EXPO 10-K & 10-Q changes, risk factors and insider trading

Our business involves the delivery of professional services and is labor-intensive.people-intensive. Our success depends in large part upon our ability to attract, retain and motivate highly qualified technical and managerial personnel. Qualified personnel are in great demand and are likely to remain a limited resource for the foreseeable future. We cannot provide any assurance that we can continue to attract sufficient numbers of highly qualified technical and managerial personnel and retain existing employees. We have experienced and expect to continue to experience employee turnover. We face threats from competitors who aggressively seek to poach our talent. The loss of key managerial employees, business generators or any significant number of employees could have a material adverse impact on our business, including our ability to secure and complete engagements. We rely heavily on our executive officers, group vice presidents, and practice/office directors to manage our operations. Given the highly specialized nature of our services and the scale of our operations, our executive officers, group vice presidents and practice/office directors must have a thorough understanding of our services and operations, as well as the skills and experience necessary to manage a large organization in diverse geographic locations. We are unable to predict with certainty the impact that leadership transitions and the loss of certain employees in leadership roles may have on our business operations, prospects, financial results, client relationships, or employee retention or morale.

We have experienced, and expect to continue to be subjected to, security breaches and threats, none of which have been material to us to date. Despite the implementation of security and business continuity measures, our information technology infrastructure and networks are vulnerable to electronic breaches of security. The adoption of AI technologies may also introduce new cybersecurity vulnerabilities, and AI systems may be targeted by cyberattacks or exploited to extract sensitive data. Furthermore, we are subject to risks to information security posed by external or insider threats, including unauthorized access, manipulation, misuse, or improper disclosure of proprietary, sensitive, or confidential information by employees, contractors, or other insiders. Any such breaches could lead to disruptions of our operations and potential unauthorized disclosure of confidential and/or personal information, which could result in legal claims or proceedings, have impacts to our operations, and/or cause harm to our reputation. Our systems and data are protected by a comprehensive Information Security program detailed in our Information Security Management System. Dedicated security, privacy, information governance, and compliance professionals maintain the program with oversight provided by the Board of Directors in conjunction with senior leadership. See Item 1C. for more information about our Cybersecurity Risk Management and Strategy. While we have taken reasonable steps to prevent and mitigate the damage of a security breach by continuously improving our design and coordination of security controls across our business, those steps may not be effective and there can be no assurance that any such steps can be effective against all possible risks.

In addition to our offices in the United States, we have a presence in the United Kingdom, Switzerland, Hong Kong, China, Singapore, Ireland, Germany, and Germany,Canada, and conduct business in several other countries. We expect to continue to expand globally and our international revenues may account for an increasing portion of our revenues in the future. Our international operations carry special financial, business and legal risks, including cultural and language differences; employment laws and related factors that could result in lower utilization, higher staffing costs, and cyclical fluctuations of utilization and revenues; currency fluctuations that adversely affect our financial position and operating results; burdensome regulatory requirements and other barriers to conducting business; tariffs/trade disputes and other trade barriers; geopolitical risks that could result in an adverse impact to our clients and Exponent, such as cyberattacks, trade sanctions, and increased regulatory scrutiny on operations; armed conflicts and wars, including the Russia-Ukraine warcurrent and thepotential global conflicts in the Middle East; managing the risks associated with engagements with foreign officials and governmental agencies, including the risks arising from the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act of 2010; managing the risks associated with global privacy and data security laws and regulations including the General Data Protection Regulation in Europe and China’s data protection and national security laws; greater difficulties in managing and staffing foreign operations; successful entry and execution in new markets; restrictions on the repatriation of earnings; potentially adverse tax consequences; and other impending legislation that could add additional risks to the business.

To the extent we export technical services, data and information outside of the locations where we operate, we are subject to U.S. and international laws and regulations governing international trade and exports, including but not limited to the International Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions against embargoed countries.countries or parties. An increase in government use of export controls and sanctions lists could affect both our client engagements and our operations. A failure to comply with these laws and regulations could result in civil or criminal sanctions, including the imposition of fines, the denial of export privileges and suspension or debarment from participation in U.S. government contracts, which could have a material adverse effect on our business.

We depend on multiple internal and external information systems for operating our business. We utilize commercially available third-party technology solutions, which in many cases are customized to our business needs. Our information systems may be compromised by power outages, computer and telecommunications failures, computer viruses, security breaches, hackers, catastrophic events, AI-enabled threats, human error and other events, many of which are beyond our control, and are subject to obsolescence and technological changes. If our information systems fail to work properly or otherwise become unavailable, or if we encounter difficulties in integrating new or replacement systems, we may incur substantial time, efforts and costs to repair or replace such systems, or otherwise carry out our operations without the ability to use such systems. Failure of any such information system could result in delays, significant additional costs, incorrect information, failure of internal control and harm to our reputation as well as expose us to regulatory actions and claims any of which could adversely affect our business and results of operations and our reputation.

The markets for our services are highly competitive. In addition, there are relatively low barriers to entry into our markets and we have faced, and expect to continue to face, additional competition from new entrants into our markets. Competitive pressurepressure, including from those utilizing AI technologies, could reduce the market acceptance of our services and result in limitations in our ability to implement billing rate increases or maintain billing rates that could have a material adverse effect on our business, financial condition or results of operations.

We are subject to risks arising from adverse changes in economic and political conditions, both domestically and globally, including regulatory uncertainty and unfavorable changes in economic conditions, such as inflation, rising interest rates or a recession, and other events beyond our control, such as geopolitical developments, economic sanctions, natural disasters, pandemics, epidemics, political instability, armed conflicts and wars, including the Russia-Ukraine warcurrent and thepotential conflictglobal in the Middle East.conflicts. Worsening economic conditions have had and may continue to have an adverse impact on the businesses and financial health of many of our clients. As a result, current or potential clients may consolidate or go out of business and thus demand for our services may be reduced significantly. Political changes and trends such as populism, protectionism, economic nationalism and sentiment toward multinational companies, as well as tariffs, export controls, restrictions on outbound investment or other trade barriers, sanctions, currency controls, or changes to tax or other laws or policies, have been and may continue to be disruptive to our business. These can interfere with our global operating model, client relationships, and competitive position. Further escalation of any specific trade tensions between the U.S. and China, or in global trade conflict more broadly could be harmful to global economic growth or to our business in China or other countries.

Many factors could cause the market price of our common stock to rise and fall. These include the risk factors listed above and below; changes in estimates of our performance or recommendations by securities analysts; future sales of shares of common stock in the public market; market conditions in the industry and economy as a whole; acquisitions or strategic alliances involving us or our competitors; restatement of financial results; and changes in accounting principles or methods. In addition, the stock market often experiences significant price fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our common stock. When the market price of a company's stock drops significantly, shareholdersstockholders often institute securities class action litigation against that company. Any litigation against us could cause us to incur substantial costs, divert the time and attention of our management and other resources, or otherwise harm our business.

ChangesFailure into interpretationmeet andclimate applicationexpectations ofor tax lawsstandards could harmadversely affect our business, revenue,reputation, cashbrand, flowsresults of operations and financial results.condition

This section of this Annual Report on Form 10-K generally discusses 20242025 and 20232024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2024 and year-to-year comparisons between 2024 and 2023. Discussions of 2023 and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report formForm 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended DecemberJanuary 29,3, 2023.2025.

Net income increasedwas 9%$106,009,000 during 2025 as compared to $109,002,000 during 2024 as compared to $100,339,000 during 2023.2024. Diluted earnings per share increaseddecreased to $2.07 for 2025 as compared to $2.11 for 2024 as compared to $1.94 for 2023.2024. The increasedecrease in profitability was due to an increase in other operating expenses associated with the extension of our continuedland effortslease with the State of Arizona in June of 2024, an increase in general and administrative expenses driven by higher travel and meals related to bettera aligncompany-wide resourcesmanagers’ with demand. Net incomemeeting, and diluteda earningsdecrease per share for 2024 and 2023 benefited fromin the excess tax benefit associated with stock-based awards. TheDuring excess2025, we realized a negative tax benefitimpact associated with stock-based awards decreasedof to $2,793,000 during 2024$254,000 as compared to $3,620,000a positive tax benefit of $2,793,000 during 2023.2024. The decreasechange in the excess tax benefitimpact associated with stock-based awards was due to athe smaller increasechange 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 20242025 as compared to 2023.2024.

We remain focused on building our world-class engineering and scientific team to position Exponent 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 shareholderstockholder value.

We operate on a 52-53 week fiscal year with each year ending on the Friday closest to December 31st. Fiscal period 2025 included 52 weeks of activity and ended on January 2, 2026. Fiscal period 2024 included 53 weeks of activity and ended on January 3, 2025. Fiscal period 2023 included 52 weeks of activity and ended on December 29, 2023. Fiscal period 2022 included 52 weeks of activity and ended on December 30, 2022. Fiscal period 20252026 is 52 weeks and will end on January 2,1, 2026.2027.

BillableDuring 2025 billable hours weredecreased 1,495,000 during both 2024 and 2023. Our utilization increased2% to 73% for 20241,468,000 as compared to 69%1,495,000 during 2024. Our utilization was 73% for 2023.both The2025 increaseand in utilization during 2024 was due to our efforts to align resources with demand.2024. Technical full-time equivalent employees decreasedincreased 8%1% to 973 for 2025 as compared to 967 for 2024 as compared to 1,047 for 2023.2024.

FISCAL YEARS ENDED January 2, 2026 AND January 3, 2025 AND December 29, 2023

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billing rates andpartially anoffset increaseby a decrease in billable hours. Growth in this segment during 20242025 was primary driven by demand for our risk management and asset integrity management services acrossin the consumerutilities productsindustry and utilitiesdispute-related industries.services Inin the consumerenergy, electronics sector we advised clients on projects related to digital healthautomotive and wearables,medical suchdevice as advanced sensors in health applications and engagements in augmented and virtual reality.sectors. During 2024,2025, billable hours for this segment increaseddecreased by 1% to 1,199,0001,188,000 as compared to 1,188,0001,199,000 during 2023.2024. Utilization for this segment increaseddecreased to 74% for 2025 as compared to 75% for 2024 as compared to 70% for 2023 due to our continued efforts to align resources with demand.2024. Technical full-time equivalent employees in this segment decreasedincreased 7%2% to 759771 during 20242025 as compared to 818759 for 2023.2024.

The decrease in revenues from our Environmental and Health segment was due to a decrease in billable hours partially offset by an increase in billing rates. The decrease in billable hours was due to a lower level of activity for our regulatory services in the chemical industry. During 2024,2025, billable hours for this segment decreased by 4%5% to 296,000280,000 as compared to 307,000296,000 during 2023. The decrease in billable hours was related to headwinds in the chemical and life sciences sectors.2024. Utilization for this segment increaseddecreased to 66% for 2025 as compared to 67% for 2024 as compared to 64% for 2023 due to our continued efforts to align resources with demand.2024. Technical full-time equivalents decreased 9%3% to 208202 during 20242025 as compared to 229208 for 2023.2024.

The increase in compensation and related expenses during 20242025 was due to an increase in payroll expense, an increase in bonus expense andexpense, an increase in stock-basedfringe compensation.benefits and a change in the value of assets associated with our deferred compensation plan. During 2024,2025, payroll expense increased $3,771,000$4,866,000 and fringe benefits increased by $1,834,000 due to the impact of our annual salary increase partiallyand offsetan by a decreaseincrease in technical full-time equivalent employees. During 2024,2025, bonus expense increased by $5,096,000$2,202,000 due to a corresponding increase in our bonus pool.pool Stock-basedwhich is 33% of income before income taxes, interest income, bonus expense, and stock-based compensation. During 2025 deferred compensation expense increased $1,150,000$2,435,000 duringwith a corresponding increase to other income, net as compared to 2024 due to a change in value of assets associated with our deferred compensation plan. This increase consisted of an increase in the value of plan assets of $17,363,000 during 2025 as compared to an increase in unvestedvalue restrictedof stockplan unitassets grants.of $14,928,000 during 2024. We expect 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 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 was primarily due to an increase in occupancy expense of $3,437,000,$1,552,000, an increase in information technology relatedcomputer-related expenses of $839,000$876,000 and an increase in depreciationtechnical expensematerials of $773,000. 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 $2,316,000 during 2024.$454,000. The remainder of the increase in occupancy expense was due to investmentsthe extension of our land lease with the state of Arizona in ourJune officeof and laboratory facilities.2024. The increases in depreciationcomputer-related expenses and informationtechnical technology related expensesmaterials were due to continued investment in our corporate infrastructure. We expect other operating expenses to grow as we selectively add new talent and continue to make investments in our corporate infrastructure.

The amount of reimbursable expenses will vary from year to year depending on the nature of our projects. The increase in reimbursable expenses as compared to 20232024 was due to an increase in proactivereimbursable projectsexpenses forassociated thewith consumeruser electronicsresearch sector.projects.

The decreaseincrease in general and administrative expenses during 20242025 was primarily due to aan decrease in outside consulting expenses of $1,304,000, a decreaseincrease in travel and meals of $844,000 and a decrease in personnel expenses of $673,000. Outside consulting decreased primarily due to activity associated with content creation for our external website during 2023.$2,627,000. The decreaseincrease in travel and meals was due to the decrease in technical full-time equivalent employees and a firm-widecompany-wide principals'managers' meeting which was held induring 2023.We2025. We did not have any firm-widecompany-wide meetings during 2024. The decrease in personnel expenses was due to lower relocation and recruiting costs. We expect general and administrative expenses to increase as we expand our business development and staff development initiatives.

The increase in operating income for our Engineering and Other Scientific segment during 20242025 as compared to 20232024 was due to an increase in revenues and an increase in utilization.revenues. The increase in revenues was due to an increase in billing ratesrates, andpartially anoffset increaseby a reduction in billable hours driven by demand for our services across the consumer products and utilities industries. The increase in utilization was due to our efforts to align resources with demand.hours. The increase in operating income for our Environmental and Health segment was also due to an increase in utilizationbilling duerates, topartially ouroffset effortsby toa alignreduction resourcesin withbillable demand.hours.

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 expenses was due to an increase in travel and meals due to a company-wide managers' meeting held during 2025, an increase in deferred compensation expense due to a change in value of assets associated with our deferred compensation plan, an increase in stock-based compensation and an increase in thecorporate provisionsupport for contract losses and doubtful accounts.expenses.

Other IncomeIncome, 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 increasedecrease in other income, netnet, was primarily due to ana increasedecrease in rental income and a decrease in interest income, partially offset by the change in value of assets associated with our deferred compensation plan. During 2025, rental income decreased by $1,856,000 due to the loss of a tenant in our Silicon Valley facility. The decrease in interest income of $2,851,000$694,000 was due to ana decrease in interest rates. During 2025, deferred compensation expense increased $2,435,000 with a corresponding increase to other income, net, as compared to the same period last year, due to the change in cashvalue andof cashassets equivalents.associated with our deferred compensation plan.

TheDuring excess2025, we realized a negative tax benefitimpact associated with stock-based awards decreasedof to $2,793,000 during 2024$254,000 as compared to $3,620,000a positive tax benefit of $2,793,000 during 2023.2024. The decreasechange in the excess tax benefitimpact associated with stock-based awards was due to athe smaller increasechange in the difference of the value of our common stock between the grant date and the release date for the restricted stock units released induring 20242025 as compared to restricted stock units released in 2023.2024. Excluding the impact of the excess tax benefit, the effective tax rate would have been 27.9% and 28.8% for 2024both 2025 and 2023, respectively. The decrease in our effective tax rate, excluding the impact of the excess tax benefit, was primarily due to a re-measurement that reduced the value of our deferred tax assets in connection with relocating one of our offices to a location designated as tax exempt for all state and local taxes during 2023.2024.

We financed our business in 20242025 through available cash and cash flows from operating activities. We invest our excess cash in cash equivalents. As of January 3,2, 2025,2026, our cash and cash equivalents were $258,901,000$221,930,000 as compared to $187,150,000$258,901,000 at DecemberJanuary 29,3, 2023.2025. We believe our existing balances of cash and cash equivalents 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 12 months.

Generally, our net cash provided by operating activities is used to fund our day to dayday-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.

The decreaseincrease in net cash used in investing activities during 20242025 as compared to 20232024 was due to aan decreaseincrease in capital expenditures. The increase in capital expenditures primarilywas due to leaseholdan improvementsincrease duringin 2023investment associated within our officecorporate and lab space in Philadelphia.infrastructure.

The decreaseincrease in net cash used in financing activities during 20242025 as compared to 20232024 was primarily due to aan decreaseincrease in repurchases of our common stock, a reduction in payroll taxes for restricted stock units, and an increase in exercise of stock-based payment awards, partially offset by an increase in dividends.stock.

We lease office, laboratory, and storage space in 1312 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. As a result of this extension, we added an additional right-of-use asset in exchange for an operating lease liability of $48,683,000 during the second quarter of 2024. As of January 3,2, 2025,2026, the value of our obligations under operating leases was $81,477,000.$82,834,000. See Note 12 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations. The value of our non-cancellable unconditional purchase obligations was not material at January 3,2, 2025.2026.

Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (“Non-GAAP”) financial measures, and other SEC regulations define and prescribe the conditions for use of certain 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, interest income, depreciation and amortization. We define EBITDAS as EBITDA before stock-based compensation. We regard EBITDA and EBITDAS as useful measures of operating performance and cash flow 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.

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 businessbusiness, and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our 2025 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 Company 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.

There have been no significant changes in our critical accounting estimates during the threesix months ended AprilJuly 3, 2026, as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2025 Annual Report.

Revenues for the firstsecond quarter of 2026 increased 14%21% to $166,303,000$171,612,000 as compared to $145,507,000$141,962,000 during the same period last year. Revenues before reimbursements for the firstsecond quarter of 2026 increased 10%12% to $151,817,000$148,860,000 as compared to $137,437,000$132,868,000 during the same period last year. RevenueOur proactive work experienced strong growth wasin driventhe quarter, led by proactivedemand engagements, includingfor user research studies for consumer electronicsas clients integratingaccelerate artificialthe intelligencedevelopment intoof theirAI-enabled devices,products asacross wellan asincreasingly diverse range of hardware form factors and applications, with engagements continuing to expand in scope, scale and complexity. This work includes a large study that represented approximately 4% of our net revenues during the quarter. Proactive activity was also supported by increased risk management and infrastructure-related engagements in the utility sector. Reactive work grew, with strong demand for utility clients evaluating asset performance under extreme weather conditions. Reactive engagements also contributed to our growth, with increased dispute-related andexpertise failurefrom analysisthe demandconsumer acrossproducts, construction projects, energy facilities,chemicals, and medicaltransportation devices.industries.

Overview of the Three Months Ended AprilJuly 3, 2026

During the firstsecond quarter of 2026, billable hours increased 6%9% to 399,000390,000 as compared to 376,000359,000 during the same period last year. Our utilization increased 1% to 76%74% during the second quarter of 2026 as compared to 75%72% during the same period last year. TechnicalAverage technical full-time equivalent employees increased 5%6% to 1,0131,012 during the firstsecond quarter of 2026 as compared to 966958 during the same period last year.

Three Months Ended AprilJuly 3, 2026 compared to Three Months Ended AprilJuly 4, 2025

The increase in revenues for our Engineering and Other Scientific segment was due to an increase in billable hourshours, increase in billing rates and an increase in billingrevenues rates.from reimbursements associated with user research projects. Growth during the quarter was primarily driven by user research studies in consumer electronics and risk management in the utilities sector,industry, along with reactive engagements inacross the energyconsumer products, chemicals, and lifetransportation sciences sectors.industries. During the firstsecond quarter of 2026, billable hours for this segment increased by 9%10% to 327,000320,000 as compared to 300,000291,000 during the same period last year. Utilization for this segment increased to 77%76% during the firstsecond quarter of 2026 as compared to 76%74% during the same period last year. TechnicalAverage technical full-time equivalent employees in this segment increased 7% to 814810 during the firstsecond quarter of 2026 as compared to 762756 for the same period last year.

The increase in revenues for our Environmental and Health segment was due to an increase in billingbillable rateshours partiallyand offsetan by a decreaseincrease in billablebilling hours.rates. Growth in this segment was primarily driven by regulatoryengagements consulting inevaluating the chemicalimpacts industry.of chemicals on human health and the environment. During the firstsecond quarter of 2026, billable hours for this segment decreasedincreased by 5%3% to 72,00070,000 as compared to 76,00068,000 during the same period last year. Utilization infor this segment decreasedincreased to 69%66% during the firstsecond quarter of 2026 as compared to 72%65% during the same period last year. TechnicalAverage technical full-time equivalent employees in this segment decreasedwere 2%flat toat 199202 during the firstsecond quarter of 2026 asand compared to 204 during the same period last year.2025.

The increase in compensation and related expensesexpense during the firstsecond quarter of 2026 was due to an increase in payroll,payroll expense and an increase in bonusesbonus andexpense thepartially offset by a change in the value of assets associated with our deferred compensation plan. During the firstsecond quarter of 2026,2026 payroll expense increased by $4,158,00$4,849,000 due to the impact of our annual salary increase and an increase in technical full-time equivalent employees and the impact of annual salary increases.employees. During the firstsecond quarter of 2026, bonus expense increased by $2,938,000$2,990,000 due to a corresponding increase in our bonus pool which is 33% of income before income taxes, interest income, bonus expense, and stock-based compensation. During the firstsecond quarter of 2026, deferred compensation expense increaseddecreased by $8,198,000$5,180,000 with a corresponding increasedecrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan.plans. During the firstsecond quarter of 2026, the value of plan assets decreasedincreased by $1,138,000$11,783,000 as compared to aan decreaseincrease of $9,336,000$16,963,000 during the same period last year. 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 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 firstsecond quarter of 2026 was primarily due to an increase in occupancycomputer-related expenseexpenses of $388,000$354,000 and an increase in computer-related expenses of $255,000. The increase in occupancy expense wasof due to an increase in facility repairs and maintenance.$270,000. The increase in computer-related expenses wasand occupancy expenses were 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.

The increase in general and administrative expenses was primarily due to an increase in personnel expenses of $498,000, an increase in travel and meals of $548,000$246,000, and several other individually insignificant increases. The increase in personnel expenses was primarily due to an increase in relocation expenses. The increase in travel and meals was due to an increase in client and business development activities and an increase in recruiting-related activities associated with the increase in technical full-time equivalent employees.activities. We expect general and administrative expenses to increase as we selectively add new talent and expand our business development and staff development initiatives.

The increase in operating income for our Engineering and Other Scientific segment during the first quarter of 2026 as compared to the same period last year was due to an increase in net revenues and an increase in utilization. The decrease in operating income for our Environmental and Health segment during the firstsecond quarter of 2026 was due to aan decreaseincrease in utilization.

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, corporate, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation planplans; 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 increasedecrease in corporate operating expenses during the second quarter of 2026 as compared to the same period last year was primarily due to thea changedecrease in value of assets associated with our deferred compensation plan.expense. During the firstsecond quarter of 2026, deferred compensation expense increaseddecreased by $8,198,000$5,180,000, with a corresponding increasedecrease to other income, net, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan.plans. During the firstsecond quarter of 2026, the value of plan assets decreasedincreased by $1,138,000$11,783,000 as compared to aan decreaseincrease of $9,336,000$16,963,000 during the same period last year.

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 increasedecrease in other income, net, was primarily due to thea change in the value of assets associated with our deferred compensation plan partially offset byand a decrease in interest income. During the firstsecond quarter of 2026, otherdeferred income,compensation net,expense increaseddecreased by $8,198,000$5,180,000 with a corresponding increasedecrease to deferredother compensationincome, expensenet, as compared to the same period last year, due to the change in value of assets associated with our deferred compensation plan. During the firstsecond quarter of 2026, the value of plan assets decreasedincreased by $1,138,000$11,783,000 as compared to aan decreaseincrease of $9,336,000$16,963,000 during the same period last year. During the firstsecond quarter of 20262026, interest income decreased by $996,000$1,628,000 due to a decrease in interest rates and lower average cash equivalent balances.

During the first quartersix months of 2026, we realized a negative tax impact associated with stock-based awards of $896,000$843,000 as compared to a negative tax impact of $469,000$485,000 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 quartersix months of 2026 as compared to the firstsame quarterperiod oflast 2025.year. Excluding the negative tax impact, our consolidated tax rate was 28.0% in the first quartersix months of 2026,2026 as compared to 28.2% for the same period inand 2025.

We financed our business during the first threesix months of 2026 through available cash. As of AprilJuly 3, 2026, our cash and cash equivalents were $118,553,000$66,629,000 as compared to $221,930,000 at January 2, 2026. The decrease in cash and cash equivalents was primarily due to an increase in repurchases of our common stock. During the first six months of 2026, we repurchased $146,138,000 of our common stock as compared to $32,680,000 during the same period last year.

Generally, our net cash provided by operating activities is used to fund our day to dayday-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. OurThe largest source of operating cash flows is collections from our clients. Our primary uses of cash from operating activities are for employee relatedemployee-related expenditures, leased facilities, taxes, and general operating expenses.

The increase in net cash used in investing activities during the first threesix months of 2026, 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 threesix months of 2026, as compared to the same period last year,year was primarily due to an increase in repurchases of our common stock. During the first six months of 2026, we repurchased $146,138,000 of our common stock as compared to $32,680,000 during the same period last year.

We lease office, laboratory, and storage space in 1213 states and the District of Columbia, as well as in China, Germany, Hong Kong, 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 maintain nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Vested amounts due under the plans of $128,212,000$127,839,000 were recorded as a long-termdeferred compensation plan liability on our unaudited condensed consolidated balance sheet at AprilJuly 3, 2026. Vested amounts due under the plans of $18,272,000$18,609,000 were recorded as aan currentaccrued liabilitypayroll and employee benefits on our unaudited condensed consolidated balance sheet at AprilJuly 3, 2026. Company assets that are designated to fund the benefits under the plans are held in a rabbi trust and are subject to the claims of our creditors. As of AprilJuly 3, 2026, invested amounts under the plans of $126,511,000$122,823,000 were recorded as a non-current asset on our unaudited condensed consolidated balance sheet. As of AprilJuly 3, 2026, invested amounts under the plans of $17,697,000$19,274,000 were recorded as other current assets on our unaudited condensed consolidated balance sheet.

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'scompany’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, income taxes, 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.

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for the three and six months ended AprilJuly 3, 2026 and AprilJuly 4, 2025:

The following table shows EBITDA (determined as shown in the reconciliation table abovebelow) as a percentage of revenues before reimbursements for the three and six months ended AprilJuly 3, 2026 and AprilJuly 4, 2025:

The increase in EBITDA as a percentage of revenues before reimbursements,reimbursements during the firstthree quarterand ofsix months ended July 3, 2026 as compared to the same periodperiods last year,year was primarily due to an increase in net revenues and an increase in utilization.