Q2 2020 ICF International Inc Earnings Call
Welcome to be I see us internationals second quarter 2020, <unk> earnings Conference call. My name is that fair and I will be your operator for today's call.
During the presentation, all participants will be listen only mode. Afterwards, you'll be invited to participate in a question and answer session.
At that time, if you have a question. Please press star one on your Touchtone phone to register for questions.
Please note. This conference is being recorded on Tuesday August four 2020, I cannot be reproduced or rebroadcast without permission from the company and now I'd like to turn the program over to lend Morgan Advisory Partners. Please go ahead.
Thank you that's a good afternoon everyone.
Thank you for joining us Turkey like <unk> second quarter 2020 on.
Hosting the call to go ahead, John Watson.
Oh yeah.
And your boss for.
Joining bar I said I talked about.
Executive Chairman and just more downstream.
Right.
During this conference call, we will make forward looking statements.
Hi, just boggle I see.
Expectations.
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In addition, I statements during this call both analogy is today.
Just to take a future developments were quite I like to change is considerably I can also be thoughtful.
Well at some point electric uptake reportable segments, that's about specifically disclaims any obligation to do so I will now turn the call all the time.
John Watson to discuss quite you're passing 20 point.
Hi.
Thank you in and thank you all for joining us to view, our second quarter results and discuss our business outlook heading into the second half a year.
We're very pleased with I kept strong performance in the second quarter.
Reflected considerable year on year and some sequential growth in service revenue, which represents the work performed by ship employees.
Also achieved very strong sequential comparisons across key profitability metrics, including GAAP bps, non-GAAP, EPS and EBITDA, each of which increase substantially over first quarter levels.
These results demonstrate the resilient satellites, yes diversified business model and our ability to pay the quickly to address changing business conditions.
But to the year on year decline of total revenues was tied to lower pass through revenues, which were 22 million lower and this year second quarter and the comparable year ago quarter, and 10 million below first quarter 2020 levels.
This reduction was mitigated by strong revenue growth in our federal government and commercial energy businesses with favorable business mix, lower DNA costs, and higher utilization driving higher year on year and sequential EBITDA.
Second quarter service revenue and profitability or above our expectations due to first rate execution by actually if employees.
Mostly with clients to meet their needs, while working remotely interactions we have taken to reduce costs.
I guess that I see a has learned to operate more efficiently and physically dispensed environment.
We will use these learnings to operate as a leaner organization in a post coven 19 world, particularly with respect to travel and facility expenses.
Revenue performance in the second quarter was driven by strong growth in our federal business with a 21% year over year revenue increase reflected both organic growth and the I TG acquisition.
In fact, the significant leverage came from bringing together I teaches robust IP monetization capabilities and I see us deep civilian domain expertise in client relationships has become even clearer now that the integration of this acquisition is fully complete.
To the centers for disease control.
Under this effort would would be working with the office of the cheap information officer to develop a framework to evaluate and implement emerging in modern technologies across CDC public health programs.
Also in the second quarter, we were awarded 13 million of Covid 19 related task orders to assist federal agency clients, including our largest client the department of health and human services and collecting data as well as communicating with healthcare professionals and the general public.
Over the next one to two years, we expect to see a considerable increase in public health preparedness and response activities at the federal state and local levels with contract vehicles and all of the key agencies that are involved in handling the copay crisis ICF is uniquely position to assist clients across the three phase.
<unk> of the Covid pandemic response recovery and reinvention.
As I just mentioned we are currently active and the response phase with information dissemination and surveillance and analytics work to better understand the virus and how it spreads.
And the recovery phase, we expect that modernization of disease surveillance systems and associated analytics will be a priority and our expanded 80 modernization capabilities together with our deep domain expertise and agency relationships in public health make icf's uniquely qualified to assist in these areas.
And the reinvention phase, we believe that government, we'll need to reevaluate the current organizational structure to address key issues, including governance roles and responsibilities the national stockpiled, the vaccines and medical equipment and the service capacity of our hospitals and health care workers.
We had been thought leaders and the public health Arena for many years and ICF has recognized for our subject matter expertise in all areas of public health, both domestically within HHS and internationally supporting Usaid's programs.
Revenues from state and local clients came in better than expected.
We experienced less client in sourcing and our disaster management business than anticipated and expect this trend to continue for the remainder of the year.
We also responded to new request for support and staff. During this period as a result, Phoenix now expect disaster management account for over 110 million and revenue for ICF and fiscal 2020.
We also continue to expect additional opportunities for ICF stemming from disaster management work in Puerto Rico in Texas associated with the 2017 and 2018 Hurricanes and.
And the second quarter, we saw several new rfps related to additional HUD CDG funding in Puerto Rico that we are expecting award decisions on in Q3, and there is an additional $825 billion allocated to Puerto Rico under the CDG mitigation program for which Rfp's should be forthcoming either later this year <unk>.
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We believe we're only a handful of years into what will be 10 plus years of requirements.
Work with Texas State Agency disastrous management clients picked up during the second quarter with additional revenue related to housing construction management within our existing contracts.
Texas also remains an active market for mitigation work.
State, let several mitigation procurements and the second quarter that should be decided in the near term and we expect several more mitigation bids during the second half of the year.
Also more generally the great majority of the work we do for state and local clients, it's either federally funded or funded by Nissl bonds that support infrastructure projects, which makes all work much more resilient too unless impacted by state budgets at the state and local levels.
Is expected international government revenue trended lower than the second quarter, primarily as a result of covid related lockdowns, and resulting postponements her face to face events conferences meetings and surveys that we support for the European Commission.
Keep in mind that 65% of the year on year revenue decline in this market represents pass through revenue on which we earn minimum fees.
Project work remains strong and energy climate and international consulting and we continue to work with European Commission and deliver programs to influence the low carbon and clean energy transition.
Also closely managing cost in this business and we have confidence and the strength of our client relationships and the potential for the business that turned quickly once covid 19 concerns receipt.
A commercial energy business, which works primarily for utility clients and represented 16, 4% of Q2 revenues continued to perform well and the second quarter with revenues, increasing like five 4%.
Work on our energy efficiency programs for utilities continue to pace is we've been able to handle most elements of the programs while working remotely.
During the coven 19 prices, we have been working closely with our utility clients to virtualized portions of our field work such as virtual audits using photo in video inspections and transitioning to ritual account management.
These responses and well received by your utility clients, who see effective communication of their customer facing programs as a high priority.
We saw a significant pick up in our energy markets advisory business in the second quarter, where we provided services to support significant transaction activity, largely driven by renewables storage and gas asset development.
Are distributed energy resources consulting business also performed well as states and utilities' address the impact of distributed resources on the grid.
We believe that the utility pilot programs, we're working on can evolve into future utility implementation programs beyond traditional energy efficiency. We've also been assisting several utilities with resiliency Fanny activities. In this area is expected to grow as federal and state regulators drive additional attention to the resiliency a R T.
Energy infrastructures.
Commercial energy ended the quarter.
With a robust pipeline potential opportunities, particularly around the expansion of energy efficiency program outsourcing in California, and we expect decisions to be forthcoming later this year.
Lastly, commercial marketing services represented 10, 5% of second quarter revenues.
Somewhere for our clients and travel and tourism hospitality and retail has been can tailed as a result of cover 19, but we continue to do ongoing retainer work on the loyalty programs.
Our activity on behalf of health clients, which represents our largest industry vertical remains strong with increased budgets, resulting in additional assignments.
For example, and the second quarter, we want several new contracts with health care clients, including a $30 million plus integrated marketing and communications contract under which we are providing strategy implementation advertising and analytics support.
We are very power to work we did early in the second quarter for our clients sorta.
ICF next sort of donate 10000 mattresses to New York City hospitals and medical facilities fighting Cove at 19, and we launched stay home Sunbeds the program, allowing bed donations from anyone.
In addition to doing good to campaign earn certain more than $300 million media impressions, an atlas like Fox business, Forbes and Nbc's early today show.
I see if ended the second quarter with a robust pipeline, which reached a record seven 1 billion. The opportunities are diversified across a client set with federal government accounting for about 4 billion of the seven 1 billion.
One 4 billion this amount represents opportunities an ice tea modernization.
Have a greater chance of winning thanks to the TG acquisition, and which pair of strong domain expertise with broad experience in funding cloud based services to federal government agencies.
We also have robust opportunities in the pipeline for disaster management and energy for utilities.
Over the past six weeks, we have received notice of awards with an annual devalue of over $250 million, which we expect to be included in our Q3 contract awards.
A robust pipeline together with a strong backlog in recent notice of awards supports our confidence nics future growth prospects.
Now I'll turn the call over to our CFO Bettina wells provide a detailed review of the quarter Tina.
Thank you John.
Afternoon, everyone I am pleased to provide additional color on the company's financial performance and the second quarter of 2020, which represented strong profitability improvements over the first quarter and positive year on year comparisons in several key areas.
Total revenue was 354 million three 5% lower than last year, primarily as a result of lower pass through revenue.
Pass through revenue accounted for 26, 2% of total revenue this year compared to 31, 2% and last year's second quarter.
On the other hand service revenue increased three 5% to 261 2 million supported by solid performance and our federal government and commercial energy businesses.
As you May recall service revenue is the work performed by our ICF employees.
Gross profit was 136 million.
Relatively flat with the 131 $7 million in the year ago quarter.
Gross profit margin on total revenue, however, expanded by 100 basis points to 36, 9% due to lower pass through revenues and the second quarter of last year on which we earned lower margins.
Indirect and Sally expenses for the second quarter declined to 2% to 99 3 million, mainly reflecting lower general an administrative expenses tied to reduce travel another activity.
This represented 28% of total revenue.
As a percentage of service revenue indirect and selling expenses declined to 38% from 42% and last year's second quarter.
EBITDA increased three 7% to 31 $3 million from $32 million last year.
Justin EBITDA, which excludes special charges was relatively flat at 32 5 million during the second quarter of this year compared to 32 $7 million last year.
Adjusted EBITDA margin on service revenue was 12, 4% compared to 13% last year.
Sequentially adjusted EBITDA, what's up for $5 million from the first quarter of 2020.
This marked 150 basis point improvement and adjusted EBITDA as a percentage of service revenues over the first quarter reflective of higher gross margin and lower indirect costs.
Operating income of 22 $8 million was slightly ahead of the 22 $5 million reported in the second quarter of 2019 and includes an increase of one $4 million in amortization of intangibles, primarily related to the ITG acquisition, which was completed on January 31st of.
This year.
Our tax rate was 29% compared to 26, 2% and the second quarter of 2019, primarily due to certain non tech nondeductible items in 2020.
Net income for the quarter was 13 $7 million.
72 per diluted share.
This compares to $14 6 million or 76 per diluted sure and the second quarter of 2019.
This year second quarter results were impacted by four derived from higher acquisition related interest expense and three from a higher tax rates.
Non gap diluted EPS, which excludes the impact of amortization of intangibles in special charges was 89.
Compared to 97 reported in the second quarter of 2019.
We were very pleased with our cashflow generation and the second quarter, which is a period of strong collection activity.
Year to date operating cash flow with 10 8 million compared to 47 9 million use of cash for operating activities and last year's first half.
Representing a 58 7 million improvement.
This performance supports our expectation for full year 2020, operating cash flow of approximately $110 million, 20% ahead of 2019.
Dave sales outstanding were 88 days or 78 days, excluding the slower paying Puerto Rico contract <unk>.
Compared to 95 days, and 84 days, respectively, and the second quarter of 2019.
Bye year, and we anticipate dsos to be in the range of 70 883 days.
Our bank leverage ratio at the end of June was 307.
And we expect to use our cash flow to pay down debt and and this year with a bank leverage ratio of approximately two six.
Year to date capital expenditures were 10 $7 million.
Reflective of our decision to evaluate spending in light of the current economic environment.
We know anticipate are full year capital expenditures to arrange from 23 to 25 million.
Down $2 million from our previous guidance.
R capital allocation priorities remained debt reduction and funding are dividend.
To that and today, we declared a quarterly cash dividend 14th per share payable on October 13th 2020 to shareholders a record on September 11th 2020.
For modeling purposes, our expectations for full year 2020 <unk>.
Depreciation and amortization expense and the range of $25 million to $21 $5 million.
Amortization of intangibles of 13 3 million.
Interest expense between $15 million to $15 5 million.
Tax rate of no more than 27, 5%.
And fully diluted weighted average shares of approximately 19 $2 million.
And with that I'll turn the call back to John for is closing remarks.
Bettina.
To sum up we are pleased with our second quarter performance and expect continued improvement in the second half of this year.
Based on current visibility, we are reaffirming or guidance for full year 2020 across key metrics, including class flow, we had a very strong showing in the first half compared to the same period last year.
We are entering the second half of this year with a substantial backlog record business development pipeline and a strong financial position. These attributes together with a resistant precession resistant revenue drivers support our confidence and icf's ability to operate effectively during this period of economic uncertainty.
Icf's differentiators have long been around subject matter knowledge and culture.
Our Sylvian agency domain expertise and the high profile areas of ice tea modernization digital transformation in public health or qualifications and disaster management, and mitigation and resilience and our leadership and energy efficiency Advisory work physician ICF for further progress in 2020 and accelerated growth in 2021.
And beyond.
Our company is comprised of people who are passionate about their work and committed declined service.
And the second quarter, our personal turnover rate was 11, 4% remaining below the industry average.
ICF culture has been a key driver of our growth thus far and has enabled us to perform well during this health crisis.
A key tenant of this culture is focused on embracing diversity of all kinds and given recent events. We've recently redoubled our efforts with respect to diversity and inclusion.
In June we issued a public statement on social Justice, which I encourage you to read it's online <unk> dot com.
Also taken the step to match employee donations to organizations working to enhance inclusion build strong communities and improve economic equality.
Values that are central Dices on sounding 50 years ago.
And in our annual corporate Citizen report issued last month. We've included race specific diversity data for the first time.
An effort to provide more transparency and focus on the diversity of our employee base.
I appreciate the hard work and dedication of the ICF employees. They give me confidence that ICF with only continue to progress throughout this year, but we'll emerged from this pandemic as a leaner and stronger company operating in an environment for a domain expertise as well as our corporate citizenship and our values become even more relevant.
Operator, and I'd like to open the call to questions.
And thank you we will now begin our question and answer session. If you have a question. Please press star than one on your Touchtone phone if you wish to be removed from the queue. Please press the pound sign or the hash key if you're using a speaker phone. Please pick up the handset first before pressing the numbers.
Ken If you have a question please crestar than one on your Touchtone phone.
And I see we have our first question from Joseph coffee with Canaccord.
Hey, guys. Good afternoon, nice quarter, and nice to see the setup going into the second half John I was wondering if you could.
Quantify the delta on.
On disaster management now I know I heard your comments about a little less in sourcing.
What was the kind of expectation if you could remind us on what disaster management revenue, it's going to be this year.
Previously and now with less enforcing just to get an idea of the delta there and all of a follow up.
Sure So I think.
Last call. We had said that are disaster management revenues would be north of $100 million. This year now expecting them as I said admira amongst a an order of $110 million. So we've seen about our expectations there'll be $10 million less of <unk>.
In sourcing this year on the on our disaster management work.
Alright got it and should we expect that to kind of be the new run right.
With less.
In sourcing.
In the next year or is this kind of just.
Were taken in a year at a time on the level of enforcing I would say that our expectation is that.
We would continue on this run right I think we're not expecting any further in sourcing.
On this work I think.
This is the new normal and as you know Joe we have another year to go on that contract through June of.
2021.
That's good news and then just just real quick on commercial marketing.
And the retainer work going there is there.
Yeah, I know that some of the effective clients Tyler retainer base, but as the pandemic can you still linger on his how do you feel about that run right on retainer work as it stands now.
And a prolonged pandemic situations.
Yeah, I think we feel pretty good Joe I would say that we obviously saw.
That's in Q too and.
Haven't in close contact with those clients I think we feel that.
Retain will work we have the backlog we have is pretty solid.
So I think our expectation is that.
We won't see further.
Reductions there I think that generally shortly.
Must've work, we're doing under.
Retainers is very valuable to clients were running loyalty platforms, we're helping them stay engaged with their most valuable customers.
And so.
I think they've used as partners and they want to make sure. These these programs niece efforts continue and so.
So I think we feel.
We feel pretty confident with retain relationships in the back while we haven't place.
In terms of as we look forward.
Okay. That's helpful. And then just finally, just any more color on the large deal pipeline that does sound like the pipeline. Good I I heard what you said a little bit about I T modernization.
In particular.
Is there anything on the large deal front.
Could be percolating towards.
Decisions our proposal submission.
And the next quarter too thanks, a lot.
Sure well I, certainly think I T modernization as an area where.
And the same significant.
Large opportunities.
I think as I noted in my remarks.
Thrilled to bits with ITG acquisition, I think we've continue to build up the pipeline there and significant contracts. So suddenly I T. Modernization is area, where we can continue to see robust opportunities.
Certainly expect to continue to win contracts this year.
As I said amount rubber I was also I think there is there are beds that are.
Underway on the disaster management front on both of them.
Puerto Rico.
More on the traditional housing side and in Texas on mitigation those bigots bids have been out we do expect to where decisions on.
Those at some point in Q3 and so.
Those those as you know can be quite significant and we remain.
Quite busy on California and the.
The opportunities there, it's a very intense period, writing proposals in California, again, I would say that we expect words there in the second half of the year. So.
I guess, that's along with the way to say across federal disaster management Energy I think there's there's certainly opportunities in the second happen to you that to move the needle.
Great. Thanks.
And thank you we have our next question from Toby Summer with Suntrust.
Okay.
Thanks.
Wanted to see if I could touching and get your color on the.
The size in duration.
The opportunity that.
You could garner new contracts related to.
19.
Okay.
And.
I guess not not specifically Kobe 19, because you did site some contracts, but all encompassing kind of a public health effort to retool and reinvent to kind of borrow your we're prepared remarks. Thanks.
Yeah totally I think it's I think it's a little early for us to put.
A lot of.
Guidance or color around the total size of the contract so the.
With a specific opportunities that could come down the pike here as I mentioned, I mean, I think there's kind of the.
The response and there's a recovery and then there's the reinvention I still think we're.
Spots phase and so.
We've as I noticed my remarks that we have 114 or $15 million $14 million of contracts here.
And the second quarter I think we're funding.
Multimillion dollar opportunities flowing through our existing contracts our existing client relationships. We're certainly in the game on some very strategic work.
As you know I think it's we get deeper into this.
Response, this pandemic more focused on.
From immediate response to recovery to kind of Reimagining public health I think the opportunities could become.
Quite quite feasible.
No.
The funding that's been allocated to public health agencies associated with the first any of this bill for two trillion. This bill.
We're hundreds of millions of dollars.
To CDC to Nia's to other public health agencies.
And so I think they can be quite significant I think they could move the needle for us as I've told you and others and we shared before.
I mean.
The types of funding here.
If we looked at the past again when Obama stimulating the economy.
He had 900 billion and the Tar program.
We grew double digit for two or three years and the federal government.
On the back of.
Those types of projects and.
Around infrastructure Bali.
Defined I think the same potential opportunity.
As in front of us here over the next several years if that funding.
Moves into our clients scenarios.
Fit with our expertise, which I think our views of will I think it can provide very significant opportunity.
As we move forward, but it's it's hard for me to.
Talk about specific contrast, or specific range of 25 million dollar contracts $50 million contacted I just think it's too early for us to to put a lot of color on that.
Okay.
With respect to disaster recovery as you look at the pipeline of Rfps.
And projects that you expect to.
Alrighty a bit on her bidding through the balance of this year.
Are they more related to the residential and infrastructure.
The first action plans that were submitted and approved or do you.
Expect too.
See mitigation related following the Oh.
<unk> and awarded.
I would say that in Puerto Rico.
Opportunities for seeing for this year or more housing.
Housing related funded.
So from traditional CABG.
Funding.
And under CDB G.
That funding in addition to to supporting.
Homeowners rebuild their homes. That's when you can also support.
Certain types of infrastructure repair by state and local governments you can also support economic recovery.
For the Puerto Rican economy, and so I think the types of opportunities, we're going to see that it'll be adjudicated in Puerto Rico. This year will be <unk>.
Material potential opportunities around infrastructure and economic recovery with more traditional CDB G.
Housing funding I think in Texas.
The opportunities.
As I noticed my remarks, we are seeing mitigation opportunities flow there.
Those contracts could be material and I think they will be awarded and the second half of the year. So in Texas I would say the.
The more significant opportunities are certainly on the mitigation side for this year.
He told me.
Like the original question on the.
On the whole issue of.
Founded accounts and how this is going to evolve I do think that is really quite important to understand is John said response recovery reinvention and the recovery of read mentioned as part of the business.
Response, and the recovery responsive that we have been improved through the pandemic and I think that the the restructuring off the public health agencies in the federal government is going to be a major exercise going forward I think given our understanding of the different agencies and given.
Skill sets in.
In.
Response recovery Arena, we do things and the fact that we have the technology calls.
Hi, Demodulation, we do think that if there is a new C. A public have security administration.
Just to come back these kind of Pandemics, we think there'll be a L position to take advantage of the reorganization of possibilities associated with that sort of big huge reorganizations.
There's going to be if you look forward. The next two or three or four years I think that there is going to be enormous amounts of remembered <unk>.
Off the party company.
Okay last question for me within the contracts that you contract value that you cited is already.
Being receiving quarter to date.
Are there are some contracts awards within that that play into the themes of public health in cobin related work disaster recovery and.
The commercial energy energy efficiency project sort of broad teams, but the investors are looking to to drive growth going forward.
Yes.
That's it for me thank you.
And thank you we have our next question from Sam, England with varying bird capital.
Hi, guys just a couple of can make.
You talk a little bit about where you have seen in terms of project assignments and cancellations in the classroom side of the business and can you too.
Whether it as much that's been pushed back when we can expect to fly through a ninth street.
I think if we.
I don't think we've seen a significant shift and the cancellation since we've talked about this.
During our first Coca Cola and May I mean, I think <unk>.
I think we had indicated at the time that.
Obviously, we're we're going to see covid related impacts in the commercial marketing and European businesses. I think we indicated we thought that they could be down.
As much as 20% of the year.
And I think that's played out is expected I don't think we we see a newer different trend there <unk>.
We don't see.
New new material risk there I think it's playing out as we've been discussing it in.
I think we don't expect any surprises there.
Okay, Great and then I'll only acquisition sound like given the success of the <unk> do you think more acquisitions in the mighty consulting space and likely going forward.
Areas do you view is nice detracted.
Well I think we've talked broadly on the acquisition front I mean first I would say that.
Continue to stay very focused on successive ITG.
And my remarks, we've fully integrated it but we're.
We were quite focused on continue to build out the pipeline and make sure. We we achieve oldest synergies there I do think.
There is significant growth opportunity for us there.
And the model of pairing there there I T modernization expertise with our domain and client was should certainly is.
Giving us a lot of opportunity for growth I think it's we looked down the road I think our story has been consistent let me I think we continue to look at opportunities potentially in the federal arena, particularly around public health.
And health broadly certainly ITT modernization I think we have scale, there, but I think we.
Specific client relationships came.
Typically.
There were a interest to us we look at digital transformation.
And so I think those will be there as in federal I think.
And an energy I think we're constantly looking for firms that could expand either or expertise or geographic reach on energy efficiency distributed energy resources.
Say those are the primary.
<unk> that were focus on them from an MAA perspective, and I think.
For the remainder of this year I think we're going to be quite focus on integrating and assuring success of.
Of ITG.
But we shouldn't stay out in the marketing and continue to look for opportunities in.
If you take a long run views certainly <unk>.
<unk> will continue to be part of our strategy.
Okay, Great and then maybe one one last one could you just talk about about head count on hiring plans for the second of this year.
Yeah, I mean, I think the head count on hiring canceled.
Follow the growth I mean.
Growing three 5% and the last quarter on service revenue.
And so I think there are certain markets, where we are growing I T modernization energy efficiency.
And certainly on disaster recovery, if we win more contracts will have to hire.
I think we've found that we can be quite successful hiring in this environment in a virtual environment and Onboarding people I would say at the end of the day. You also not that are utilization has gone up here in the last quarter, we're very focused on that and as we grow we will.
For every if we're going to grow 4% will try to hire two and a half a 3% additional staff.
And leverage our existing staff to to get to work done.
With the growth and so.
We're being pretty careful there and really wanted to leverage our existing talent as best we can.
Great. Thanks, very much guys ultimate.
And thank you we have our next question from Andrew Nicholas with William Blair.
Hi, good afternoon.
I just wanted to ask a high level question on the quarter. Just wondering if you could speak to how the results came in relative to your expectations. A couple of months back and then Relatedly. If we're thinking about medium term demand you've talked about a lot of different positive growth drivers across several of your businesses is there anything.
Material, that's accelerated or decelerated versus the last time, we spoke and what would those be.
Yeah, I guess in terms of Florida, I think I think we certainly feel the total came and stronger.
Then we expected I think.
Now first protocol, we had said that without the Mississippi flat to down marginally slightly obviously <unk>.
We've achieved.
Three 5% surface retro growth all in which is.
Kind of work done by ICF employees, which is obviously.
Profitable and so we certainly outperformed our expectations.
From there and I think that is.
I believe I mentioned.
I think that's.
That's due to a disaster management and lessen sourcing and a very strong quarter and energy advisory we see energy.
Continuing to.
Two improvement niet modernization remains very strong I think.
A portion of the strength, we had in the second quarter. We certainly pulled forward. Some project work, particularly energy advisory side, but having said that those free markets have been.
Quite robust I would say as we look forward in terms of the opportunities.
In terms of our outlook vis vis where we were a quarter ago I would say that.
We have greater confidence that are disaster recovery and.
CDG and mitigation the housing and mitigation contracts will start to see opportunities there.
Decided in the second half of the year.
We continue to feel very good about the I T modernization.
And I do think we'll see some awards in California on energy efficiency. It in the second half of the year. So.
I think we're we're sending more positive on the disaster recovery.
And continue to be positive on energy efficiency niet modernization and public health I think there's a lot of opportunity as I as I said advisor Toby I think we feel like we're getting our fair share of the minute recovery work, but the real opportunity crosses the medium to long term and.
And.
This is a little it's a little too early to kind of fully.
Characterizes opportunities I, just we are obviously very pleased to have the $250 million of noticed a awards.
And the last six weeks or so.
It should move into a contract sales for Q3.
Quite pleased to see that movement.
Got it got it. Thank you and then just a housekeeping item for me.
Yeah, I apologize if I missed it but did you mentioned the ITG revenue and the quarter and maybe how fast that's been growing.
I mean, we haven't.
I mean, we fully integrated ITG with our I T modernization business and so we kind of put those two together and broken dinosaurs I would just come back to what we told you. The time the acquisition I think ITG end of the year on a $90 million.
Run right. We told you they would grow at least 15%.
Growing at least 15%.
And so.
Certainly <unk>.
<unk> and if not exceeding expectations.
Great. Thanks, a lot.
And thank you. Our next question is from Kevin Spiky with Barrington Research.
Good afternoon.
I wanted to start out by asking about John you mentioned and you're prepared comments some success with.
Distributed energy resources.
[noise] what projects I believe.
Can you just talk about.
Trends in that business are you wanting more new pilots there.
Or any of those projects.
Grossing towards.
The longer implementation contracts that you are ultimately you anticipate there.
Sure.
I think you've done a nice job kind of surprising where we are there Kevin.
We are certainly have one and continued to win and see.
Distributed energy pilot projects.
To test convincing work with utilities to test ideas and approaches.
On the distributed energy a front and so we do have a portfolio projects there across.
Several utilities.
That are in the pilot phase and we considered contingency of this opportunity. So I think will continue to add to that that portfolio pilot projects.
And then there'll be some that are successful on Sunday.
So we'll have to be.
Won't be as successful and we'll have to be.
Reevaluated or or changed but.
They will certainly be a subset of those that will be successful and that will move into the implementation.
And that's where.
Like the analog of energy efficiency as you point out.
Those successful programs.
Could ultimately be end up being utility programs across across across swath of.
Utilities in the country and so that's certainly the long term goal I don't think we're at the point.
Let me sort of this year, we're not going to move these projects and implementation I still think for a year.
Two way from doing that with any scale, but that is how the business will progress in those opportunities are out there and we are building a pipeline.
And adding to our.
Pilot projects over time.
Okay, Great and I wanted to ask about how we should think.
Indirect and selling expenses.
Trending as we move forward here for the rest of the year you talked about last call.
Some for low programs et cetera should we.
Expect to see some of those costs coming back as the your progresses or maybe.
Conversely.
A full run read of those cost savings moving into the third quarter in the back half.
I think that.
As you point out I mean, we certainly with a coke.
Issues, we certainly.
Reduced our our indirect travel.
Cost materially obviously folks on travelling unless it's absolutely necessary.
And have reduced.
And some of our indirect consultants and obviously conference attendance.
Think that will so I would say two things one is I think we've we're garnering significant cost efficiencies there I think through the rest of this year, we've assumed that though.
Those significant savings.
We will continue.
Obviously is the business rebounds.
Well it comes back we'll need to do more travel.
We can't stay at this low level, but we certainly expected in the long run will be able to reinvent our business and save a person spend less an indirect travel and and conferences.
And ultimately also save on facilities, because I think.
Certainly learned that we don't need to have we can work very effectively in a virtual environment and we don't have that people in the office five days a week and so I think over time is leashes expire, we'll certainly be looking to.
To reduce our facilities footprint.
Our third largest costs and the company and so I think that's another area that won't happen overnight, but.
There could be material savings there and so.
So I think for this year will continue to see the savings on indirect travel, but there will be logged longer term savings across travel and facilities costs forced to.
Okay.
Yeah.
I'm, losing.
Pardon me, you're breaking up that Kevin I'm, sorry, you're breaking up could you repeat that.
Hello can you hear me now Yep, Yes, yes. Please go ahead.
I'm sorry about that.
This was asking as a follow up to that.
Okay.
It's obviously beneficial to get cost savings out of reduced facility space et cetera, but just from a higher level perspective, how do you.
Balance that out with a.
Professional services firm, having interaction between your consultants in terms of brainstorming and knowledge transfer and mentoring et cetera. So you can.
Continuing to have a strong culture and.
All that all of those things that are important to a professional services firm. Thanks, Yeah.
No yeah.
That's a good question Tonight.
Completely agree I mean, the culture the brainstorming.
Those interactions incredibly important and so we're going to have to find a balance here.
We've talked a lot about the importance of culture I would say to you that we have been doing a lot of work on the innovation front.
In terms of.
Methodologies and approaches obviously in this call the environment to do virtual brainstorming.
And using technologies.
To support that whether it's.
Roll or teams or zoom.
And really coming up with specific methodologies to teach our staff actually our clients to have virtual brainstorming sessions that can be quite effectiveness. So I feel like we've.
We do have an innovation function within the firm that's very focused on that.
We have managed to actually.
Apply those methodology supposed within the company and are now doing it with clients and actually they are paying us to help them run virtual.
Brainstorming sessions within their organizations and so I think part of this is you have to you have to innovate and you have to figure out how to do this virtually but but please don't take my comments is that we're going to push everybody ought to appear virtual.
Approaching the long run and let it adversely impact on culture there'll be they'll have to be the right balance of our absolutely absolutely the case.
Okay got it and then lastly can I just ask about maybe how you expect.
Cadence of results to play out in the back half of the year.
I think we would see continual improvement from Q3 Q for I would say that we did pull forward a little bit from Q3 into Q too so.
I would say kind of.
So we would see consistent improvement but.
Given the pull forward Q3 would.
Probably show a little less improvement from cue to accuse me then you'd expect from Q3 Q for.
Okay. That's helpful. That's all thank you.
And thank you as a reminder, if you have a question. Please crestar than one and we have our next question from Mark Riddick with Sidoti.
Hi, good evening.
Hi, there Martin.
Wondering if you could touch a little bit on.
ITG for a moment, if I remember correctly when the acquisition was announced.
The amount of their business. The present your that revenue that subcontracted was higher than the company average I was wondering if maybe you could talk a little bit about what that looks like now, especially with the orders that you're having.
Progress that you're making there and then I have one last follow up after that.
I think we're making some progress on that front.
As we discuss at that time.
[noise] ITG.
Did some pump out a higher percentage of their revenues and ICF typically does I think at the time that day, we thought that we could pull.
I want to say about 10% of that revenue potentially in house I think we've been working too that we've had we've had some success we continue to work it.
Obviously.
As we said many times and you can see in our resources for it's much better and more profitable if we could have it done in house by ICF staffed and.
Bye subcontractors are so we are strong incentives that we're working on it I think the other thing Thats helped US there is a certain parts of our commercial marketing services business has slowed we've been able to take technologist from that business and essentially transfer them all ties ITG project work and I think we're up too.
15, or 20 people technologists that we've transferred into that business, which has helped to accelerate pulling some of the work in house. So we are working it.
There's more to do but but we're making progress on.
Okay. That's certainly encouraging and then the last one for me.
You touched on the.
The concerns about some folks have around state and local.
Types of revenue.
Going forward and you certainly kind of framed around how much.
Talking about the federal contribution being part of that and what sides of bonds and what habits as they are sort of a ballpark percentage of the of the state and local that you think is.
Potentially vulnerable to that amount for us to think about.
As far as.
Granted seems as though most certainly cupboard, which should take care of most for you as well as sort of curious as to maybe what percentages actually subject today.
Yes, I think it's.
It's a small percentage I mean, I think disaster management is all federal federally funded.
That's over half of the business and then <unk>.
Infrastructural work.
Is.
Aw, primarily municipal bond read it so.
I mean, I haven't done the calculation exactly but I would 10% 10, 15% might be.
Subject to.
State and local.
State budgets.
It's a small it's not.
I mean that gives you a sense.
Okay, Great and the last thing for me and this is probably maybe more general in nature, but I was wondering if you can sort of share some of the thoughts as to how you see the.
The process of California progressing in maybe if you could give a little additional colors to your thoughts on the possibility of see some some more.
Timothy.
Between now and the end of the year certainly, it's obviously tricky to predict mostly sort of wondering if they were and maybe what some of those those things are they give you some some level of comfort control. Thanks.
I think it says.
Intensity.
Proposal effort.
Certainly.
Maine quite robust in California, I think we've discussed on prior calls.
Initial set of beds that originally came out.
The best kind of follow the two buckets one R.
Is that.
Each individual utility is kind of running the RFP process for their service territory is mortgage outsource initially the bids a set of the bids were focused on each utility was running.
Programs that we're focused in each of their service territory and because they were.
For just their territory they weren't statewide they tended to be smaller so we saw smaller but a significant number of those bids.
Earlier in the process early this year.
We began to see the statewide beds come out and those are more sizable and obviously.
Will apply across all of all the utility surface territories in California.
And so I think we will certainly start to see some awards. So let me see awards on a smaller utility specific areas and I think there's the potential we'll see a few awards on the statewide before the end of the year.
I think the bigger stay what opportunities will be.
The rest of the most material number of statewide opportunities decided I think over the next year. So for next year, but.
There is only going to be awards this year and I think.
Utilities.
Move them to implementation quickly it could certainly.
Help us.
Certainly in the fourth quarter.
We are just very busy on our feet. They don't know if we talked about it to two stage process <unk> ideas.
It makes the cut and ask for formal proposal.
We've continued to have a very high percentage of our ideas make the cut.
To the proposal stage.
That's very encouraging thank you for the color.
And thank you at this time, we have no further questions I will now turn the call over to management foreclosing comments.
Okay, well, thank you for participating with US today, we look forward to seeing you virtually at upcoming conferences in meetings.
We certainly hope that you and your family Stacey.
Thank you.
And thank you ladies and gentlemen, this concludes our conference. Thank you for participating you may know disconnect.
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