ICF International, Inc.

Welcome to the fourth quarter and full year 2022 ICF earnings conference call. My name is Michelle and I will be your operator for today's call. At this time, all participants are in the listen only mode. Afterwards, you will 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, operator. Good afternoon, everyone, and thank you for joining us to review ICF's fourth quarter and full year 2022 performance. With us today from ICF are John Wasson, Chair and CEO, and Barry Broadus, CFO. Joining them is James Morgan, Chief Operating Officer. During this conference call, we will make 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 February 28, 2023 press release and our SEC filings for discussions of those risks. In addition, our statements 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 Wasson, to discuss fourth quarter and full year 2022 performance. John?

Thank you, Lynn, and thank you all for participating today to review our fourth quarter and full year 2022 results. and discuss our outlook for 2023. ICF's fourth quarter was an outstanding finish to 2022, which was a record year for the company across all key financial metrics. There are five key takeaways I'd like to highlight. First, our strong year-on-year increases in service revenue of 24% for the quarter and 15.8% for 2022, which reflected double-digit organic growth across our key growth markets in the aggregate, What's the impact of our two acquisitions that benefited revenues from federal government clients? Second, the substantial margin expansion we achieved, posting an adjusted EBITDA to service revenue margin of 16.3% for the fourth quarter and 14.9% for the year, up from 14.3% in 2021. Third, we had record contract awards for both the fourth quarter and full year, which resulted in a 12-month book-to-bill ratio of 1.32. Fourth, our robust operating cash flow, which supports our capital allocation priorities. And fifth, our 2023 guidance for double-digit revenue growth, merger margin expansion, and gap and non-gap EPS of 490 and 630, respectively, at the midpoints. These accomplishments are due in large part to the growth strategy we outlined in 2020 and the strategic decisions we've made since then to expand our investments and capabilities in markets in which we anticipated accelerated client spending and where ICF already had recognized experience and success. These markets, namely IT modernization, public health, disaster management, utility consulting, and climate, environment, and infrastructure services accounted for approximately 55% of our service revenue at the end of 2020. Since that time, revenues from these markets have grown considerably through a combination of organic investments in people and technology, the completion of three sizable acquisitions over the past three years, and the capture of initial revenue synergies. As a result, these high growth markets represented approximately 75% of our service revenue as we exited 2022, and we expect this to increase for full year 2023. In addition to driving service revenue growth, these investments have substantially expanded our margins, together with various cost reduction actions. Adjusted EBITDA margin on service revenue increased from 13.7% in 2020 to 14.9% in 2022, and our guidance for 2023 anticipates a 15% margin inclusive of investments to support future growth. To find this growth, we have taken on debt, which is in line with how we've built ICF. As in the past, after we have levered up, We've used strong cash flow to repay debt. In the fourth quarter of 2022, we repaid approximately $145 million in debt, bringing our adjusted leverage ratio down to 2.86 at year end. Additionally, we were able to mitigate the impact of higher interest expense on our financial results. As expected, offsets like lower facility costs, administration efficiencies, and effective tax strategies enabled us to report substantial growth in non-GAAP EPS for both the fourth quarter and full year of 2022. And the midpoint of our 2023 non-GAAP EPS guidance points to 9.2% year-on-year growth. Looking across our client categories, there's several highlights worth noting. Revenues from federal government clients increased 45.6% year-on-year in the fourth quarter, comprised of 15.4% organic growth, plus the contributions from our creative and semantic bits acquisitions. IT modernization and public health, two of our key areas of focus in the federal arena, continue to show strong growth. One of our most notable contract awards in the fourth quarter was a new $160 million task order with the National Institute of Health National Cancer Center that demonstrates the success of combining deep health domain expertise and leading-edge technology solutions, plus extensive experience supporting the client. Further, fiscal year 23 obvious appropriations included significant agency-level IT modernization investments, and additional funding to the Technology Modernization Fund. Both our IT modernization and public health work will also benefit from the $9 billion in additional 2023 discretionary appropriations to our largest client, the Department of Health and Human Services, as increased funding is going to agencies where ICF is well positioned, notably the Centers for Disease Control and Prevention, the National Institutes of Health, the Centers for Medicare and Medicaid Service, the Substance and Abuse and Mental Health Services Administration, the Administration for Children and Families, and the Food and Drug Administration. In addition to the 2023 appropriations, our federal government revenues will benefit from the IIJA and later the IRA, which provide ISA with multiyear growth opportunities to capitalize on our longstanding credentials in clean energy, climate, and infrastructure. Revenues from state and local governments increased 7% in the fourth quarter, reflecting year-on-year growth in both disaster management and environmental services in support of infrastructure projects. During the year, our teams in Puerto Rico dispersed more than $1.4 billion in FEMA funding, and we were the market leader in issuing CDBG grants to homeowners. As I mentioned last quarter, ICF won a $51.4 million award to continue to support the continuing household recovery on the island, and we're tracking a number of procurements in 2023 where we believe that we are well positioned and competitive. We're also very active in Texas, and our position there in environmental services has been enhanced by the Blanton acquisition, which we closed in September of last year. Revenue from commercial energy clients increased 17% in the fourth quarter, reflecting substantial growth across all services. We saw robust demand from utility clients for energy efficiency, electrification, flexible load management, and distributed energy services programs. Additionally, demand for energy advisory services related to renewables and clean energy remains strong and will only increase with the significant IRA incentives once the associated rules and guidance come out later this year. Revenue comparisons in our international government business in the fourth quarter were impacted primarily by the completion in early 2022 of a short-term project with significant passive revenues and currency translations related to the Euro and the British pound. We have continued to win multi-year contracts and have an active business development pipeline, leading us to expect mid-single-digit growth in this client category in 2023. Our climate, environmental, and infrastructure services, which cut across all of our client categories, continue to experience positive momentum. The IIJA and IRA have created a uniquely favorable public policy, and economic environment that has increased the number and value of renewable power, electric transmission, electric vehicle, and innovative fuel projects across the country. These projects can be large and take time to come to fruition. We expect them to provide significant growth opportunities for ICF in the coming years. After a fourth quarter of record contract awards, we ended 2022 with a business development pipeline of over $8.5 billion. 20% higher than one year ago, in part due to revenue synergy opportunities related to the two larger acquisitions that we completed in 2022. The pipeline represents a diverse set of opportunities across our government and commercial clients that includes only a modest dollar amount associated with IIJA and IRA-related projects, which we expect to increase as the year progresses. Also, in mid-January, we announced the formation of a new group focused on increasing the company's technology capabilities and maintaining our growth momentum in the federal IT modernization arena, to be led by Mark Lee as chief technology executive. As part of this, Mark will also oversee a new company-wide chief technology officer organization that will help drive further technology growth and innovation across all of ICF's markets. In summary, our 2022 results demonstrate how well aligned ICF's domain expertise and expanded implementation capabilities are, defending priorities of government and commercial clients. Additionally, our performance in 2022 and our guidance for 2023 have put us on track to achieve the long-term financial goals we outlined in our May 2022 Investor Day, namely to achieve high single-digit organic service revenue growth through 2024, driven by our five key growth areas, double-digit total revenue growth by adding acquisitions that are a strong cultural fit and offer revenue and earnings synergies, And by the end of 2024, increase adjusted EBITDA to approximately 245 million. Operator, I'd now like to turn the call over to our CFO, Barry Broaddus, for a financial review. Barry?