're going to have a lot of good discussion today. But, you know, as we kind of go through this, just one thing to kind of kick off a little bit is we kind of think about it.

John D. Pye, Other

John and Eric, you're both long tenured people, you know, insiders rather than outside hires. the continuity signal and the strategy just talk to you a little bit about that how it's been differentiating and and how you think about the your promotion path all right well I'll kick us off here so I started at exponent in 99 fresh caught at Stanford never thought I'd be sitting in this seat but you sort of do what's right in front of you with bigger opportunities each year and that's how we grow in the firm. So to me it's very natural. I've held a lot of positions operationally around the company. I think that is really our power is we're a seller doer organization at all levels. You get it from somebody that's sitting in Catherine's seat or my seat. You get it at an entry level that somebody is coming in as a PhD with MIT or Stanford or something like that. And that's a fantastic journey for us. So that continuity, that perspective lets us deliver value in really any engagement we have whether it's a room like this of investors or you're sitting in front of the clients you get exponents best when you're sitting there so to me it's very natural I'm very thankful to be sitting here but it really goes to the strength of our organization as well that that we all play like that and I haven't been here quite as long as John but I started in 2003 you know and learned pretty quick that exponents are really incredible place to work and I've seen us go through management transition in the past and it's very deliberate and well thought out and planned and you know I've worked with rich for a number of years you know really believe in this

Catherine Corrigan, CEO

company and I'm looking forward to this new role yeah and I think it goes to how we're really define ourselves as a company I mean Dan you mentioned differentiation for those that may not know our story very well I mean we are a we are a premium engineering and scientific consultancy that helps clients across many different sectors solve some of their toughest challenges. You know, this started as a group of failure analysis, Ph.D. engineers from Stanford, some faculty and researchers back in 1967, and we have grown over time to cross all the classic engineering disciplines into the sciences in terms of health sciences and environmental sciences as well helping clients with failure analysis issues with products that have been out in the wild for a long time or if you're a utility for example but also leveraging that failure analysis knowledge to help clients in a forward-looking sort of way as they are thinking about their regulatory issues as they're thinking about product development wherever they have those places where they get stuck and getting it right really really matters you know And this is why we hire the kinds of people like John, he's a PhD from Stanford, I'm a PhD from MIT. We're hiring, over 70% of our consultants have doctoral level qualifications in their fields, and it is an integrated ecosystem where we can deliver a multidisciplinary team to that client to complement their internal team. So I think John's journey in Exponent is very multidisciplinary in nature, as is mine, and it really speaks to the DNA of the company.

Dan Maul, Other

Thank you, Catherine. You went right where I was going, which is great, talking a little bit about the failure analysis. While we're on that topic, there might be some folks that are less familiar with the story in the audience. Let's spend a little time talking about some of those core services, the segments, the industries, the customers, and the type of solutions that you provide, if we can go there.

Catherine Corrigan, CEO

Yeah yeah look I mean we some of our biggest sectors that we work in consumer products which includes consumer electronics you can look at transportation a big part of that is automotive but also other emerging areas of transportation the chemicals industry this is a place where we do a lot of work for you know a pesticide manufacturer biocides industrial chemicals obviously a heavily regulated safety critical kind of industry the the energy sector and this is one where you know in particular right now with the power demands associated with increasingly complex technology this is a place both in power generation where we play as well as on the distribution side in utilities you know doing things like looking at risk understanding the root causes of wildfires looking at asset integrity the construction industry this is another place advanced materials and and dispute related work you know about 50 percent of the work that we do is related to a dispute in some way or another 60 percent of the business is what we call reactive so something has happened you know whether there is a bridge collapse i mean we've done high profile failure analysis whether you go back all the way back to things like the BP oil spill or Toyota unintended acceleration or Samsung Galaxy Note 7 phone issues the cruise accident the automated vehicle accident that occurred in San Francisco now 18 months or so ago you know that really formed 60% of the business but the other 40% really is that forward-looking kind of work where the client is trying to avoid that product recall they're trying to avoid that liability they are trying to avoid the risk of their infrastructure starting a wildfire um so it's a it's a highly differentiated and really unique kind of portfolio great thank you and um so let's take let's take a little bit of step back through history and then fast forward you know you were on the panel a year

Dan Maul, Other

ago so if we were to rewind 12 months and then go forward to now um the business looked quite different you know there's a little bit of a different setup utilization in the low 70s consumer electronics which you spoke of were still soft uh growth was a little more reactive led today double digit total revenue growth consumer electronics back as a key driver uh walk us through what has changed the last year last time you spoke with us on the panel and what's simply cyclical recovery how much of the improvement is durable rather than maybe a snapback yeah i can i can start and others can jump in look it it is classic exponent that we are constantly evolving the set of capabilities that we are bringing to the market because the needs of our clients in

Catherine Corrigan, CEO

the market are always evolving so if you think about where technology has been even in the last 12 months the speed of innovation around products. Think about companies that are trying to deliver artificial intelligence through hardware, okay? This is going to be in consumer electronic type devices, all kinds of novel form factors, right? It's not just your phone or your tablet anymore. It's your wearable device that's going to not just count your steps, but it's going to tell you if you are having a heart attack and you need to go to the emergency room, right? That's getting toward a regulated medical device. You know, you are trying to accomplish, you know, things with maybe a pair of glasses to deliver AI where the human machine interface is novel and incredibly challenging. And it's an area where you need, you know, because of the competitive landscape or the safety critical nature of it, you need to be right, right? So these drivers around innovation among our clients are a big part of why our growth has accelerated over the last several quarters. Whether it's the data coming in, whether it's the algorithm, whether it's the infrastructure investment around AI, these have all been drivers over the last year.

Richard L. Schlenker, CFO

Yeah, I think the other thing that really is continuing to accelerate is really the spend on infrastructure and the stress on the supply chain for that infrastructure that's come through we when we look at how we're still early in it on what we're getting a request for to look at relative to data centers but I would say over the last year we've seen a request come in almost at every component level in the rack everything from challenges around wiring and the stress on that to what's happening in the router technology and the stresses on that to the switches all the way onto the board these advanced cooling systems that are coming in that are creating corrosive issues we're having challenges around the HVAC systems that are in there some of those are already getting to the level of disputes but all these things are beginning to come to the area of the systems are being stressed and we are beginning to get called in and say help us figure out what's going on this and okay that's great how do we correct it going forward uh and a few are even moving towards that dispute issue but people are moving so fast that's really what's uh driving it as well that's great so

Dan Maul, Other

with these secular drivers that we speak of you know you've you spoke to some of them now in the past and other forms energy demand infrastructure risk technological innovation You know, one question that comes up is how does it materially appear in your pipeline? You know, how long do you think that, you know, this story goes on for? How much visibility, you know, are we able to really have in some of these markets?

John D. Pye, Other

So I think they're the same kind of drivers we've always had. There's complexity. There's a world that's not getting any younger. It's getting older. So you've got aging infrastructure. And then you've got expectations around the reliability of what you're trying to deliver. those things are have been true they're still true they're always going to be true so when you think about the durability of the pipeline these are these are you know core offerings that you're investing in at a higher level that are driving us to the next step there are new offerings built on those core offerings that let us diversify and get into new markets new verticals some of those are existing people that are very sophisticated in their understanding of risk and understand what it takes to drive something new into their product chain, some of them are completely new entrants. Catherine's example about the consumer electronics industry, you take the wearable world where we've done a lot of work helping them get their screens right, their batteries right, compatibility of the materials with your skin, et cetera. But that's on a device that's counting your steps. It's on a device that's largely in a comparatively unregulated environment, and they're trying to move those devices into the into the health area into delivering a medical outcome well that brings in a whole new level of reliability brings in a different regulatory framework which is fantastic because we play in that framework for the medical device companies and now you can bring that knowledge into the consumer device world and bring those two pieces together so as the complexity goes up the opportunity to have that multi-disciplinary sale which is one of our strengths goes up as well so i think the fundamentals are there they're not changing uh the business is in a in an excellent spot to be able to take advantage of that increased

Catherine Corrigan, CEO

complexity uh and then the diversification that comes as you add new entrants in at whatever stage they are in their sophistication of understanding risk that's just new opportunity for us as well got any uh any markets that could that you watch that could be the canary in the coal mine of any softer macro policy or anything that is a precursor to a change in supply-demand dynamics look I as we as we've looked at the history of the company and we think about sort of macroeconomic ebb and flow it's really a story that is quite resilient if you think about the 50% of the business that or 60% of the business that's around disputes and failure analysis and doesn't really matter if it's a recession that issue that led to whatever that failure was that is still there right and our clients because of the nature of disputes they are in a situation where they have to hire an independent third party they don't have the ability to just kind of use people in house you have that market for experts over time and we've seen that even with ebbs and flows recession not recession and what-have-you you know the proactive side of our work you know when you think about regulatory frameworks you know that's a big part of our chemicals work some of the medical device you know the regulators don't stop paying attention just because of a recession and our clients you know it's about a new product that they are innovating you know we helped a chemical company that had the first messenger RNA technology in a pesticide that's a that's a level of complexity that isn't about how many units of your chemical did you sell it's about are you going to have a product in the market right so they may tighten their belts in a macroeconomic um time frame where they're they're pulling back and you know they're a little more uh visibility on budgets and things like that but we've shown i mean our ability to continue to grow that work over time the risk work utilities are being pushed on by the public utilities commissions to do more sophisticated more quantitative risk models that are incorporating larger and larger sets of data so we've seen resilience in that business as well you know the product development kind of proactive work is driven by speed of innovation so you know look there is of course some ebb and flow in the business but we've been relatively resilient if you just look at our history over time and our ability to grow even through those kinds of cycles i love that answer katherine and i i was thinking about it as you were talking and I think the one thing to consider is that we touch that whole product lifecycle and you mentioned that as well so when development dollars are high you know our work comes from helping get that product to market quickly when development dollars are tight and you're

John D. Pye, Other

trying to sort of be right and make sure the product that you've got out there is not causing exposure to you well we get the reactive dollars you know that are looking at that so there's a bear play and a bull play there's not really one the other where the work comes from shifts uh but in terms of work you know that the company takes on uh pretty resilient to those those macroeconomic swings got it and getting the people to help you do this work you target some of the top phd classes out there to get people to to join the team uh growing your your technical head count there's a lot of competition with all the other ai labs and hyperscalers and other resources out there that need the talent how do you guys get it We, you know, 1,000 professionals, we're trying to hire 200 new hires each year. You know, our company's got a reputation that is pretty top notch. The people going to the hyperscalers, they might not be, you know, the human factors people, but eventually they're going to need that human factors person in one of their projects. So, you know, when hyperscalers are hot, we hire human factors people. When user interfaces are the name of the game, we hire corrosion experts or battery experts to get that piece. So, you know, there's a strength in our multidisciplinary offering that lets us move where we're hiring from as the demand changes up and down. You know, we this was my employer of choice. I mean, you have options. I graduated in the dotcom boom and there were lots of things going on there. There are always folks that want to be diverse in what they do. They don't want to sit in the cubicle working on that same connector. For me, it was a little red knob on your beverage cart that you see on the airplane. I went up to Boeing, and that was the example they showed me. I could work on that my whole life, or I could work on everybody's hard problem. And so that's what I chose. And there are always choices like that. So, those 200 hires we get, I mean, I think the pipeline is extremely robust. And then you think about what we're trying to do internationally, you know, our footprint, we do have exposure in Europe and in Asia, but that could grow as well, and that brings in a whole other dimension of, you know, where we might be able to hire Tom from.

Eric Anderson, CFO

We have a development model to exponents. So, one of our value propositions for new candidates or new hires is to apply the science the engineering that they learned in school to real world high exposure problems and to develop so all the vast majority nearly all of our hires our intention is to promote them up to principal and develop them along the way so you know working for a company that works on high exposure really interesting things we have very high standards uh as far as technical excellence with those individuals but you know that's that's really our value proposition how we're able to bring in new talent to grow i think that is so important i mean these are folks who you know John and I were among them you've spent after your undergrad you know five six seven years on one really deep problem really specific and you just we're tapping into the desire of those people

Catherine Corrigan, CEO

to take that ability to solve an unstructured problem that's never been solved before that's what a PhD does but apply it in a real world kind of scenario and that's just I couldn't wait to do that when I finished my PhD and so really tapping into that and the the ecosystem that we have is it's it's nowhere else I mean we rival a university in terms of any major university for like 700 PhDs any one of these people has the ability to become a tenured professor at those top schools but they get to work on things in collaboration with others that matter for a business now and are making an impact now and that is just a huge part

Eric Anderson, CFO

of that value great let's shift a little bit to financials capital allocation then maybe some thoughts on m a so for for the year as we think about it um how do you see visibility into the second half of the year what are one or two things that you're keeping an eye on that can kind of move you within that range yeah we've guided to high single digit revenue growth for the second quarter in the full year um you know this is our long-term sort of we call it our growth algorithm of high single to low double-digit growth through hiring, through price increases, and through utilization, slowly improving utilization to the mid-70s. So we think there's a lot of opportunities this year. We talked about some of them, data centers, AI, energy, infrastructure, regulatory consulting.

Dan Maul, Other

There's just a number of growth areas that we're really looking to leverage and tap into from a growth standpoint and continue to drive that growth into the low double digits. got it and so you uh you repurchased 79 million dollars a stock in q1 uh around 68 a share you added 50 million to the authorization showing strong conviction you know how do you think about you know is you know with the the capital allocation policy as you start to see things out there then we can maybe talk a little bit about um inorganic growth in mna yep so dividends and share repurchases have been our primary methods of returning money to shareholders so we've had a dividend since 2013.

Eric Anderson, CFO

We've increased it every year since. And like Dan said, we've been pretty active in the repurchases lately with some pullbacks in the stock price. So our board approved an additional 50 million. We plan to continue that from a capital structure. We do evaluate, you know, it's been since 2002, we did an acquisition, but we do evaluate acquisitions. You know, we would like something that would, you know, see growth in an area where where we really feel like there's an opportunity to grow. So we evaluate those, but really our core capital allocation strategy hasn't changed.

Dan Maul, Other

Got it. And as we think about the M&A plan, you know, the history of the business has primarily been through a lot of organic growth profiles, homegrown talent, as we all have here up on the panel. As you look out there, technical disciplines and things that are happening in capabilities or geographies, How do we think about capitalizing on potentially accelerating the growth through M&A? How do you analyze those decisions?

Catherine Corrigan, CEO

Yeah, I mean, I think there are some particular areas. I mean, Eric mentioned the philosophy that we've got, which is not about just kind of buying more of what we already have. It's much more around being able to accelerate growth in something new, but maybe tangential that fits really well and that we can integrate into the business, right? we don't want to be kind of a rolled up you know you got this business here and this business here and this business here that integrated ecosystem is absolutely critical so where are places where we think we could accelerate growth with with some kind of tuck in acquisition in pharma that's one example right now it's one percent it's a low single digit percentage of the business We are starting to be engaged by that industry around some of the wearable technology applications. If you think about being a pharma or a medical device company that wants to demonstrate the value of its medicines in the wild, and you want to do that using the best technology, a continuous data stream, instead of just, you know, a blood pressure measurement every six months when you go to the doctor, that's something that sounds really good. And those companies are starting to come to us to benchmark the technologies, to help them evaluate the technologies, to help them build the strategy around how they are going to gather the data. What are the different platforms that they could consider using? What are the pros and the cons? How do I get that through the 510 process with the FDA? So we are building that organically. that's the kind of thing that we could build on faster now we are looking for something that fits though that we can integrate you know premium services and so forth you know the kinds of talent you know another another place where we believe we have significant growth potential on the geographic side is in in Europe and in the UK you know we have a very well established chemical regulatory team up in harrogate with offices in basel and in germany and and a few other places but the engineering side of the business in the uk and europe is relatively small and john maybe

John D. Pye, Other

you can give you know that's something that you've really been working on the strategy for if you want to give some color on that sort of geographic growth piece yeah i think there's there's opportunities all around the world uh you know we we are selective in where we do that from a business standpoint and access to talent but increasingly we see projects that are international in scope you know maybe it's a US headquartered company but they have a product that is built and the supply chain is you know increasingly complex international and how it all comes together so our ability to deliver all the way across that is is a powerful sales thing to our some of our key clients. You know, we follow the same model. We like to put our offices where the clients are, where we have access to talent so that we can get that organic long-term growth path. But Catherine's right. If you can see that with the right kind of an acquisition, you can shave some ears off the front end of that process. We've been investing heavily in London recently as we build that out. London's crossover place where you not not only have capital, you've got disputes from an international stage that figure heavily there, but then you also have headquarters of a number of our larger clients or subsidiaries that they have in that space as well.

Dan Maul, Other

So the right geographic strategy can absolutely continue to build on our growth as you become international and develop or deliver more value to our existing clients as well as maybe open up some new markets for us great that's um that's that's exciting certainly a lot of opportunities as you think out there and so you know maybe let's take an opportunity to give the room a little bit of a tangible sense if you can if there's anything that you could speak about you know given the failure analysis and the importance of understanding kind of the proactive reactive dynamics to the business model is huge but any any high profile accidents failures or anything that you're working on that could be in the news that you can speak

Catherine Corrigan, CEO

to publicly um just to you know get a little bit of sense of the reactive work or any any dynamics like that that you'd be willing to share um well look the vast majority of the time our clients don't have us talking publicly about things but you know one one more recent example on the reactive side is going to be the and i mentioned it just briefly the cruise automated vehicle incident in san francisco last year or the year before um it's publicly known that we were called in to do do the root cause analysis investigation of that. This was an incident where a human driver actually struck a pedestrian. The pedestrian was launched into the path of the cruise vehicle. The cruise vehicle then struck the pedestrian, but the real problem was that the vehicle then continued to drive after that and then unfortunately dragged the pedestrian, and there were some very severe injuries. And look, this kind of incident is emblematic about the value proposition of exponent. Okay, and especially around AI. And I think this is a really important part of why we're out on the road talking with investors. Because AI is being used in safety critical, performance critical systems. Like it's only just starting to be used in those kinds of applications, right? Yeah, large language models and so forth, those are used and maybe they get it 80% right, 85% right, even 90% right. but for that example of that crash you know that the pedestrian under the car wasn't in the training data set it just wasn't there that's that's that reliability where ninety nine point nine percent is not good enough that would be one out of every thousand turns or stops the car is making a mistake you've got to get that out far further on the on the number of nines that you have in that system right and so this is the place where exponent play is where we do not only the the failure analysis work on that but you can imagine how an incident like that wakes up the entire industry to what the challenges really are and unlocks the kind of proactive work that we can do because we understand the modes of failure that these products can have we've been doing work in vehicle crashes since the dawn of our company in 1967. Right, we have been doing failure analysis of transmission lines since day one of our company. We have the structural engineers who literally wrote the book on structure related risk and how to model that. And you're doing that in an environment where even more demand is being placed on that system. Right, so this is classic exponent where the reactive incident then drives you know a bolus of proactive work and offerings over time and we have repeated that cycle over and over and over again and we know how to take advantage of that um so you know i went a little further than your question but i thought it was a great opportunity especially with look there are there are concerns that um you know around what you know is AI a tailwind? Is AI a headwind? Right? We are 100% on the tailwind side of that. Because of the kind of dynamic that I just mentioned, you've got to get the right answer in these safety critical systems. That requires more than an algorithm that just predicts the next word.

Richard L. Schlenker, CFO

Well, and I think just to layer on that is, you know, Exponent is called upon for – to investigate many of these large wildfires that have occurred in our urban settings and such and throughout the West Coast. And that is an event that drives back into that industry. How do we just keep getting better at predicting where these could occur? How do we analyze every component in our system so that we understand where our failures could occur, how to improve those assets? That's where to spend money, but it's also you're able to evaluate, once you've even made that investment, where the risks are and when a power shutoff should occur. And that's where you build in into these models. So you start off with failures, you learn from those, and then you build into the system and create more reliability in the system.

Dan Maul, Other

I love it, and I love the passion that you all have around solving the problems. this kind of goes into catherine what you've talked about before is like the ai and the technology coming into the physical world and you're you're seeing that that that root impact to all of us um so that's that's hugely important so thank you um so we have a little over four minutes left on our on our timer like to open up for any questions from the audience at this point i could keep going but this is your chance if you want to throw some out there anyone feel free jump in nothing right now all right i can keep going you you got a question no no just kidding um all right you know one of the things that we want to talk a little bit about is the the growth the the growth in uh margin algorithm it's one thing that you know it kind of talks about so people understand a little bit um and we talked about a lot of the drivers is you know if If someone could talk a little bit about that growth margin algorithm and how it plays with the people, that'd be a helpful way to kind of start bringing us.

Eric Anderson, CFO

Yeah, I can take that one. So we've, our growth algorithm, I alluded to it earlier, is high single, low double digit growth. And we play at the premium end of the market. So we, you know, do the toughest projects, the most difficult thing, high exposure things for our clients. And with that comes, comes some pricing power. So the caliber of people that we bring to the problems and the types of things that we work on allow us to to increase our prices so in the last year we raised bill rates on an absolute basis about seven percent the realized bill rate increases about half of that because we lose people in the middle you know there's healthy turnover in any consulting organization you know some not everyone makes it to principle like I talked about so there's you know there's some turnover along the way and then the new people that we bring up so that that dynamic blends it down a little bit to that three and a half percent so we've got the we've got the pricing we've got the recruiting so we you know guided this year at a four percent increase in technical full-time equivalent employees you know long term we think we can grow that even higher you know four to eight percent so that on top of pricing and then on utilization another driver for revenue growth you know we think we can get that to the mid 70s in the next couple of years you know our guidance this year was 72 and a half to 73 percent so we can get a little bit more out of utilization. Again, there's only so much you can get out of utilization because our people need to write papers and do research and recruit and do business development and all the things that really drive this growth. So that's what drives the top line growth. And then from a margin standpoint, as we leverage our infrastructure, our facilities, our corporate structure, our incremental increases to utilization, we also believe that we can increase margins over time as well. So our margin guidance for 2026 is 27.6 to 28.1 percent. So, you know, slight increase versus the 27.6 that we realized in 2025. And that algorithm continues, you know, into the future. We think it's sustainable and we can continue to, you know, grow revenue in the high single, low double digit, you know, be conscious with our expenses, but make investments where it makes sense and leverage our infrastructure and continue to improve margins over time.

Dan Maul, Other

Thanks, Eric. As we kind of look out a little bit over the next few years, or maybe even next year when we're back at the Wells Fargo conference, what's the single most important thing you want the room to understand, walk away believing about Exponent in your company?

Catherine Corrigan, CEO

Yeah, that's about the premium differentiated position that we have in the marketplace and the strength of the things that drive our market, right? If you believe that innovation and technological change and complexity are accelerating, and if you believe that society's expectations around safety, around health-related issues, around environmental-related issues are going to continue to increase, then this is a place that, that is the fundamental thing that is gonna drive our markets, and that is really the investment thesis for exponent over time. You know, we have, we've had our growth accelerate over the last three quarters. We've been around that, you know, 10% or so range. I feel, I've been with the company 30 years. I think our market drivers are stronger than they've ever been. The pace of change, the investments in the infrastructure, and we are in a position to capitalize on that. And it's at a time when, frankly, we've been lumped in with a broader set of management consultancies that look nothing like us. Big IT implementations, we've got a stack. We don't have a big layer at the bottom of paralegals and bachelor's level people. we look like a stack our bottom is PhDs from Stanford MIT Caltech Berkeley Michigan you name it right these are the people who know how to leverage this technology and how to build those kinds of models that are gonna get you to the point nine nine nine nine that you need it's very exciting sounds like mission critical services to me so on behalf of Wells Fargo Catherine John Rich Eric thank you for joining us thank you and uh enjoy the rest of your day everyone thanks again