Exponent (EXPO)

Scientific consulting firm Exponent (NASDAQ:EXPO) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 17.6% year on year to $147.1 million. Its GAAP profit of $0.55 per share was 8.5% above analysts’ consensus estimates.

Company Overview

With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ:EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.

The sector stands to benefit from ongoing digital transformation, increasing corporate demand for cost efficiencies, and the growing complexity of regulatory and cybersecurity landscapes. For those that invest wisely, AI and automation capabilities could emerge as competitive advantages, enhancing process efficiencies for the companies themselves as well as their clients. On the flip side, AI could be a headwind as well as the technology could lower the barrier to entry in the space and give rise to more self-service solutions. Additional challenges in the years ahead could include wage inflation for highly skilled consultants and potential regulatory scrutiny on outsourcing practices—especially in industries like finance and healthcare where who has access to certain data matters greatly.

Exponent competes with other technical consulting firms such as Charles River Associates (NASDAQ:CRAI), FTI Consulting (NYSE:FCN), and Rimkus Consulting Group (private), as well as with the internal engineering and scientific departments of large corporations and specialized boutique consulting firms in specific technical niches.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $541.2 million in revenue over the past 12 months, Exponent is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Exponent grew its sales at a solid 7.1% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Exponent’s recent performance shows its demand has slowed as its annualized revenue growth of 4.5% over the last two years was below its five-year trend.

This quarter, Exponent reported year-on-year revenue growth of 17.6%, and its $147.1 million of revenue exceeded Wall Street’s estimates by 11.7%.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Exponent has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 24.2%.

Looking at the trend in its profitability, Exponent’s operating margin decreased by 2.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Exponent generated an operating margin profit margin of 19.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Exponent’s unimpressive 6.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Exponent’s two-year annual EPS growth of 1.6% was subpar and lower than its 4.5% two-year revenue growth.

Diving into the nuances of Exponent’s earnings can give us a better understanding of its performance. While we mentioned earlier that Exponent’s operating margin was flat this quarter, a two-year view shows its margin has declined. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Exponent reported EPS of $0.55, up from $0.50 in the same quarter last year. This print beat analysts’ estimates by 8.5%. Over the next 12 months, Wall Street expects Exponent’s full-year EPS of $2.04 to grow 3.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Exponent has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 23.1% over the last five years.

Taking a step back, we can see that Exponent’s margin dropped by 1.9 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Exponent hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 43.1%, splendid for a business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Exponent’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Exponent is a profitable, well-capitalized company with $207.4 million of cash and $82.6 million of debt on its balance sheet. This $124.8 million net cash position is 3.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Exponent blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $66.82 immediately following the results.

Updated: December 3, 2025 at 11:06 PM EST

When considering an investment in Exponent, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Exponent isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was good over the last five years and Wall Street believes it will continue to grow, its diminishing returns show management's prior bets haven't worked out. And while the company’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its subscale operations give it fewer distribution channels than its larger rivals.

Exponent’s P/E ratio based on the next 12 months is 33.4x. At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $83 on the company (compared to the current share price of $73.78).