Q1 2022 ICF International Inc Earnings Call

May 4, 2022

Welcome to the first quarter 2022, ICF earnings Conference call. My name is Vanessa and I will be your operator for today's call. During the presentation. All participants will be in a listen only mode. Afterwards, you will be invited to participate.

And a question and answer session at that time, if you have a question. Please press zero then one on your Touchtone phone to register for a question. Please note that this conference is being recorded on Wednesday may four 2022 and cannot be reproduced or rebroadcast without permission from the company.

Now I would like to turn the program over to David Gold Investor Relations, Sir you may begin.

Thank you Vanessa good afternoon, everyone and thank you for joining us to review Icf's first quarter 2022 performance.

With us today from ICF for John Watson, Chairman, and CEO and Barry <unk> CFO .

Joining them is James Morgan Chief of business operations during.

During this conference call, we will be making 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 may 4th.

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 Wasson to discuss first quarter 2022 performance John .

Thank you David and thank you all for participating in today's call to review first quarter business and financial trends and discuss our business outlook.

Icf's first quarter results represented a very strong start to the year supporting our outlook for considerable growth in 2022.

In terms of the key takeaways from our first quarter performance.

First we continued to build our position in high growth markets. These markets, namely it modernization and digital transformation public health disaster management utility consulting together with our climate environmental and infrastructure services.

To account for approximately 70% of service revenue in 2022 up from around 65% at the end of 2021.

Second we continue to drive margin improvement, our adjusted EBITDA to service revenue expanded to 13, 9%, while we continued to invest in people technology and strategic initiatives to support our future growth and third our business development results continue to support our long term growth outlook.

At the end of the first quarter, our trailing 12 month book to Bill ratio was 127, and our business development pipeline was a record $7 9 billion pointing to ICF substantial runway for future growth.

The strongest year on year revenue comparisons in the first quarter, where our federal government business, which was up 25%.

Electing organic growth across our growth markets and the acquisition of creative systems, and consulting, which we completed at the end of 2021.

As Youll recall creative as an it modernization digital transformation solutions provider to U S. Federal agencies that expanded our addressable market in two ways.

First it brought substantial expertise in Salesforce and Microsoft platforms that complement our service now in Appian capabilities strengthening our qualifications for New awards.

Second it expanded our presence in several civilian agencies, including USDA and Treasury, where we see additional growth potential.

The acquisition is performing well in line with our expectations of mid teens revenue growth and we see significant opportunities for revenue synergies as we now offer leading practices supporting the most three most widely adopted low code no code platforms in the U S Federal government.

The passage of the omnibus spending package for fiscal year 2022 increased civilian spending opportunities by eight 9% and with only six months left in the year, we are experiencing a very busy bid and proposal season <unk>.

Additionally, we are closely monitoring the Cdc's recently announced agency wide modernization review that is expected to include the development of new systems and processes to deliver its science to the American public as well as facilitate its public health work.

In addition to the healthy omnibus increases for fiscal year 2022, the president submitted his fiscal 'twenty three budget request to Congress in March and while it is far from passage. It does reflect the administration's priorities.

These include a significant increase in federal health budgets with mandatory spending to prepare for the next pandemic focus on childcare indicated by a considerable increase in funding at the administration for children and families and $65 billion in it spending across civilian agencies, all areas in which ICF has substantial domain expertise.

And cross cutting implementation capabilities.

We also experienced strong year on year growth of 14% and revenues from state and local government clients, except to say that both of our work in the disaster management Arena, and our climate environmental and infrastructure services.

ICF continued to execute effectively on key disaster recovery contracts in Texas, and Puerto Rico, as well as our recent contracts and extensions related to more recent storms.

Other ICF currently is working on mitigation efforts for over 30 clients in 14 states with first quarter wins in Washington, South Carolina, New York, Oregon, and Virginia, expanding our geographic footprint.

The department of housing and urban development recently announced more than 2 billion and <unk> disaster recovery and mitigation funding for disasters that occurred during 2020 ICF is already doing disaster recovery work in seven of the 10 states receiving funding and during Q1, we won several small scale preliminary assignments related to planning for these award.

<unk>.

Also we continue to provide our state and local clients with climate environmental and infrastructure Advisory services. In Q1, we won additional work helping clients identify opportunities for securing climate resilience and clean energy funding available through the infrastructure investment and jobs Act.

And we were awarded new permitting assignments for energy infrastructure upgrades and development initiatives.

Revenues from International government clients were lower year on year due to the completion of a short term project with significant pass through revenues that drove exceptional growth and this client category in 2021.

Putting that contract revenues were similar to year ago first quarter levels, even though our event work for the European Union is not fully recovered from pandemic impacts.

We continue to win new multiyear contracts with a diverse array of European Commission and UK government clients in the areas of training and capacity building research and evaluation and communications that address a range of subject matters, including energy and climate water agricultural and food systems education.

Human health and social policy.

Moving to our commercial client category revenues declined six 7% year on year as commercial marketing services remain pressured by the impacts of the pandemic and the slower than expected recovery of our clients in the hospitality and travel industries.

Marketing services represented approximately 7% of Icf's total first quarter revenues.

We did gain traction and deliver growth in both aviation and utility consulting in Q1 by leveraging the deep engagement expertise in these businesses to win new contracts.

Notably aviation consulting continued its year on year progress, winning additional work with existing clients and adding new clients with strong policy focus in both the U S and European Union on de Carbonization, and sustainable aviation has been a business driver.

The major growth area within our commercial business as energy markets, which accounted for 60% of first quarter commercial revenues.

As expected we saw a lower first quarter revenue comparisons given the timing of the start up and wind down of various programs as well as our exceptional 12% growth in the first quarter of 2021.

In this year's first quarter revenue from energy efficiency programs increased one, 3% and energy markets advisory work with steady year on year, but the timing of projects in our environmental and infrastructure business caused lower first quarter comparisons and that client category.

For the full year, we expect mid single digit revenue growth for our commercial energy markets business with higher year on year comparisons in the second half.

Currently ICF executing on more than 200 energy efficiency programs for 55 utilities nationwide and the pipeline remains strong for energy efficiency as well as our other core services to utilities, including beneficial electrification flexible load management and consulting.

<unk> several utility clients have expanded their energy efficiency goals to include greenhouse gas reductions and we've recently won an implementation contract with utilities for the remote management of thermostats.

Overall, there has been a noticeable uptick in demand for us to analyze more complex issues for utility clients encompassing energy efficiency objectives decarbonization goals.

Vehicle programs and their impact on grid reliability. Additionally, as utility clients it quickly emphasize equity.

Disadvantaged communities workforce development, there are increasing opportunities for us to leverage Icf's global expertise in human services.

In the first quarter ICF continued to win new environmental services work with utilities and renewable energy developers in the area of construction and compliance monitoring for energy infrastructure projects and the environmental studies for large offshore wind projects.

Also we were awarded several climate advisory contracts in the first quarter to work for large utilities and commercial clients on projects to ensure that energy systems are resilient to extreme weather programs that support clean energy usage and the development of climate action plans.

To sum up in the first quarter, we continued to expand our capabilities backlog and pipeline in key growth areas.

We expect to aggressively increase as a percentage of Icf's service revenue in the periods ahead supporting our expectations for substantial growth in 2022 and beyond.

I'll turn the call over to Barry brought us our CFO for a financial review very thank you John and good afternoon, everyone. I'm very pleased to be part of the ICF team and to report on such strong financial results during my first quarter as CFO .

Start our 2022 first quarter total revenue increased nine 2% to $413 5 million, which is inclusive of organic revenue growth of approximately 5%.

Service revenue increased eight 9% to $304 6 million.

Year over year comparisons were mainly driven by the robust performance of our federal and state and local government businesses. This quarter as pass through revenue accounted for 26, 3% of total revenue, which is in line with the first quarter of 2021 and within the range. We expect for the full year of 2022.

Our gross profit totaled $155 3 million, an increase of six 1% compared to the first quarter of 2021.

Gross margin on total revenue was 37, 6% compared to 38, 7% last year.

Margin on service revenue was 51% compared to 52, 4% a year ago as.

As we discussed in the first quarter of 2021, we realized significant gross margin benefits primarily from the timing of several fixed price energy efficiency contracts, which drove gross margin variance. This year's first quarter gross margin is consistent with what we would expect for the balance of the year.

Indirect and selling expenses, while up in dollars by six 8% were 180 basis points lower as a percentage of service revenue on an adjusted basis due to our increased scale and actions we have taken to reduce our non labor expenses.

We have also made investments to streamline our systems and processes that will yield cost savings in future periods.

EBITDA increased 4% to $37 9 million as compared to $36 4 million in the first quarter of 2021.

Excluding special charges totaling $4 4 million related to our new headquarters M&A and severance expense adjusted EBITDA outpaced our revenue growth, increasing 12, 1% to $42 3 million from $37 7 million in last year's first quarter.

Several factors contributed to a 13, 9% adjusted EBITDA to service revenue margin, including a favorable revenue mix.

Utilization levels and our increased scale as we benefit from past actions to consolidate office space and realize operating efficiencies. We are confident in our ability to progressively increase EBITDA margins over the next several years well.

Reinvesting in our business.

Operating income was $27 7 million compared to $28 1 million in the first quarter of 2021.

Reflecting the same factors impacting our gross margins our tax rate was 27, 5%, which is in line with our expectations and similar to 2021.

Net income totaled $17 9 million and diluted EPS was <unk> 94 per share in the first quarter.

This includes <unk> 17 per share of tax effected special charges of which 12 represented M&A and previously disclosed facility related charges. This compares to <unk>.

Net income of $18 4 million or <unk> 96 per share last year, which included <unk> <unk> of tax effected special charges on a non-GAAP basis.

Which excludes the impact of special charges and amortization of intangibles EPS increased 15, 9%.

To $1 31 per share.

Moving to the cash flow statement and balance sheet, we used $7 million of cash for operations, which is comparable to our historical first quarter results.

Capital expenditures were <unk>.

$6 5 million, which included investments in our new headquarters days sales outstanding for the first quarter were 79 days compared to 80 days in the similar period last year our debt at the end of March was $459 8 million compared to $421 6 million at the end of 2021.

Mainly reflecting seasonality as well as the integration of a creative acquisition, which had a short term impact on our billing and collections. Our net leverage ratio at the end of March was three five times, which reflects the acquisition of creative on December 31 2021.

<unk> of our capital deployment strategy, we will continue to prioritize investment in organic growth initiatives acquisitions issue dividends and continue with our share buyback program and use excess capital to Delever. The company, we will remain disciplined as we manage our capital with an eye towards ensuring <unk>.

Capital efficiency towards optimize.

Optimizing the long term intrinsic value of the company.

In the first quarter of 2022, we repurchased 176375 shares for $17 million to offset the dilution from our employee incentive programs.

Today, we declared a quarterly cash dividend of <unk> 14 per share payable on July 14, 2020 to the shareholders of record on June 10, two.

2022.

On our last earnings call, we mentioned the cadence of our financial performance. This year will be largely balanced between the first and second half of 2022.

After high single digit service revenue growth achieved in the first quarter, we expect double digit service revenue growth beginning in the second quarter for modeling purposes. The following metrics remain our expectations for 2022.

Our full year interest expense will be in the range of $10 million to $12 million and our full year tax rate will be approximately 28%.

We expect a fully diluted weighted average share count of approximately $19 1 million for 2022.

Capital expenditures are anticipated to be between 33% and $37 million, including approximately $15 million of expenses related to onetime leasehold improvement costs associated with the new rested headquarters are 22022 operating cash flow is forecasted to be $130 million in closing this is a great time to <unk>.

And ICF, given our unique position in the marketplace and strong growth prospects ahead, I look forward to meeting you at our upcoming Investor Day. Later this month in New York and with that I'll turn the call back over to John Thank you.

Thank you Barry we're looking ahead to double digit revenue growth and strong margin performance in full year 'twenty two and we are pleased to reaffirm the guidance, we provided with our year end 2021 results at the midpoint of the guidance range as noted in today's release, we expect service revenue for 2022% increased by 12% adjusted EBITDA.

Margin on service revenue to be 13, 9% and GAAP, EPS and non-GAAP EPS to be up 15% and 10% respectively compared to 2021 operating cash flow is expected to be approximately $130 million for the year up 18% year on year.

We consider this performance to represent an inflection point for ICF, demonstrating our strong position in key growth markets as well as our expanding addressable market.

Investor Day on May 25th in New York will feature presentations of panels that will provide greater insight into the growth drivers ahead for ICF as well as additional insight into the impact of our work. Please direct any questions to learn in Oregon, We certainly hope to see you all there.

Operator, I'd like to now open the call to questions.

Thank you we will now begin our question and answer session. If you have a question. Please press zero then one on your Touchtone phone if you wish to be removed from the queue. Please press zero then too if youre using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press zero then one on your Touchtone phone. Please standby, while we allow parties to queue up.

I see we have our first question from Tobey Sommer with <unk> Securities. Please go ahead.

Hey, good afternoon. This is jasper bibb on for Tobey.

Some of your federal peers, it's more of a defense focus described to slowdown and tasking during the first quarter.

Something that you were seeing given your mix and have you seen customer activity improved in April and May after we got a budget.

I wouldn't say that we saw a slowdown in tasking in Q1 I think.

I think we've had the business has remained steady and as I said we.

We certainly have seen a pickup in a very busy on the business development.

Yes.

The proposal front, but.

I think our tasking and are awarding of funding has been pretty steady I don't think we've seen a slowdown.

Thanks, everyone wanted to follow up on the decline in energy market revenues during the quarter.

Could you just provide a bit more color on what drove that decline are you expecting some of those delayed projects to pick back up again in <unk> in the latter half of the year.

Yes, I think as I said in my remarks, I mean, I think we certainly expect for the year that the commercial energy business will grow at least mid single digits for the year.

The first quarter results was due really to the timing around the kind of wind down of certain projects in the world.

And the kickoff of of new projects in our environment and infrastructure business that was not unexpected I think we knew that we would be winding down certain projects and starting up others.

And so that's really what drove the Q1 results I think given the.

Pipeline and backlog.

As I say, we certainly expect at least mid single digit growth there and I think we'll have a much stronger second half.

The year in our commercial energy business, given given the trends in the awards.

Yes.

It makes sense and then last question for me is just hoping you could update us on the pace of.

RFP activity for disaster work in Puerto Rico, and do you think there is still a meaningful pipeline of work in that area to bid given more than a couple of years into that funding being obligated now.

Yes, I think that.

Our pipeline for disaster recovery is quite robust.

As we said.

Our remarks I mean the.

The <unk> the state and local.

Business grew $14 level businesses grew 14% in Q1, obviously disaster recovery as a key part of that growth.

Driving that growth.

So.

And certainly the pipeline there remains robust I think we still have material opportunities in front of us and Puerto Rico.

And as I noted in remarks, we certainly are seeing.

A bevy of opportunities on the mitigation front around the country.

And I think that's a long term trend that's here to stay and so.

So certainly the disaster recovery remains one of our key growth markets, we have a robust pipeline.

I certainly expect.

We will see material opportunities there as we look forward.

Thanks for taking the questions.

Graph on a nice start to the year here.

Thank you.

Yes.

Thank you we have our next question from Joe <unk> with Canaccord.

Hey, guys. Good afternoon nice results here.

Q1, I was wondering if we could drill down a little bit into the supply side. I know you said there was higher utilization that helped margins.

Was that just.

Got it.

Backdrop, Europe hiring versus utilization going higher how youre managing that.

Especially given.

Kind of the inflationary outlook here for.

For wages.

Okay.

Well sure I mean, I think Joe we've talked in the past about.

Recruiting and utilization I think we certainly are pleased with the strong utilization.

Within the company, obviously as were growing nicely as we are.

That certainly can help.

Provide the work to main that maintain that high utilization.

As we go forward.

And so I think we'll be able to consistently do that I do think to your point and we are in a people business, we need to add to head count we are expecting.

7% organic growth here.

Would imply we need to add.

Six 5% more staff to meet that growth as.

As we've talked about on prior calls we are investing significantly in recruiting.

I have confidence, we'll be able to to recruit that staff and bring them onboard in a timely way I'm not going to Kid you, it's a very competitive market and it's a challenging market but.

As we talked about in our I think in our fourth quarter call last year, we grew.

Six 4% and we were able to hire five 5%, 6% more steps to meet that so.

So I think we're generally comment on the recruiting front that we can.

<unk>.

Hire the staff.

To your point on wage inflation.

Those issues I mean, we're like every business in America, we're experiencing.

These pressures and higher wages and have had to.

Increase our <unk> expense both in terms of.

The.

Various aspects of compensate salaries.

Retention awards.

As I've talked about it I mean, I think we generally believe that.

We will be able to manage those.

Both through.

Passing those costs through in our rates through time in a timely way and as we've also talked about I mean, we are continuing to two.

Have.

Savings in travel and entertainment, we've taken steps to reduce our facility footprint and so some of the savings there is certainly being reinvested back into the people and allowing us to stay competitive on the compensation front, but without having to.

In fact, our profitability.

So I guess, that's a long winded answer, but I think we're managing that as well as we can and are generally doing a good job and I think at the end of day I'm confident we'll be able to meet our recruiting goals.

And.

Find the talent we need.

Sure and then.

Just a follow up I mean, your <unk> footprint getting bigger.

Which is great I think.

It would just be interesting to get a kind of a lay of the land is.

Big enough now you can kind of see some of the differences in some of the work versus.

Just a little bit more program management Scott.

With your government clients, how is how is attracting and retaining.

Talent in each of those.

Versus the non <unk> segment, and then any differences you're seeing in RFP activity or changes in each of those sectors versus.

So six months ago. Thanks, a lot guys.

Yes, I think that well certainly youre.

Correct.

Got it.

Monetization.

Certainly, becoming a more and more material portion of our business is certainly one of our.

Significant key growth drivers theres significant opportunity there and over.

Over the last two to three years, both through our <unk>.

Organic efforts to grow the business in the two or three acquisitions. We've done we certainly have scale now and it monetization we can go to market.

On each of the three significant platforms in civilian markets.

And it's certainly very competitive in those markets.

Then I would say that we have on the <unk>.

Technology side, I think we've generally been quite successful in recruiting.

Recruiting the talent I think to your point, it's it's not exactly the same as recruiting domain oriented talent I mean, I think those folks are quite interested in.

Doing really leading edge interesting technology work in the training and the skilled development you can provide.

And so I think but given what we do in our platform. We have we can certainly do that and so I think we're we're able to.

Recruit and retain the talented.

At the end of day I also think that they once they are here. They finally like the ICF culture and like the mission orientation of the work, we do and so.

I think we've.

We've really.

It's become quite skilled at recruiting and retaining.

The technology talent, we need in terms of the pipeline and the business development opportunities I mean, I would say to you that right now as we said in our first quarter results I mean really the federal government.

And state and local markets really drove our first quarter results and on the federal side, that's risky modernization and public health and so we are seeing a lot of opportunity on the it modernization.

Public health side, right now and.

I think we're quite we're quite bullish on those markets and think that those will be.

Our long term growth drivers for us and so as I said I think the proposal activity within ICF.

The variety of deals, we're seeing and certainly in the it modernization larger deals we're seeing.

Are all very positive trends for us.

Yes.

Thanks, Bob John .

Yes.

Good to hear you Joe.

Just to confirm Joe do you have anything further.

Well that's it for now thank you.

Thank you Sir.

As a reminder, if you have a question you can enter the queue by pressing zero one on standby for questions.

Yeah.

And I see no further questions at this time.

I'll now turn the call over to John Watson for closing remarks.

Thank you all for participating today, we look forward to keeping you apprised of our progress as we grow throughout 2022 and.

We certainly hope to see you at our Investor day at the end of this month.

Thank you and take care.

Thank you ladies and gentlemen, this concludes our conference. We thank you for participating you may now disconnect.

Okay.

<unk>.

Okay.

[music].

Yes.

[music].

Welcome to the first quarter 2022 ICF earnings conference call.

My name is Vanessa and I will be your operator for today's call. During the presentation. All participants will be in a listen only mode. Afterwards, you will be invited to participate in a question and answer session at that time. If you have a question. Please press zero then one on your Touchtone phone to register for a question.

Please note that this conference is being recorded on Wednesday may four at 'twenty, 'twenty, two and cannot be reproduced or rebroadcast without permission from the company.

And now I would like to turn the program over to David Gold Investor Relations. Sir you may begin.

Thank you Vanessa good afternoon, everyone and thank you for joining us to review Icf's first quarter 2022 performance.

With us today from ICF for John Watson, Chairman, and CEO and Barry Brotus CFO join.

Joining them is James Morgan Chief of business operations. During this conference call, we will be making 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 may 4th 19.

22 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 Wasson to discuss first quarter 2022 performance John .

Thank you David and thank you all for participating in today's call to review first quarter business and financial trends and discuss our business outlook.

Icf's first quarter results represented a very strong start to the year supporting our outlook for considerable growth in 2022.

In terms of the key takeaways from our first quarter performance.

To account for approximately 70% of service revenue in 2022 up from around 65% at the end of 2021.

The strongest year on year revenue comparisons in the first quarter, where our federal government business, which was up 25%.

<unk> organic growth across our growth markets and the acquisition of creative systems, and consulting, which we completed at the end of 2021.

As Youll recall creative as an it modernization digital transformation solutions provider to U S. Federal agencies that expanded our addressable market in two ways.

First it brought substantial expertise in Salesforce and Microsoft platforms that complement our service now in Appian capabilities strengthening our qualifications for New awards.

Second it expanded our presence in several civilian agencies, including USDA and Treasury, where we see additional growth potential.

The passage of the omnibus spending package for fiscal year 2022 increased civilian spending opportunities by eight 9%.

Six months left in the year, we are experiencing a very busy bid and proposal season <unk>.

Additionally, we are closely monitoring the Cdc's recently announced the agency wide modernization review that is expected to include the development of new systems and processes to deliver its science to the American public as well as facilitate as public health work.

And cross cutting implementation capabilities.

We also experienced strong year on year growth of 14% and revenues from state and local government clients, which represented both our work and the disaster management Arena, and our climate environmental and infrastructure services.

ICF continued to execute effectively on key disaster recovery contracts in Texas, and Puerto Rico, as well as our recent contracts and extensions related to more recent storms.

Either ICF currently is working on mitigation efforts for over 30 clients in 14 states with first quarter wins in Washington, South Carolina, New York, Oregon, and Virginia, expanding our geographic footprint.

<unk>.

And we were awarded new permitting assignments for energy infrastructure upgrades and development initiatives.

Excluding that contract revenues were similar to year ago first quarter levels, even though our event work for the European Union is not fully recovered from pandemic impacts.

Human health and social policy.

Yeah.

Marketing services represented approximately 7% of Icf's total first quarter revenues.

We did gain traction and deliver growth in both aviation and utility consulting in Q1 by leveraging the deep engagement expertise in these businesses to win new contracts.

The major growth area within our commercial business as energy markets, which accounted for 60% of first quarter commercial revenues.

As expected we saw a lower first quarter revenue comparisons given the timing of the start up and wind down of various programs as well as our exceptional 12% growth in the first quarter of 2021.

And this year's first quarter revenue from energy efficiency programs increased one, 3% and energy markets advisory work with steady year on year, but the timing of projects in our environmental and infrastructure business caused lower first quarter comparisons and that client category.

For the full year, we expect mid single digit revenue growth for our commercial energy markets business with higher year on year comparisons in the second half.

In fact, several utility clients have expanded their energy efficiency goals to include greenhouse gas reductions and we've recently won an implementation contract with a utility for the remote management of thermostats.

Overall, there has been a noticeable uptick in demand for us to analyze more complex issues for utility clients encompassing energy efficiency objectives, decarbonization goals that can vehicle programs and their impact on grid reliability. Additionally, as utility clients. It quickly emphasize equity disadvantaged communities workforce developed.

<unk>, there are increasing opportunities for us to leverage Icf's global expertise in human services.

To sum up in the first quarter, we continued to expand our capabilities backlog and pipeline in key growth areas, which we expect to aggressively increase as a percentage of Icf's service revenue in the periods ahead supporting our expectations for substantial growth in 2022 and beyond.

Now I'll turn the call over to Barry brought us our CFO for a financial review Barry. Thank you John and good afternoon, everyone. I am very pleased to be part the ICF team and to report on such strong financial results. During my first quarter as CFO to start our 2022 first quarter total revenue increased nine 2% to $413 <unk>.

$5 million, which is inclusive of organic revenue growth of approximately 5%.

Service revenue increased eight 9% to $304 6 million.

These year over year comparisons were mainly driven by the robust performance of our federal and state and local government businesses. This quarter as pass through revenue accounted for 26, 3% of total revenue, which is in line with the first quarter of 2021 and within the range. We expect for the full year of 2022.

Our gross profit totaled $155 3 million, an increase of six 1% compared to the first quarter of 2021.

Gross margin on total revenue was 37, 6% compared to 38, 7% last year.

Gross margin on service revenue was 51% compared to 52, 4% a year ago as.

We have also made investments to streamline our systems and processes that will yield cost savings in future periods.

EBITDA increased 4% to $37 9 million as compared to $36 4 million in the first quarter of 2021, excluding special charges totaling $4 4 million related to our new headquarters M&A and severance expense adjusted EBITDA outpaced our revenue growth, increasing 12, 1% to <unk> 42.

$2 3 million from $37 7 million in last year's first quarter.

Several factors contributed to a 13, 9% adjusted EBITDA to service revenue margin, including a favorable revenue mix high utilization levels and our increased scale as we benefit from past actions to consolidate office space and realize operating efficiencies we are confident in our ability to progressive.

Increased EBITDA margins over the next several years, while reinvesting in our business.

Operating income was 27 7 million compared to $28 1 million in the first quarter of 2021.

Reflecting the same factors impacting our gross margins our tax rate was 27, 5%, which is in line with our expectations and similar to 2021.

Net income totaled $17 9 million and diluted EPS was <unk> 94 per share in the first quarter.

This includes <unk> 17 per share of tax effected special charges of which 12 represented M&A and previously disclosed facility related charges. This compares to.

Net income of $18 4 million or <unk> 96 per share last year, which included <unk> <unk> of tax effected special charges on a non-GAAP basis.

Which excludes the impact of special charges and amortization of intangibles EPS increased 15, 9% to.

To a $1 31 per share.

Moving to the cash flow statement and balance sheet, we used $7 million of cash for operations, which is comparable to our historical first quarter results capital expenditures.

Mainly reflecting seasonality as well as the integration of a creative acquisition, which had a short term impact on our billing and collections our net leverage ratio at the end of March was $3 one five times.

This reflects the acquisition of creative on December 31, 2021 in regards to our capital deployment strategy. We will continue to prioritize investment in organic growth initiatives acquisitions issue dividends and continue with our share buyback program and use excess capital to Delever the company.

We will remain disciplined as we manage our capital with an eye towards ensuring capital efficiency towards optimize optum.

Optimizing the long term intrinsic value of the company.

In the first quarter of 2022, we repurchased 176375 shares for $17 million to offset the dilution from our employee incentive programs.

Today, we declared a quarterly cash dividend of <unk> 14 per share payable on July 14, 2020 to the shareholders of record on June 10.

2022.

On our last earnings call, we mentioned the cadence of our financial performance. This year will be largely balanced between the first and second half of 2022.

Our depreciation and amortization expense is expected to be in the range of $20 7 million to $22 7 million for the full year 2022, our amortization of intangibles should be in the range of $18 5 million to $19 million. Our full year interest expense will be in the range of $10 million to $12 million and our full year tax rate will be approximately.

Currently 28%.

We expect a fully diluted weighted average share count of approximately $19 1 million for 2022.

And capital expenditures are anticipated to be between 33% and $37 million, including approximately $15 million of expenses related to onetime leasehold improvement costs associated with the new restaurant headquarters.

22022, operating cash flow is forecasted to be $130 million in closing. This is a great time to join ICF, given our unique position in the marketplace and strong growth prospects ahead I look forward to meeting you at our upcoming Investor Day. Later this month in New York and with that I'll turn the call back over to John .

Thank you.

Thank you Barry we are looking ahead to double digit revenue growth and strong margin performance in full year 'twenty two and we are pleased to reaffirm the guidance, we provided with our year end 2021 results at the midpoint of the guidance range as noted in today's release, we expect service revenue for 2022% increased by 12% adjusted EBITDA margin.

On service revenue to be 13, 9% and GAAP, EPS and non-GAAP EPS to be up 15% and 10% respectively. All compared to 2021 operating cash flow is expected to be approximately $130 million for the year up 18% year on year.

We consider this performance to represent an inflection point for ICF.

Considering our strong position in key growth markets as well as our expanding addressable market.

Operator, I'd like to now open the call to questions.

Thank you we will now begin our question and answer session. If you have a question. Please press zero then one on your Touchtone phone.

To be removed from the queue. Please press zero, then too if youre using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press zero then one on your Touchtone phone. Please standby, while we allow parties to queue up.

I see we have our first question from Tobey Sommer with <unk> Securities. Please go ahead.

Hey, good afternoon. This is jasper bibb on for Tobey.

Some of your federal peers with more of a defense focus ascribed to slowdown and tasking. During the first quarter is that something that you were seeing given your mix and have you seen customer activity improved in April and May after we got our budget.

I wouldn't say that we saw a slowdown in tasking in Q1 I think.

I think we've had the business has remained steady and as I said we.

We certainly have seen a pickup on a very busy on the business development.

The proposal front, but.

I think our testing and are awarding of funding has been pretty steady I don't think we've seen a slowdown.

Thanks, everyone wanted to follow up on the decline in energy market revenues during the quarter can you just provide a bit more color on what drove that decline and are you expecting some of those delayed projects pick back up again in <unk> in the latter half of the year.

Yes, I think as I said in my remarks, I mean, I think we certainly expect for the year that the commercial energy business will grow at least mid single digits for the year I think the first quarter results was due really to the timing around the kind of wind down of certain projects in the <unk>.

And the kickoff of of new projects in our environment and infrastructure business that was not unexpected I think we knew that we would be winding down certain projects and starting up others.

And so that's really what drove the Q1 results I think given the pipeline.

Our pipeline and backlog.

As I say, we certainly expect at least mid single digit growth there and I think we'll have a much stronger second half.

The year in our commercial energy business, given given the trends in the awards.

Yes.

It makes sense and then last question for me is just hoping you could update us on the pace of.

RFP activity for disaster work in Puerto Rico, and do you think there is still a meaningful pipeline of work in that area in a bad given more than a couple of years into that funding being obligated now.

Yes, I think that.

Our pipeline for disaster recovery is quite robust.

As we said.

Our remarks.

<unk> the state and local.

Business grew 14 levels businesses grew 14% in Q1, obviously disaster recovery as a key.

Part of that growth.

Driving that growth.

So and certainly the.

Pipeline there remains robust I think we still have material opportunities in front of us in Puerto Rico.

And as I noted in remarks, we certainly are seeing.

A bevy of opportunities on the mitigation front around the country.

And I think that's a long term trend that's here to stay and so.

So certainly the disaster recovery remains one of our key growth markets, we have a robust pipeline.

They expect.

We will see material opportunities there as we look forward.

Thanks for taking the questions and congrats on a nice start to the year here.

Thank you.

Yes.

Thank you we have our next question from Joe <unk> with Canaccord.

Hey, guys. Good afternoon nice results here.

Q1, I was wondering if we could drill down a little bit into the supply side. I know you said there was higher utilization will help margins.

Was that just.

Got it back.

Backdrop here of hiring versus utilization going higher how youre managing that.

Especially given.

Kind of the inflationary outlook here for.

For wages.

My follow up.

Well sure I mean, I think Joe we've talked in the past about.

Recruiting and utilization I think we certainly are pleased with the strong utilization.

Within the company, obviously as were growing nicely as we are.

That certainly can help.

Provide the work to main that maintain that high utilization.

As we go forward.

And so I think we'll be able to consistently do that I do think to your point and we are in a people business, we need to add to head count we are expecting.

7% organic growth here.

Would imply we need to add.

Six 5% more staff to meet that growth.

As we've talked about on prior calls we are investing significantly in recruiting.

I have confidence, we'll be able to to recruit that staff and bring them onboard in a timely way I'm not going to Kid you, it's a very competitive market and it's a challenging market but.

As we talked about on our I think in our fourth quarter call last year, we grew.

Six 4% and we were able to hire a five 5%, 6% more steps to meet that so.

So I think we are generally confident on the recruiting front that we can.

<unk>.

Hire the staff.

To your point on wage inflation.

Those issues were.

Like every business in America, we're experiencing.

<unk> pressures and higher wages and have had to.

Increase our our wage expense both in terms of.

The.

Various aspects of compensate salaries.

Retention awards.

As I've talked about I mean, I think we generally believe that.

We will be able to manage those.

Both through.

Passing those costs through in our rates through time in a timely way and as we've also talked about I mean, we are continuing to two.

Have.

Savings in travel and entertainment, we've taken steps to reduce our facility footprint and so some of the savings there are certainly being reinvested back into the people and allowing us to stay competitive on the compensation front, but without having to.

In fact, our profitability.

And.

Find the talent we need.

Okay sure and then.

Just a follow up I mean, your footprint getting bigger.

Which is great I think.

It would just be interesting to get.

And of a lay of the land is.

It's big enough now you can kind of see some of the differences in some of the work versus.

Just a little bit more program management staff.

Your government clients, how is how is attracting and retaining.

Talent in each of those.

Versus the non <unk> segment, and then any differences you're seeing in RFP activity or changes in each of those sectors versus.

So six months ago. Thanks, a lot guys.

Yes, I think that well certainly youre.

Correct.

It monetization.

Certainly, becoming a more and more material portion of our business is certainly one of our.

Significant key growth drivers are significant opportunity there.

Over the last two to three years, both through our <unk>.

Organic efforts to grow the business in the two or three acquisitions. We've done we certainly have scale now and it monetization we can go to market.

On each of the three significant platforms in civilian markets.

And it's certainly very competitive in those markets.

Again, I would say that we have.

Technology side, I think we've generally been quite successful in.

Recruiting the talent.

To your point it's.

It's not exactly the same as recruiting domain oriented talent I mean, I think those folks are we're quite interested in.

Doing really leading edge interesting technology work in the training and the skill development you can provide.

And so I think but given what we do in our platform. We have we can certainly do that and so I think we're we're able to.

Recruit and retain the talent.

At the end of day I also think that they once they are here. They finally like the ICF culture and like the mission orientation of the work, we do and so.

I think we've.

We've really.

Yes.

Quite skilled at recruiting and retaining.

The technology.

We need in terms of the pipeline and our business development opportunities I mean, I would say to you that right now as we said in our first quarter results I mean really the federal government.

And state and local markets are really drove our first quarter results and on the federal side, that's risky modernization and public health and so we are seeing a lot of opportunity on the it modernization.

Public health side, right now and.

I think we're quite we're quite bullish on those markets and we think that those will be.

Long term growth drivers for us and so as I said I think the proposal activity within ICF.

The variety of deals, we're seeing and certainly in the it modernization larger deals we're seeing.

Are all very positive trends for us as we go.

Thanks, Bob John .

Yes.

Good to see you too.

Just to confirm Joe do you have anything further.

That's it for now thank you.

Thank you Sir.

As a reminder, if you have a question you can enter the queue by pressing zero one on standby for questions.

Okay.

And I see no further questions at this time I will now turn the call over to John Watson for closing remarks.

Thank you all for participating today, we look forward to keeping you apprised of our.

Progress as we grow throughout 2022 and.

We certainly hope to see you at our Investor day at the end of this month.

You and take care.

And thank you ladies and gentlemen, this concludes our conference. We thank you for participating you may now disconnect.

Q1 2022 ICF International Inc Earnings Call

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