ICF International, Inc.

Welcome to ICF's second quarter 2022 earnings conference call. My name is Michelle Schlosser and I will be your operator for today's call. Please note that this conference is being recorded on Wednesday, August 3rd, 2022 and cannot be reproduced or rebroadcast without permission from the company. At this time, all participants are in a listen-only mode. Afterwards, you'll be invited to participate in the question and answer session. During the question and answer session, if you have a question, please press star then one one on your touch tone phone. I will now turn the call over to Lynn Morgan of Advisory Partners. Lynn, you may begin.

Thank you, Michelle. Good afternoon, everyone, and thank you for joining us to review ICF's second quarter 2022 performance. With us today from ICF are John Watson, Chairman and CEO, and Barry Broadus, CFO. Joining them is James Morgan, Chief Operating Officer. During this conference call, we will be making forward-looking statements to assist you in understanding ICF management's expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially. And I refer you to our August 3rd, 2022 press release and our SEC filings for the discussions of those risks. In addition, our statements today during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that light. We may at some point elect to update the forward-looking statements made today, but specifically disclaim any obligation to do so. I will now turn the call over to ICF CEO John Watson to discuss second quarter 2022 performance. John?

Thank you, Lynn, and thank you all for participating in today's call to review our second quarter earnings and discuss our business outlook. I'm pleased to report that this was another quarter of strong performance for ICF. First, we continued to build our position in high-growth markets, led in the second quarter by our work in digital transformation, public health, and disaster management. Together, our growth markets, which also include utility consulting, as well as climate, environment, and infrastructure services, now account for over 70% of our service revenue. Second, profitability continued to improve. Adjusted EBITDA to service revenue increased by 20 basis points year on year. while we continue with our investments in people and technology to support future growth. Third, we ended the quarter with a $1.21 trillion 12-month book-to-bill ratio, strengthening our full-year revenue visibility, and a record $8.7 billion new business pipeline, which we expect to result in considerable growth in contract awards in the second half of this year. Last, but certainly not least, in the second quarter, we announced the definitive agreement to acquire Semantic Bits, which was an exceptional strategic success for ICF and is a key factor in our increased full-year revenue and margin guidance. We subsequently closed this transaction on July 13, 2022. Second quarter revenue growth was again led by federal government client work, which increased by 23.6% and reflected organic growth and the acquisition of creative systems and consulting, which we completed at the end of 2021. The acquisition is performing well, in line with our expectations for mid-teens revenue growth, and we see significant opportunities for revenue synergies by bringing in creative, substantial expertise in Salesforce and Microsoft platforms to our broad roster of civilian agency clients. The Symantec Bits acquisition represented a step change in our digital transformation capabilities. As one of the industry's leading digital service and platform providers using open source, Semantic Bits expertise across 30 technology platforms using a fully agile approach complements our existing capabilities in this fast-growing market. Their demonstrated success in executing large health IT projects, together with ICF's deep domain expertise, will enable us to support larger, more complex projects across federal civilian agencies. We are seeing a lot of large, open-source opportunities across our civilian space, and adding Semantic Bits increases our potential win rates. At the same time, with the vast majority of its revenues derived from the Centers for Medicare and Medicaid Services, Semantic Bits opens up a large new addressable market for us, giving ICF scale at CMS an agency with substantial and growing budgets. With Semantic Bits, our digital transformation business has an annual run rate of approximately 500 million. Additionally, as you can see by our revised guidance for the full year, this is a strongly accretive transaction for ICF on a non-GAAP, EPS basis, with only five and a half months of ownership. In addition to digital transformation, public health remained a robust growth market for ICF, with revenue increasing at a double-digit rate, on track for an annualized run rate of approximately 350 million. Of note is our recent win as one of five awardees of a new IDIQ by the National Cancer Institute's Division of Cancer Epidemiology and Genetics Research. We will be competing for up to 320 million over 10 years, to provide epidemiologic and clinical operations support for studies and other research activities to discover the causes of cancer and inform future prevention. The Department of Health and Human Services is our largest client by far, and the 11% increase they received as part of the 2022 budget provides substantial funds for programs that are squarely within our sweet spot, like this IDIQ we just won. Additionally, we are seeing an accelerated effort behind preparing for the next pandemic both at the Centers for Disease Control and as part of the plan reorganization that would create the Administration for Strategic Preparedness and Response, or ASPR, as a separate division that would be charged with the nation's response to health emergencies. ICF is well positioned at both the CDC and Legacy ASPR to assist in this phase of the post-pandemic response. Also, as we have discussed on past calls and our investor day this past May, ISAF is well positioned to gain new contracts relating to the Infrastructure and Jobs Act, or IIJA, where we've already been tasked under existing federal agency contracts to provide a range of services, including technical assistance, assistance to states, and communication and management support for IIJA programs. This tasking today is valued in excess of $12 million. Our federal government pipeline was at a record $5.9 billion at the end of the second quarter And the backlog of pending awards in the federal government is significant. So we expect to see considerable growth in contract awards in the second half of this year. We also saw strong growth year-on-year of 9.5% in our revenues from state and local government clients, led by our disaster management work. Late last year, the Department of Housing and Urban Development announced more than $2 billion in CDBG-DR mitigation funding for disasters occurring during the 2020-21 cycles. Of the grant recipients for that cycle, ICF-1 worked on more than half the awards to support those recoveries in the second quarter, including in Iowa, Colorado, New Jersey, Alaska, Kentucky, and Michigan, either through competitive procurements or extensions of existing contracts. Additionally, we continue to see government at all levels ramping up spending on mitigation, and ICF is now working on mitigation efforts for 30-plus clients in 14 states. We do have a unique set of strengths in understanding the complexity of mitigation projects across multiple federal programs, including successfully managing applications and then orchestrating execution to meet environmental, regulatory, and legislative requirements to bring such projects to fruition. These capabilities give ICF a competitive advantage, which we expect to become more important as the IIJA funds flow through state and local agencies. As expected, revenues from international government clients were lower year on year due to the completion of a short-term project with significant pass-through revenues that drove exceptional growth in this client category in 2021. Excluding that project, revenues were similar to the year-ago second quarter levels, even though our work for the European Union has not fully recovered from pandemic impacts. In addition to contract modification and add-ons to our existing international public sector work, ICF continued to win multi-year framework contracts in this market, including two large re-competes with the European Commission, one to provide consulting support on technical projects throughout member states, the other to promote and market EU agricultural products in countries outside the EU. Also, we have a strong active pipeline for international public sector clients comprised of opportunities that leverage ICF's capabilities, both our technical areas of subject matter expertise as well as our cross-cutting competencies in training and technical assistance, program implementation, communications, and event management. Moving to our commercial client category, similar to the first quarter, lower year-on-year revenue comparisons continue to reflect the softness in commercial marketing services and the exceptional growth we had in commercial energy in last year's first half, which is made for difficult comparisons this year. We continue to closely manage commercial marketing services as they work to recover from pandemic-related impacts on key verticals. Second quarter revenues accounted for less than 7% of our total revenues and were stable on a sequential basis, an early indication that the business may be bottoming out. We've also had some preliminary conversations with a couple of clients in the hospitality sector recently about potential increases in support for their loyalty programs if business travel demonstrates sustainable improvement in the second half of this year. Lastly, our aviation consulting business continues to perform very well, growing at a double-digit rate. Of course, the major long-term growth area within our commercial business is energy markets, which accounted for 62% of second quarter commercial revenues. Second quarter trends in energy were almost identical to those of the first quarter. Energy markets were up about 1% after having increased 11.4% in a similar period last year. Energy efficiency work was up the same 1.3% that it was in the first quarter, and energy markets advisory revenue increased at a mid-single-digit rate. The only year-on-year decline was in our environmental and infrastructure work, where the timing of projects can impact quarter-to-quarter revenues. We expect higher year-on-year comparisons in the second half of this year. As also discussed last quarter, the energy market pipeline remains strong for ICF's core services and energy efficiency program implementation, beneficial electrification, utility marketing services, and advisory consulting. Our utility programs and services practice has a pipeline in excess of 1 billion, and we see expansion opportunities in new states, including Connecticut, Oregon, Colorado, and the District of Columbia, as regulators and legislators set aggressive new goals. For beneficial electrification, our pipeline is no more than triple our pipeline in 2021, and the pipeline for our energy advisory business is the strongest it's been in the past three years. Similarly, we're seeing increased demand for our climate services. In this area, we serve federal, state, and local government and commercial clients, and each of these client categories is growing. The U.S. Environmental Protection Agency recently selected ICF as an awardee under the new multiple award Environmental, Analytical, Research, Technical, and Hybrid, or otherwise known as Earth Support Services Blanket Purchase Agreement, to provide a broad range of environmental consulting services to the Office of Air and Radiation. This five-year BPA has a ceiling value of 5.7 billion across five awardees with 700 million of the award allocated to professional services. And of course, we're pleased to hear that the Congress appears much closer to passing climate-related legislation as part of the Inflation Reduction Act, which will provide ICF with opportunities across our government and commercial client set. To sum up, in the first half of 2022, we have continued to build our capabilities in the key growth markets we've identified We are approaching many opportunities in front of us with increased scale, deep domain expertise, and substantial experience in executing a large and complex project. This combined with a record pipeline of over $9 billion as of July 31st and a trailing 12-month book-to-bill at $1.21 at the end of Q2 all support our expectation for significant growth in 2022 and beyond. Now I'll turn the call over to Barry Roddish, our CFO, for a financial review.