Scientific & Engineering Consulting

# Executive Summary * The Scientific & Engineering Consulting industry is undergoing a profound transformation driven by the integration of AI and digital solutions, which is becoming the primary basis for competitive differentiation and margin enhancement. * Massive, long-term public and private investment in infrastructure modernization and the global energy transition is creating a durable, multi-year demand cycle. * Non-discretionary demand from increasingly complex environmental and safety regulations provides a stable, high-margin revenue foundation for specialized firms. * The competitive landscape is bifurcating between large, diversified players leveraging scale and M&A, and niche specialists commanding premium pricing for deep expertise. * Financial performance diverges based on end-market exposure, with firms focused on energy transition and infrastructure outperforming those heavily reliant on volatile government funding. * Heightened geopolitical tensions are fueling a surge in defense and intelligence-related engineering contracts, benefiting government-focused contractors. ## Key Trends & Outlook The Scientific & Engineering Consulting industry is at an inflection point, where digital transformation and the integration of artificial intelligence are fundamentally reshaping service delivery and competitive advantage. Firms are moving beyond pilot programs to scaled deployment of AI, with leaders like Stantec rolling out over 10,000 Copilot licenses to enhance design and operational speed. This technological shift enables a move from traditional hourly billing to higher-value, data-driven solutions, directly impacting profitability. Companies such as Leidos, with its "Trusted Mission AI," and ICF International, with ICF Fathom, are developing proprietary AI platforms to create a competitive moat, while Tetra Tech is building a projected $500 million annual business around its digital and software solutions. This trend is happening now and is the primary driver of competitive divergence over the next 12-24 months. Underpinning industry growth is a powerful secular demand wave from global infrastructure renewal and energy transition initiatives. This is creating record backlogs and driving strong performance in specific segments. For example, Stantec's growth is being fueled by its water and energy practices, contributing to a record contract backlog of $7.9 billion. Similarly, ICF International's commercial energy segment is growing rapidly, with a 24% year-over-year increase, to meet utility client demand for grid resilience and electrification. The most significant opportunities lie with firms that can leverage specialized expertise to address non-discretionary regulatory demands, such as Exponent, where approximately 60% of its business is reactive and regulatory-driven. Opportunities also exist for those positioned to win large-scale defense contracts fueled by geopolitical instability, as evidenced by Leidos raising its annual profit and revenue forecasts due to strong worldwide weapons demand. The primary risk is exposure to government funding volatility, which has directly impacted firms like ICF International, demonstrating how budget resolutions and shutdowns can create significant revenue headwinds, including a 29.8% year-over-year decline in its U.S. Federal Government segment. ## Competitive Landscape The Scientific & Engineering Consulting industry remains fragmented, with specialists like TIC Solutions and Mistras Group estimating their aggregate market shares in their primary North American markets at 3-5% and 5-10%, respectively. This fragmentation allows for several distinct competitive strategies to succeed simultaneously. Some firms, like Exponent, thrive by focusing on highly specialized, complex problems where deep expertise commands premium pricing and margins. Exponent's business model is approximately 60% reactive, driven by litigation, product recalls, and regulatory investigations, allowing it to command a 5% rate increase in Q2 2025 and achieve an industry-leading 28.3% EBITDA margin in Q3 2025. Its value proposition is built on unparalleled talent across over 90 technical disciplines, creating a strong competitive moat. Other large players, such as Stantec, compete on scale and diversification, building a comprehensive portfolio through organic growth and strategic acquisitions to serve a wide array of end markets. Stantec's diversified business model across five operating units and three geographies is explicitly cited as a strength, contributing to a record $7.9 billion contract backlog. Its acquisition of Page, a U.S.-based architecture and engineering firm, highlights its M&A-driven strategy to gain scale and expand capabilities in key markets. A third approach, exemplified by Leidos, involves deep integration with government clients, particularly in defense and intelligence, where competition is based on advanced technology and the ability to manage large, complex federal programs. Leidos primarily serves the U.S. government, and its NorthStar 2030 strategy is aligned with defense and digital modernization priorities. Its growth is currently being driven by increased defense spending amidst geopolitical tensions, and it is a leader in integrating "Trusted Mission AI" across its offerings. Ultimately, the key competitive battleground is shifting towards technological capabilities, with AI and data analytics becoming critical differentiators across all models, enabling firms to enhance efficiency, improve service delivery, and create higher-value solutions for clients. ## Financial Performance Revenue performance across the industry is sharply divided, dictated by whether a firm's primary exposure is to secular growth drivers or cyclical government headwinds. Recent quarterly revenue growth ranges from a robust 35.3% year-over-year increase for Montrose Environmental Group in Q2 2025 to a 12.4% decline for Mistras Group in Q1 2025 and a 10% decline for ICF International in Q3 2025. This bifurcation is clearly illustrated by ICF International's results, where its Commercial Energy segment grew by 24% year-over-year in Q3 2025, while its U.S. Federal Government segment experienced a significant 29.8% year-over-year decline in the same period. {{chart_0}} Profitability varies widely and is a function of pricing power derived from specialized expertise and business model. Adjusted EBITDA margins generally cluster in the mid-to-high teens for many firms, but elite firms with deep, specialized expertise in non-discretionary regulatory and litigation support can command significant pricing power, leading to premium margins. Exponent's 28.3% EBITDA margin in Q3 2025 exemplifies the premium profitability of a specialized consulting model. This contrasts with the lower gross margins seen in more operational or inspection-focused businesses, such as TIC Solutions at 19.0% in Q1 2025 and Mistras Group at 25.3% in Q1 2025. {{chart_1}} Leading firms are pursuing a dual-track capital allocation strategy, confidently returning capital to shareholders while simultaneously funding strategic acquisitions and technology investments. Leidos exemplifies this balanced approach, having launched a $500 million accelerated share repurchase program in Q1 2025 while also targeting the acquisition of a $300 million cyber company in the same quarter. Exponent further demonstrates this commitment to shareholders, increasing its share repurchase authorization by $100 million and maintaining a 12-year streak of dividend increases. The industry generally maintains strong and healthy balance sheets. Most major players maintain conservative leverage ratios, typically below 2.0x Net Debt to Adjusted EBITDA. This financial strength provides the flexibility to fund acquisitions, invest in technology, and weather economic volatility without undue stress. Stantec serves as a representative example, with a healthy net debt to adjusted EBITDA ratio of 1.1x at June 30, 2025, well within its target range, providing ample capacity for future growth initiatives. {{chart_2}}