EXPO Q2 Deep Dive: Litigation Demand Offsets Flat Revenue, Margin Compression Persists

Scientific consulting firm Exponent (NASDAQ:EXPO) beat Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $132.9 million. On the other hand, next quarter’s revenue guidance of $131.3 million was less impressive, coming in 1.5% below analysts’ estimates. Its non-GAAP profit of $0.52 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Exponent’s second quarter results showed resilience in a challenging demand environment, as revenue remained flat year over year but topped Wall Street’s expectations. Management credited robust performance in litigation and dispute-related engagements, particularly within the construction, automotive, and medical device sectors, as key drivers of the quarter. CEO Catherine Corrigan highlighted ongoing demand for failure analysis expertise, stating, “Clients turn to us for extraordinary specialized expertise when the stakes are high,” as companies face heightened safety and performance scrutiny. However, softer demand in chemical regulatory services and lower utilization rates contributed to margin pressure.

Looking ahead, Exponent’s outlook is shaped by a cautious stance as management anticipates ongoing market uncertainty and operational cost headwinds. Corrigan pointed to growth opportunities in areas such as distributed energy systems, wildfire risk mitigation, and the adoption of artificial intelligence in safety-critical applications. She noted, “Our multidisciplinary experts are actively engaged in early-stage initiatives tied to transformative innovations,” but also acknowledged delays in regulatory-driven projects. CFO Richard Schlenker added that hiring momentum should help support future growth, though rate realization may moderate from current levels.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strong litigation-related demand and ongoing sector diversification, while acknowledging margin pressures from lower utilization and increased costs.

• Litigation and disputes strength: Management reported that growth in dispute-related work, especially in automotive and construction, was a major revenue driver, with litigation work up 7% year over year.
• Proactive risk management in utilities: The utility sector saw rising demand for risk management and infrastructure resilience services, particularly in wildfire mitigation, highlighting a shift toward long-term, proactive consulting.
• Chemical regulatory softness: The chemical sector experienced weaker demand due to uncertainty around tariffs and changes in regulatory timelines, leading to delays in certain engagements.
• Talent acquisition progress: Exponent narrowed its technical employee headcount gap from 5-6% to 2% by quarter-end, aiming for positive growth in the second half of the year to support increased client activity.
• Margin pressure factors: CFO Richard Schlenker cited lower utilization, increased operating expenses linked to facility leases, and the loss of rental income from a key property as primary contributors to the operating margin decline.

Drivers of Future Performance

Management expects near-term performance to hinge on headcount growth, recovery in regulatory work, and capturing opportunities in emerging technology and energy sectors.

• Headcount expansion: Schlenker stated that technical employee numbers are expected to rise 4% by year-end, which should support workload capacity and future revenue growth, though rate increases are likely to moderate.
• Emerging market opportunities: Corrigan emphasized early-stage engagements in distributed energy systems, battery storage, and artificial intelligence, describing these as significant long-term growth drivers as clients seek support in navigating complex risks.
• Regulatory and client delays: Management identified ongoing delays in regulatory approvals, particularly in chemical and life sciences sectors, as a risk that could weigh on project timing and revenue recognition in the coming quarters.

Catalysts in Upcoming Quarters

In the quarters ahead, our analyst team will be monitoring (1) the pace of hiring and integration of new technical staff to support expanding workloads, (2) signs of recovery or continued delays in regulatory-driven projects, particularly in chemical and life sciences, and (3) early progress in securing larger engagements tied to the energy transition, wildfire mitigation, and AI-enabled safety-critical applications. The ability to maintain or improve utilization rates will also be closely watched.

Exponent currently trades at $71.15, up from $68.96 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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