Q1 2025 ICF International Inc Earnings Call
Okay.
Corinne: Welcome to the first quarter 2025 ICF Earnings Conference Call. My name is Corinne, and I will be your operator for today's call. At this time, all participants are in a listen-only mode.
Karen: Welcome to the first quarter 2025, I C. S earnings Conference call. My name is Karen and I'll be your operator for today's call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press.
Corinne: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.
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Corinne: Please be advised that today's conference is being recorded.
Lynn Morgen: I will now turn the call over to Lynn Morgan of Advisory Partners. Lynn, you may begin. Thank you, Corinne. Good afternoon, everyone, and thank you for joining us to review ICF's first quarter 2025. With us today from ICF are John Wasson, Chair and CEO, and Barry Broadus, CFO. Joining them is James Morgan, Chief Public Policy Officer. During this conference call, we will make forward-looking statements to assist you in understanding ICF management's expectations about our future. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our May 1st, 2025 press release and our SEC filings for discussions of those risks.
Speaker Change: Please be advised that today's conference is being recorded I will now turn the call over to Lynn Morgen of Advisory partners Lynn you may begin.
Lynn Morgen: Thank you Chris Good afternoon, everyone and thank you for joining us to review Icf's first quarter 2025.
John Watson: With us today from my CFO, John Watson Chair and CEO.
Brian Shea: Sorry, Brian Shea.
Brian Shea: Joining them as James Morgan Chief I agree.
Brian Shea: During this conference call, we will make forward.
Speaker Change: To assist you in understanding ICF management's expectations about our future.
Brian Shea: These statements are subject to a number of.
Speaker Change: Risks.
Speaker Change: Actual events or results.
Speaker Change: To differ materially.
Speaker Change: For each of our neighbors.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: We're discussions with those risks.
Lynn Morgen: In addition, our statements during this call are based on our views as of today. We anticipate that future development will cause our views to change. Please consider the information presented in that. I may at some point elect to update the forward-looking statements made today, but specifically disclaim any obligation to do so.
Speaker Change: In addition, our statements during this call are based in Europe.
Speaker Change: As of today.
Speaker Change: We anticipate that future development.
Speaker Change: Sure.
Speaker Change: Please consider it.
Speaker Change: You bet.
Speaker Change: You may at some point right.
Speaker Change: Statements made today.
Speaker Change: We disclaim any obligation.
John Wasson: I will now turn the call over to ICF CEO John Wasson to discuss first quarter 2025. John. Thank you, Lynn, and thank you all for joining us this afternoon to review our first quarter results and discuss our business outlook. We are pleased to report that our first quarter revenues were in line with our expectations, reflecting the strength of our diversified business model and supporting the 2025 guidance framework we discussed during our February 27 earnings call. There are several key takeaways worth noting. First, our revenues from commercial, state and local, and international government clients in the aggregate accounted for 51% of our first quarter revenues, up from about 45% one year ago.
Speaker Change: I will now turn the call over to Icf's CEO John.
Speaker Change: That's first.
Speaker Change: Right.
John Watson: Thank you Lynn and thank you all for joining US. This afternoon to review our first quarter results and discuss our business outlook. We are pleased to report that our first quarter revenues were in line with our expectations, reflecting the strength of our diversified business model and supporting the 2025 guidance framework you discussed.
Speaker Change: February 27 earnings call.
Speaker Change: There are several key takeaways worth, noting first our revenues from commercial state and local and international government clients.
Speaker Change: Well get accounted for 51% of our first quarter revenues up from about 45% one year ago.
John Wasson: Second, revenues from commercial energy clients. increased 21% year-over-year, demonstrating continued strong demand from utility clients. Third, adjusted EBITDA margin on total revenues, expanded 10 basis points to 11.3%, reflecting mixed benefits and careful cost management. And lastly, our non-GAAP EPS was up almost 10%, considerably ahead of our first quarter of revenue comparisons. And we do expect non-GAAP EPS to outpace revenue performance for the full year as well.
Speaker Change: Revenues from commercial energy clients increased 21% year over year, demonstrating continued strong demand from utility clients.
Speaker Change: Third adjusted EBITDA margin on total revenues.
Speaker Change: And a 10 basis points to 11, 3%, reflecting mixed benefits and careful cost management.
Speaker Change: Lastly, our non-GAAP EPS was up almost 10%.
Speaker Change: Really ahead of our first quarter our revenue comparisons.
Speaker Change: Do expect non-GAAP EPS.
Speaker Change: Is that a good performance.
Speaker Change: Here as well.
John Wasson: I will now review additional first quarter business trends and then provide further insight into ICF's federal government business in the context of the new administration's directives and spending priorities. To begin, revenues from commercial clients increased 22.1% to account for 29.5% of total first quarter revenues, up from 23.9% in last year's forecast. Commercial Energy was the key driver of this strong performance, with revenues of 21% to represent 87% of the commercial client capital. This growth was driven by new and expanded energy efficiency, electrification, and customer engagement programs for utility clients. We are experiencing continued demand from utilities for energy efficiency, demand response, customer engagement, and flexible load management programs as our clients seek to accommodate rapid load growth.
Speaker Change: I'll now review additional first quarter business trends and provide further insight and thoughts yes.
Speaker Change: Federal government business in the car.
Speaker Change: Text of the new administration's directives.
Speaker Change: Funding priorities.
Speaker Change: To begin revenues from commercial clients increased 22, 1% to account for 29, 5%.
Speaker Change: Total first quarter revenues.
Speaker Change: I'm 23, 9% last year's first quarter.
Speaker Change: Commercial energy, what's the key driver of this strong performance with revenues up 21% to represent 87% commercial client.
Speaker Change: This growth was driven by new and extended energy efficiency electrification and customer engagement programs for utility clients.
Speaker Change: We are experiencing continued demand from utilities for energy efficiency demand response customer engagement and electrical load management programs as our clients seek to accommodate rapid little drugs.
John Wasson: The vast majority of these programs are funded by ratepayers as public service commissions in over 30 states recognize the benefits of reducing energy usage over building new power ICF is the market leader in developing and implementing residential energy efficiency programs, having earned this position by meeting or exceeding our clients' energy savings goals over the last 20 years. And we are progressively gaining share in commercial energy efficiency as well.
Speaker Change: The vast majority of these programs are funded by ratepayers.
Speaker Change: Service conditions in over 30 states recognize the benefits of reducing energy usage for building new power plants.
Speaker Change: ICF is the market leader in developing and implementing residential energy efficiency programs.
Speaker Change: Earned this position like meeting or exceeding our clients energy savings goals over the last 20 years, and we are progressively gaining share and commercial energy efficiency as well.
John Wasson: We also saw solid demand for environment and planning services in the first quarter, with notable increases in work associated with utility infrastructure replacement after the California wildfires, and work for solar and wind developers for projects that are not on federal land, which more than offset the softening in offshore wind projects. And our Energy Advisory Group, one new business that included a diverse portfolio of projects that includes natural gas market analysis, transmission and wholesale price assessments, engineering and technical advisory services, and grid engineering projects, including planning for new utility substations to meet demand from data centers.
Speaker Change: We also saw solid demand for environment and planning services in the first quarter with notable increases in work associated with utility infrastructure replacement after the California, wildfires and work for solar and wind developers for projects that are not on federal land.
Speaker Change: More than offset the softening in offshore wind projects.
Speaker Change: And our energy Advisory group, one new business.
Speaker Change: Is that diverse portfolio of projects that includes natural gas market analysis.
Mission and wholesale price assessments engineering, and technical Advisory services and bridge engineering projects, including planning for new utility Substations to meet demand from data centers.
John Wasson: In the first quarter, we also completed the integration of AEG, the leading energy technology and advisory firm we acquired at the end of 2020. AEG provides a suite of integrated technology and solutions to electric and gas utilities, state and local governments, and state energy offices nationwide, and our teams are working together to find opportunities for synergistic growth. ICF has deep domain expertise and experience across the energy landscape, and we are very confident in the growth prospects for our commercial. Many of our utility clients are increasing budgets, resisting energy efficiency and flexible load management programs, and are seeking permission from regulators to add new programs. We're also experiencing greater demand for resource adequacy planning, renewal integration, transmission and distribution engineering, and demand side planning, especially since generation alternatives are facing increasing supply chain and tariff concern.
Speaker Change: In the first quarter, we also completed the integration of AEG.
Speaker Change: Leading energy technology and advisory firm, we acquired at the end of 2024.
<unk> provides a suite of integrated technology solutions to electric and gas utilities and state and local governments and state energy offices nationwide and our teams are working together to find opportunities for synergistic growth.
Speaker Change: ICF has deep domain expertise.
Speaker Change: Or is it across the energy landscape.
Speaker Change: We're very confident in the growth prospects for our commercial energy business.
Speaker Change: Our utility clients are increasing budgets existing energy efficiency and flexible load management programs and are seeking permission from regulators to add new programs.
Speaker Change: We're also experiencing greater demand for resource adequacy planning.
Speaker Change: The integration of transmission and distribution engineering and demand side planning, especially since generation alternatives.
Speaker Change: Increasingly increasing supply chain and tariff concerns.
John Wasson: And there's been an uptick in requests for transactions and due diligence services, all of this pointing to the continuation of strong demand for ICF's capability. Revenues from state and local government clients were stable year-on-year in the first quarter. Disaster Management, which accounts for about 45% of this client category, experienced lower pass-through revenues in the first quarter, although revenues less pass-throughs in this market were actually up 3% year-on-year. We were awarded two new contracts in two additional states, bringing to 95 the number of active disaster recovery contracts we are executing in 22 states and territories. Additionally, we are responding to several competitive opportunities to support wildfire recovery efforts in California, and we're currently operating and supporting Oregon's ReOrgan program to help homeowners, renters, and communities recover from the wildfire.
Speaker Change: There's been an uptick in request for transactions.
Speaker Change: Diligence services all disappointing.
Speaker Change: Strong demand for Ics capabilities.
Speaker Change: Yeah.
Speaker Change: Revenues from state and local government clients were stable year on year in the first quarter.
Speaker Change: Disaster management, which accounts for about 45%.
Speaker Change: Category.
Speaker Change: Lower pass through revenues in the first quarter.
Speaker Change: Although revenues less pass throughs.
Speaker Change: We're actually up 3% year on year.
Speaker Change: We were awarded two new contracts in two additional states, bringing to 95 the number of active disaster recovery contracts contracts, we are executing in 22 states and territories.
Speaker Change: Additionally, we are responding to several competitive opportunities.
Speaker Change: Port wildfire recovery efforts in California.
Speaker Change: The operating and supporting Oregon's rework and program.
Speaker Change: Homeowners renters and communities recover from the wildfires.
John Wasson: Our climate, environment, and infrastructure services for state and local clients represents about 40% of our state and local government client category, and revenues in this area were stable as last year's first quarter, following the completion of a large infrastructure project in the state of Maryland. This market area continues to be attractive as the general increase in large infrastructure projects is providing enhanced opportunities for our planning, permitting, and construction monitoring services, and we are seeing increased activity among many state and local governments in spending approval. approved IRA and bipartisan infrastructure legislative funds and filling the gap that has been left after reduction.
Speaker Change: Our climate environment and infrastructure services for state and local clients represents about 40% of our state and local government client category and revenues in this area are stable with last year's first quarter. Following the completion of a large infrastructure project in the state of Maryland.
Speaker Change: This market continues to be attractive as the general increase in large infrastructure projects is providing enhanced opportunities for planning permitting and construction monitoring services.
Speaker Change: We are seeing increased activity among many state and local governments.
Speaker Change: Ending approval.
Speaker Change: IRA.
Speaker Change: Infrastructure by person infrastructure legislative funds.
Speaker Change: Filling the gap that has been left after reductions.
John Wasson: Federal Climate. States like California and New York are doubling down on their climate commitments, and many state and local entities are investing in climate resilience and adaptation strategies in order to mitigate the impact and recovery costs of future potential disasters and providing opportunities for ICF's planning and program administration services. Also, our revenues from international government clients increased 7.2% in the first quarter. After a slower start than expected, we are beginning to execute task orders related to recent sizable contract wins with the European Union and the UK government. And we are finding opportunities to leverage our technology solutions and AI capabilities.
Speaker Change: Federal climate programs.
Speaker Change: States like California, and New York are doubling down on their climate commitments.
Speaker Change: Many state and local entities are investing in climate resilience.
Speaker Change: Adaptation strategies in order to mitigate the impact and recovery cost.
Speaker Change: Potential disasters, and providing opportunities for Ics planning and program administration services.
Speaker Change: Also also our revenues from international government clients increased seven 2% in the first quarter.
Speaker Change: After a slower start than expected we are beginning to execute task orders related to recent sizable contract wins.
Speaker Change: European Union and the UK.
Speaker Change: Right.
Speaker Change: And we are finding opportunities to leverage our technology solutions and AI capabilities to bid on an expanded universe of task order opportunities.
John Wasson: You've been on an expanded universe of task order.
John Wasson: To sum up, ICF's first quarter revenues and outlook from commercial, energy, state and local and international government clients support our expectation that for the full year revenues from these three client categories in the aggregate are forecasted to grow at least 15% and will account for over 55% of our 2025 total revenues.
Speaker Change: To sum up Icf's first quarter revenues and outlook from commercial energy at a local and international government clients support our expectation that for the full year revenues from this refined categories.
Speaker Change: Aggregate are forecasted to grow at least 15% will account for over 55% of our 2025 total revenues.
John Wasson: Now to our revenues from federal clients, which declined 12.6% compared to last year's first quarter. Year-on-year comparisons were impacted by contract funding curtailments and the slower pace of new RFPs, as well as a decline in subcontractor and other direct costs estimated at $12 million.
Speaker Change: Now to our revenues from federal clients, which declined 12, 6% compared to last year's first quarter.
Speaker Change: Year on year comparisons were impacted by contract funding curtailments.
Speaker Change: Our pace of new Rfps as well as a decline in sub count subcontractor and other direct costs estimated at $12 million.
John Wasson: The good news is that a government shutdown was averted in March, and we are beginning to see a flow of contract extensions and modifications in RFP. Now let's normalize. There's still an improvement from earlier in the year.
Speaker Change: Is that a government shutdown was inverted in March and we are beginning to see a flow of contract extensions and modifications at Rfps now that a normalized pace, but still an improvement from earlier in the year.
John Wasson: As we noted last quarter, we continue to take a hard look at all of our federal government contracts and pipeline of opportunities to determine where there is a likelihood for additional stop or quarters, terminations, or opportunities to be delayed or fall out of the pipeline through the shift in priorities associated with the new administration. Our evaluation of the risk to our revenues is based on a conservative bottom-up analysis and is updated regularly based on market and client. Year-to-date through May 1st, approximately $115 million of our estimated 2025 revenues have been affected by stop work orders and by contract termination.
Speaker Change: As we noted last quarter, we continue to take a hard look at all of our federal government contracts and pipeline.
Speaker Change: <unk>.
Speaker Change: Determine where there is a likelihood for additional stock orders.
Speaker Change: Nations, where opportunities to be delayed or fall out of the pipeline through the shift in priorities associated with the new administration.
Speaker Change: Our evaluation of the risk to our revenues is based on a conservative outlook.
Speaker Change: <unk> and <unk>.
Speaker Change: It is regularly based on market and client feedback.
Speaker Change: Year to date through May 1st approximately $115 million of our estimated 2025 revenues. They are affected by stop with voters and by contract terminations.
John Wasson: While we expect the environment to remain fluid, we reaffirm our revenue guidance for 2025, a flat, to 10% down from last year. As a reminder, the 10% reduction in total revenues from the 2024 levels represents the floor we foresee for our 2025 revenue performance from the loss of primarily federal government revenue.
Speaker Change: Okay.
Speaker Change: While we expect the environment to remain fluid.
Speaker Change: We reaffirm our revenue guidance for 2025 flat to 10% down from last year as.
Speaker Change: As a reminder, a 10% reduction in total revenues in 2024 levels represent Florida, we foresee for our 2025 revenue performance of the loss primarily in federal government revenues.
John Wasson: As Barry will discuss in his remarks, we plan to maintain our adjusted EBITDA margin. on 2025 Revenues at Levels Comparable to our 2024 Marks. and the cab PFs remain the same.
Speaker Change: As Barry will discuss in his remarks.
Speaker Change: And to maintain our adjusted EBITDA margins.
Speaker Change: 2025 revenues at levels comparable to our 2024 markets and the.
Speaker Change: Yes remain the same this guidance framework is not contemplated an extensive shut down this year or a prolonged period of pauses and funding modifications to existing contracts or new chairman's.
John Wasson: This guidance framework does not contemplate an extensive government shutdown this year nor a prolonged period of pauses in funding modifications to existing contracts toward new goals. This estimate also does not consider any additional work that ICF may gain as a result of the changes underway.
Speaker Change: This estimate also does not consider any additional work that ICF may gain as a result of the changes underway.
John Wasson: For example, ICF performs work for the federal government focused on prevention of fraud, waste, and abuse, and we have extensive public health expertise. and experience in key areas, such as nutrition, obesity, suicide prevention, cancer risk research, health risks associated with use of pesticides, chemicals and plastics, and food additives that we expect will be areas of focus under the new administration at HHS. Also, over 80% of our IT modernization and digital transformation work for federal government clients is in Agile scrums and sprints, and at least half is under fixed-price, outcome-based contracts, which represent the administration's preferred approach.
Speaker Change: Example, ICF absorbed from the federal government focused on prevention of fraud waste and abuse.
Speaker Change: And we have extensive expertise and experience in key areas such as nutrition obesity suicide prevention cancer risk research estimates associated with the use of pesticides chemicals and plastics.
Speaker Change: Is that we expect will be areas of focus under the new administration at HHS.
Speaker Change: Over 80% of our it modernization digital Chatroom nation went from federal government clients is an agile scrum spreads at least half.
Speaker Change: Price outcome based contracts, which represent the administration's preferred approach.
John Wasson: Securing Services and Solutions. So, we are well prepared to respond to federal proposals which require a fixed-price outcome-based ICF has a proven track record of effectively managing through difficult business environments.
Speaker Change: Securing services and solutions. So we are well prepared to respond as separate proposals, which require fixed price outcome based solutions.
Speaker Change: ICF has a proven track record of effectively managing through difficult business environment, We believe our broad capabilities and diversified client base will serve us well in 2025 and <unk>.
John Wasson: We believe our broad capabilities and diversified client base will serve us well in 2025 and position us for return to growth in 2026.
Speaker Change: As for return to growth in 2000.
Barry Broadus: Now I'll turn the call over to our CFO, Barry Broadus, for a financial review. Thank you, John, and good afternoon, everybody. I'm pleased to provide additional details on our first quarter of financial. The change in our business mix, coupled with careful cost management, is evident in our first quarter results where we delivered a higher gross margin, increased our adjusted dividend margin, and grew non-GAAP EPS despite a modest revenue. Our results reflect the actions we have taken to adapt our growth and investment strategies to the current business environment and manage the cost structure of the company.
Speaker Change: <unk> sits now.
Speaker Change: Now I will turn the call over to our CFO Barry brought us a financial review.
Speaker Change: Barry.
Speaker Change: John and good afternoon, everyone I'm pleased to provide additional details on our first quarter financial performance the.
Speaker Change: The change in our business mix, coupled with careful cost management was evident in our first quarter results.
Speaker Change: Gross margin decreased our adjusted EBITDA margin and grew non-GAAP EPS, despite a modest revenue decline.
Speaker Change: Our results reflect the actions we have taken to adapt our growth and investment strategies, the current business environment and manage the cost structure of the company.
Barry Broadus: The first quarter of 2025 yielded a revenue decline of 1.4% year-over-year to $487.6 million, firmly within our guidance.
Speaker Change: First quarter 2025.
Speaker Change: At a revenue decline of one 4% year over year to $487 6 million firmly within our guidance range.
Barry Broadus: suggesting for one less work day than in the prior year's first quarter. 2025 revenues have been flat. Revenues for commercial state and local, and international government clients increased 12.6% year-over-year and represented 51% of our first quarter revenues, up from approximately 45% in the comparable period last year. Growth was led by continued strength in our commercial business, where revenues increased 22% year-over-year, led by continued significant growth in our energy efficiency. Social Revenues accounted for 29.5% of total revenues as we continue to expand our services and solutions amid sustained demand from our utility and other clients. Revenues excluding subcontractor and other direct costs increased approximately 1% versus prior year.
Speaker Change: Adjusting for one less workday.
Speaker Change: In the prior year's first quarter 2025 revenues have been flat.
Speaker Change: Revenues for commercial state local and international government clients increased.
Speaker Change: By 6% year over year and represented 51% of our first quarter revenues up from approximately 45% in the comparable period last year.
Speaker Change: Growth was led by continued strength in our commercial business, where revenues increased 22% year over year led by continued significant growth in our energy efficiency business.
Speaker Change: Revenues accounted for 29, 5% of total revenues as we continued to expand our services and solutions amid sustained demand from our utility and other clients.
Revenues, excluding subcontractor and other direct costs increased approximately 1% versus prior year.
Barry Broadus: First quarter subcontractor and other direct costs declined 170 basis points to 22.7% of total revenues compared to 24.4%.
Speaker Change: First quarter subcontractor and other direct costs declined 170 basis points to 22, 7% of total revenues compared to 24, 4% in the first quarter of 2024, primarily related to a shift in our client portfolio and a decrease in our U S. Federal government passengers that John noted in his remarks.
Barry Broadus: 2024, primarily related to a shift in our client portfolio and a decrease in our U.S. federal government pass-throughs that John noted in his remarks. The favorable mix shift, which included an increase in our higher margin commercial a larger percentage of fixed price in T&M contracts, and a decrease in subcontractor revenues led to an 80 basis point expansion in gross margins to 38%. Indirect and selling expenses were $131.9 million, up 2.2% year-over-year, and represented 27% of total revenues, inclusive of $3.1 million in special charges related to severance and M&A costs. Adjusting for these charges, indirect and selling expenses would have been flat.
Speaker Change: The favorable mix shift, which included an increase in our higher margin commercial business.
Speaker Change: Larger percentage of fixed price in PNM contracts and a decrease in subcontractor revenue by 280 basis point expansion in gross margins was 38%.
Speaker Change: Indirect and selling expenses were $131 9 million up two 2% year over year and represented 27% of total revenues included $3 1 million in special charges related to severance and M&A cost.
Speaker Change: Adjusting for these charges indirect and selling expenses would have been flat year over year.
Barry Broadus: We expect to see indirect expenses as a percentage of total revenues decline over the course of the year as we continue to realize benefits from higher utilization, scale, and closely managing our indirect costs. EBITDA was $52.1 million compared to $56.4 million in the prior year period. Adjusted EBITDA was $55.2 million flat year-over-year, and adjusted EBITDA margin on total revenue expanded 10 basis points to 11.3%. Interest expense declined $7.3 million from $8.2 million in the first quarter of 2024, which reflects a 50 basis point decrease in our interest rate as compared to last year's first quarter.
We expect to see indirect expenses as a percentage of total revenues to decline over the course of the year as we continue to realize benefits from higher utilization scale and closely managing our indirect costs.
Speaker Change: EBITDA was $52 1 million compared to $56 4 million in the prior year period, adjusted EBITDA was $55 2 million flat year over year and adjusted EBITDA margin on total revenue expanded 10 basis points to 11, 3%.
Speaker Change: Interest expense declined $7 3 million from $8 2 million in the first quarter of 2024, which reflects a 50 basis point decrease in our interest rate as compared to last year's first quarter. We continued to successfully execute tax optimization strategies, which yielded a tax rate of 10, 5% in this year's first quarter considerably below the $20.
Barry Broadus: We continued to successfully execute tax optimization strategies, which yielded a tax rate of 10.5 percent in this year's first quarter, considerably below the 20.4 percent reported in the comparable period last year. The lower tax rate in the first quarter is inclusive of a one-time pickup related to tax strategies executed in connection with new IRS regulations.
Speaker Change: 4% reported in the comparable period last year.
Speaker Change: The lower tax rate in the first quarter, it's inclusive of onetime pickup related to tax strategies executed in connection with new IRS regulations. We now expect our full year tax rate to be in the range of 18, 5%.
Barry Broadus: We now expect our full-year tax rate to be in the range of 18.5%. At income was $26.9 million, slightly below the $27.3 million reported in last year's first quarter. The GAAP EPS was $1.44, was flat year-over-year. Our EPS was inclusive of $0.12 in tax-affected special charges and an offsetting tax. Related Benefit of $0.13 associated with the one-time tax strategy pickup I previously noted. Non-GAP EPS was $1.94, increased it 9.6% year-on-year. Backlog at the end of the first quarter was $3.4 billion, of which $1.9 billion is funded, underscoring the stability and strength of our business. The backlog has been adjusted to include the impact of our federal government contracts that have been terminated as a result of the administration's executive orders or actions by DOJ, which impacted our backlog by approximately $375 million since the beginning of the year.
Speaker Change: Net income was $26 9 million slightly below the $27 3 million reported in last year's first quarter GAAP EPS was $1 44 was flat year over year. Our EPS was inclusive of 12 sets in tax effected special charges and an offsetting offsetting tax.
Speaker Change: Related benefit of <unk> 13 associated with the one time tax strategy pick up I previously noted.
Speaker Change: non-GAAP EPS was $1 94 increased <unk>, 6% year on year.
Speaker Change: Backlog at the end of the first quarter was $3 4 billion of which $1 9 billion is funded underscoring the stability and strength of our business.
Speaker Change: The backlog has been adjusted to include the impact of our federal government contracts that have been terminated as a result of the administration's taking orders or actions by dose, which impacted our backlog by approximately 375 million since the beginning of the year. Similarly, we have adjusted our new business pipeline, which stood at $10 5 billion.
Barry Broadus: Similarly, we have adjusted our new business pipeline, which stood at $10.5 billion at the end of this year's first quarter.
Speaker Change: The end of this year's first quarter.
Barry Broadus: Moving to our cash flow and balance sheet, in the first quarter we consumed $33 million of operating cash, primarily due to our seasonal working capital. All capital expenditures were $3.5 million, down from $5.2 million a year. Day sales outstanding were 81 days compared to 75 days last year, primarily reflecting the time of collections, including a temporary disruption of the pace of collections in our U.S. federal government business in the first quarter. We're pleased to report that the federal government collections have now returned to historical norms, and we expect to see a decline in our DSOs going forward.
Speaker Change: Moving to our cash flow and balance sheet in the first quarter, we consumed $33 million of operating cash primarily due to our seasonal working capital needs capital expenditures were $3 5 million down from $5 2 million a year ago.
Speaker Change: Days sales outstanding were 81 days compared to 75 days last year, primarily reflecting the timing of collections, including a temporary disruption of the pace of collections in our U S. Federal government business in the first quarter. We're pleased to report that the federal government collections have now returned to historical norms and we expect to see a decline in our DSO.
Speaker Change: No.
Speaker Change: Sure.
Barry Broadus: We ended the first quarter with a net debt of $499 million, up from $475 million at the end of last year's first quarter. The increase in debt reflects our typical seasonality, our share repurchase initiatives, and the acquisition of AEG, which closed in December of 2024. At the end of the quarter, our adjusted net leverage ratio was 2.25 versus 2.29 in the prior year period. Absent any acquisition activity, we expect our leverage position to decrease by approximately three quarters of return by year-end. Currently, 35% of our debt is at a fixed rate. Given the anticipated debt reduction, we expect this to increase to approximately 50% by year-end.
Speaker Change: We ended the first quarter with net debt of $499 million up from $475 million at the end of last year's first quarter increase in debt reflects our typical seasonality our share repurchase initiatives and the acquisition of AEG, which closed in December of 2024.
Speaker Change: At the end of the quarter, our adjusted net leverage rate leverage ratio was 225 versus $2 nine in the prior year period absent any acquisition activity, we expect our leverage position to decrease by approximately three quarters of return by year end.
Speaker Change: Currently 35% of our debt is at fixed rate given the anticipated debt reduction we expect this to increase to approximately 50%.
Barry Broadus: In the first quarter, we repurchased 313,000 shares for an aggregate purchase price of $35 million. We will continue to be active and opportunistic in the market, demonstrating our confidence in ICF's long-term outlook and our intention to deliver value to our shareholders. In addition to share repurchases, our capital allocation strategy remains focused on reducing debt. Pursuing Organic Growth Initiatives and Strategic Acquisitions in Targeted Markets. and maintaining our quarterly dividend payment.
Speaker Change: Bren.
Speaker Change: In the first quarter, we repurchased 313000 shares for an aggregate purchase price of $35 million, we will continue to be active and opportunistic in the market demonstrating our confidence in icf's long term outlook and our intention to deliver value to our shareholders.
Speaker Change: In addition to share repurchases, our capital allocation strategy remains focused on reducing debt.
Speaker Change: Pursuing organic growth initiatives and strategic acquisitions in targeted markets.
Speaker Change: Maintaining our quarterly dividend payments today.
Barry Broadus: Today we announce a quarterly cash dividend of $0.14 per share, payable on July 11, 2025 to shareholders. Now, to help you with your financials, financial models, please note the following. Given the dynamic market conditions in our federal government business, we expect the cadence of this year to vary from historical trends. Second quarter revenues are anticipated to be similar to those first quarter. And as we discussed on our previous call, we expect to maintain our profitability margins at similar levels to what we reported in 2024.
Speaker Change: Today, we announced a quarterly cash dividend of <unk> 14 per share payable on July 11, 2025 to shareholders of record on June seven 2025 now.
Speaker Change: Now to help you with your financials financial models. Please note the following given the dynamic market conditions and our federal government business. We expect the cadence of this year to vary from historical trends second quarter revenues are anticipated to be similar to those first quarter and as we discussed on our previous call. We expect to maintain our profitability margins at some of our lead.
Speaker Change: Rules to what we reported in 2024.
Barry Broadus: We are maintaining our prior expectations for the following metrics for full year 2025. Our depreciation and amortization expense is expected to range from $21 to $25 to $23 million. Amortization of intangibles is expected to be $35 to $37 million. We anticipate interest expenses to range from $30 to $32 million. We continue to expect full-year operating cash flow to be approximately $150 million. and capital expenditures are anticipated to be approximately $26 to $28 million.
Speaker Change: We are maintaining our prior expectations for the following metrics for full year 2025.
Speaker Change: Our depreciation and amortization expense is expected to range from $21 25 to 23 million amortization of intangibles is expected to be 35% to $37 million, we anticipate interest expense to range from $30 million to $32 million. We continue to expect full year operating cash flow to be approximately $50 million and.
Speaker Change: Capital expenditures are anticipated to be approximately $26 million to $28 million. Additionally, we are updating our tax rate in full year share count estimates as follows.
Barry Broadus: Additionally, we are updating our tax rate and four-year share count estimates as follows. The full year tax rate is now expected to be approximately 18.5%. Due to our share repurchase in the first quarter, we expect a fully diluted weighted average share count to be approximately $18.6 million.
Speaker Change: Your tax rate is now expected to be approximately 18, 5%.
Speaker Change: Due to our share repurchases in the first quarter, we expect a fully diluted weighted average share count to be approximately $18 6 million.
John Wasson: With that, I will turn the call back over to John. Thanks, Barry. ICF's diversified business model is enabling us to match to a dynamic federal government business environment while remaining agile to capture future business opportunities. which we expect to evolve given the substantial reduction in the federal workforce.
John Watson: With that I will turn the call back over to John.
John Watson: Thanks Barry.
Speaker Change: ICF diversified business model is enabling us to manage through a dynamic central government business environment all of them.
Speaker Change: Meaning agile to capture future business opportunities, which we expect results given the substantial reduction in the federal workforce.
John Wasson: We are maintaining the guidance framework we provided at the time of our fourth quarter 2024 earnings release, namely, for ICF's 2025 total revenues, GAAP EPS and non-GAAP EPS, we'll see a range from flat to down 10% from last year's level. 10% decline representing the floor we foresee from the loss of business primarily from federal government clients during this first year of the new administration. Underpaying this framer is our projection that ICF's revenues from commercial, energy, state and local, and international government clients will grow at least 15% in the aggregate for the year, offsetting, or partially offsetting, lower revenues from our federal government clients due to potential funding curtailments and our solar pace of new RFP.
Speaker Change: We are maintaining the guidance framework, we provided at the time of our fourth quarter 2024 earnings release, namely for Icf's 2025, total revenues GAAP EPS and non-GAAP EPS, you will see a range from flat to down.
Speaker Change: Around 10% from last year's levels, the 10% decline representing the floor, we foresee and the loss of business primarily from federal government clients. During this first year of the New administration.
Speaker Change: Underpinning this framework as our projection that Ics revenues from commercial energy.
Speaker Change: On international government clients will grow at least 15% aggregate for the year offsetting or partially offsetting lower revenues from our federal government clients due to potential funding curtailments and a slower pace of new rfps.
John Wasson: Our first quarter margin performance demonstrates careful expense management supporting our expectation that we can manage expenses in 2025 to maintain adjusted EBITDA margins similar to those of 2025.
Speaker Change: Our first quarter margin performance demonstrates the careful expense management supporting our expectation that we can manage expenses in 2025 to maintain adjusted EBITDA margins similar to those of 2024.
John Wasson: Our GAAP and non-GAAP EPS framework for 2025 is exclusive of the special one-time tax benefit accrued in this year's first quarter, which benefited EPS by $13,000. We appreciate the support of our professional staff, who have shown a strong commitment to ICF, and our clients, who've helped us navigate during this time. The ICF corporate culture has been a key differentiator for us and takes on even greater importance in times of challenging business conditions.
Speaker Change: Our GAAP and non-GAAP EPS framework for 2025.
Speaker Change: Most of the special one time tax benefit included in this year's first quarter, which benefited EPS by <unk> 13.
Speaker Change: We appreciate the support of our professional staff, who have shown a strong commitment to ICF and our clients helped us navigate during this period.
Speaker Change: We have a corporate culture has been a key differentiator for us.
Speaker Change: On even greater importance in times of challenging business conditions with that operator, I'd like to open the call for questions.
Corinne: With that, operator, I'd like to open the call for questions. Thank you. At this time, we will conduct the question-and-answer session.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a 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.
Corinne: As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Timothy Mulrooney: Our first question comes from Tim Mulrooney of William Blair. Your line is now open. John, Barry, good afternoon. Thanks for taking my questions. I've, I've got a few here. The first is on the guide. And please do do correct me if I'm wrong. But I believe when you provided your guide last quarter, it was your expectation that the second quarter would kind of be peak doge impact, so to speak, with the potential for that to lessen in the back half of the year. You know, with the visibility into the business today, was that still your expectation?
Speaker Change: Our first question comes from Tim Mulrooney of William Blair. Your line is now open.
Tim Mulrooney: Hey, Jeff very good afternoon, thanks for taking my questions.
Speaker Change: Alright.
Speaker Change: Got a few here first on the guidance. Please do correct me if I'm wrong, but I believe when you provided your guide last quarter. It was your expectation that the second quarter would kind of be peak does.
Speaker Change: The impact so to speak with the potential for that to lessen in the back half of the year.
Speaker Change: With the visibility into the business today is that still your expectation or are you thinking about that a little bit differently now.
John Wasson: Or are you thinking about that a little bit differently now? You know, I would say, well, first, I think that the environment in the federal arena remains fluid and unsettled. You know, I would say that, um, I would expect to see continued, you know, activity from from those over the next. several quarters, but I think Q2 I think would still. Q2 and Q3, with the TDC activity, I don't think they're going to be, it's hard to say that they'll be... The impact is more in Q2 relative to Q1. I would say that we'll... with the Q similar to Q.
Speaker Change: I would say well first I think that the environment in the federal arena remains fluid.
Speaker Change: Settled.
Speaker Change: I would say that I would expect to see continued.
Speaker Change: Activity from those over the next.
Speaker Change: Several quarters.
Speaker Change: But.
Speaker Change: I think Q2, I think would still.
Speaker Change:
Speaker Change: Q2, and Q3 was the TBC activity I don't think theyre going to be.
Speaker Change: Hard to say that there'll be.
Speaker Change: Significantly.
Speaker Change: More impactful.
Speaker Change: Impact us more.
Speaker Change: In Q2 relative to Q1.
Speaker Change: Sure.
Speaker Change: I would say that was.
Speaker Change: We will see Q similar to Q1.
John Wasson: but not be more.
Speaker Change: But not be more impactful sometimes.
Barry Broadus: Okay, that's really helpful, John. I know it's difficult to say exactly. So I just appreciate the the color at all. Along those lines, I think you gave an update on stop work orders. I noticed in your K, which I think was published on February 25. that you'd received notice for termination of convenience of approximately $276 million. Can you update us on where that figure stands today? Yeah, this is Barry. The number is now about 375. 375 million. Okay, thank you. And Barry, did you did you give an estimate for how much Applied Energy Group contributed to the quarter to revenue?
Speaker Change: Okay. That's really helpful. John I know, it's difficult to say exactly so I just appreciate the color at all on along those lines. I think you gave an update on stop work orders I noticed in your K, which I think was published on February 25th.
Speaker Change: That you'd received notice for termination for convenience of approximately 276 million can you update us on where that figure stands today.
Speaker Change: Yes.
Speaker Change: The number is now about $375 million.
Speaker Change: $375 million, Okay. Thank you and Scott Berry.
Speaker Change: Did you did you give an estimate for how much.
Speaker Change: Applied energy group contributed to the quarter to revenues.
Barry Broadus: I don't think we broke applied energy revenues out. Separately, you know, I think we Now, we don't disclose that separately, but suffice it to say, we're very pleased with the integration and the performance of AEG, and they're performing very well. Yeah, I think we said at the time of the of the deal that, you know, they were about $13 million of revenue and we grew about 15%. So, you know, that You can do the math and get to what we'd expect. We're meeting. OK. And Jim, I would like to clarify one point on the 375, you know, that is a number that is over a long period of time.
Speaker Change: I don't think we broke up night energy revenues out.
Separately.
Speaker Change: <unk>.
Speaker Change: Yeah, we don't disclose that separately, but suffice it to say, we're very pleased with the integration and the performance.
Speaker Change: AEG and they're performing very well.
Speaker Change: And I believe we said at the time of the.
Speaker Change: The deal that they were about $13 million of revenue growth up 15%. So.
Speaker Change: You know that.
Speaker Change: Thanks.
Speaker Change: You can do the math and get to what we'd expected.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: One point on the 375, you know that that is a number that is over a long period of time, it's not a one year impact.
Barry Broadus: It's not a one year. backlog perspective. So typically, you know, our contracts will range anywhere from three to five years. So, you know, that that number would, you know, be spread over a number of periods, not just this year.
Speaker Change: Backlog perspective typically are.
Speaker Change: Our contracts will range for anywhere from three to five years or so.
Speaker Change: That number.
Speaker Change: Be spread over.
Speaker Change: <unk> periods not just.
Speaker Change: This year.
Timothy Mulrooney: Okay, that's helpful, Culler. Thank you. One more from me and then I'll hop back in queue.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful color. Thank you one more from me and then I'll hop back in queue.
Timothy Mulrooney: I just wanted to touch on your IT modernization business. I mean, I believe your guidance called for. growth for the year. Please correct me if I'm wrong on that as well. But since you last reported, you know, there's been news that Doge was taking a more critical eye toward some of the more broader software and IT contracts that the government's entered into. I'm wondering if you've been impacted. at all by that focus. And if you could just remind me what your expectation is for that business for this year. Thank Sure, so the IT modernization business, I think actually what we said last quarter is that, you know, we expected that business to be down five to ten percent.
Speaker Change: Just wanted to touch on your it modernization business I mean.
Speaker Change: Alright.
Speaker Change: Leave your guidance called for.
Speaker Change: Both for the year. Please correct me, if I'm wrong on that as well, but since you last reported there's been news that dose was taken a more critical eye towards some of the more broader software and it contracts with governments entered into them I'm wondering if you've been impacted.
Speaker Change: At all by that focus.
Speaker Change: If you could just remind me whats your expectation is for that business for this year. Thank you.
Speaker Change: Sure. So the it modernization business I think absolutely what we said last quarter.
Speaker Change: Is that.
Speaker Change: We expected that business to be down 5% to 10%.
Timothy Mulrooney: For the year, primarily driven by delays in awards due to the fact that DOE was obviously doing project reviews on the existing contract base. in the Federal Government, and that that, you know, would lead to delays in procurements. So I think we're thinking 5 to 10 percent down for this year. We really haven't seen material cuts in our IT modernization contracts to date, and so I think there is more of an issue of... Okay, got it. It's very helpful. Thank you. Thank you very much for the time. Thank you.
Speaker Change: For the year, primarily driven by.
Speaker Change: Delays in.
Speaker Change: Awards.
Speaker Change: Due to the fact that dose was obviously doing a project reviews on the existing.
Speaker Change: Existing contract base.
Speaker Change: And the federal government and did that.
Speaker Change: Due to delays in procurement so.
Speaker Change: <unk>, 5% to 10% down.
Speaker Change: This year, we really haven't seen material Hudson our.
Speaker Change: It monetization contracts.
Speaker Change: To date.
Speaker Change: And so I think there is more of an issue.
Speaker Change: The pace and speed of new opportunities.
Speaker Change: Okay got it that's very helpful. Thank you. Thank you very much for the time.
Speaker Change: Thank you.
Joseph Vafi: Our next question comes from Joe Vavi of Canaccord Genuities. Your line is now open. Hey guys, good afternoon. Thanks for the opportunity for the questions here. Just first, I know, John, you provided some good color on what's implied in the guidance for the commercial business. Just wanted to double click on that a bit and focus on commercial energy in there. Would you say that, you know, the guide for the year implies the kind of metrics for energy we saw in this quarter in terms of revenue and margins, or is there anything else there that we should be aware of?
Our next question comes from Joe larvae of Canaccord Genuity. Your line is now open.
Joe larvae: Hey, guys. Good afternoon, thanks for the opportunity for the questions here just.
Joe larvae: First I know John you've provided some good color on <unk>.
Joe larvae: What's implied in the guidance for the commercial business just wanted to double click on that a bit and focus on commercial energy in there what would you say that.
Joe larvae: The guide the guide for the year implies the kind of metrics for energy we saw in this quarter in terms of.
Joe larvae: Revenue and margins or is there anything else there that we should be aware of and then I'll have a few follow ups.
John Wasson: And then I'll have a few follow-ups. And I think it assumes that commercial energy will continue to be the outstanding performer, you know, in that half of the business and that the margins there are very strong. And so we certainly expect to continue that throughout the remainder of the year. The energy side, I think as we reported, we had 21, 22% growth there. As you know, Joe, those, that's our highest. Sure, absolutely.
Joe larvae: No I think it assumes that commercial LNG will continue to be the outstanding.
Joe larvae: Performer.
Joe larvae: And that as the business in the <unk>.
Joe larvae: Margins there are very strong and so we certainly expected.
Joe larvae: To do that throughout the remainder of the year on the <unk>.
Joe larvae: The energy side I think as we reported we had 21, 22% growth Erin Russell Energia.
Speaker Change: As you know Joseph.
Joe larvae: Our highest margin business.
Joe larvae: Sure.
Joe larvae: Hello.
Joseph Vafi: And then kind of switching over, I know we kind of talked about some of these, you know, the stop works and the contract terminations. It might be helpful to get your view on... The stop work orders, and if you believe that those stop work orders in any way, shape, or form could be temporary, or do you, how do you kind of look at the difference between a termination and a stop work order relative to why they weren't actually terminated, the stop works weren't terminated, and if there's an outlook for, you know, the future on I think that maybe if you look at the number of terminations for community and first stop work orders, I think the stop workers are a much smaller number.
Speaker Change: And then kind of switching over I know, we've kind of talked about some of these.
Speaker Change: The staff works on the contract terminations.
Speaker Change: Yes.
Speaker Change: Helpful to get your view on.
Speaker Change: The stop work orders and if you believe that those stop work orders in any way shape or form could be temporary or do.
Speaker Change: How do you kind of look at the difference between a termination and stop work order relative to.
Speaker Change: Why they werent actually terminated the stop works warrant terminated.
Speaker Change: If there's an outlook for that.
Speaker Change: The future on those.
Speaker Change: Alright, I think that.
Speaker Change: If you look at the.
Speaker Change: The number of terminations for immediate first stop work orders.
Speaker Change: I think the star brokers are much smaller number.
John Wasson: I'll tell you that we've had a few of those turned on and off, you know, in the last several weeks and months, and some more than once, but at the end of the day, I think in our guidance, we're assuming that the stockbrokers will ultimately result in termination and will not come back. This year, if they do, that would be great, and that would be upside. And as I say, the vast majority of the... All of the contract impacts are in the... Yeah. Got it.
Speaker Change: I will tell you that we've had a few of those turned on and off.
Speaker Change: The last several weeks and months and some more than once.
Speaker Change: But at the end of the day I think in our guidance we're assuming.
Speaker Change: The stockholders will ultimately result in termination will now come back this.
Speaker Change: This year, if they do that would be great.
Speaker Change: Got it.
Speaker Change: And as I say that the vast majority of the.
Speaker Change: The contract impacts are and the termination fee.
Speaker Change: Yes.
John Wasson: And then maybe just one other quick one. Might be interesting to get a little more insight into. pace of award activity, you know, obviously, I believe there would be no surprise if it's down here in Q1 as well as through the month of April. I was just wondering if you could provide color on the kind of work that is actually getting awarded or renewed and, you know, kind of how is that pace of activity versus, you know, pre-doge. Thanks a lot. Yes, I think I said in my remarks, I would say that we are pleased we have to pick up in activity, both in terms of modifications to existing contracts and in RFPs are beginning to move in the federal arena, so that's a positive sign.
Speaker Change: Got it and then maybe just one other quick one might be interesting to get a little more insight into.
Speaker Change: The pace of award activity, obviously, I believe there would be no surprise if it down here.
Speaker Change: In Q1 as well as through the <unk>.
Speaker Change: <unk> of April I was just wondering if you could provide color on.
Speaker Change: The kind of work that is actually getting awarded or.
Speaker Change: Renewed and.
Speaker Change: Kind of how is that.
Speaker Change: Pace of activity versus.
Speaker Change: Pre dose thanks a lot.
Speaker Change: Yes, I think I said in my remarks, so I would say that.
Speaker Change: We are pleased we have seen a pickup in activity both in terms of modifications to existing contracts.
Speaker Change: And then in.
Speaker Change: Rfps.
Speaker Change: Beginning to move in the federal Arena.
John Wasson: I would say it's not It's not where we would like it and it's not, you know, where it was, you know, pre-1980s. Part of this administration, assuming office, so there's still a way to go there, you know, I would say that, you know, there's more activity around modification. on existing contracts. more activity around We've seen a little activity there, but honestly, There's still very, very many as a key. The key political figures are just getting into their agencies and setting the agenda. So I would say there's still a ways to go on, you know, new opportunities, certainly in the federal government.
Speaker Change: That's a positive sign I would say it's not.
Speaker Change: Where we are.
Speaker Change: We would like it and it's not.
Speaker Change: It was.
Speaker Change: Three.
Speaker Change: Hi.
Speaker Change: Illustration, assuming office, so there's still a way to go there.
Speaker Change: I would say that.
Speaker Change: There's more activity around modifications on existing contracts.
Speaker Change: More activity around.
Speaker Change: We compete I would say, it's a newer opportunities.
Speaker Change: We've seen a little activity there, but honestly.
Speaker Change: Still very early many of the key.
Keith: Hi, Keith.
Speaker Change: Key political figures.
Speaker Change: Just getting into their agencies and setting the agenda. So I would say there is still a ways to go on.
Speaker Change: New opportunities.
Speaker Change: Certainly in the federal Arena.
Joseph Vafi: Got it. Fair enough. Thanks for that caller, John. Thank you.
Speaker Change: Got it fair enough thanks for that color John.
Speaker Change: Thank you.
Tobey Sommer: Our next question comes from Tobey Sommer of Truist Securities. Your line is now open. Thanks.
Speaker Change: Our next question comes from Tobey Sommer of Truest Securities. Your line is now open.
Tobey Sommer: I wanted to start with commercial energy. Years ago, the energy efficiency projects were almost exclusively the big ones that you got. But I'm curious if some of the things that you talked about at Investor Day a number of years ago have matured and increased in size so that your commercial energy customers are, in some cases, maybe buying multiple projects of size in different parts of their business. Maybe if you could contextualize that, that'd be great. I would say that certainly the energy efficiency component of our utility programs continues to be the largest component. As you know, over the last 3-4 years, going back to our investor day, I think we've talked about the fact that utilities are looking at Additional programs, even the ongoing changes in their business, including the shift to distributed energy, more recently including the significant spike in Power to Demand.
Tobey Sommer: Thanks wanted to start with commercial energy.
Speaker Change: Years ago, the energy efficiency projects were almost exclusively the big ones that you got but I'm curious for some of the things that you talked about at Investor day, a number of years ago.
Speaker Change: Matured and increased in size so that.
Speaker Change: Your commercial energy customers are in some cases, maybe by multiple.
Speaker Change: Projects of size and in different parts of their business.
Speaker Change: You could contextualize that that'd be great.
Speaker Change: I would say that.
Speaker Change: Yes, certainly entered the energy efficiency component of our utility programs continues to be the largest component.
Speaker Change: As you know over the last three four years going back to our Investor Day I think we've.
Speaker Change: <unk> talked about the fact that utilities are looking at.
Speaker Change: Additional.
Speaker Change: Programs, given the ongoing changes in their business, including the shift to distributed energy or recently, including the significant spike.
John Wasson: I think that over the last three or four years it has driven interest in additional programs. We've talked about these, flexible load management, electrification, battery storage programs. And so, you know, we're and so we are now implementing those, you know, increasingly for utilities. Many of them have been in a pilot phase. I think we've talked about that, that, you know, as we demonstrate success with those, we would expect them, you know, to scale materially over time. And so we're looking for many, we have, we have many utility class where we're now supporting two or three of those, those types of programs in addition to the in addition to the energy efficiency programs. I think there's still, I wouldn't say any of them are at the scale of energy efficiency, but we're growing.
Speaker Change: Power demand I think that.
Speaker Change: Over the last three or four years it has.
Speaker Change: Driven interest in additional programs, we've talked about these flexible load management.
Speaker Change: Asian battery storage programs.
Speaker Change: And so we're.
Speaker Change: And so we are now implementing those.
Speaker Change: Increasingly utilities many of them haven't been in in a pilot.
Speaker Change: As I think we've talked about that.
Speaker Change: Any pilot programs.
Speaker Change: If there.
Speaker Change: As we demonstrate success for growth, we would expect Sam.
Speaker Change: To scale.
Speaker Change: Materially over time, and so we're looking for many.
Speaker Change: Many of utility in classical we're now supporting two or three of those.
Speaker Change: Our programs in addition to the.
Speaker Change:
Speaker Change: In addition to the energy efficiency programs I think theres still I wouldn't say any of the merits of scale of energy efficiency, but we're growing it's becoming a larger component of our portfolio I think that we believe in the long run those will drive significant growth for us in the next three to five years.
Tobey Sommer: It's becoming a larger component of our portfolio. I think that, I think we believe in the long run, those will drive significant growth for us in the next three to five years. Thanks.
Tobey Sommer: In the state and local business, you talked about lower pass-throughs. Do you still have the same growth outlook for that for the year? I know there's been some news around rejiggering the way FEMA works and perhaps even the community development block grant mechanism. So I'm curious what your perspective is for the year. I think our outlook and view of the disaster recovery business remains positive and we think it will certainly grow this year and grow to our expectations for the year. We do have a robust pipeline there. I talked about the opportunities, wildfire opportunities in California.
Speaker Change: Thanks.
Speaker Change: State and local business, you talked about lower pass throughs.
Speaker Change: Do you still have the same growth outlook for that for the for the year I know there's been some.
Speaker Change: News around.
Speaker Change: Rejiggering the way FEMA works in.
Speaker Change: And perhaps even the community development block grant mechanism. So I'm curious what your perspective is for the year.
Speaker Change: We.
Speaker Change: Outlook in view of the access recovery business remains positive and we could go.
Speaker Change: Certainly through this year.
Speaker Change: And grow to our expectations for the year.
Speaker Change: We do have a robust pipeline there I think I talked about the opportunities wildfire opportunities in California.
John Wasson: There's opportunities in Florida, Carolinas, and Georgia from the hurricanes more recently that should play out later this year. And so I think we're We're generally. I believe that will continue to be. As you know, there is discussion about the future role of FEMA and how these... Disaster Recovery Programs May involve, but I think I think we still believe that there will be the need for disaster recovery, particularly around, you know, significant Disasters. And that whether FEMA plays a lead role or the states play a greater lead role. That business will be there and they'll be able to tune in for us.
Speaker Change: There's opportunities in Florida.
Speaker Change: China's in Georgia from the Hurricanes or recently.
Speaker Change: Should play out later this year and so I think we're.
Speaker Change: We're generally.
Speaker Change: I believe that will continue to be.
Speaker Change: As you note there is discussion about the future role of FEMA.
Speaker Change: Okay.
Speaker Change: These.
Speaker Change: After we cut refocus made at all but I think I.
Speaker Change: I think we still believe that there will be the need for disaster recovery, particularly around <unk>.
Speaker Change: Significant.
Speaker Change: Disasters.
Speaker Change: With a flame a team in place to lead role or.
Speaker Change: The state's play a greater repeat rules.
Speaker Change: That business will be there and there'll be opportunities for us.
Tobey Sommer: So for this year, we're still counting on it to be a growth market. And given the pipeline, I think we feel confident. Thanks.
Speaker Change: This year, we're still coming out to be a growth market and given the pipeline I think we feel.
Speaker Change: I feel confident with that.
Tobey Sommer: Last one for me. Could you discuss the industrial logic between that sort of ties together your federal work for the DOE and other agencies, and your commercial energy business? I'm just curious with the growth rate that you have in commercial energy, wondering if there's an opportunity to ever kind of separate that or spin it off and unlock value that way? You know, I think that we, I mean, our energy business, we work across Obviously we work for commercial utilities, we also work for state. Energy Agencies. We work for the federal government on energy issues, DOE.
Speaker Change: Thanks last one from me.
Speaker Change: Could you discuss the industrial logic between.
Speaker Change: That sort of ties together your federal work for the Doe and other agencies.
Speaker Change: And your commercial energy business.
Speaker Change: Just curious with the growth rate that you have in commercial energy.
Speaker Change: Wondering if there is an opportunity to kind of separate that a spin it off and unlocked value that way.
Speaker Change: I think that we are.
Speaker Change: Our energy business, we work across.
Speaker Change: Obviously, we work for commercial utilities, we also work for state.
Speaker Change: Energy agencies, we work for the federal government on energy issues to Uli.
Speaker Change: Some of energy efficiency work has been another.
John Wasson: Federal Agencies. And so, you know, I would say that it's, it's a, it's an integrated set of capabilities that we sell across federal, state and local and in commercial. Commercial is the largest, but state and local is The second largest component of that business is Federal Sanction League. This is the smallest. And so, you know, I think we I think there's. Values from an Integrated Portfolio, and we think there's... On the state energy side, we'll continue to... Growth. It's so... So that's how we think about the vision.
Speaker Change: Federal agencies and so.
Speaker Change: I'd say that.
Speaker Change: It's an integrated set of capabilities that we sell across the federal state and local and commercial commercial is the largest but state and local as in the <unk>.
Speaker Change: Second largest component of that business separately.
Speaker Change: Small list and so.
Speaker Change: I think we.
Speaker Change: We think theirs.
Speaker Change: Values that innovative portfolio and we think there is.
Speaker Change: Certainly on the state energy side, we'll continue to see.
Speaker Change: So.
Speaker Change: So that's how we think about the business.
Speaker Change: Okay.
Tobey Sommer: Great, thank you.
Corinne: One moment for our next question.
Speaker Change: Great. Thank you.
Speaker Change: Our next question.
Kevin Steinke: Our next question comes from Kevin Steinke of Barrington Research. Your line is now open. Great, thank you. Just wanted to follow up on IT modernization. As you noted, your expectations for a, you know, five to 10% decline this year, and then in response to an earlier question talked about, you know, maybe it was a little too early. to see new awards coming out of this administration in the federal arena. Does that also apply to IT modernization? Because I think you'd kind of thought, you know, this is a transition year for that business.
Speaker Change: Our next question comes from Kevin Steinke of Barrington Research. Your line is now open.
Speaker Change: Great. Thank you just wanted to follow up on it modernization.
Speaker Change: As you noted your expectations for 5% to 10% decline this year and then rich.
Speaker Change: A response to an earlier question you talked about.
Speaker Change: Maybe is a little too early.
Speaker Change: Hi.
Speaker Change: To see New awards coming out of this administration and the Federal Arena does that also apply to our it modernization because I think you had kind of thought this is a transition year.
John Wasson: And maybe you'd start to see some opportunities in IT modernization flow, you know, at some point in 2025, kind of, you know, setting up 2026 for that business. Yeah, I would say, well, first of all, I, you know, I do think with the IT modernization technology side of the house in federal that You know, I do think this administration is going to continue to invest in that area. is going to be AI-led. They're really looking for reasonable efficiency. They're also focused on waste, fraud, and abuse. You're going to want to leverage technology more broadly across agencies and across the federal government.
Speaker Change: For that business and maybe start to see some opportunities in it modernization flow.
Speaker Change: So at some point in 2025 kind of setting up 2026 for that business.
Speaker Change: Yes, I would say well first of all.
Speaker Change: I do think with the monetization.
Speaker Change: Technology side of the house in federal debt.
Speaker Change: I think this administration is going to continue to invest in that area.
Speaker Change: It is going to be AI led they are truly looking for additional efficiency.
Speaker Change: They are also focused on lease fraud and abuse.
Speaker Change: And I don't want to leverage technology more broadly across agencies across.
Speaker Change: Across the federal government.
John Wasson: to get additional efficiencies, but. I think it will continue to be an area of opportunity, you know, I think we're, my assumption is, so I do assume that there will be opportunities there. You know, I think that they will certainly be more of a second half. opportunity and I think. To the extent that we see them and the awards occur, I think they'll set us up. It's more about what's the potential growth for 2026. I think for 2025, you know, we're As I've said, we're assuming a 5% to 10% reduction. We're assuming that it's going to be due to.
Speaker Change: To get additional efficiencies, but.
Speaker Change: I think it will continue to be an area of opportunity.
Speaker Change: I think we're.
Speaker Change: And my assumption is up so I do assume that there will be opportunities there.
Speaker Change: I think that the.
Speaker Change: They will there will certainly be more of a second half.
Speaker Change: Opportunity and I think.
So you said that we see them in awards, a theoretical set us up it's more about what's the potential growth for 2026 I think for 2025.
Speaker Change: Sure.
Speaker Change: As I've said, we're assuming 5% to 10% reduction, we're assuming that it's going to be due to.
Kevin Steinke: Board's not moving as quickly. So we're not, we're not counting. Significant new contracts, you know. in 2025 together. All right, that makes sense. Thanks for taking the question. Thank you. One moment for our next question.
Speaker Change: Or it's not moving as quickly.
Speaker Change: So we're not counting on.
Speaker Change: Significant new contracts.
Speaker Change: Yes.
Speaker Change: In 2025 together.
Speaker Change: Alright that makes sense, thanks for taking the question.
Speaker Change: Thank you one moment for our next question.
Marc Riddick: Our next question comes from Marc Riddick of Sidoti. Your line is now open. Good evening.
Speaker Change: Our next question comes from Marc Riddick of Sidoti. Your line is now open.
Marc Riddick: I wanted to ask, within Health and Human Services, I was wondering if you could get a sense of, have you heard, to this point, any communication as far as shifts of priorities or kind of where, you know, are there any areas that may pick up in messaging or what have you, where the administration wants to go that might present upside opportunities for you there? Yeah, I think as I indicated in my remarks, I think that there is a potential for new opportunities for us at HHS, I think. You know, the new administration has clearly indicated they'll focus on...
Marc Riddick: Hey, good evening I wanted to ask.
Speaker Change: Within health and human services I was wondering if you can get a sense of have you heard.
Speaker Change: To this point any communications far shifts.
Speaker Change: Priorities are kind of where.
Speaker Change: Are there any areas that that may pick up in messaging or what have you.
Speaker Change: Where the administration wants to go that might present.
Speaker Change: Opportunities for you there.
Speaker Change: Yes.
Speaker Change: I indicated in my remarks, I think that.
Speaker Change: There are there is a test of our new opportunities for us at HHS, Inc.
Speaker Change: The New administration is clearly indicated they will focus on.
John Wasson: Children's Health. They're very interested in issues around pesticides in food, food additives, And so, you know, those types of issues are going to create a new... and a new organization within HHS around, you know, Making America Healthy and Improving American Health. And so I think there'll be opportunities there. I would say the same thing. I think it's, those will, we hope to get clarity on those in the second half of the year. But there will certainly be, you know, opportunities. We have expertise. Product Health Issues for Children, we have it. Pesticides, we have expertise in food additives, and so some of the things that have been discussed around those issues are in there.
Speaker Change: Children's health, they're very interested in issues around pesticides food exclude additives.
Speaker Change: And so those types of issues are going to create a new.
Speaker Change: And a new organization within HHS.
Around.
Speaker Change: Making America healthy.
Speaker Change: Improving American health and so I think there'll be opportunities there I would say the same thing I think it's those will we hope to get clarity on us in the second half of the year.
Speaker Change: But it will certainly be.
Speaker Change: Opportunities we have expertise.
Speaker Change: Chronic health issues for children, we have expertise in exercise we have expertise in food additives.
Speaker Change: Some of the things that have been discussed around this issue seriously.
John Wasson: We certainly support and we're watching it very carefully.
Speaker Change: Uncertainty support and were watching it very carefully.
John Wasson: And do you get the sense of, I think you had prepared remarks in the last quarter's call around the acquisition pipeline, do you get the sense that there may be some services or opportunities that might lead to pursue inorganic talent acquisition, or how should we think about that? I mean, I would say on the acquisition front, I mean, it's obviously, it's been a key element of our strategy over many, many years. I think that if we were going to do anything, it would most likely be in the energy arena. similar to an AEG-type acquisition where we do...
Speaker Change: And do you get the sense of I think you had prepared remarks in the last quarter's call around.
Speaker Change: The acquisition pipeline do you get the sense that there may be some some some services or or opportunity. He says that might lead you to pursue inorganic talent acquisition or how should we think about that.
Speaker Change: I mean, I would say on the acquisition front I mean, it's obviously, it's been a key element of our strategy yields were for many many years.
Speaker Change: I think that if we were going to do anything I think it would most.
Speaker Change: Most likely be in the energy arena.
Speaker Change: And it would be.
Speaker Change: Similar to an AEG type acquisition, where we do so.
John Wasson: Smaller token acquisition. I think in the federal arena, there's obviously a lot of uncertainty. I think we're unlikely to do anything in scale. or anything at all in the federal arena. We certainly are looking at the opportunities out there. But I think we'll, we would focus on energy and it would be more of a tucked in, tucked in.
Speaker Change: And smaller tuck in acquisition.
Speaker Change: I think in the federal Arena, there's obviously a lot of uncertainty I think unlikely youre going to get scale.
Speaker Change: Or anything at all in the Federal Arena.
Speaker Change: The remainder of this year. So I mean, we certainly are looking at the opportunities out there.
Speaker Change:
Speaker Change: But I think we will.
Speaker Change: We would focus on energy and it would be more of a tuck in.
Speaker Change: Okay, an acquisition this quarter.
Barry Broadus: I don't know if Barry is here. And I think from a and others come along and we have plenty of capacity to execute an acquisition that we're comfortable, you know, from a leverage perspective as well as a debt perspective. Do you get the sense, Barry, as far as acquisition multiples, maybe where they are vis-a-vis six months ago, have they changed much for some of those types of targets? Well, I think it depends on the market. And I would say from a federal market perspective, obviously, the activity has slowed, and we're just not really seeing anything good from folks sending books around.
Speaker Change: The trigger either in our various theres anything you'd want to know.
Speaker Change: I think from a capacity perspective, if something.
Speaker Change: <unk> does come along.
Speaker Change: Capacity to execute an acquisition and we're comfortable.
Speaker Change: Leverage perspective, as well as the debt perspective.
Speaker Change: I think good shape on that.
Speaker Change: Do you get the sense as.
Speaker Change: As far as acquisition multiples, maybe where they are <unk> six months ago.
Speaker Change: Changed much for some of those those types of targets.
Speaker Change: Well I think it depends on the on the market.
Speaker Change: And I would say from a federal market perspective.
Speaker Change: Obviously the activity has slowed.
Speaker Change: Not not really seeing anything different.
Speaker Change: Send it books around I think the seller.
Barry Broadus: I think that sellers are. holding what they got right now. They've got an interesting property. You know, I would say that, you know, from, you know, the other parts of the business that we're interested in, as John said, the energy market. and other parts that they were in. business, you know, I'd say that those valuations remain, you know, similar fashion to what they have been in the past. And so, you know, just like any acquisition, we look at, you know, What the capabilities and the contracts and, you know. They're customers that a candidate would have.
Speaker Change: Holding <unk> got right now they've got an interesting property.
Speaker Change: I would say that from the.
John Watson: The other parts of the business that we're interested in as John said, if the energy market and.
Speaker Change: In other parts of their insight.
Speaker Change: No I'd say that those valuations remain.
Speaker Change: Similar fashion to what they have been in the past so.
Speaker Change: Just like any acquisition, we look at.
Speaker Change: Yeah.
Speaker Change: The capabilities in the contracts.
Speaker Change: Customers that can happen.
Barry Broadus: If the culture fits and it'd be accretive to your organization, we certainly would take a good look.
Speaker Change: Cultural fits and it would be accretive to the organization and we certainly would take a good look at it.
Barry Broadus: Great, thank you very much. Thank you.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Corinne: This concludes the question and answer session.
Speaker Change: This concludes the question and answer session I would now like to turn it back to John Watson for.
John Wasson: I would now like to turn it back to John Wasson for concluding remarks. Thanks for participating in today's call. We appreciate everyone attending and look forward to connecting at upcoming conferences and events.
Steven: Steven concluding remarks.
Speaker Change: Thanks for participating in today's call. We appreciate everyone.
Speaker Change: I look forward to connecting at upcoming conferences and events.
Corinne: This does conclude the program. You may now disconnect.
Speaker Change: This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.