ICF International, Inc.

Good afternoon, everyone. I will now share additional details of our financial performance in the second quarter of 2023. As John noted, we had strong second quarter revenue performance, which was a result of our 10% organic growth, coupled with the acquisition of SymantecBits July of last year, and drove our year-over-year revenue increase of 18.2% to $500.1 million. Revenue growth was broad-based, reflecting double-digit increases from federal, state, and local government and commercial energy clients, which together account for 88% of our second quarter revenue. Subcontractor and other direct costs of $137.7 million represented 27.6% of total revenue, which is in line with last year's second quarter. Gross margin for the second quarter was 34.9%, a decline of 150 basis points as compared to the same period last year. Several factors contributed to the decrease, including last year's acquisition of semantic bids, which generates a lower gross margin, but higher EBITDA margins, and the timing of certain projects and contract ramp-ups. We expect to see sequential progressive improvement in gross margins in the second half of this year. Year over year, adjusted indirect expenses declined 140 basis points to 24.6% of revenue due to greater scale and the effective management of our indirect expenses. As we continue to make investments in people and technology to support our long-term growth, our indirect and selling expenses increased 10.6% year on year to $126.5 million, which was at a significantly slower pace than our revenue growth. Second quarter EBITDA increased 19.2% to $47.5 million, and adjusted EBITDA increased 15.3% to $51 million year over year. Interest expense for the second quarter was $10.2 million, an increase of $6.1 million from last year's level. The second quarter acquisition of CMY, which was not embedded in our prior forecast, coupled with the increase in interest rate drove our interest expense to be higher than we anticipated. The second quarter EPS impact of the higher interest expense was more than offset by the benefit from our tax optimization strategies we implemented. This additional benefit from our tax optimization strategies to mitigate the forecasted year-over-year higher interest expense for the remainder of this year. Net income was 20.3 million or $1.7 per diluted share in the second quarter, inclusive of 3.5 million or 13 cents per share of tax-affected M&A and severance charges. Our second quarter net income and diluted EPS included a 21 cent per share incremental tax benefit beyond the full year estimated tax rate from which our year end ETR guidance was based upon. Second quarter of 2022 net income was 18.4 million or 97 cents per diluted share. Non-GAAP EPS increased 18.8% to $1.57 per share which also includes the benefit of the company's long-term tax strategies. We're very pleased with our second quarter and year-to-date cash flow generation. Our second quarter cash flow from operations was 36.7 million and 19.9 million on a year-to-date basis, significantly ahead of our results in the first half of 2022. Our ongoing cash management initiatives were a key driver of the favorable cash generation performance and also contributed to our improved day sales outstanding of 73 days as compared to the 82 days in last year's second quarter. Year-to-date capital expenditures primarily related to technology investments totaled $13.2 million as compared to $11 million in the first half of 2022. Our debt at the end of June was $601.8 million, similar to our debt balance at the end of the first quarter. Our second quarter debt is inclusive of the funding of the purchase of CMY solutions. The acquisition was largely executed through the cash flow generation from operations during Q2. Our adjusted net leverage ratio was 3.11 at quarter end compared to 3.09 at the end of the first quarter. Assuming no additional acquisitions this year, we expect our year end leverage ratio to be down approximately one turn. inclusive of the expected net proceeds from the divestiture of our commercial marketing group. In addition, during the second quarter, the company executed an additional $100 million of interest rate swaps, which increased our fixed rate debt to be approximately 60% of total debt. With the addition of these new swaps, our all-in average interest rate now stands at 5.25%. In addition to debt reduction, our capital allocation priorities include making investments to support organic growth, paying dividends, repurchasing shares to offset the impact of employee incentive programs, and continuing to consider strategic acquisitions. We used 18.1 million in the first half of this year to repurchase 180,000 shares. We have 93.7 million remaining under the current stock repurchase authorization plan. We also announced today a quarterly cash dividend of 14 cents per share, payable on October 13, 2023, to shareholders of record on September 8, 2023. Now, to help you with your financial models, I want to emphasize that our second half revenues will be essentially flat as compared to the first half due to the divestiture of our commercial marketing group, which is offset in part by the revenue generated from the CMY acquisition. The net effect of the divestiture and the acquisition in the second half of this year will lower our revenue by approximately $15 million, weighted toward the latter part of this year. As John previously stated, we are reaffirming our revenue and non-GAAP EPS guidance for 2023, which is inclusive of both the CMY acquisition and the pending divestiture of our commercial marketing group. In addition, any potential gain associated with a commercial marketing group divestiture and the one-time non-cash charge associated with stranded facilities will not impact our non-GAAP EPS guidance. Now we'll move on to other key guidance metrics. Our depreciation and amortization expenses is expected to be in the range of $23 to $25 million. Amortization of intangibles should be approximately $36 million. Interest expense is now expected to be in the range of 37 to 39 million compared to our previous forecast of 32 to 34 million, resulting from higher interest rates and higher average debt balances, as I previously mentioned. Our tax rate in the first half, based on our tax rate in the first half of the year, we now expect the tax rate for this year to be approximately 17%. As compared to the 23.5% we previously guided to, with the second half of this year to be in the range of 19% and more specifically with the third quarter projected to be at approximately 12% operating cash flows projected to be 150 million. We expect our fully delayed diluted weighted average share count to be approximately 19 million and our capital expenditures are anticipated to be between 26 and 28 million. On a final note, We have removed the non-GAAP financial measure of service revenue as it is not in line with recently stated SEC guidelines. Service revenue will no longer be included in our public filings, investor presentations, and other published reports and documents. The company will continue to provide information on our subcontractor and other direct costs. And with that, I will now turn the call back over to John for his closing remarks.

Thanks, Barry. We are pleased to reaffirm our full-year guidance. We expect 2023 total revenue of $1.93 billion to $2 billion, and we anticipate subcontractor and other direct costs will be approximately 27% of total revenue. EBITDA is estimated to range from $210 million to $220 million, and GAAP EPS is projected at $475 to $505, exclusive to special charges. Non-GAAP EPS is expected to range from 615 to 645. Operating cash flow is expected to be approximately 150 million in 2023. In the second quarter, we continue to invest in people and technology that enabled ICF to execute effectively on our existing contracts while positioning us to capture an even greater share of future growth opportunities. The sale of our commercial marketing group was a strategic decision to streamline our business and deploy our resources to support the key growth markets we have identified. And the acquisition of CMY fully aligns with the increased demand we anticipate from our commercial energy clients. Our industry-leading trailing 12-month book-to-bill ratio of 1.3, together with our record $10.3 billion business development pipeline, point to continued growth ahead. Additionally, we are proud of the impact that ICF and its people are having on society through the services we provide clients in support of energy saving, carbon reduction, and natural resource protection programs, as well as health, education, development, and social justice programs. I encourage all of you to review our recently released corporate citizenship report, which highlights our impacts in these areas.

With that, operator, we'll open it up for questions.