ICF International, Inc.

Welcome to the third quarter 2025 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, and thank you for joining us to review ICF's third quarter 2025 performance. With us today from ICF are John Wesson, Chair and CEO, and Barry Broadus, CFO. Joining them is James Morgan, Chief Operating During this conference call, we will make forward-looking statements to assist you in understanding ICF management's expectations at 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 October 30, 2025 press release and our SEC filings for discussions of those risks. Our statements during this call are based on our reviews as of today. We anticipate that future development will cause our views to change. Please consider the information presented in that light. We may at some point elect to update the board with these statements made today, but specifically disclaim any obligation to do so. I will now turn over the call to ICF CEO John Wasson to discuss third quarter 2025 improvements. John?

Thank you, Lynn, and thank you all for joining us to review our third quarter 2025 results and discuss our business outlook. This was another quarter of resilient performance for ICF, demonstrating the importance of our diversified business model, our agility in managing costs within the dynamic business environment, and the strength of our business development activities. Key takeaways from our third quarter results are, first, the continuing shift in our business mix, with revenues from commercial clients, state and local, and international government clients increasing by 13.8%, and accounting for 57% of the quarter's revenues, up from 46% at the same time last year. Second, the continued robust performance in commercial energy, where revenues increased 24%, reflecting the sustained strong demand for ICF's advisory and implementation services, Third is the strong growth in our higher margin commercial revenues, which together with our careful cost management resulted in a 10 basis point improvement and adjusted EBITDA margin in line with our plan to maintain margins despite reduced revenue. And lastly, the value of our contract awards, which surpassed year-ago levels, resulted in a book-to-bill ratio of 1.53 for the third quarter. Our year-to-date contract awards of $1.8 billion together with our $8.4 billion pipeline, supports our outlook for a return to growth in 2026. We had expected third quarter revenues to be approximately $15 million higher than reported. The series was primarily due to delays in the ramp-up of our recently won international government contracts, although that situation is getting progressively better. And another factor was the slowdown in federal government procurement and project activities particularly in our programmatic public health and human services areas in the latter half of Q3 leading up to the government shutdown. With the federal government on everyone's mind, I will begin my business review with our results in that area and how the government shutdown has affected ICF to date. In the third quarter, our federal government revenues declined 3% sequentially, representing a 29.8% decline from last year's third quarter. The dollar amount of our total 2025 federal revenues impacted by contract cancellations did not change in Q3, as we have not experienced any material new cancellations since our last report on July 31st. However, expectations for Q3 federal revenues, as I just mentioned, were affected by the slower pace of program and procurement activity this quarter as things slowed down considerably in advance of the shutdown. There are several good news items to report in our federal government work from Q3. Approximately one half of our third quarter contract awards represented work for federal government clients, and about one half of these wins represented new business, including broadening of scope on current contracts. This new award activity, combined with our high re-compete win rates, is a good indication of how well ICS capabilities are aligned with the needs of our federal agency clients. In particular, you can see from today's release that we are winning both our re-competes and new work in IT modernization. Our differentiated approach to building agile, flexible, and lean engineering and product teams is allowing us to deliver value quicker and more efficiently than competitors. Approximately 80% of the work we currently perform in this area is in agile scrums and sprints, and more than half is under fixed price for outcome-based contracts, which is aligned with the shift in federal contract procurement parameters. And we're also seeing growing client interest in ICFathom, a new suite of tailored artificial intelligence solutions and services designed specifically for federal agencies. This is a production-ready solution that can integrate seamlessly into existing systems at scale to unlock the full potential of AI to support mission outcomes. We have won a few initial contracts and have seen very positive response to this launch from several of our federal agency clients interested in areas such as citizen engagement, technical assistance, program evaluation, and policy modeling. Now to the financial impact of the government shutdown. In the month of October, we estimate that ICS revenue will be reduced by approximately $8 million and gross profit by approximately $2.5 million. as a result of the current government shutdown. Our IT modernization practice has seen relatively few stop work orders. The majority of stop work orders have been related to our public health and human services work. Also, proposal activities have continued in IT modernization, although there has been some slowdown. All in all, the impact on ICF to date has been painful but manageable, and we view this as a temporary situation. While we have taken steps to reduce costs associated with work that has been curtailed, we're currently planning to retain key staff, which will position us to quickly recoup the majority of these revenues in future periods. You will see that we filed an AK this afternoon, noting that our named executive officers will take a 20% salary reduction for the length of the shutdown in consideration of the impact of the shutdown and in support of our employees and clients. Now we'll move on to our non-federal government work, which accounted for 57% of our third quarter revenues, and it's making a positive difference for us as we navigate dynamic market conditions in the federal space. Revenues from our commercial, state, and local and international government clients increased 13.8% year-on-year in the third quarter, led by a 24% increase in revenues from commercial energy clients. Our consolidated third quarter margins benefited from the increased contributions from our fast-growing commercial energy work, which represented 30% of our third quarter revenues, up from 22% in last year's third quarter. Additionally, our longstanding work for commercial clients has given ICF the experience and infrastructure to effectively work in this milieu, a competitive advantage in today's federal market, as federal agencies are being encouraged to adopt a more commercial business model. Third quarter revenue growth from commercial energy clients was led by strong demand from our utility clients for ICS industry-leading energy efficiency programs and expertise in flexible load management, electrification, grid resilience, and affordability. Expertise is closely aligned with the needs of our utility clients as they respond to increased demand for electricity. We are executing on new and expanded programs as well as getting market share in both residential commercial energy efficiency, program development, and implementation. Additionally, in energy advisory, we saw higher demand for our grid engineering, renewable development, and transaction services, and in environment and planning, we benefited from increased renewal and transmission permitting, construction monitoring, and wall fire restoration projects. We continue to see evidence that our commercial energy business will sustain its strong growth Despite the lack of support for renewables by the new administration, we believe that renewable and storage development by the private sector on non-federal lands will continue due to the advanced economics of these technologies and the need to meet the demands of rapid load growth. Additionally, we've moved across a full suite of resources supported by this administration, including natural gas, nuclear, and coal that will also be important in optimally serving emerging needs for power, and we have seen an uptick in development and M&A activities in these areas. We continue to benefit from the rapid increase in electricity demand associated with AI, data centers, and other large loads by providing a broad range of services necessary to plan, site, permit, connect, and manage such facilities. I see this currently working with utility clients, hyperscalers, and independent power renewable energy firms, providing services ranging from location analysis, transmission planning, distribution engineering, and construction permitting through community engagement and workforce development. The major low growth challenge, the range of complex technical issues involved, and the diversity of stakeholders make ICF well positioned for continued growth in this area. Moving on to state and local government clients, our revenues increased 3.8% in the third quarter, primarily reflecting year-on-year growth in our technology work in the disaster recovery arena. ICF is currently supporting 95 active disaster recovery projects in 22 states and territories. This includes new contracts in California, Oregon, Virginia, and Michigan, which were awarded during Q3 continue to see HUD-funded procurement opportunities resulting from the nearly $12 billion appropriation to enable long-term recovery from disaster declarations in 2023 and 2024, and are actively positioning to compete for these procurements. Additionally, in response to uncertainty with respect of the future role of FEMA, state governments are showing additional interest in disaster case management, individual assistance, as they consider potential implications of taking on additional responsibility for initial disaster response and recovery efforts. ICF is actively engaged with state emergency management agencies. We are broadening our partnerships in the emergency response disaster survivor assistance arena as the states prepare for the possibility of additional responsibilities. Our climate environment infrastructure services represent the other major component of our work for state and local government clients, and revenues in this market have remained relatively stable. As federal emphasis on environmental protection declines, we are seeing many states increase their efforts to fill the gap, creating opportunities for ICF in state planning, rulemaking, stakeholder engagement, permitting, and compliance. We're also experiencing increased demand for sectors with strong economic activity, including data centers, fiber networks, minerals extraction, and transportation. And we're working on synergies with our disaster management teams, supporting states with recovery efforts, including Florida, New Jersey, and others. We continue to benefit from solid revenue growth from international clients in the third quarter. Revenues increased 8% year-on-year. We have one key recompete in new business. As I mentioned earlier, The ramp up of the new contracts we've won with the European Commission and the UK government late in 2024 and earlier this year has been slower than we originally anticipated as we expected double-digit revenue growth in the second half of this year. We have seen sequential acceleration in the number of task forces being issued under these contracts over the last two quarters, but we now do not expect the full benefit of these contracts until 2026. To sum up, our third quarter performance demonstrated the benefits of ICF's diversified client base, our agility in adapting to challenging market conditions in the federal government, and our success in winning week-in-piece and new business. I'm sure that many of you have seen the release we issued today simultaneous with earnings, announcing that Barry brought us, our CFO is retiring, and we have named two of our senior executive roles. First, let me say that Barry has been a tremendous asset to ICF. He has strengthened our financial capabilities, built a strong finance team, and positioned ICF to take advantage of future growth opportunities. We certainly wish him all the best in his retirement. We are fortunate to have a strong group of talented leaders like James Morgan and Ann Cho to help drive our future growth. We have tapped James Morgan, currently COO, to take on the additional role of CFO following the publication of ICF's full year 2025 financial results. In addition, Ann Choate, currently Executive Vice President, will take on the role of President of ICF early in 2026. I look forward to working closely with both of them to drive organic growth and acquisition growth and to implement financial strategies to build our future growth and profitability. So with that, I'll now turn the call over to Barry for a financial review. Barry?