ICF International, Inc.

Welcome to the fourth quarter and full year 2024 ICF Earnings Conference Call. My name is Lauren Cannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgan of Advisory Partners. Lynn, you may begin.

Thank you, operator. Good afternoon, everyone. Thank you for joining us to review ICF's fourth quarter and full year 2024 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 27, 2025 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's CEO, John Lawson, to discuss fourth quarter and full year 2024.

Thank you, Lynn, and thank you all for participating in today's call to discuss ICF's fourth quarter and full year 2024 performance and our business outlook. 2024 was a year of solid growth, substantial profitability, and robust cash flow. Key highlights are the continued strong demand for our broad-based energy advisory and program implementation for commercial clients, which was an important contributor to our revenue growth and favorable business mix. The 30 basis point expansion of adjusted EBITDA margin to 11.2% was together with lower interest and tax expense drove a 15% increase in non-GAAP EPS to 745. Our trailing 12-month book-to-bill ratio of 1.24. Our year-end acquisition of Applied Energy Group, a leading energy technology and advisory services company with a substantial growth prospects for 2025. And between mid-November 2024 and today, we have repurchased 395,000 shares in the open market, demonstrating our confidence in ICF's long-term outlook. I will provide a closer look at our 2024 business performance and then share our views on ICF's federal government business in light of the new administration's spending priorities. To start, commercial energy had another standout year in 2024. Revenues increased 26% driven by new wins and contract expansions for energy efficiency program delivery and new utility marketing, customer care, electrification, and flexible load management programs. ICF's innovative program design and technology innovations, together with our track record of meeting or exceeding clients' energy efficiency objectives, have resulted in meaningful share gains for us in this arena. And our competitive position will be further strengthened this year by our acquisition of Applied Energy Group. AEG brings us a trusted energy technology platform that offers real-time business intelligence to utilities, state and local governments, and state energy offices. And its more than 100 utility management and demand side energy experts add strength to ICF's market planning, demand response, electrification, and program evaluation skill as well as to our expertise in gas utility planning and program implementation. Innovation of AEG has been proceeding as planned, and we are identifying business synergies. As an example, we have been able to bring work in-house that AEG was formerly outsourcing. Our commercial energy advisory work showed solid year-on-year growth, reflecting increased development activity in both the distributed energy and utility markets supported by accelerated electricity demand and state policies. These drivers have resulted in increased demand for our technical and power market analysis services in support of client M&A activities, as well as ICF system planning services and substation design and protection work tied to grid modernization needs. And our environment and planning services for commercial clients have seen significant growth driven by many of these same factors. There is especially strong demand for our transmission and distributed related services that relate to disaster and wildfire recovery, including undergrounding and above ground infrastructure replacement. This is an excellent segue to our disaster recovery work, which together with environmental services comprise the majority of our state and local government revenues. ICF has 85 active disaster recovery contracts in 20 states and territories, and is supporting mitigation through more than 40 contracts in 16 states and territories. While each recovery effort is unique to the specific needs of those impacted, this broad-based experience gives ICF lessons learned that we can share with state agencies supporting near and long-term recovery efforts. That is exactly what we are currently doing in California, where we have a long history of working on state projects from environmental planning to high-speed rail. We are in conversations with a variety of local agencies and other entities in the fire-impacted communities of Los Angeles, and we were just awarded a task order by utility to provide construction monitoring services associated with recovery efforts in the aftermath of the Palisades fire. Also, we recently were authorized by Los Angeles County to develop a website to aggregate recovery resources to support those impacted by the wildfires. The large-scale recovery work, however, will require federal appropriations, and we would not expect RFPs until later in the second half of this year. In Oregon, we are currently supporting the state's Re-Oregon program to help homeowners, renters, and communities recover from the wildfires by providing financial assistance to rebuild housing, repair infrastructure, and revitalize local economies. We're also supporting projects to upgrade critical infrastructure be more resilient against future damage as part of the rebuilding efforts. Also, our work for international government clients picked up considerably in 2024 thanks to new contracts won. And in the fourth quarter and first quarter of 2025, we were awarded two significant contracts with a combined ceiling value of over $210 million by the European Commission and the government of the United Kingdom that span research and innovation climate, and the environment, and reflect our ability to deliver cutting-edge solutions that address complex challenges facing clients. Taken together, we expect our revenues from commercial, state and local, and international government clients to grow by at least 15% in 2025 and account for over 55% of our total revenues. 2025, however, will be a transitional year for our business with federal government clients as the new administration determines which programs align with its funding priorities. As of right now, approximately $90 million of our estimated 2025 revenues have been affected by stop work orders and by contract terminations. While cuts have taken place across a broad universe of federal agencies, the majority of the revenue impact relates to our USAID contracts. The largest of these contracts involves the delivery of global demographics and health surveys. We have taken a very hard look at all of our federal government contracts and pipeline of opportunities to determine where there is potential for additional stop-work orders or terminations, and or the likelihood for opportunities to fall out of the pipeline due to the shift in priorities associated with the new administration. While we do not want to enumerate the specific programs, contracts, and pipeline opportunities, we do want to convey that we've undertaken a conservative, bottoms-up approach on our assessment What we have identified as at risk mostly involves our programmatic work, which accounts for about half of our federal government revenues, rather than our IT modernization digital transformation services, which account for the other half, and are closely aligned with the administration's mandate for greater efficiency and increased utilization of AI. After careful review, we estimate that the maximum risk to ICF's revenues in 2025 from the new administration's actions is approximately a 10% reduction in total revenues from 2024 levels. As Barry will discuss in his remark, we plan to maintain our adjusted EBITDA margins on 25 revenues at levels comparable to our 2024 margins. As we noted in today's earnings release, this reduction level does not contemplate an extensive government shutdown this year nor a prolonged period of pauses and funding modifications to existing contracts or new procurements. Conversely, this estimate also does not consider any additional work that ICF may gain as a result of the changes underway. For example, ICF has performed work for the federal government focused on prevention of fraud, waste, and abuse. We are well-positioned to help the new administration with these priorities. Also, we have extensive public health expertise And experiments in key areas such as nutrition, obesity, suicide prevention, cancer risk, health risks associated with use of pesticides, and food additives we expect will be areas of focus under the new administration at HHS. Additionally, approximately half of ICS federal government client revenues come from our IT modernization digital transformation services. While there may be a temporary slowdown in spending, and potential delays in procurements as the new administration installs its vision. We believe this will be buffered in the medium term by increases in AI, for IT systems, and advancing innovative techniques to reduce costs, improve data transparency, and increase reusability. These trends play to our strengths, enabling ICF to leverage our expertise in technology and AI, automation, and advanced analytics and our extensive ecosystem of digital platforms as key differentiators to remain competitive in this space. And there are a few offsets to the opportunities we see on the horizon, as ITF is not a supporter of legacy IT systems that are likely to be replaced by the new administration. Also, we've had initial success in leveraging our substantial and innovative IT capabilities in the state and local government market as a complement to our disaster management expertise. This resulted in a new contract that we announced in the third quarter, and we continue to pursue these types of opportunities in state and territories where we are working on disaster management contracts. We are also mindful of the opportunity to leverage our institutional knowledge to support key civilian agency programs in a shrinking federal workforce environment. To recap, there is a lot of uncertainty in the federal government right now, The name of the game is agility plus diversification. ICF has a proven track record of effectively managing two dynamic business environments by conservatively assessing challenges and remaining agile to capture opportunities. We have a diversified business model that will serve us well in 2025 and beyond with over 55% of this year's revenues expected to be derived from our commercial, state and local, and international government clients. And lastly, we have provided a conservative guidance range with a maximum downside risk to 2025 total revenues of 10% below 2024 levels. When you consider a 15% growth projection for a non-federal government work, we can absorb a $350 million reduction in our federal government revenues under our maximum risk scenario, which equates to more than 60% of our federal programmatic revenues. As I noted earlier, we already experienced a $90 million revenue reduction from contracts that have been paused or terminated. This leaves us with $260 million of additional cushion to absorb any further revenue impacts. Now I'll turn the call over to our CFO, Barry Broaddus, to provide a financial review and to share additional expectations for 2025.