Q4 2024 ICF International Inc Earnings Call
Okay.
Speaker Change: Welcome to the fourth quarter and full year 'twenty 'twenty four ICF earnings Conference call. My name is Loren candidate and I will be your operator for today's call. At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Speaker Change: I ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
Speaker Change: I will now turn the call over to Lynn Morgen of Advisory Partners Lynn you may begin.
Thank you operator, and good afternoon to everyone. Thank you for joining us to review Icf's fourth quarter and full year of 'twenty 'twenty four performance with US today from ICF are John Watson Chair, and CEO and Barry brought us.
Speaker Change: Joining them as James Morgan Chief operating Officer.
Speaker Change: During this conference call, we will make forward looking statements to assist you in understanding ICF management's expectations about our.
Speaker Change: Our future performance.
Speaker Change: Statements are subject to a number of risks that could cause actual events or results to differ materially.
Speaker Change: I refer you to our February 27th 2025 press release, and our SEC filings for discussions of those risks.
Our statements during this call are based.
Speaker Change: As of today, we anticipate that future developments will cause our views to change. Please consider the information presented that way.
Speaker Change: They at some point elect to update these statements made today.
Speaker Change: <unk> disclaims any obligation to dish.
Mike: I will now turn the call over to Mike.
Mike: John Watson to discuss fourth quarter.
2020.
John.
Speaker Change: Thank you Lynn and thank you all for participating in today's call to discuss Icf's fourth quarter and.
Mike: Full year, 'twenty 'twenty four for apartments, and our business outlook.
Mike: It's only 24 was he was solid growth.
Mike: So profitability robust cash flow.
Mike: No one likes or continue.
Mike: Continued strong demand for our broad based energy advisory and program implementation for commercial launch.
Mike: It's an important contributor to our revenue growth and favorable business mix.
Mike: The 30 basis point expansion of adjusted EBITDA margin to 11, 2%.
Mike: Together with lower interest expense drove a 15% increase in non-GAAP EPS.
Mike: <unk> 45.
Mike: Our trailing 12 months book to Bill ratio of 1.2 for <unk>.
Mike: Year end acquisition of applied Energy group.
Energy Technology and advisory services company.
Mike: So growth prospects for 2025.
Mike: In between mid November 'twenty, 'twenty, four and today.
Mike: We repurchased 395000 shares market demonstrating our confidence in Icf's long term outlook.
Mike: I will provide a closer look at our 2020 for business performance and then share our views on Icf's Federal government business in light of the new.
Mike: Administration's spending priorities.
Mike: To start I'm sure energy had another standout year and 'twenty 'twenty four.
Mike: <unk> increased 26% driven by new wins and contract expansions for energy efficiency program delivery, and new utility marketing customer care electrification and flexible load management programs.
Mike: This innovative program design.
Mike: Innovations together with our track record of meeting or exceeding clients energy efficiency objectives have resulted in meaningful share gains for us in this arena.
Mike: And our competitive position will be further strengthened this year by our acquisition of applied energy group.
Mike: AEG brings us a trusted energy technology platform that offers real time business intelligence to utilities and state and local governments and state energy offices.
Mike: And it's more than 100 utility management and demand side energy experts at strength Icf's market planning demand response electrification and program evaluation skill.
Mike: As well as to our expertise in gas utility planning and program implementation.
Mike: Innovation in AG has been proceeding as planned and we are identifying business synergies as an example, we have been able to bring work in house.
Mike: He was formerly outsourcing.
Mike: Our commercial energy advisory work showed solid year on year growth.
Mike: Increased development activity in both industries.
Mike: Energy and utility markets supported by accelerated.
Mike: And state policies.
Mike: Five years have resulted in increased demand for our technical and our market analysis service services in support of client M&A activities as well as I shift system planning services and substation design and protection World.
Mike: It's a great modernization needs.
Mike: And our environment and planning services for commercial clients.
Mike: Dividend growth and then by many of these same factors.
Mike: Especially strong demand for our transmission and distribution related services.
Mike: Related to disaster and wildfire recovery.
Mike: Underground and.
Mike: In above ground infrastructure replacement.
So that's a segue into our disaster recovery work, which together was environmental services comprised the majority of our state and local government revenues.
Mike: Actually that has 85 active disaster recovery contracts in 20 states and territories and to supporting mitigation more than 40 contracts.
Mike: 16 states and territories.
Mike: Well each recovery effort as you need to the specific needs of those impacted.
Mike: This experience gives icf's lessons learned that we can share with state agencies supporting near and long term recovery efforts.
Mike: This is exactly what we are currently doing in California, we have a long history of working on eight projects environmental planning for high speed rail.
Mike: In conversations with a variety of local agencies and other entities in the fire impacted communities of Los Angeles, and we were.
Mike: Just awarded a task order by utility to provide construction monitoring services associated with recovery efforts after that.
Mike: Out of the Palisades fire.
Mike: Also we recently were authorized by Los Angeles County, develop a website with aggregate cover resources support those impacted by the wildfires.
Mike: Our scale recovery work, however will require federal appropriations and we would not expect rfps until later in the second half of this year.
Mike: In Oregon.
Mike: Currently supporting the states you're working program.
Mike: Owners renters and communities recover from the wildfires.
Mike: Regarding financial assistance to rebuild housing repair it infrastructure and revitalize local economies.
Mike: We're also supporting projects don't make critical infrastructure to be more resilient against future damage. That's part of the rebuilding efforts.
Mike: Also our work for international government clients picked up considerably in 2024.
Mike: Thanks to new contracts won and in the fourth quarter and first quarter of 2025.
Mike: We were awarded two significant contracts.
Mike: Find ceiling value over $210 million of the European Commission.
Mike: The Kingdom and research and innovation climate, and the environment and reflect our ability to deliver cutting edge solutions that address complex challenges facing clients.
Mike: Taken together, we expect our revenues from commercial state and local and international government clients to grow by at least 15% and 22.
Todd: Thank you Todd.
Todd: Count for over 55% of our total revenues.
Todd: 2025, however will be a transitional year for our business with federal government clients and the new administration determined which programs aligned with its funding priorities.
Todd: As of right now approximately $90 million of our estimated 2025 revenues.
Todd: Affected by stop work orders and by contract terminations.
Todd: Thanks for taking place across a broad universe of federal agencies. The majority of the revenue impact relates to our U S CIP contract.
Todd: The largest of these contracts. Unfortunately, we have global demographic and health surveys.
Todd: Yes.
Todd: We have taken a very hard look at all of our federal government contracts and pipeline of opportunities determined where there is potential for additional staff.
Todd: <unk> or terminations.
Todd: The likelihood for opportunities.
Todd: I know the pipeline through the shift in priorities associated with the New administration.
Todd: While we do not want to enumerate the specific programs contracted pipeline opportunities.
Todd: We wanted to convey that we've undertaken a conservative.
Todd: Bottoms up approach in our assessment.
Todd: We have identified is that right.
Todd: It also involves our programmatic work.
Todd: Also about half of our federal government revenues.
Todd: Rather than our it modernization digital transformation services, which account for the other half.
Todd: Closely aligned with the administration's mandate for greater efficiency and increased utilization of AI.
Todd: After careful review, we estimate that the maximum risk icf's revenues in 2025, and the new administrations actions is approximately a 10% reduction in total revenues from 2024 levels.
Todd: As Barry will discuss in his remarks.
Todd: We maintained our adjusted EBITDA margins of 25 revenues at levels comparable to our 2020 for margins.
Todd: As we noted in today's earnings release this reduction level does not contemplate an extensive government shutdown this year.
Todd: Europe's long period of pauses in funding modifications to.
Todd: Listing contracts.
Todd: Germany.
Todd: Conversely, this estimate also does not consider any additional work.
Todd: Right.
Todd: Result of the changes underway for.
Todd: For example, ICF has performed work for the federal government focused on prevention of fraud waste and abuse.
Todd: We are well positioned to help the new administration with these priorities.
Todd: Also we have extensive public health expertise and.
Todd: And expertise in key areas, such as nutrition obesity suicide prevention.
Todd: So risk ultra risks associated with the use of pesticides and food additives.
Todd: We expect will be areas of focus under the new administration.
Todd: Yes.
Todd: Additionally, approximately as of Icf's Federal government client revenues come from our it modernization digital transformation services.
Todd: There may be a temporary slowdown in spending and potential delays in procurements as the new administration installs this vision.
Todd: We believe this fleet upward in the medium term by increases in AI for it systems and advancing innovative techniques to reduce.
Todd: Cost improve data transparency and increase reusability.
Todd: These trends play to our strengths, enabling us to leverage our expertise in technology, and AI automation and advanced analytics and our extensive ecosystem of digital platforms as key differentiators to remain competitive in this space.
Todd: And there are a few offsets to the opportunities we see on the horizon. So that you have there is not a supporter of legacy it systems.
Speaker Change: Let me be replaced by the New administration.
Speaker Change: Also we've had initial success leveraging our substantial and innovative capabilities in the state and local government.
Speaker Change: As a complement to our disaster management expertise.
Speaker Change: This resulted in a new contract that we announced in the third quarter and we continue to pursue these types of opportunities in state in territories, where we are working on disaster management contracts.
Speaker Change: We are also mindful of the opportunity to leverage our institutional knowledge to support key civilian agency programs.
Speaker Change: Shrinking federal workforce environment.
Speaker Change: To recap there is a lot of uncertainty in the federal government right now the name of the game is agility plus diversification ICF has a proven track record of effectively managing two dynamic business environment.
Speaker Change: We'll be assessing challenges.
Speaker Change: Agile to capture opportunities.
Speaker Change: We have a diversified business model that will serve us well in 2025 and beyond with over 55% of this year's revenues.
Speaker Change: Is it to be derived from our commercial state and local and international government clients.
Speaker Change: And lastly, we have provided a conservative guidance range.
Speaker Change: The maximum downside risk to 2025 total revenues of 10% below 2024 levels.
Speaker Change: When you consider a 15% growth projections for our non federal government work.
Speaker Change: You can absorb a $350 million reduction in our federal government revenues under our maximum risk scenario.
Speaker Change: We can place to more than 60% of our federal programmatic revenues.
Speaker Change: As I noted earlier, we already experienced a $90 million revenue did ups reduction from contracts that have been paused or terminated.
Speaker Change: This leaves us with $260 million additional cushion to absorb any further revenue impacts.
Speaker Change: Now I will turn the call over to our CFO Barry bonds to provide a financial review.
Speaker Change: To share additional expectations for 2025.
Speaker Change: Thank you John and good afternoon, everyone I'm pleased to provide you with additional details on our fourth quarter and full year 2024 financial performance.
Speaker Change: Revenue in the fourth quarter increased three 8% year over year or $196 3 million.
Speaker Change: As John mentioned, our fourth quarter revenue growth was led by sustained demand from our commercial energy clients, which drove a 22% increase in our commercial revenues to $133 2 million.
Speaker Change: In the 2020 for fourth quarter commercial revenues accounted for 26, 8% of our total revenue.
Speaker Change: From 22, 9% from last year's fourth quarter.
Speaker Change: Fourth quarter revenue comparisons were impacted by a decrease in our federal government business, which declined two 4%.
Speaker Change: The decrease in federal revenues was driven by lower pass through costs of approximately $14 million, excluding subcontractor and other direct expenses.
Speaker Change: Revenues generated by our labor base increased approximately 4%.
Speaker Change: Compared to the same period last year.
Speaker Change: As part of our business continued to be impacted by.
Speaker Change: Ramp up delays on certain public health related contracts and the anticipated fall off small business set aside contracts that were held by the it modernization firms we acquired in 2022.
Speaker Change: U S state and local government revenue was 75.5 million slightly below last years $76 $3 million with the decline attributed to the completion of a contract with the state of Maryland International Government revenue was $30 million, which was up four 2% year on year, reflecting the.
Speaker Change: <unk> of our recently awarded new contracts.
Speaker Change: Wins, primarily with UK government subcontracts and other direct costs represented 25, 4% of total revenues.
Speaker Change: In this years fourth quarter compared to 27% in the comparable period last year.
Speaker Change: Gross margin was 36, 1% compared to 36, 5% in the prior year period on a full year basis gross margins increased to 100 basis points due to our favorable revenue mix.
Speaker Change: Indirect and selling expenses increased four 9% $129 5 million in the fourth quarter, representing a $26, 1% of total revenue, reflecting ongoing investments in our workforce and digital capabilities to advance our growth and efficiency initiatives throughout the organization.
Speaker Change: We remain focused on managing our indirect cost leveraging our scale and continuing to improve our utilization rates. Our successful track record of managing our cost structure becomes even more important given the current environment and our federal market.
Speaker Change: Our fourth quarter, EBITDA was $50 8 million compared to $53 9 million in the prior year quarter. Adjusted EBITDA was $56 3 million with an adjusted EBITDA margin of 11, 3% compared to $57 million and 11, 9% respectively in the fourth quarter of 2023.
Speaker Change: Interest expense in the quarter was $6 5 million well below the $9 5 million in last year's fourth quarter, reflecting a lower year over year average debt balance and lower interest rates our debt reduction remains a priority.
Speaker Change: We continued to exit execute our tax optimization efforts, which yielded a tax rate of 29% down from 25, 6% in last year's fourth quarter. As a reminder, we expect to maintain a tax rate of approximately 21% over the next several years.
Speaker Change: Moving to the bottom line or lower interest and tax expense contributed to a 10, 8% increase in net income of $24 6 million outpacing our revenue growth diluted EPS Rose 12, 1% to $1 30 inclusive of 23.
Speaker Change: Tax effected special charges non-GAAP EPS growth of 11, 3% $3 87 per share in the fourth quarter.
Speaker Change: Now turning to a summary of our full year results.
Speaker Change: Revenue was 2.02 billion up two 9% from the prior year and up six 1% from continuing operations. These positive comparisons were driven by the strength of our energy environmental infrastructure and disaster recovery client market, which represents 46% of total revenue and grew 15, 4%.
Speaker Change: Year on year. This growth was led by continued robust demand from our commercial energy clients, which increased 25, 8% as compared to the same period last year. Our federal government revenues were flat year over year as a result of decrease in pass through cost, which reduced our full year revenue growth by 300.
Speaker Change: 50 basis points, our federal government revenues generated by our ICF staff grew 5% year over year.
Speaker Change: Total company subcontractor and other direct costs represented 25, 1% of total revenue in 2024 down from 27, 2% in 2023.
Speaker Change: The decrease was driven by a shift to suspects.
Speaker Change: Adjusted EBITDA was $226 million, an increase of 6% year over year.
Speaker Change: On a full year basis, our adjusted EBITDA margin increased 30 basis points ahead of our historical guidance increases in the 10 to 20 basis point range.
Speaker Change: GAAP EPS rose 33, 8% to $5 82 per diluted share.
Speaker Change: GAAP EPS included $5 7 million or <unk> 24 per share in net tax effected special charges, which primarily consisted of winter related severance and M&A related costs.
Speaker Change: Which were partially offset by the gain on the sale of the commercial marketing business third quarter of 2023.
Speaker Change: 2023, GAAP EPS was $4 35 per diluted share, including 71 of tax effected special charges, our non-GAAP EPS increased 14, 6% year over year $7 45.
Speaker Change: Now shifting to our cash flows and our balance sheet, our full year operating cash flow was $171 5 million exceeding our guidance of $155 million, reflecting the bottomline over performance and the impact of our cash management initiatives.
Speaker Change: Sales outstanding were 75 days compared to 72 days last year.
Speaker Change: Full year capital expenditures were $21 4 million down from $22 3 million in 2023.
Speaker Change: At year end, our debt was $411 7 million, which was down 400 from 434.
$4 million at the end of 2023, our debt reduction was inclusive of approximately $44 million in share repurchases and $62 million related to the acquisition of atg approximately 66% of our debt is at fixed rate.
Speaker Change: Our adjusted net leverage ratio was one eight times at year end, a significant improvement over the two six times at the end of 2023.
Speaker Change: As part of our capital allocation strategy, we have been actively repurchasing our shares reflecting our confidence in Ics business outlook, and our commitment to delivering value to our shareholders.
Speaker Change: At November 2024 to date, we have repurchased approximately 395000 shares for $48 million, which was more than three times the amount required to offset the dilution.
Speaker Change: Our plan for 2025.
Speaker Change: Our capital deployment strategy is focused on several priorities organic growth.
Speaker Change: <unk> strategic acquisitions paying down debt, maintaining our quarterly dividend payments and conducting opportunistic share buybacks. In addition to our standard.
Speaker Change: Our program to offset dilution from our employee stock programs.
Speaker Change: Today, we announced a quarterly cash dividend <unk> 14 per share payable on April 14, 2025 to shareholders of record on March 28 2025.
Speaker Change: Before discussing our guidance I wanted to note our backlog.
Speaker Change: At December 31, 2024, and $3 8 billion of which $1 9 billion is funded underscoring the stability and strength of our business or your own backlog does not include the impact of any contracts that had been terminated as a result of the administration's executive orders or the actions.
Speaker Change: <unk>.
Speaker Change: <unk> is approximately $275 million.
Speaker Change: While the administration continues to implement its vision to reshape the federal government as John noted, we continue to manage our business appropriately.
Speaker Change: Our intent is to maintain margins consistent with those of 2024 as we faced decreases in revenues from our federal business.
Speaker Change: Our management team has a firm grasp on the current environment as a cost containment plan in place that we will execute as warranted to maintain our current level of profitability, we will proactively manage our business to achieve this target.
Now to help you with your financial models. Please note the following expectations for full year 2025.
Speaker Change: Our depreciation and amortization expense is expected to range from $21 million to $23 million Ameren.
Speaker Change: Amortization of intangibles is expected to be.
Speaker Change: 35% to $37 million, we anticipate interest expense will range from $30 million to $32 million capital expenditures are expected to range from $26 million to $28 million.
Speaker Change: Full year tax rate is expected to be approximately 25%.
John Watson: Due to our share repurchases, we expect our fully diluted weighted average share count of approximately $18 6 million down from $19 1 million and we expect full year operating cash flow to be in the range of $150 million and with that I'll turn the call back over to John for his closing remarks.
Speaker Change: Thank you Barry looking ahead, we expect Icf's 2025 revenue.
Speaker Change: GAAP EPS non-GAAP EPS.
Speaker Change: Who range from flat with 2024 levels to down 10% from 2000 twenty's floor levels.
Speaker Change: A 10% decline in representing the maximum downside risks before Steve from the loss of business, primarily from the federal government clients and the slower pace of our Rfps during this transition year.
Speaker Change: In this environment.
Speaker Change: Plan to manage their expenditures to maintain similar adjusted EBITDA margins.
Speaker Change: As of 2024.
Underpinning our 2025 revenue expectations as our projection that Ics revenues from commercial energy state and local and international government clients will grow at least 15% in the aggregate.
Speaker Change: The framework does not contemplate an extensive government shutdown this year or a prolonged period of pauses in funding modifications to existing contracts or new procurements.
Speaker Change: And again it does not anticipate any potential upside from additional work we may be awarded given our strengths in several areas of priority spending.
Speaker Change: For this year's first quarter, we anticipate revenues of 480 million to $500 million GAAP EPS in the range of $1 35 to $1 45, and non-GAAP EPS of $1 70 to 180 similar to last year's first quarter results for all of those metrics.
Speaker Change: As Barry noted, we ended 2024 and a strong financial position this gives us substantial flexibility.
Speaker Change: Can we manage through the current dynamic business environment and the federal government Arena we.
Speaker Change: We will remain opportunistic with respect to capital allocation.
Speaker Change: Entering additional share buybacks purchasing contracts and making accretive acquisitions.
Speaker Change: Combination thereof.
Operator, I will like to open the call for questions.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: Reminder, to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Joseph <unk> with Canaccord Genuity. Your line is now open.
Joseph: Hey, guys. Good afternoon. Thanks for all the additional color on the guide.
Speaker Change: Maybe if we just drill down on that a little bit FERC.
John Watson: John and Barry I know you provided some color there John on kind of maximum downside focused on how much extra programmatic revenue may.
Speaker Change: Kind of potentially be at risk.
Speaker Change: Does seem like a lot I was wondering if you could kind of go into a little more detail there of kind of I know you said maximum downside risk but.
Speaker Change: Is that much.
Speaker Change: Really truly at risk do you see at this point.
Speaker Change: And then.
Speaker Change: A quick follow up.
Speaker Change: Yes. Thanks for the question Jonathan I think we we intended to give a range here from <unk>.
Speaker Change: Flat relative to 2004 levels for 25 to <unk>.
Speaker Change: Maximum downside of.
Speaker Change: Minus 10%.
Speaker Change: For the year, we were really trying it.
Speaker Change: The maximum downside to establish the floor and put our go to market underground.
Speaker Change: All of revenue reduction.
Speaker Change: The level of revenue net.
Speaker Change: And we would expect.
Speaker Change: This year, but certainly we provided a range I will say that we've.
Coming up with that range, we do do a detailed project by project.
Speaker Change: Risk analysis of our federal business.
Speaker Change: Based on the priorities of the.
Speaker Change: The new administration.
So we went through a project by project pipeline by pipeline opportunity can certainly considered all the statements and documents in the public domain and also factored in a significant input from our clients uncontrollable potential approach impacts.
Speaker Change: And so with that that kind of led us to expect that our modern digital transformation work, which is about half our business.
Speaker Change: Could see revenue shrinkage.
Speaker Change: Mid to high single digits.
Speaker Change: Given the level of change occurring in 2025, and a slowdown of procurements.
Speaker Change: Although overall I think we see recovery in that business in the medium term.
Speaker Change: Even that is aligned with the administration's goals around leveraging coherent technology solutions across entire.
Speaker Change: Government.
Speaker Change: And then the other half is on the programmatic side certainly that has seen the most significant impact to date I think as we said, we see $50 million.
Speaker Change: Of impacted USA I E.
Speaker Change: And I think when we look at the downside on the programmatic side.
Speaker Change: We would expect future reductions to generate.
Speaker Change: With a programmatic levels and dose.
Speaker Change: Civilian clients, but the minus 10% is really meant to be the maximum level of risk that we foresee in a conservative estimate.
Speaker Change: The potential.
Speaker Change: As I say the maximum risk we would expect in our federal business with a new administration for this year.
Speaker Change: Sure. Thanks for that color, John and then it sounds like I referred of utility and energy business is still really strong.
Speaker Change: Ripple through effects from.
Speaker Change: Slowdown in federal initiative.
Speaker Change: To affect any of the utilities at this early stage.
Speaker Change: Thanks, a lot guys.
Speaker Change: Sure No I don't.
Speaker Change: We expect any material changes in our growth.
Speaker Change: <unk> business, our commercial utility business from <unk>.
Speaker Change: Changes at the federal level I think we continue to see very robust.
Speaker Change: Yeah.
Speaker Change: Gross have extend it.
Speaker Change: And for energy.
Speaker Change: We have a very strong backlog very strong pipeline.
Speaker Change: And so I think we're quite.
Speaker Change: Quite confident.
Speaker Change: See robust growth there as we noted and we grew 25%.
Speaker Change: And that business last year, I think we will.
Speaker Change: I'd like to see robust growth.
Speaker Change: Going forward.
Speaker Change: We don't think that any.
Speaker Change: Any impacts.
Speaker Change: Federer.
Speaker Change: The policy will be materialized commercially.
Speaker Change: Most energy business this year.
Speaker Change: Great. Thanks, very much John.
Speaker Change: Yeah.
Speaker Change: Our next question is from the line of Sam <unk> with William Blair. Your line is now open.
Sam: Okay, great. Thanks for taking our questions here I guess I'll start I wanted to ask a bit more about your full year guidance, maybe on the other piece of this year.
Thank you sure you expect your business outside of federal to grow at least 15% that would be a pickup from your historical average and I was wondering how much of that is organic and what is giving you that level of confidence.
Sam: Well, let's say that.
Sam: First of all that I think this year last year 2024.
Sam: Those businesses grew $13 seven.
Sam: In the aggregate led by our commercial energy business, which was up 26%.
Sam: As I said I think the secular growth drivers remained quite robust I think we believe.
Sam: We can maintain those kinds of levels of growth in our commercial energy business. I also noted in our release that we won several very large international contracts in the fourth quarter and here in the first quarter, which will certainly accelerate our growth of our international business.
Sam: And I also mentioned in my remarks, we're ramping up our.
At work in our state and local markets later.
Sam: Two.
Sam: Associated with that and then the last thing I'd emphasize again, we acquired AG, which I think as we said in that release would add something in the neighborhood of $35 million of commercial work for 2025, and so I think there was a three or four key.
Sam: Key factors in our confidence in.
Sam: Accelerating the growth and being north of 15% across commercial and state and local and international for 2025.
Sam: Okay got it. Thank you that's helpful.
Sam: And then switching gears here.
Sam: With regards to your IP monetization business.
Sam: In recent weeks it does sound like dose may be announcing some contract cancellations for some enterprise it service contracts over the next few months here.
Sam: Yes. My question is really twofold first to think anything currently in your backlog sticks out as being at risk of a cancellation.
Sam: And second do you expect any type of slowdown of New awards announced over the next several years. This is for IP monetization and specifically.
Sam: I'd say the Sperry.
Sam: Thus far we haven't seen.
Sam: Any issues with any of the contracts that we have in the <unk> business.
We're obviously well positioned given the capabilities that we have to.
Sam: Expanding our presence in this space and utilize some of the things that you know.
Sam: But you are seeing and hearing from dos and the administration on Mod.
<unk> cost reductions that we have a good deal of experience on protecting fraud and some of our contracts.
Sam: So we can leverage those capabilities across the industry.
Sam: And I think we can.
Sam: Provide.
Sam: Great benefit to our government customers.
Sam: Got it thanks guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tobey Sommer with Truest. Your line is now open.
Sam: Thank you.
Speaker Change: Yeah.
Speaker Change: I would like to ask within the programmatic work.
Speaker Change: Sort of agencies constitute the 40%.
Speaker Change: That is not at risk.
Speaker Change: Within the programmatic area I mean, I would say that we.
Speaker Change: As I said I think across our civilian.
Speaker Change: Client base, we would expect that you would see programmatic impacts.
Speaker Change: <unk> set of clients.
Speaker Change: Generally proportional with the revenue mix, we have I would say that.
Speaker Change: Honestly Usaid's B C.
Speaker Change: Significant impacts there I think that revenue is obviously.
Speaker Change: The contracts have been terminated disappointed so.
Speaker Change: There has been very significant impacts there.
Speaker Change: Across the rest of the portfolio I generally think it will be.
Speaker Change: Consistent with.
Speaker Change: Percentage makeup of that portfolio.
Speaker Change: I think PVC programmatic impacts.
Speaker Change: And each of our clients.
Speaker Change: Across the portfolio.
Speaker Change: I might add that I think there are a number of key.
Speaker Change: Client groups said.
Speaker Change: We don't feel are alright significant risks, we have a lot of work with DHS Treasury.
Speaker Change: That's more technology more technologies the technology work.
Speaker Change: Again.
Speaker Change: Yes.
Speaker Change: When I answered the question Tobey I think focused on the pro rata programmatic work within each of our clients.
But it's certainly the case that all clients, we do have different mix of technology versus programmatic for higher end technology, we're not going to see as much of the reduction because we don't.
Speaker Change: I don't think we are.
We will see it on the technology side.
Speaker Change: Alright.
Speaker Change: Thank you.
Speaker Change: When I think of your.
Speaker Change: Your federal government business and just split it simplistically into.
Speaker Change: It modernization on one side and programmatic.
Speaker Change: On the other to what extent.
Speaker Change: Got it modernization directly overlapping with those same customers as opposed to.
Speaker Change: Maybe being involved in different areas of the government outside of your core.
Speaker Change: Turbo agency focus.
Speaker Change: Hmm.
Speaker Change: Well I think that makes a difference when you say client.
To meet all of EPA or all of it.
Speaker Change: HHS I mean, I think the technology work tends to be more heavily.
Speaker Change: And the CIO office.
Speaker Change: Not as much overlap I would say.
Speaker Change: So I'm not as much overlap between our domain clients and our technology clients within our major the same specific offices.
Speaker Change: So.
Speaker Change: But if you pull up to the EPA are we for example at HHS half our work its technology Ifr work as domain, but the overlapping clients between where the clients that's leading the technology versus sort of the class in debate as you move downloads organizations is not the same.
Speaker Change: Same client, but again it depends what you're talking about HHS and CDC offices within CEC and what's the overlap.
Speaker Change: But.
Speaker Change: So that's how I think about it.
Speaker Change: Okay. Thank you.
My last question I have two more actually if I could could you comment on.
Speaker Change: Yes FEMA.
Speaker Change: Community development block grant.
Speaker Change: Experts.
Speaker Change: As applied either to disaster recovery or potentially on the supply side the demand side of.
Speaker Change: IRI projects.
Speaker Change: That's been in the news as sort of a.
Speaker Change: Maybe a bureaucratic process certainly requires a lot of compliance by design.
Speaker Change: I'm curious about your thoughts there.
Speaker Change: Yes, I would say that certainly youre right theres been a lot of.
Discussing the news about potential cutbacks in the workforce.
Speaker Change: Reorganization sort of cutback in the workforce related to that.
Speaker Change: And he's done a block grant later work, including.
Speaker Change: Okay.
Speaker Change: That's the vehicle Thats used for housing disaster recovery the community development Block Grant program, there's been discussions about reductions FEMA and reorganizations and FEMA.
Speaker Change: For the public infrastructure related access to recovery I.
Speaker Change: I would say that in the disaster recovery context.
Speaker Change: Generally we don't believe the cutbacks and the staff at the federal level and HUD and FEMA.
Speaker Change: Would necessarily adversely impact our state and local disaster recovery business.
Speaker Change: And those federal Stafford, obviously, providing training and technical assistance and federal monitoring and oversight.
Speaker Change: Our state and local disaster recoveries those programs that have to follow the CDB GNC rules.
Speaker Change: So <unk> cut back which will be there'll be less.
Speaker Change: Oversight of the state programs.
Speaker Change: From the federal level.
Speaker Change: I think our expectation would be the Congress would still continue to.
Speaker Change: Off risk federal funds to support disaster recovery by states under CPG and payment rules.
Speaker Change: The states would be required to comply with those rules. It will just be done with less.
Speaker Change: Support from the federal government on training and technical assistance.
Speaker Change: Oversight and monitoring of those programs under those rules.
Speaker Change: But I would expect it.
Speaker Change: The core of our.
Speaker Change: Disaster recovery work with continuing the opportunities would be there.
Speaker Change: So I don't think we foresee.
Speaker Change: A significant impact on that front.
Thank you last question from me.
Speaker Change: And though the worst case scenario that's down 10%.
Speaker Change: How are you.
Speaker Change: How do you keep the Esprit de corps of the firm.
Speaker Change: <unk> certainly got a you've got to put plans in place to try to do that and then Barry what sort of cash.
Speaker Change: Cash outlays would you have to have to reduce staff.
Speaker Change: Those kind of levels.
Speaker Change: Yes, I guess I mean it.
Speaker Change: In terms of that.
Speaker Change: During the quarter.
Speaker Change: So I mean, I think we as you know I think we have people who are deeply committed to having an impact on.
Speaker Change: Leading social and economic and technology issues.
At least support I think we're the good news is we do have a portfolio of business as we discussed you know 65% of our revenue this in commercial and state and local and international win.
Speaker Change: So we're certainly going to look for every opportunity to leverage that staff and capabilities across.
Speaker Change: The full portfolio of work.
Speaker Change: As we always have and.
Speaker Change: No. Obviously, there is some potential for impacts here, but we're going to be transparent and fair in Minnesota.
Speaker Change: Effectively as we can over many many years.
Speaker Change: And certainly trying to leverage that.
Speaker Change: The portfolio.
Speaker Change: And finally delivery staff across plus other projects that we can do so.
Speaker Change: <unk>.
Speaker Change: Barry do you want to comment on so as far as the second part of the question Tobey, but obviously that depends a lot on.
Speaker Change: The degree of which which contracts.
Speaker Change: Where it goes way.
Speaker Change: We've had a really good history of being able to deploy staff from one contract to another contract with one particular contract and so it depends on the mix in.
Speaker Change: And the timing of that and so.
Speaker Change: Kind of hard to quantify that because that's obviously the people its a big driver of the cost.
Speaker Change: But as we.
As stated.
Speaker Change: Joel.
Speaker Change: Except for.
Speaker Change: This is that we're going to maintain our margins.
Speaker Change: And we'll be able to do that.
Speaker Change: Hi.
Speaker Change: That's really managing the cost structure.
There are changes with a revenue uplift.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open.
Speaker Change: Alright, thank you.
Kevin Steinke: I wanted to ask.
Speaker Change: About.
Speaker Change: Commercial energy.
Speaker Change: Some of the work you do for.
Speaker Change: Renewable energy developers I know, that's a smaller part of the business but.
Speaker Change: Do you see any risks there in terms of.
Speaker Change: Funding for those projects et cetera.
Speaker Change: I think that.
Speaker Change: Well I mean, I think first.
Speaker Change: In terms of renewable develop renewable developers.
Speaker Change: And in.
Speaker Change: In renewable projects.
Speaker Change: I think largely the renewables development market is driven by economics.
And the economics remain attractive.
Speaker Change: <unk>.
Speaker Change: And solar energy.
Speaker Change: Onshore wind.
Speaker Change: Offsetting tax incentives such as dose of <unk>.
Speaker Change:
Speaker Change:
Speaker Change: Yes.
Speaker Change: That's been a benefit but I think that market is largely driven.
Speaker Change: But the economics and I think we believe that even FTE.
Speaker Change: The administration really limits or where stops the tax incentives stops leasing of federal lands for offshore wind.
Speaker Change: The majority of renewable projects will continue.
Speaker Change: Strong electricity demand.
Speaker Change: I appreciate the economics of the technology and honestly supportive.
Speaker Change: <unk> policies and so.
Speaker Change: I think we think that our solar and onshore wind will that generally precede obviously wouldnt offshore wind development to be more impacted given some of the <unk>.
Speaker Change: The new administration.
Speaker Change: But for us that revenues.
Speaker Change: Five $5 million to $7 million per year on commercial energy business was really.
Speaker Change: Not that it's not material it's curtailed.
Speaker Change: 25.
Speaker Change: Okay. Thank you that's helpful.
Speaker Change: And.
I think you've referred to a number of times.
Speaker Change: 2025.
Speaker Change: Transition year.
Speaker Change: Just wanted to dig into that a little bit is that are you kind of thinking about it modernization business, there and some of the pauses and maybe a bit of decline there and theyre coming back in 2026 or what.
What other.
Speaker Change: Things would you characterize as kind of putting 2025 is more of a transition year and what.
Speaker Change: Might look like beyond 2025.
Speaker Change: And so I think that's a great question I think it's certainly I think on the it modernization digital transformation front.
Speaker Change: I think we will.
Speaker Change: I think as the administration puts its new technology strategy in place and finalize that.
Speaker Change: And continues to review the existing projects I think that will slow down.
Speaker Change: Alrighty modernization efforts here for a few quarters.
Speaker Change: Procurements.
But we do believe as we get to the second half of the year. We go forward.
Speaker Change: There will be new opportunities with this administration on the technology.
Speaker Change: I think it is committed to.
Speaker Change: As to efficiency.
Speaker Change: The innovation to leveraging AI to leveraging software across all of the federal government.
Speaker Change: Producing waste fraud and abuse all areas that we can.
Speaker Change: And then on the technology front, so I think we would expect to see.
Speaker Change: Both opportunities.
Speaker Change: As we go forward into 2026 and beyond in that market.
Speaker Change: I will also say that I think there will be opportunities with this administration for us on the public health front is.
Speaker Change: As the new administration.
Speaker Change: Settles in and focus on.
Speaker Change: Current children's health.
Speaker Change: S decides food additives obesity.
Adding opioids and fit in all of those are areas, we work at it and I think it could be.
Speaker Change: Very helpful and I also think that given the magnitude of what's.
Speaker Change: Central reduction in the federal workforce here.
Speaker Change: People are outsourcing of opportunities or Laura assistance needed in specific.
Speaker Change: Domain areas or program areas.
Speaker Change: Could offer opportunities so I do think that 25 ish.
Speaker Change: There is a transitioning air and theirs.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: A reset of the priorities for.
Speaker Change: Or the focus is going to be with this administration, but I think once.
Speaker Change: Once we get beyond 25 that will be.
Opportunities and our goal is to manage the business very carefully.
Speaker Change: And as we see shifts in revenues revisions in 'twenty five.
Speaker Change: We maintain our profitability and maintain our financial strength.
Speaker Change: So that we can come out on that side and then we've continued to invest continue to deleverage the balance sheet.
Speaker Change: It returned to growth that's very focused on that right.
Speaker Change: Okay. Thanks, that's helpful.
Speaker Change: Can I sneak in one more please.
Speaker Change: Yes, I just I just wanted to ask about the.
Speaker Change: You talked about the ramped up to repurchase activity.
Speaker Change: From November on it.
Speaker Change: Something here.
Speaker Change: Contemplate.
Speaker Change: Contemplating continuing in 2025.
Speaker Change: Yes, yes.
Speaker Change: Kevin I think that's something that we definitely.
Speaker Change: Keeping a close eye on it.
Speaker Change: Have fun.
Speaker Change: Yeah.
Speaker Change: The capacity to do that.
Speaker Change: Sheep perspective.
Speaker Change: And we will continue to repurchase shares.
Speaker Change: I believe that the.
Speaker Change: Yeah.
Speaker Change: Stock price is undervalued.
Speaker Change: Been able to take advantage of that.
Speaker Change: 2025.
Speaker Change: Okay.
Great. Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open.
Marc Riddick: Hey, good afternoon.
Speaker Change: I wanted to just continue on that I wanted to continue on that threat I guess, a little bit as far as cash usage in prioritization, maybe you talk a little bit about you.
Speaker Change: You know, Greg you've got quite a bit on your plate at the moment I was sort of curious as to how you're how you're looking at.
Speaker Change: The current acquisition pipeline issue.
Speaker Change: So there'll be an opportunity to.
Speaker Change: Act on anything out there, maybe what youre seeing out there with valuations are looking like and if those have changed.
Speaker Change: Given the uncertainties, we have seen over the last few months and then I have a follow up after that.
Speaker Change: Now I would say on the acquisition front.
Speaker Change: There is tremendous uncertainty in the federal arena.
Speaker Change: There's tremendous change going on.
Speaker Change: I think bill.
Speaker Change: It's highly unlikely we will do an acquisition in the federal Arena this year given.
Speaker Change: Given the uncertainty in the change and I think the.
Speaker Change: The activity is certainly.
Speaker Change: Slowed materially there.
Speaker Change: I do think what area, we continue to look at it and were active in the markets in the energy area, we're seeing tremendous growth opportunity there.
Speaker Change: Right opportunity came along.
Speaker Change: Essentially she is doing a tuck in acquisition.
Speaker Change: Like something like AEG.
Speaker Change: Perhaps this.
Speaker Change: This year in the second half of this year I don't think we're going to do.
Speaker Change: Transformational.
Speaker Change: <unk> scale.
Speaker Change: In 2025, I think we are quite focused on managing this from air lease.
Speaker Change: Quarters.
Speaker Change: And we will certainly continue to look at buying back stock I think we the board.
Speaker Change: Increased our capacity last quarter I think we still have we have about $128 million.
Speaker Change: Potentially buyback more stock.
Speaker Change: If you look at that and.
Speaker Change: We think it's undervalued.
Speaker Change: I think hard about that.
Speaker Change: I think that.
Speaker Change: I think.
I think that's how we're looking at the balance sheet right now.
Speaker Change: Isn't that we don't do a tuck in acquisition, we will look to continue to delever.
Speaker Change: Down to one eight leverage ratio.
Speaker Change: You had very strong cash flow will de lever.
Speaker Change: We don't see the right kind of opportunities on the M&A route.
Speaker Change: Okay, and then I guess, the second part I sort of wanted to touch on everything else just sort of covered but I was sort of curious and just wanted to note that the guide that was provided not only included the full year, but also a commentary for <unk> I was wondering if you could sort of.
Speaker Change: Give some thoughts into not just specifically what the numbers are but just the now providing the quarter and whether you are given the level of uncertainty. That's out there is it something that you think you guys will be doing for the foreseeable future at least until we sort of you know.
Speaker Change: Bridge the current.
Speaker Change: A level of uncertainty.
Speaker Change: Okay.
Speaker Change: I mean traditionally we haven't.
Speaker Change: Given quarterly guidance, but that's something that we can certainly consider given the volatility that we're seeing in the marketplace.
Speaker Change: <unk>.
Speaker Change: Well, we'll take that as we can.
Speaker Change: Forward.
Speaker Change: We felt that it was important.
Speaker Change: To give.
Speaker Change: No.
Speaker Change: Guidance for the first quarter just to give everybody some direction on where we're headed.
Speaker Change: Hopefully, we think that that was valuable.
Speaker Change: No absolutely.
Speaker Change: Great. Thank you very much.
Speaker Change: Thanks, Thank you.
Speaker Change: Our next question comes from the line of Tony Tobey Sommer with Truest. Your line is now open.
Speaker Change: Thanks, I just wanted to ask a follow up on the acquisitions and in particular the recent recent one.
Speaker Change: Darren.
Speaker Change: Ample set of.
Speaker Change: Sort of captive.
Speaker Change: Utility owned.
Speaker Change: Energy efficiency businesses that.
Speaker Change: Over time, maybe it could be better optimized outside of your utility customers is that.
Speaker Change: Is that a fertile ground for you to look at it over time.
Speaker Change: I would say that the core.
Speaker Change: The business is largely our.
Speaker Change: Energy efficiency.
Speaker Change: <unk> implementation business I think that.
And that's largely.
Speaker Change: Kevin Buchi utility oriented business Tobey I'm not sure.
Speaker Change: We do occasionally see state and local clients that states are more involved in energy efficiency.
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: <unk> program ideas.
Speaker Change: <unk> added additional growth there around electrification electrical load management.
Speaker Change: All utility Ornette a program so I'm.
Speaker Change: I don't really.
Speaker Change: I don't think we know.
Speaker Change: To me that Theres, a play to take those set of skills.
Speaker Change: And leverage them outside of the utility industry.
Speaker Change:
Speaker Change: I think it's.
Speaker Change: Let's see.
Speaker Change: Let me rephrase the question.
Speaker Change: Kind of asking are there are there internal businesses at other utilities.
Speaker Change: That would make an attractive acquisition targets for ICF.
Speaker Change: That's what I was going forward not sort of applying your skills too.
Speaker Change: Two other customer reception.
Speaker Change: Yes.
Speaker Change: <unk>.
I don't think we've identified that.
Speaker Change: We've seen those to date.
Speaker Change: At our core markets.
Speaker Change: <unk>.
Speaker Change: Utilities the types of programs, we're running utility HLA are running internally.
Speaker Change: They don't have energy efficiency arent arent.
Speaker Change: Competing with us are providing.
Speaker Change: The floater programs that they're looking to outsource divest itself.
Speaker Change: I know there's other players.
Speaker Change: Other parts of utility markets that have had it.
Speaker Change: I've done those kind of deals.
Speaker Change: But I don't I don't think we see it north.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: I'm showing no further questions at this time I would now like to turn it back to John Watson for closing remarks.
Speaker Change: Okay, well. Thank you for participating in today's call, we look forward to connecting at upcoming conferences and events. Thank you.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
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