Q3 2024 ICF International Inc Earnings Call
Okay.
Operator: Good day, everyone, and thank you for standing by. Welcome to the third quarter 2024 ICF Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star one one on your telephone. You will then hear a message advising your hand is raised. To withdraw the question, simply press star one one again. Please be advised that today's conference is being recorded.
Speaker Change: Good day, everyone and thank you for standing by welcome to the third quarter 2020 for ICF earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to participate you would need to press star one on your telephone.
You will then hear a message of dicing your hand this race.
To withdraw your question simply press Star one again, please be advised that today's conference is being recorded now it's my pleasure to turn the call to Lynn Morgan with Advisory partners.
Lynn Morgen: Now it's my pleasure to turn the call to Lynn Morgan with Advisory Partners.
Lynn Morgen: Thank you, operator.
Lynn Morgan: Thank you operator, good afternoon, everyone and happy Halloween.
Lynn Morgen: Good afternoon, everyone, and happy Halloween. Thank you for joining us to review ICF's third quarter 2024 performance. With us today from ICF are John Wasson, Chair and CEO, and Barry Broadus, CFO. Joining them is James Morgan, Chief Operating Officer.
Thank you for joining us to review Icf's third quarter 2020 for performance with US today from ICF are John Watson Chair, and CEO and Barry <unk> CFO joining.
Joining damage James Morgan Chief operating officer.
Lynn Morgen: During this conference call, we will make forward-looking statements to assist you in understanding ICF management's expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our October 31st, 2024 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.
During this conference call, we will make forward looking statements to assist you in understanding ICF management's expectations about our future performance.
These statements are subject to a number of risks that could cause actual events and results to differ materially and I refer you to our October 31st 2024 press release, and our SEC filings for discussions of those risks.
In addition, our statements during this call.
We used on our views as of today.
Lynn Morgan: 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.
Exactly disclaim any obligation to do so.
John Wasson: I will now turn the call over to ICF CEO John Wasson to discuss third quarter 2024 performance.
I will now turn the call over to Icf's CEO, John Wasson to discuss third quarter 2024.
John Wasson: John. Thank you, Lynn, and thank you all for participating in today's call to review our third quarter results and discuss our business outlook. I wanna echo Lynn's happy Halloween issues. And I'm pleased to say we have no tricks and lots of treats in our Q3 results. So with that said, I'll move this along so those of you who are going out trick-or-treating tonight can get there in a timely way. So this was another strong quarter for ICF. Our staff executed very well on existing contracts, and our forward-looking metrics indicate that we are well-positioned for continued growth.
Lynn Morgan: Uh huh.
John Wasson: Thank you Lynn and thank you all for participating in today's call to review, our third quarter results and discuss our business outlook.
Echo Lynn's happy Halloween issues I'm pleased to say, we have no tricks and lots of treats and our Q3 results. So with that said I'll move this along for those of you who are going out trick or treating and I can get there in a timely way.
So this was another strong quarter for ICF are stuff executed very well on existing contracts and our forward looking metrics indicate that we are well positioned for continued growth looking at the key takeaways from the quarter.
John Wasson: Looking at the key takeaways from the quarter. First, revenue from continuing operations increased 6% year-on-year. Additionally, revenues from continuing operations less pass-throughs increased 10% year-on-year. This is representative of the work done by ICF employees. Second, we outperformed across all profitability metrics, reflecting favorable business mix and tax benefits, enabling us to increase our EPS guidance by $0.35 for the full year. Third, we had solid third-quarter contract wins, resulting in a healthy trailing 12-month book-to-bill ratio of 1.31. And lastly, we ended the third quarter with a record new business development pipeline of $10.6 billion, providing substantial growth potential for ICF across our government and commercial client sets over the coming years.
Lynn Morgan: First revenue from continuing operations increased 6% year on year.
Additionally, revenues from continuing operations less pass throughs increased 10% year on year. This is representative of the work done by ICF employees.
We outperformed across all profitability metrics, reflecting favorable business mix and tax benefits.
Playing us to increase our EPS guidance by 35 cents for the full year.
Lynn Morgan: We had solid third quarter contract wins, resulting in a healthy trailing 12 months book to Bill ratio of 131.
Lynn Morgan: And lastly, we ended the quarter the third quarter with a record new business development pipeline of $10 6 billion, providing substantial growth potential for ICF across our government and commercial clients set over the coming years.
John Wasson: Third quarter revenue growth, again, was led by our energy, environment, infrastructure and disaster recovery client market. We're accelerating demand for ICF's multidisciplinary solutions, our analytics and our program management expertise to over 15.3% increase in revenue. Robust growth in our higher margin revenues from commercial energy clients continue to be a key contributor to our strong performance. Year-on-year growth reflected both the addition of new clients and the increasing scope of work we're performing for existing clients. ICF is a market leader in developing and implementing the latest generation of residential energy efficiency programs, and we're also gaining share in the commercial and industrial energy efficiency market.
Third quarter revenue growth again was led by our energy environment infrastructure and disaster recovery client market.
We're accelerating demand for Icf's multidisciplinary solutions, our analytics and our program management expertise drove a 15, 3% increase in revenue.
Lynn Morgan: Robust growth in our higher margin revenues from commercial energy clients continue to be a key contributor to our strong performance year on year goes towards that with both the addition of new clients and the increasing scope of work, we're performing for our existing clients.
I see I think as a market leader in developing and implementing the latest generation of residential energy efficiency programs and we're also gaining share in the commercial and industrial energy efficiency market.
John Wasson: We have a long track record of consistently reaching and exceeding performance goals on our energy efficiency programs and have invested organically and through tuck-in acquisitions to significantly expand our capabilities in adjacent areas. As a result, we have earned the trust of our utility clients and have a broad range of very timely and relevant offerings that bring together our expertise in energy, climate, grid engineering, and disaster recovery, which is a unique set of capabilities that ICF has. This has led to consistent growing demand for our program development and implementation services beyond energy efficiency programs to include pilot programs on flexible load management, developing programs on electrification and advising on grid resilience.
We have a long track record of consistently reaching and exceeding performance goals on our energy efficiency programs.
Invested organically and through tuck in acquisitions to significantly expand our capabilities in adjacent areas.
Lynn Morgan: As a result, we have earned the trust of our utility clients and have a broad range of very timely and relevant offerings that bring together our expertise in energy.
Great Engineering and disaster recovery, which has a unique set of capabilities that ICF has.
This has led to consistent growing demand for our program development and implementation services beyond energy efficiency programs to include pilot programs on flexible load management building programs on electrification and advising on grid resilience.
John Wasson: And this demand has accelerated given the rapid pace of low growth from new data centers and transportation electrification. In the third quarter, we also continued to work for utilities in support of underground, undergrounding power lines and advising on wildfire restoration and resilience. Additionally, third quarter commercial energy market revenues growth reflected ongoing work for renewable developers across solar storage and wind, where we have seen recent wins to provide the full breadth of ICF's licensing, permitting, compliance and habitat conservation service. We continue to see opportunities from the IIJA and IRA. To date, ICF has won about $185 million in work related to the IIJA and IRA, primarily from federal and state government clients, and our pipeline is over $250 million.
This demand has accelerated given the rapid pace of loan growth in the data centers and transportation electrification.
Lynn Morgan: In the third quarter. We also continued to work for utilities and supported underground under grounding power lines and advising on wildfire restoration and resilience. Additionally, third quarter commercial energy market revenues growth.
Lynn Morgan: Uncle and worked for renewable developers across solar storage and wind, where we have seen recent wins to provide the full breadth of icf's licensing permitting compliance and habitat conservation services.
We continue to see opportunities from the Iga and I R. A T.
I feel this one about $185 million in work related to the I J and I are a primarily from federal and state government clients and our pipeline is over $250 million.
John Wasson: This does not include all the related work that we're doing for commercial clients where it's more difficult to tie the engagements to specific legislation. RFPs from state and local governments for IJA and IRA-related grant management support are being released, with many more expected in Q4 and early 2025. These RFPs for programs such as climate pollution reduction, solar for all, home energy rebates, and grid resilience and innovation provide significant opportunities for ICF, building on our existing work across the country for utilities and for state and local climates on climate and clean energy topics. In fact, we continue to see strong demand for our climate-related services across our client set in the third quarter, with revenues up substantially year-on-year, and solid growth in new contract wins.
This does not include all the way to work that we're doing for commercial clients or small.
Difficult to tidy engagements and specific legislation.
Rfps from state and local governments for I I J E and I are a related grant management support are being released with many more expected in Q4 and early 2025. These rfps for programs such as climate pollution reduction solar for all home energy rebates and bid.
Michelle Anderson innovation provides significant opportunities for ICF.
Lynn Morgan: On our existing work across the country for utilities and for state and local climates on climate and clean energy topics.
In fact, we continue to see strong demand for our cloud and related services across our client set in the third quarter with revenues up substantially year on year and solid growth in new contract wins.
John Wasson: Indicative of the breadth and depth of our climate work with state governments, our third quarter wins with the state of Hawaii for sea level rise vulnerability assessments, the California Air Resources Board for a refinery infrastructure study, and carbon reduction strategies for the Texas Capital Area Metropolitan Planning Organization. And our disaster recovery work continues to be in high demand. As you know, we generally are not involved in the initial response to disasters, but we have won numerous small contracts from clients in Florida, North Carolina, South Carolina and Virginia to provide immediate disaster assessment support post-Hurricane Selene and Milton.
Lynn Morgan: Indicative of the breadth and depth of our climate work with state governments are third quarter wins with the state of Hawaii for sea level rise vulnerability assessments with the California Air Resources Board for a refinery infrastructure study.
Lynn Morgan: And carbon reduction strategies for the Texas capital area Metropolitan Planning organization.
And our disaster recovery work continues to be in high demand as you know we generally are not involved in the initial response to disasters.
Lynn Morgan: We have won numerous small contracts from clients in Florida.
Lynn Morgan: Carolina, South Carolina, and Virginia to provide immediate disaster assessment support post hurricane saline and Milton.
John Wasson: Later in 2025, we will respond to competitive solicitations to address their longer-term recovery needs, and these small initial assignments will raise ICF's profile and allow us to develop key client relationships now. ICF is currently delivering on roughly 50 disaster recovery programs in 16 states and two territories, and we're currently supporting more than 30 clients' mitigation efforts in 10 states and one territory. And our programs are expanding, as evidenced by a recent $38 million contract extension from an existing client to continue supporting their disaster recovery and mitigation efforts, and a new contract with another existing client to provide services to support compliance with federal and local disaster management regulations related to its hurricane recovery efforts.
Later in 2025, we will respond to competitive solicitations to address their longer term recovery needs and these small initial assignments will raise icf's profile and allow us to develop key client relationships now.
ICF is currently delivering on roughly 50 disaster recovery programs in 16 States and two territories and we're currently supporting more than 30 clients mitigation efforts in 10 states and one territory.
And our programs are expanding as evidenced by our recent $38 million contract extension on <unk>.
Lynn Morgan: Listing clients to continue supporting their disaster recovery and mitigation efforts and a new contract with another existing client to provide services to support compliance with federal and local disaster management regulations related to its hurricane recovery efforts.
John Wasson: Moving to our health and social programs client market, reported revenues from continual operations declined 5.2% year-on-year, but that includes a reduction in pass-through revenues of approximately $12 million in the third quarter. Adjusting for the lower passive revenues, revenues from continued operations. In this client market, we're slightly ahead of last year. As we discussed last quarter, we have faced difficult comparison in this client market in 2024 for two major reasons. The anticipated fall-off in revenues from small business set-aside contracts that were held by the IT modernization firms we acquired in 2022 and ramp-up delays on certain USAID health-related contracts.
Moving to our health and social programs client market reported revenues from continuing operations declined five 2% year on year, but that includes a reduction in pass through revenues of approximately $12 million in the third quarter adjust.
Adjusting for the lower pass through revenues revenues from continuing operations and this client Margaret we're slightly ahead of last year.
Lynn Morgan: As we discussed last quarter.
Now faced difficult comparison, and this client market in 2024 for two major reasons.
Lynn Morgan: Dissipated falloff in revenues from small business set aside contracts that were held by the it modernization firms we acquired in 2022 and ramp up delays uncertain usaid's ultra related contracts.
John Wasson: Please also keep in mind that several of our large international government contracts are included in this client model. We won several new contracts in the public health and social programs arena in the third quarter, including a new task order worth $40 million to deliver strategic and digital communication and engagement campaigns to combat human trafficking. And we continue to see growth opportunities related to capacity building, training, and technical assistance for federal grantees. Currently, we support about $200 million per year of this work across the federal government, including at ACF, NIH, CDC, DOJ, and EPA. Also in the third quarter, we were awarded a new $70 million contract by the government of the U.S.
Please also keep in mind that several of our large international government contracts are included in this call it market.
Lynn Morgan: We won several new contracts in the public health and social programs arena in the third quarter, including a new task order was $40 million to deliver strategic and digital communication and engagement campaigns to.
Lynn Morgan: Combat human trafficking.
And we continue to see growth opportunities related to capacity building training and technical assistance for federal grants.
Currently we support about $200 million per year of this work across the federal government.
Alluding at ACF NIH CDC.
Lynn Morgan: Jay and EPA.
Lynn Morgan: Also in the third quarter, we were awarded a new $70 million contract by the government of the U S territory to design build and implement a new geospatial data management system. This is an excellent example of the increased traction we're seeing on opportunities that combined our technology and domain expertise, particularly when the scope of work.
John Wasson: territory to design, build, and implement a new geospatial data management system. This is an excellent example of the increased traction we're seeing on opportunities that combined our technology and domain expertise, particularly when the scope of work includes a data or AI focus. Other examples of recent wins where we're combining our technology and domain expertise within the public health and social programs area include a new project for the Advanced Research Projects Agency for Health, or ARPA-H, in which we'll develop and apply methods to make genomic and other complex scientific data AI ready. The biomedical research data from NIH institutes and centers will then be included in ARPA's H Biomedical Data Fabric Toolbox and be more easily accessible by researchers.
As a data or AI focus.
Other examples of recent wins, where we're combining our technology and domain expertise within the public health and social programs area include a new project for the advanced research projects agency for health or ARPA, H, and which will develop and apply a message to make genomic and other complex scientific data AI ready.
Biomedical research data from NIH Institutes and centers would then be included and ARPA stage biomedical data fabric toolbox and be more easily accessible by researchers.
John Wasson: Also, we executed on our expanded contract to monetize the data infrastructure that supports CDC's Youth Risk Behavior Survey, which is the largest public health surveillance system in the U.S., monitoring health-related behaviors among high school students like alcohol and drug use, physical activity, and unintentional injuries and violence. As we end the year and move into 2025, we believe that the federal digital modernization efforts will continue to remain a bipartisan spending priority and that this market will continue to grow at a high single digit rate. Further, we're pleased to see an increase in the number of procurements being released with expected awards in the first half of 2025.
Lynn Morgan: Also we executed on our expanded contract to modernize the data infrastructure that support Cdc's youth risk behavior survey, which is the largest public health surveillance system in the U S monitoring health related behaviors among high school students like alcohol and drug to use physical activity and unintentional injuries and violence.
As we move into 2025, we believe that the federal digital modernization efforts will continue to remain a bipartisan spending priority.
Lynn Morgan: We will continue to grow at a high single digit rate.
Further we're pleased to see an increase in the number of procurements being released with expected awards in the first half of 2025.
John Wasson: On the topic of new business, as I mentioned earlier, we ended the third quarter with a healthy trailing 12-month book-to-bill ratio of 1.31, which is a positive indication of future growth. New business accounted for 63% of our year-to-date contract wins, demonstrating how well our capabilities are aligned with client spending priorities.
Lynn Morgan: On the topic of new business as I mentioned earlier, we ended the third quarter with a healthy trailing 12 months book to Bill ratio of 131, which is a positive indication of future growth new.
New business accounted for 63% of our year to date contract lanes, demonstrating how well our capabilities our alignment our spending priorities.
John Wasson: In summary, this was a quarter of significant progress for ICF in terms of execution, profitability, and forward-looking methods.
In summary, this was a quarter of significant progress for ICF in terms of execution profitability and forward looking metrics I will now turn the call over to our CFO Barry bonus for financial review Barry. Thank you John and good afternoon, everyone. I'm pleased to provide you with additional details on our 2024 third quarter financial performance, our third quarter.
Barry Broadus: I'll now turn the call over to our CFO, Barry Broadus, for financial review.
Barry Broadus: Barry? Thank you, John, and good afternoon, everyone. I'm pleased to provide you with additional details on our 2024 third quarter financial performance. our third quarter revenue was $517 million, representing an increase of 3.1% year-over-year, or 6% after adjusting for the divestiture of the commercial marketing business last year. These positive comparisons were primarily driven by a 15% growth in our energy, environmental infrastructure, and disaster recovery client market, which benefited from continued strong demand from our commercial energy clients. Revenues from continuing operations, less subcontractor and other direct costs yielded a 10% increase year-over-year. While our federal business delivered revenue growth of 1% in the third quarter, excluding the impact of lower subcontractor and other direct costs, federal revenue grew an estimated amount of 6% year-over-year.
<unk> was $517 million, representing an increase of three 1% year over year or 6% after adjusting for the divestiture of the commercial marketing business last year. These positive comparisons were primarily driven by a 15% growth in our energy environmental infrastructure and disaster recovery client market.
<unk> benefited from continued strong demand from our commercial energy clients revenues from continuing operations less subcontractor and other direct costs yielded a 10% increase year over year.
While our federal business delivered revenue growth of 1% in the third quarter, excluding the impact of lower subcontractor and other direct costs Federal revenue grew an estimated amount 6% year over year comparisons continued to be impacted by lower pass through expenses associated with international development programs with USAA I'd.
Barry Broadus: Comparisons continue to be impacted by lower pass-through expenses associated with international development programs with USAID, as discussed in our prior call. Subcontractor and other direct costs of $127.6 million represented 24.7% of total revenues, down from 27.1% in the third quarter of 2023. The 250 basis point decline in pass-through costs resulted in a shift in our revenue mix towards ICF direct labor, which is more profitable than revenues generated from subcontractor and other direct costs.
Lynn Morgan: As discussed in our prior calls.
Subcontractor and other direct costs of $127 6 million represented 24, 7% of total revenues down from 27, 1% in the third quarter of 2023 to 250 basis point decline in pass through costs resulted in a shift in our revenue mix towards ICF direct flavor.
Lynn Morgan: It's more profitable and revenues generated from subcontractor and other direct costs.
Barry Broadus: Disfavorable Mimics. Higher utilization and a migration toward more fixed price and TM contracts along with higher margin revenue growth with our commercial energy clients led to 160 basis point improvement and gross margin of 37.1%. Indirect and selling expenses of $132.8 million were up 1% year over year, well below our revenue growth, reflecting considerable operational efficiency. as a percentage of revenue, indirect and selling expenses declined 50 basis points to 25.7% due to our continued emphasis on driving higher utilization rates, maintaining disciplined cost controls and leveraging our scale, while at the same time, ensuring that we are adequately investing in various initiatives to drive long-term growth across our market.
This favorable mix higher utilization.
And the migration towards more fixed price and term contracts along with higher margin revenue growth with our commercial energy clients led to a 160 basis point improvement in gross margin from 37, 1%.
Lynn Morgan: Indirect and selling expenses of $132 8 million were up 1% year over year, well below our revenue growth, reflecting considerable operational efficiencies.
As a percentage of revenue.
Indirect and selling expenses declined 50 basis points to 27 25, 7% due to our continued emphasis on driving higher utilization rates.
Maintaining disciplined cost controls and leveraging our scale while at the same time, ensuring that we are adequately investing in various initiatives to drive long term growth across our markets.
Barry Broadus: Our third quarter EBITDA grew at 18.4%, year-over-year to $58.2 million, while adjusted EBITDA grew at 7.8% to $58.5 million. The adjusted EBITDA margin of 11.3 was 50 basis points above the prior year's quarter, reflecting our improved gross margins I previously mentioned, as well as actions to manage our indirect costs. Interest expense for the quarter was $7.2 million compared to $10.6 million in last year's third quarter. The decrease in interest expense was driven by our lower year-over-year average debt balance of approximately $160 million. Our tax rate was 13.8% versus 1.4% last year, which was impacted by a one-time tax benefit associated with business investors in 2023.
Lynn Morgan: Okay.
Our third quarter EBITDA grew 18, 4% year over year to $58 2 million, while adjusted EBITDA grew at seven 8% to $58 5 million.
Adjusted EBITDA margin of 11, three was 50 basis points above the prior year's quarter, reflecting our improved gross margins I previously mentioned as well as actions to manage our indirect cost.
Interest expense for the quarter was $7 2 million compared to $10 6 million in last year's third quarter.
Lynn Morgan: The decrease in interest expense was driven by our lower year over year average debt balance of approximately $160 million or.
Our tax rate was 13, 8% versus one four last year, which was impacted by a onetime tax benefit associated with divestitures in 2023.
Barry Broadus: Our tax rate in this year's third quarter reflects various ongoing tax optimization strategies. As a result of these efforts, it is our expectation that we will continue to have an estimated tax rate of roughly 21% over the course of the next several years. Net income totaled $32.7 million and diluted EPS was $1.73 per share in the third quarter. This compares with last year's net income of $23.7 million or $1.25 per diluted share, which included $5.2 million or $0.20 per share of tax-affected special charges. non-GAAP EPS of $2.13 per share increased 17.7% year over year. As we noted in the release, we increased our EPS forecast for 2024 by $0.35 at the midpoint.
Lynn Morgan: Our tax rate in this year's third quarter reflects various ongoing tax optimization strategies.
As a result of these efforts is our expectation that we will continue to have an estimated tax rate of roughly 21%.
Over the course of the next several years.
Net income totaled $32 7 million and diluted EPS was $1 73 per share in the third quarter. This compares with last year's net income of $23 7 million or $1 25 per diluted share, which included 50 to $5 2 million or <unk> 20 per share of tax effected special charge.
non-GAAP EPS of $2 13 per share increased 17, 7% year over year.
As we noted in the release, we increased our EPS forecast for 2024 by 35 cents at the midpoint.
Barry Broadus: The increase in our EPS estimates reflect our strong operational performance and the benefit of our lower tax rate. Shifting to cash flows in our balance sheet, our year-to-date operating cash flow totaled 76.2 million, well ahead of the 45.6 million reported in 2023, reflecting improved cash management, yielding a more favorable networking capital position. Today's sales outstanding were 75 days compared to 73 last year. Year-to-date capital expenditures declined to $15.6 million from $17.9 million in last year's third quarter, due primarily to the timing of certain projects and the divestiture of the commercial marketing business. At the end of the quarter, our debt was $419.1 million, down from $533.9 million at the end of the prior year quarter, reflecting the use of our favorable cash flows to pay down debt.
Lynn Morgan: The increase in our EPS estimates reflect our strong operational performance.
Lynn Morgan: And the benefit of our lower tax rate.
Shifting to cash flows and our balance sheet, our year to date operating cash flow totaled $76 2 million well ahead of the $45 six nine reported in 2023, reflecting improved cash management, yielding a more favorable networking capital position.
Days sales outstanding were 75 days compared to 73 last year year to date capital expenditures declined to $15 6 million from $17 9 million in last year's third quarter due primarily to the timing of certain projects and the divestiture of the commercial marketing business.
At the end of the quarter, our debt was $419 1 million down from $533 9 million at the end of the prior year quarter, reflecting the use of our favorable cash flows to pay down debt approximately 65 or that percent of our debt is set at a fixed rate.
Barry Broadus: Approximately 65% of our debt is set at a fixed rate. Our adjusted net leverage ratio was 1.85 times at quarter end compared to 2.7 times at the end of last year's third quarter. Turning to capital allocation, we continue to expect to deploy capital across a few key areas. These include organic growth and investments, strategic M&A opportunities, debt reduction, quarterly dividends, and targeted share repurchase offset dilution from our employee incentive plan. Today, we announced a quarterly cash dividend of 14 cents per share payable on January 10th, 2025 to shareholders of record on December 6th, 2024. Now, to help you with your financial models, please note the following expectations for our full year 2024.
Lynn Morgan: Our adjusted net leverage ratio was 185 times at quarter end compared to two seven times at the end of last year's third quarter.
Lynn Morgan: Turning to capital allocation, we continue to expect to deploy capital across a few key areas. These include organic growth investments strategic M&A opportunities that reduction quarterly dividends and targeted share repurchase to offset dilution from our employee incentive plans.
Lynn Morgan: Today, we announced a quarterly cash dividend of <unk> 14 per share payable on January 10th 2025 to shareholders of record on December six 2024.
Now to help you with your financial models. Please note the following expectations for our full year 2024.
Barry Broadus: Our depreciation and amortization expense is now expected to range from $20 to $22 million. Amortization of intangibles is expected to be $32 to $33 million. We anticipate interest expense to range from $30 to $31 million. Capital expenditures are expected to be between $23 and $24 million. Our full year tax rate expectation is now 20.5 percent, down from the 23.5 percent we previously guided. We continue to expect a fully diluted weighted average share count of approximately 19 million shares, and we continue to expect a full-year operating cash flow of $155 million.
Our depreciation and amortization expense is now expected to range from 20 to 22 million amortization of argon.
Lynn Morgan: Intangibles is expected to be 32 to 33 million, we anticipate interest expense to range from $30 million to $31 million capital expenditures are expected to be between 23 and $24 million our full year tax rate expectation is now 25% down from the 23, 5%.
Lynn Morgan: We previously guided to.
Speaker Change: We continue to expect a fully diluted weighted average share count of approximately 19 million shares and we continue to expect a full year operating cash flow of $155 million and with that I'll turn the call back over to John for his closing remarks. Thank you Barry continued favorable business mix and utilization metrics together.
John Wasson: And with that, I'll turn the call back over to John for his closing remarks.
John Wasson: Thank you, Barry. Continued favorable business mix and utilization metrics, together with an estimated full-year tax benefit of approximately $0.25 per share, have led us to increase the midpoint of our earnings per share guidance for full-year 2024 by $0.35. A revised guidance range for GAAP EPS is 605 to 615, excluding special charges. And non-GAAP EPS is expected to range from 740 to 750, representing year-on-year growth of 14.6% at this time.
With an estimated full year tax benefit of approximately <unk> 25 per share have led us to increase the midpoint of our earnings per share guidance for full year 2024 by 35.
Speaker Change: Our revised guidance range for GAAP, EPS, and 605 to $6 15, excluding special charges and.
And non-GAAP EPS is expected to range from 742015, representing year on year growth of 14, 6% at the midpoint.
John Wasson: We have adjusted our full year 2024 revenue guidance range to reflect an estimated $50 million reduction in pass-throughs that reflect the slower-than-anticipated ramp-up of work on recently awarded contracts and delays in a few key awards. We are confident that these new business awards will be forthcoming in the near term, and the ramp-up on these programs will begin to accelerate in the upcoming months. Reduction primarily affects gross revenue comparisons in our health and social program, program's client market with no meaningful impact on market. We are now expecting gross revenues of $2 billion to $2.03 billion compared to our previous guidance of $2.03 billion.
<unk> adjusted our full year 2020 for revenue guidance range to reflect an estimated $50 million reduction in pass throughs that reflect the slower than anticipated ramp up of work on recently awarded contracts and delays in a few key award decisions.
Speaker Change: We're confident that these new business awards will be forthcoming in the near term and the ramp up on these programs will begin to accelerate in the upcoming months.
The reduction primarily effects gross revenue comparisons in our health and social program.
<unk> client market with no meaningful impact on margins.
We're now expecting gross revenues of $2 billion to $2 3 billion.
Our previous guidance of two point out $3 billion to $2 1 billion.
John Wasson: Our forward-looking metrics point to continued growth for ICF as we enter 2025. We have a strong multi-year backlog, a record business development pipeline, and a solid track record of We are experiencing consistent, robust demand from commercial clients for energy and environment expertise and related implementation and technology capabilities. We have excellent credentials in disaster management, resilience, and mitigation work to assist state and local governments with recovery after storms, flooding, and wildfires, as well as with their future resilience planning. The large majority of our federal work is in areas that have bipartisan support, particularly IT modernization, which remains an area of priority spending.
Our forward looking metrics point to continued growth for ICF as we enter 2025.
Speaker Change: We have a strong multiyear backlog a record business development pipeline and a solid track record of new business wins.
Speaker Change: We are experiencing consistent robust demand from commercial clients are energy and environment expertise and related implementation and technology capabilities.
We have excellent credentials and disaster management resilience and mitigation work to assist state and local governments with recovery after storms flooding and wildfires as well as with their future resilience planning.
The large majority of our federal work is in areas that have bipartisan support, particularly it modernization, which remains an area of priority spending.
John Wasson: And importantly, our people are fully engaged in achieving the objectives and missions of our clients, which underpins our confidence in ICF's future growth potential.
And importantly, our people are fully engaged in achieving the objectives and missions of our clients, which underpins our confidence in icf's future growth potential.
Operator: With that, operator, I'd like to open the call for questions. Thank you so much. And as a reminder, that is star 11 if you do have a question.
Speaker Change: With that operator, I'd like to open the call for questions. Thank.
Speaker Change: Thank you so much and as a reminder that is star one line. If you do have a question.
Joseph Vafi: Our first question is from the line of Joseph Vafi with Canaccord Genuity. Please proceed.
Our first question is from the line of Joseph <unk> with Canaccord Genuity. Please proceed.
John Wasson: Hey, guys. Good afternoon. Nice to see the strong margins. Maybe we'll ask a question on margins. You know, clearly, you've got some favorable mix shift going on, I think, probably, especially out of your utility and energy practice. Just wondering how you see the next few quarters, perhaps. Do you think a favorable mix shift continues to play out from here, or do you think that perhaps some of the other practice areas' growth may accelerate a little bit and we don't see as much of a mix shift moving forward the next few quarters? Then I'll have a quick follow-up.
Speaker Change: Hey, guys.
Good afternoon, and nice to see the strong margins, maybe I will ask a question on margins.
Clearly you've got some favorable mix shift going on I think probably especially out of your utility.
And energy practice, just wondering how you see.
The next few quarters, perhaps do you still think that.
Think of favorable mix shift continues to play out from here or.
Do you think that perhaps some of the other practice areas growth may accelerate.
Speaker Change: Accelerate a little bit and we don't see as much of a mix shift moving forward. The next few quarters and then I'll have a quick follow up.
John Wasson: I mean, you know, I think, Joe, we certainly expect the commercial energy business to continue to A strong, quite a strong growth and And we also expect that other components of business will also pick up their growth as we look into 2025. But I think given that the energy group will certainly is experiencing the highest growth. has the highest margin. I think there's some more room for margin improvement even as other parts of the business. also increased their growth. So I think you should, we would expect that to continue into next year. I think as you can see from the results, I mean, our, you know, our margin, our adjusted EBITDA to revenue is up 50, we expect to be up 50 basis points for the year.
Speaker Change: Yeah.
Speaker Change: I think Joe we certainly expected commercial energy business to continue to add.
Our strong quite a stir.
<unk> growth and.
Speaker Change: And we also expect that other components of the business will also pick up their growth as we look into 2025, but I think given that the energy group will certainly is experiencing the highest growth.
And has the highest margin and I think there is some more room for.
Speaker Change: The margin improvement even as other parts of the business also increased DAU growth.
So I think you said.
Speaker Change: We would expect that to continue into next year I think as you can see from the results are.
Our margin our adjusted EBITDA to revenue was up 50 paid we expect it to be a 50 basis points for the year generally been guiding 10 to 20 bps and so I think you can see the power of.
John Wasson: We've generally been guiding 10 to 20 BIPs. And so, you know, I think you can see the power of the commercial energy business.
The commercial energy business and our margins.
Joseph Vafi: Sure, that's great to hear, John.
Sure that's great to hear John and then.
John Wasson: And then, you know, anything notable coming out of, you know, these last set of storms, I guess, here in in the month of October? Is there anything we should read through on disaster recovery this year that might be different than previous years?
Anything notable coming out of these.
These last set of storms I guess.
Speaker Change: Here in <unk>.
Speaker Change: Month of October is there anything we should read through in disaster recovery this year that might be different than previous years. Thanks, a lot guys.
Joseph Vafi: Thanks a lot, guys.
John Wasson: Well, you know, I think, as I said in my remarks, I mean, I think we still continue to do significant work in Texas and Puerto Rico. And those remain, you know, important clients and long-term clients for us. You know, we've had the recent hurricanes, Helene and Milton, we have picked up, as I said, numerous small opportunities to do disaster assessments, to do quick analyses of, you know, the potential damage in areas. It is allowing us to develop relationships and get people on the ground. I expect there will be significant opportunities. As we've talked about in the past, it usually takes 12, 12 months for those opportunities, too.
John Wasson: Well I think as I said in my remarks.
John Wasson: I think we still continue to do significant work in Texas, and Puerto Rico and those remain important clients are long term clients for us.
Speaker Change: We've had the recent hurricanes lean at Milton.
Speaker Change: Have picked up as I said numerous small opportunities to do.
A disaster assessments to do quick analysis of the potential damage in areas.
Speaker Change: Allowing us to develop relationships and get people on the ground I expect there will be significant opportunities as we've talked about in the past she takes 12.
12 months for those opportunities to.
John Wasson: develop and get to the RFP stage. So I would see it say in the second half of next year, we would expect. see opportunities in Florida and the Carolinas related to disaster recovery.
Develop and get to the RFP stage, so, let's see let's say in the second half of next year, we would expect to.
See opportunities.
Speaker Change: In Florida, and the Carolinas related to disaster recovery.
Speaker Change: Okay.
Joseph Vafi: Great. Thanks very much, John.
Speaker Change: Great. Thanks, very much John.
Speaker Change: Thank you.
John Wasson: Thank you.
Samuel Kusswurm: One moment for our next question that comes from the line of Tim Mulrooney with William Blair.
Speaker Change: Thank you one moment for our next question.
Speaker Change: That comes from the line of Teen Mulrooney with William Blair. Please proceed.
Samuel Kusswurm: Please proceed.
John Wasson: Hey, this is Samuel Kusswurm on for Tim Mulrooney. Thanks for taking our questions here. I guess regarding First Year Climate Services, we've been receiving more questions just around some of the work being done, particularly with respect to your federal I believe that business has been growing in the double digits, and I think investors would like to understand a bit better just how much of that growth is coming from federal clients versus more your state and commercial clients.
Speaker Change: Hey, this is Sam customer I'm on for Tim Thanks for taking our questions here.
I guess regarding first requirement services, we've been receiving more questions.
Surround some of the work being done, particularly with respect to your federal clients. I believe this business has been growing in the double digits and I think investors would like to understand a bit better just how much of that growth is coming from federal clients versus more of your state and commercial clients.
John Wasson: You know, I would say that the climate business has certainly been growing double digit here in total and sees robust demand. As you know, if you have a business there that spans our commercial client set, our state and local client set, our federal government client set, and our international government client set, so we truly have a diversified portfolio. and are a market leader in that market. You know, I think all in, if you look at that business, You know, the federal component is... I would say 15 to 20% of the business. The remainder is primarily in commercial and state and local.
Oh, no I would say that the climate business has certainly been growing double digit.
Speaker Change: Here in total.
And seas robust demand as you know it.
We have a business there that spans our commercial clients head of state and local clients said.
I'll cover my client set and our international government clients said, so we truly have a diversified portfolio.
And are a market leader in that market.
Speaker Change: I think all in if you look at that business.
Speaker Change: Uh huh.
The federal component.
Speaker Change: Is.
Speaker Change: I would say, 15% to 20% of the business.
<unk> and commercial primarily in commercial and state and local.
John Wasson: So, you know, federal is an important component, but it's a... 15%. And so we are seeing strong growth and we have scaled. Commercial Markets and in state and local. in that area. And so it's a diversified business.
So federal is an important component, but it's up.
15% and so we are seeing strong growth and we have scale.
And commercial markets and in state and local.
In that area and so it's a diversified business and I think.
John Wasson: And I think, you know, I, I'll, I'm not sure if your question is trying to direct here, but I would say that, you know, You know, we. We would expect that we'll continue to see strong growth opportunities, regardless of kind of what happens with the presidential election in the federal market. I think we have confidence that we can grow that business and grow it robustly. on the back of our state and local and commercial and international clients. And, honestly, in the, you know, in in prior prior administrations. to the extent that federal focus shifted on climate, state and local governments stepped forward.
Speaker Change: Al.
I'm not sure. If your question is trying to direct to hear but I would say that you know.
Speaker Change: Yes.
Speaker Change: We are we would expect that we'll continue to see strong growth opportunities regardless of kind of what happens with the presidential election in the federal market. I think we have confidence that we can grow that business and roller robustly on the back of our state and local and commercial and international clients and honestly.
Speaker Change: And prior.
Speaker Change: Prior administrations.
Speaker Change: To the extent that federal focus shifted on climate state and local governments stepped forward and so I think we would.
John Wasson: And so I think we would. We would look for and focus on that possibility as we look forward.
We would look for and focus on that possibility as we look forward.
Samuel Kusswurm: That was very helpful, Culler, and kind of the angle I was approaching that with.
No. It's very helpful color and kind of Ingalls a person that Wes I appreciate that.
Samuel Kusswurm: Appreciate that.
Samuel Kusswurm: Maybe pivoting a little bit to the federal IT side, you know, we noticed you announced another large contract on the federal IT side, and I know a piece of your IT strategy is to really increase the share of some of these larger contracts compared to maybe more of your historical average of $10 million to $25 million a project, let's say. Can you help us understand if there's a makeshift occurring here in your average contract size and then how you think your projects mix might look like a few years from now?
Pivoting, a little bit to try to right size.
Speaker Change: We noticed you announced another large contract on the federal side.
Speaker Change: I know a piece of <unk> strategy.
We'll increase the share of some of these larger contracts.
Compared to maybe more of your historical average of $10 million to $25 million project. Let's say can you can you help us understand if there is a mix shift occurring here. Your average contract size and then how you think your project mix might look like a few years from now.
John Wasson: Well, I think, um, yeah, I think we're certainly focused on trying to expand, you know, expand the size of contracts we're bidding on and move up in terms of the average size of our IT modernization contracts, you know, I would say our sweet spot historically in the last couple years been in the $10 to $25 million range. We are winning contracts for up to $50 million. I think we're certainly bidding contracts for up to $100 million. So you're absolutely right. That is part of our strategy. I think we're focused. I think that it doesn't happen overnight.
Speaker Change: Well I think.
Speaker Change: I think we're certainly focused on trying to.
Speaker Change: Expand the size of contracts, we're bidding on and move up in terms of the average size of our it modernization contracts you know I would say our sweet spot historically in the last couple of years.
Speaker Change: And in the 10% to $25 million range, we are winning contracts north of $50 million I think we're certainly bidding contracts or was it a $100 million.
And so you're absolutely right that is part of our strategy I think we're focused I think that it doesn't happen overnight I mean I'm sure as you know when you.
John Wasson: I mean, I'm sure as you know, when you bid these large IT modernization contracts in the federal government, you have to get them in capture and spend 18, 24 months. positioning to win them. And so, you know, the, the, so the pipeline, I think, is showing good progress. You know, we did win a very nice contract. we just talked about in our commentary with the U.S. Territory. And so, you know, we're seeing positive signs, positive developments, but that's exactly the strategy. We do believe we have reached a size and a scale where we can bid larger.
Speaker Change: With these large it modernization contraction of our government you have to get them and capture and spend it 18 24 months.
Positioning to win them.
So the pipeline I think is showing good progress.
We did win a very nice contract.
Speaker Change: We just talked about in our call.
Speaker Change: Commentary.
With a U S territory.
Speaker Change: <unk>.
And so we're seeing we're seeing positive signs positive delta launch, but that's exactly the strategy. We do believe we.
We have reached the size and a scale, where we can bid larger.
John Wasson: IT Modernization Contracts, and certainly where we can combine our domain expertise with pop-up technology capabilities. We can't also... differentiate ourselves, at least in civilian markets. And so I think we're making good progress. We've had some early wins, and the pipeline's looking good, and we feel pretty good about it.
Speaker Change: It modernization.
Contracts and that certainly where we can combine our domain expertise with.
The technology capabilities, we can also.
A differentiate ourselves at least in civilian markets and so.
I think we're making good progress we've had some early wins and the pipeline looking good and the.
We feel pretty good about it.
Samuel Kusswurm: Awesome. We'll appreciate the answers here.
Awesome I appreciate the answers here.
Operator: Thank you so much. One moment for our next question.
Thank you so much.
One moment for our next question.
Tobey Sommer: And it's from the line of Tobey Sommer with tourist securities, please proceed. Thanks. In the commercial energy space, the press release and your comments talk about the elevated demand growth that utilities are now forecasting for a host of reasons.
And he is from the line of Tobey Sommer with Troy Securities. Please proceed.
Speaker Change: Thanks.
The commercial energy space.
The press release and your comments talk about the elevated demand growth that utilities are now forecasting for host of reasons.
John Wasson: What do you expect the impact to be on ICF with respect to maybe the rate of growth of that business as well as the sort of the length of period of time that you expect to have kind of Uh, yeah, well I think the, um... There's no question that you know these utilities are seeing significantly increased potential low growth as they look down the road. you know, given five or six different, you know, broad trends, certainly including the latest with AI data centers. And our clients, you know, are certainly are seeing that. And so that impacts our business in multiple ways.
What do you expect the impact to be on Ics with respect to.
Speaker Change: Maybe the rate of growth of that business as well as the.
Sort of the law.
A period of time that you expect to have kind of good growth.
Speaker Change: Yes.
Yeah, well I think the.
Speaker Change: Yeah.
Speaker Change: There's no question that these utilities.
Utilities are seeing significantly increased potential load growth as they look down the road.
Given five or six different broad trends sort of including the latest with AI data centers.
And our clients are certainly.
Speaker Change: We are seeing that and so that impacts our business in multiple ways. I mean, we do have fronted advisory work for utilities to help them on their loan forecast demand growth and we help them think about their portfolio of.
John Wasson: I mean, we do front-end advisory work for utilities. We help them on their load forecast, their load demand growth. We help them think about their portfolio of generation assets to meet that growth, how they can manage it with, you know, programs like energy efficiency and electrification. So it moves into the program side of the business. And we can help them with resilience. And so I think that that significant future long-term growth, low growth will create long-term opportunity for us to help our clients. on the advisory side, come up with their strategies and their approaches to meet that growth or manage that growth or support that growth.
Speaker Change: Generation assets to meet that growth.
They can manage it with <unk>.
Graham so like energy efficiency in electrification.
Boots into the program side of the business.
And we can help them with resilience and so I think that.
Speaker Change: That.
Speaker Change: Significant.
Speaker Change: Future long term growth load growth will create long term opportunity for us to help our clients.
On the advisory side come up with their strategies and their approaches to meet that growth or manage that growth or support that growth and it's not just it's.
John Wasson: And it's not just utilities, but it's also governments, the Department of Energy and other federal agencies that are part of this, it's state PUCs and state energy agencies. And so, you know, we're seeing a lift and a focus both on our advisory work and our energy implementation work. And I think it's a long-term trend. I mean, I think I've said before that it's like a once-in-a-hundred-year trend. This is going to take decades to work through and come up with solutions. So I think it's... It's a long-term. It's a long-term opportunity for us, Tobey. I mean, I, you know, and I mean, I can just, you can just look at our growth and commercial energy.
Speaker Change: But it's also governments.
Department of energy and other federal agencies that are part of this state Puc's and state energy agencies and so.
Speaker Change: And so we're seeing a lift in our focused both on our advisory work in our energy implementation work.
Speaker Change:
And I think it's a long term I think there is a long term trend I mean, I think I've said before this cycle once at a 100 year trend. This is going to just going to take decades to work through and come up with solutions. So I think it's.
I think it's a long term.
Speaker Change: So now I'll turn it over to opportunity for Us Tobey.
Speaker Change: And I can just.
If you just look at our growth in commercial energy that we grew 15% in 2019.
John Wasson: We grew 15% in 2020. 22 and 23, we're growing. North of 25% of 20. for... And, you know, and I think that's in part due to some of the ramp up of. opportunity here. And so I think, you know, I think there's, I think there's very significant long term growth potential in this market. Now, I mean, there is the, it's also, you know, there's a lot of large numbers, it's hard to kind of 25, 35% growth, you know, forever as you get larger. But I mean, I think it's, there's, there's significant opportunity for us here.
Two in 'twenty three we're growing.
North of 25% and 20.
Speaker Change: Four.
Speaker Change: And I think that's in part due to some of the ramp up of.
Speaker Change: Opportunity here and so I think.
Speaker Change: I think its very significant long term growth potential in this market now I mean, there is.
It's also there's a law of large numbers its hard to kind of 25% 35% growth.
Forever as you get larger but I think there is.
There is significant opportunity for us here, we're working it.
John Wasson: We're working at across many parts of this market at scale. And so I think we're quite I'm excited about it.
Speaker Change: Cross.
Many parts of this market at scale and so I.
Speaker Change: I think our plight.
Speaker Change: We're excited about it.
Tobey Sommer: Thanks.
Tobey Sommer: A couple of things helped profitability in the quarter and for the balance of year, this uplift in direct cost percentage, is that episodic or sustainable? And then, is the annual rate down closer to 20% a good proxy for future tax rates? Or will we lap this, you know, next year?
Speaker Change: Thanks.
A couple of things.
That helped profitability in the quarter and for the balance of year.
Uplift in direct cost percentage is that episodic or sustainable and then is the the annual rate down closer to 20% a good proxy for future tax rates or when we lap. This next year.
Barry Broadus: Hey, Tobey, this is Barry. I'll touch on the tax rate. As I said in my remarks, we believe that the tax rate of approximately 21% is something that we'll be able to achieve next year in 2025 and certainly, I think, maybe into 2026. So we're comfortable that the things that we're doing right now from an optimization perspective will stick.
Speaker Change: Hey, Jerry it's Barry I'll touch on the tax rate.
As I said in my remarks, we believe that.
The tax rate of approximately 21%.
Something that we will be able to achieve next year.
Speaker Change: In 2025, and certainly I think maybe into 2026, where we're comfortable that the things that we're doing right now from an optimization perspective will stick.
Barry Broadus: for the fourth quarter right in the next couple of years.
For the fourth quarter.
Speaker Change: Yes.
Barry Broadus: Direct Labor. And, you know, from a direct labor perspective, if you think about, you know, kind of the shift in the business towards, you know, more ICF labor, directed revenues, you know, that that certainly is, is pushing, you know, the improved margins. And, you know, we think that that's going to continue as our advisory services. to expand, especially in the energy sector, and that client market. So we think that obviously, we're pleased with that. We're pleased with the growth, from a revenue perspective that is derived from our labor. So that certainly is possible.
Speaker Change: Yeah.
Speaker Change: Direct labor.
From a direct labor perspective, if you think about kind of the shift in the business.
Speaker Change: Towards.
More ICF labor directed revenues, that's certainly yes.
Speaker Change: <unk> the improved margins.
We think that that's going to continue.
Speaker Change: As our advisory services.
Continued to expand especially in the.
The energy.
Speaker Change: Sector.
And that client market. So we think that obviously, we're pleased with that we're pleased with the growth.
Speaker Change: From a revenue perspective that is derived from our labor.
Speaker Change: That certainly is positive.
John Wasson: Yeah, I agree with everything Barry said. I mean, I think in our energy business... You know, the pass-through ratio is generally not as high. ICF's doing more of the business. It's a very profitable business. It drives more profit. I do think we're in a period where our pass-through rates have been down. in the health and social program area. Last couple of quarters, you can look at our passive ratio last year to this year for the company. It's in our federal. federal federal health and international health businesses. But I think we do expect that pastor to see more pastors next year as we wrap up.
Perfect, Yes, I agree with everything he said I mean I think.
Speaker Change: In our energy business.
Speaker Change: Over the past due ratio is generally not as high icf's doing more of the business. It's a very profitable business. It drives more profit I do think we're in a period, where our passenger vessel has been down and approach.
Speaker Change: In the health and social program area.
Last couple of quarters, you can look at our past due ratio last year. This year for the company in.
And I guess that 250 basis points.
Speaker Change: It's in it's in our federal.
Speaker Change: Federal.
Federal Health and international Health businesses, but I think we do expect that hazard ratio to see more passengers next year as we ramp up.
John Wasson: a handful of contracts that we're focused on. But with that, I still expect that there will be longer term improved profits. with with a rapid growth. in our energy business. And, you know, that's, I mean, we've been, we've been gotten to 10 to 20 pips a peep until March on years. I think, obviously, again, I would say you see the power when the commercial business is really growing. We're 40, 50 pips higher right now.
These handful of contracts that were focused on but with that I still expect that there will be longer term improved profit.
With with the rapid growth.
In our energy business.
Speaker Change: I mean, we've been we've been guiding to 10 to 20 bps of EBITDA margin improvement.
Many years I think obviously again I would say you see the power within the commercial business is really growing leader, we're 40 to 50 bps higher right now.
Tobey Sommer: What parts of the business, of the government business specifically, are declining and how large are they? Well, I think, uh, I mean, we're seeing the decline.
Speaker Change: Yes.
What parts of the business that the government business, specifically are declining and how large are they.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Well I think.
Speaker Change: Oh.
I mean, we're seeing the decline you can see the decline in the health and social programs.
Barry Broadus: You can see the decline in the health and social program. market area, that market area was down 5.2% in the on total revenues, I think on it would be higher on. Service Revenue and the work done by ICF. You know, I think... And so we're generally flat to low single digit, I think, in that market on the work done by ICF. You know, I think that we're seeing, I mean, our USAID business right now, we're not seeing the pass-throughs for a variety of reasons. We expect those to ramp back up, but certainly the USAID business has been down.
Market area that market area was down five 2% in the.
Speaker Change: Corner.
Speaker Change: On total revenues I think it would be higher on.
On service revenue of the work done by ICF.
Speaker Change: Yeah.
Speaker Change: <unk>.
No I think.
Speaker Change: Okay.
And so were generally flat to low single digit I think in that market.
The work done by ICF I think that.
We're seeing I think our USA business right now, we're not seeing the pass throughs.
Speaker Change: For a variety of reasons, we expect those to ramp back up but then certainly that USAA I'd business has been down.
Barry Broadus: of this year.
This year.
Barry Broadus: That's the biggest driver.
I think that's the biggest driver.
Barry Broadus: Barry or James, is there anything else? Yeah, you know, I would say if you look at the client market segments, you know, the energy environmental infrastructure disaster recovery area for the US government. You know, on a year-to-day basis, it's growing quite nicely. We're getting new contracts with a variety of federal agencies. And so. That market is continuing to grow.
Speaker Change: No barrier James is there anything else here too.
Speaker Change: I would agree with that.
Speaker Change: Yeah.
I would say if you look at the client market segments.
The energy environmental infrastructure and disaster recovery.
Speaker Change: For U S government.
Speaker Change: On a year to day basis is growing.
Quite nicely, we're getting new contracts.
It was a variety of federal agencies and so.
That that market is continuing to grow.
Barry Broadus: I would say in the health and social programs, I think that, you know, the issue that we've seen there is, you know, with the contracts that we've talked about where, you know, some of the programs just haven't been ramping up as quickly as we thought, we're waiting for some key awards that we think are forthcoming. We think that that business is going to turn around. And if you look at security and other civilian commercial areas, that business is growing as well. And so, we're pleased with that. So, all standing, I think there's a lot of.
I'd say in the health and social programs.
Speaker Change: I think that.
The issue that we have from.
There is.
The contracts that we've talked about where.
Speaker Change: <unk>.
Some of the programs just haven't been ramping up as quickly as we thought were waiting for some key awards that we think are forthcoming.
We think that that business is kind of a turnaround.
If you look at the security and others.
Speaker Change: Commercial areas.
Speaker Change: Business is growing as well.
Speaker Change: So we're pleased with that so.
Outstanding I think there's a lot of.
Barry Broadus: The potential on the federal government arena, you know, I think that once we get some of the ramp up and some of these awards pushed through that you'll see, you know, the turnaround in the federal markets based on that one client market area. But, you know, the other client markets, there's real solid growth there and we're pleased with that.
Potential on the federal.
Government Arena.
I think that.
Speaker Change: Once we get to some of the ramp up in some of these awards.
Through that you'll see.
The turnaround in the federal market space and that one client market area, but the other client markets, they're still solid growth there.
And we're pleased with that.
Operator: Thank you very much. Thank you so much.
Thank you very much.
Operator: And as a reminder, that is star 11 if you do have a question.
Speaker Change: Thank you so much and as a reminder that is star one one if you do have a question.
Marc Riddick: We have a question from the line of Marc Riddick with CBLT. Please proceed.
Speaker Change: We have a question from the line of Marc Riddick with Sidoti. Please proceed.
Marc Riddick: Have a good evening. So I wanted to touch on, and thank you for the commentary on the tax rate and the efforts there to sort of, you know, to bring that to the levels that you're looking at for the current period and the next couple of years there.
Speaker Change: Hey, good evening.
Speaker Change: Good evening Mark.
Marc Riddick: So I wanted to touch and thank you for the commentary on the on the tax rate and the efforts there to sort of.
Marc Riddick: To bring that to the levels that you are looking at for <unk>.
Current period in the next couple of years, there I wanted to shift gears, a little bit as far as there's been a significant amount of debt reduction.
Barry Broadus: I wanted to shift gears a little bit as far as there's been a significant amount of debt reduction. And I did want to sort of touch on maybe kind of where you were looking at as far as comfort levels and then it seems as though that would position you well for, you know, any potential acquisition activity. So I was wondering if maybe you could bring us up to speed on your views on the current pipeline availability, quality of assets that might be out there that would be consistent.
And I did want to sort of touch.
Touch on maybe kind of where you are.
We're looking at as far as comfort levels and then it seems as though that would position you well for.
The potential acquisition activity. So I was wondering maybe you could bring us up to speed on your views on the clearance.
Speaker Change: <unk>.
Speaker Change: Pipeline availability and quality of assets that might be out there that would that would be consistent.
Barry Broadus: Yeah, thanks for the question. As far as the debt reduction is concerned, you know, I think, as I said, my remark of our favorable cash flow. that we've had this year certainly are contributing to the debt reduction. We'll continue to do that. You know, and I see that we can, you know, turn, have our leverage, that leverage ratio is continuing to be reduced throughout the end of this year.
Speaker Change: Yes.
Speaker Change: Thanks for the question.
Speaker Change: As far as the debt reduction is concerned I think as I said in my remarks.
Favorable cash flow.
Speaker Change: We've had this year certainly are contributing to the debt reduction will continue to do that.
Speaker Change: And I see that we can have.
Speaker Change: Our leverage now.
That leverage ratios continue to be reduced.
Barry Broadus: We are, we have plenty of capacity to look at different M&A opportunities. We are, you know, considering a number of things and, you know, as those come through and, you know, they meet the various attributes that we're looking for from a capabilities perspective, a culture perspective, you know, the customer sets, contracts that they have. We'll take a good look at that. But I think that our ability to de-lever, and we're certainly comfortable where we are right now for sure, gives us plenty of flexibility to pursue different acquisition opportunities as they present themselves. So we'll continue to pay down debt, give us plenty of headroom from a capacity perspective to go out and acquire companies.
At the end of this year, we are we have plenty of capacity.
Speaker Change: To look at.
Different M&A opportunities we are.
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Speaker Change: As this.
Come through.
Speaker Change: They meet the various.
Speaker Change: Attributes that were looking for from a capabilities perspective, a cultural perspective, the customer sets.
Speaker Change: Contracts that they have.
Speaker Change: We'll take a good look at that but I think that our ability to delever.
We're certainly comfortable where we are right now for sure.
It gives us.
Plenty of.
Speaker Change: Flexibility.
Speaker Change: Through different acquisition opportunities.
Speaker Change: Zent themselves. So we will continue to do.
Speaker Change: Pay down debt give us self.
Plenty of headroom.
Speaker Change: From.
Capacity perspective to go out and acquire companies. So we'll continue to go on that road.
John Wasson: So we'll continue to go on that road.
John Wasson: You know, I just would, I agree with everything Barry said, I would just say from a Market perspective, I think obviously we're focused on acquisition. It's been a key part of our strategy. I think, you know, we've obviously been paying them debt here over the last couple of years, but Within our growth drivers, I think, you know, there was an interesting assets and energy around federal health IT. We would sort of look at them.
Speaker Change: And I just I agree with everything he said I would just say from a.
Speaker Change: Market perspective, I think I'll, just say we're focused on it's.
It's been a key part of our strategy.
Speaker Change: Thank you.
We've obviously been paying down debt here over the last couple of years, but.
Speaker Change: I think we.
Within our growth drivers I think interesting assets in energy.
Around federal health It we would certainly look at them.
Marc Riddick: You know, and So we're out of the market, we're looking, but you know, we have very clear Criteria and we're, we're disciplined and so will stay out of the market. And, but I think, you know, those are the areas we're focused Great.
So we're out in the market, we're looking but we are very clear.
Criteria, and we're disciplined and so.
Uh huh.
We'll stay out of the market and.
But I think those are the areas where we're.
Our focus from a strategic stake.
Marc Riddick: And then I was wondering if you, and this might be a bit of a squishy question, so I apologize in advance, but do you feel as though the valuations that folks are, are they a little more reasonable or about the same as they were maybe a year ago? How do we feel about that spread at this point? I think that, you know, I think the valuations generally have been lofty or, you know, lofty, I think, I think there's been some movement, you know, that they've made some progress in coming back into alignment.
Great and then I was wondering if you and this might be a bit of a squishy question. So I apologize in advance, but do you feel as though the valuations of.
Folks are.
Speaker Change: Are they a little more reasonable or about the same as they were maybe a year ago, how do we feel about that.
That spread at this point.
We don't think that I think.
Speaker Change: Valuations generally have been.
Los <unk>.
<unk> I think I think there's been some movement.
Speaker Change: That they've made.
Speaker Change: Made some products and coming back into alignment I mean, it really depends on the market I mean look in the energy area right now and the types of work we do there is.
John Wasson: I mean, it really depends on the market. I mean, look in the energy area right now, you know, and the types of work we do. tremendous opportunity and there's a lot of interest. I mean, we're seeing all kinds of new and different entrants looking at these markets. So, you know, the valuations are going to be challenging there. You know, in federal, I think, you know, it really depends on what the focus of the business is, you know, I think in the high interest, high value added area. still rich, but I think they're workable for the right asset.
There is tremendous opportunity and there's a lot of interest I mean, we're seeing all kinds of.
New and different entrants looking at these markets.
And so the valuations are going to are going to be challenging there.
Speaker Change: And federal I think it really depends on what the focus of the business is I think in the high interest high value added areas.
Speaker Change: Valuations are.
They are still rich, but I think a workable for the right asset.
John Wasson: And really, it comes down to, do you see the synergistic value? to find the synergies, at least for us on the revenue side.
Speaker Change: So really it comes down to do you see that the synergistic value can you.
Can you find the synergies at least for us on the revenue side.
Speaker Change: Okay.
Operator: © The International Library of Congress 2015 Thank you very much.
Speaker Change: Justified the opportunity.
Thank you very much.
Operator: Thank you.
John Wasson: And with that, I will close the Q&A session for today and turn the call over to John Wasson for final remarks. Okay, great. Well, thank you for participating in today's call. We certainly look forward to connecting at upcoming conferences and events, and we appreciate your participation. Thank you all who participated in today's conference.
Thank you and with that I will close the Q&A session for today and turn the call over to John Watson for final remarks.
Okay, great well. Thank you for participating in today's call, we look forward to connecting at upcoming conferences and events and we appreciate your interest. Thank you.
Thank you all who participated in today's conference you may now disconnect.
Operator: You may now disconnect.
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