Q2 2026 ICF International Inc Earnings Call
Speaker #1: telephone. To withdraw your question, please You will then hear an press *11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgan of Advisory Partners.
Speaker #1: Lynn, you may begin.
Speaker #2: Thank you, Lauren. Good afternoon, everyone, and thank you for joining us to review ICF's second quarter 2026 performance. With us today from ICF are John Wasson, Chair and CEO, Ann Choat, President, and James Morgan, Chief Operating and Financial Officer.
Speaker #2: During this conference call, we will make forward-looking statements to assist you in understanding ICF management's expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to different materially, and I refer you to our August 6, 2026, press release and our SEC filings for discussions of those risks.
Speaker #2: In addition, our statements during this call are based on our reviews as of today. We anticipate that future developments will cause our views to change.
Speaker #2: Please consider the information presented in that light. We may at some point elect to update the forward-looking statements made today but specifically disclaim any obligation to do so.
Speaker #2: I will now turn the call over to ICF CEO John Wasson to discuss second quarter 2026 performance. John?
Speaker #3: Thank you, Lynn, and thank you all for joining us this afternoon to review our second-quarter results and discuss our business outlook. Second-quarter business trends in our markets were consistent with our expectations, allowing us to deliver revenues in line with last year's second quarter, while we continued to carefully manage costs and direct our resources toward expanding our pipeline of new business opportunities.
Speaker #3: Key takeaways from our second quarter results included a 6% increase in revenues from commercial clients, led by commercial energy efficiency and related utility program revenues that increased 6.7% year on year.
Speaker #3: A sequential increase in revenues from federal government clients, as we had anticipated, reflecting growth in our technology modernization work, a 35% increase in revenues from international government clients, as we ramped up work on the large contract awards, secured in 2025 and earlier this year.
Speaker #3: We maintained our strong margins with adjusted EBITDA margin of 11.2%, up 10 basis points from last year's second quarter, non-GAAP EPS increased 12%, driven by the profitability I just noted, and year-on-year tax interest and share count benefits, our trailing 12-month book-to-bill ratio was a healthy 1.09, and since the end of the second quarter, we've been awarded contracts in excess of $200 million.
Speaker #3: And we ended the second quarter with a robust pipeline valued at $9.3 billion, a 9% sequential increase over the 8.5 billion, reported at the end of this year's first quarter.
Speaker #3: Another quarter in which our diversified, integrated business model made a positive difference in ICF's results, positioning us to achieve our guidance expectations for the full year.
Speaker #3: Revenues from our commercial, In short, this was state, and local and international clients accounted for 61% of our second quarter revenues, in keeping with our expectation that these client categories will represent over 60% of our 2026 revenues, up from 57% in 2025.
Speaker #3: The diversification within our client set provides us with both resilience and the ability to shift our resources to capture growth opportunities as markets evolve.
Speaker #3: Approximately 75% of our second quarter contract wins were in these delays in procurement decisions constrained federal government awards. We continue to invest in these non-federal client categories, while at the same time pivoting to expand our preference in federal agencies that are benefiting from increased funding.
Speaker #3: Additionally, we are seeing greater opportunities to bring insights and capabilities from across client categories and domain expertise to help clients address complex challenges. For example, many of these issues facing today's energy market, including load growth, grid reliability, transmission development, resilience affordability, and energy security, are being addressed simultaneously by commercial clients, regulators, and other government agencies, the fact that we work with all these market participants gives us a broader perspective on emerging challenges and potential solutions providing significant competitive advantage to ICF.
Speaker #3: Also, our work with state regulators and industry associations helps us to develop innovative approaches to transmission investment and grid planning, and provides us with insights that we can directly apply to our energy advisory clients.
Speaker #3: Our work related to data centers leverages capabilities across planning, policy financial and engineering disciplines, as well as across our client categories. We provide assistance to states, counties, and other local governments as they evaluate the economic and energy infrastructure and community impacts of data center development.
Speaker #3: That gives us valuable perspective on stakeholder concerns and public issues that we are able to bring to our hyperscaler, developer, and utility clients as they plan for and develop new projects.
Speaker #3: And our deep energy expertise including decades of support to the federal government and to commercial oil and gas companies regarding critical reserves and potential disruptions positioned us to support the state of California with real-time monitoring of refinery production, energy imports, and stocks of the state can better take actions to address price variability.
Speaker #3: Finally, we are adapting AI-enabled analytics and technical assistance solutions that we originally developed for federal government clients to support commercial and state and local government clients.
Speaker #3: As I mentioned earlier, we ended the second quarter with a business development pipeline of $9.3 billion. Opportunities in the key long-term growth markets we have identified—namely commercial energy, technology modernization, and disaster management, as well as related state and local government work—accounted for approximately $5.5 billion, or 60% of that pipeline, supporting our expectation for continued growth in these markets.
Speaker #3: Summing up the quarter, we were pleased that our revenues were similar to last year's second quarter results, in advance of our return to year-on-year growth for 2026, and to positive quarterly revenue comparisons beginning next quarter.
Speaker #3: We're also pleased with the way we have managed our cost structure, to maintain strong margin performance, while investing in growing our substantial business development pipeline.
Speaker #3: Our year-to-date repurchases of over $435,000 shares represented a first-half record for ICF and a strong indication of the confidence that management and the board have in our company's long-term prospects.
Speaker #3: We continue to review acquisition opportunities particularly in the commercial energy space, but we remain very disciplined. Our focus is primarily on tuck-in transactions that provide capabilities with the potential to drive meaningful revenue synergies and will be creative soon after completion.
Speaker #3: Now I'll turn the call over to our president, Ancho, to discuss our business performance. Ann.
Speaker #4: Good afternoon, everyone. I'm pleased to present a business review of ICF's second quarter results, which, as John mentioned, set the stage for our return to year-over-year growth in the second half of this year, starting at Q3.
Speaker #4: I'm also happy to discuss how ICF's diversified and integrated business model continues to differentiate us and provide us with a unique, multidisciplinary viewpoint in solving complex problems for clients.
Speaker #4: In my remarks, I'll walk through some specific examples of work in each of our client categories, starting with commercial energy. We continue to experience strong demand for ICF's utility programs, which include energy efficiency, flexible load management, electrification, and battery storage programs.
Speaker #4: Revenues from this part of the business increased 6.7% in the second quarter, and represented approximately 82% of second quarter commercial energy revenues. Our results in this area were driven by the continued success of our performance-based programs, the expansion of existing engagements, and the startup of new projects.
Speaker #4: The addressable market for these services is large, and ICF is a recognized market leader with our share gains coming from excellent results we are delivering to clients, introduction of new services, and winning warmth away from competitors.
Speaker #4: Energy advisory work for commercial clients increased 2.5% in the quarter, reflecting the timing of client transaction activity and increased 8.6% for the first half, accounting for about 13% of first-half commercial energy revenues.
Speaker #4: Contributions from this part of our business tend to vary due to the timing of we look to Q3, we're expecting more robust M&A activity, which should drive our valuation and due diligence services.
Speaker #4: Additionally, we're seeing increased demand for our supply strategy and market access assessments for natural gas, as well as greater developer demand for data centers and other large loads in need of assistance with siting decisions.
Speaker #4: These decisions reflect a complex suite of factors, including grid capacity, interconnection and queue position, and proximity to future load growth, all areas where ICF's integrated advisory capabilities are particularly well positioned.
Speaker #4: In addition, our energy advisory team is fielding requests for our energy advisory services from state and local governments, as they also address siting challenges, affordability concerns, economic development priorities, reliability, and growing energy demand.
Speaker #4: The remaining less than 5% of our commercial energy revenues represents environmental and planning work that we do for utility and other commercial clients. Lower quarterly revenue comparisons in this part of our business were due to the wind-down of several wind energy projects that ended in last year's third quarter.
Speaker #4: We expect improvement in this area of our business in the second half of this year, given recent utility transmission line related awards, and our increasing support for power developers, who are co-locating data centers with renewable generation assets.
Speaker #4: To sum up commercial energy, the drivers underlying demand for this part of our business remain very strong, the combination of accelerating electricity demand and the need to modernize aging infrastructure, is expanding the addressable market across nearly all of our energy offerings.
Speaker #4: As these infrastructure investments are unlikely to satisfy the scale and timing of emerging grid needs, demand for cost-effective, community-centric programmatic solutions—such as energy efficiency, demand response, distributed energy resources, and flexible load management programs—continues to grow.
Speaker #4: These are areas where ICF has significant scale and expertise, and the economics of these solutions are becoming increasingly attractive as power and capacity costs rise.
Speaker #4: Commercial energy contractor awards represented approximately 47% of ICF's second quarter contract awards, and commercial energy opportunities accounted for more than 1.5 billion of our pipeline at the end of the quarter.
Speaker #4: Good indications of our future growth prospects. Next, I'll move to our state and local portfolio. Second quarter state and local government revenues are $1.9% below the comparable period last year, with disaster management and recovery services continuing to account for about 45% of this client category.
Speaker #4: ICF is a recognized leader in the development and implementation of disaster recovery and currently support 75 active disaster recovery projects in 22 states and territories.
Speaker #4: Fewer major disasters and funding delays have constrained near-term activity in this arena, but ICF continues to execute on substantial rebuilding and mitigation projects, which includes utilizing our environmental and climate expertise to advise state and local clients on optimal mitigation solutions.
Speaker #4: We anticipate a direct opportunity for
Speaker #1: For ICF, as states and local governments look to increase their capability and capacity for both response and recovery, as well as preemptive disaster mitigation.
Speaker #1: In February , we announced the award of a comprehensive management services contract by the State of Florida . As expected , that contract is now serving as a platform for new opportunities , including a $4 million funded contract to support the administration's approach to rural health transformation via state agencies .
Speaker #1: Also in Florida , we expect to see more opportunities for our state agricultural land preservation program . We support that just earned appropriations of $425 million in funding for the 2020 627 program budget year Additionally , we recently leveraged our state and local expertise in the disaster management arena to win a contract to provide grants , management and compliance services to a commercial client , a Northeast utility , where we will support hundreds of millions of dollars in FEMA funding across multiple hazard mitigation projects designed to improve the utility's grid infrastructure resilience and reliability , energy , environmental and disaster services have always comprised the majority of our state and local portfolio .
Speaker #1: As I mentioned this year , we are actively expanding the offerings we provide to our state and local clients to include health expertise and advanced technology solutions State and local government opportunities represented approximately 1.3 billion of the total pipeline .
Speaker #1: At the end of the second quarter , and we expect year on year revenue growth from this client category in the second half of the year .
Speaker #1: As we discussed on our last call, our international portfolio is showing exceptional growth. International government revenues increased 35% in the second quarter, reflecting the significant contracts that ICF has been awarded over the last 18 months by the European Union and UK clients. Sales continued to be strong across our international portfolio, as we've been winning key repeats and securing net new contracts that support growth for the next few years. Lastly, I'll talk about our work with U.S.
Speaker #1: Federal clients. Our federal business is stabilized. Second quarter revenues from federal government clients increased 1.4% sequentially, in line with our expectations.
Speaker #1: After delivering 8.6% sequential growth in Q1 Moving forward , we are expecting Q3 to be another quarter of sequential revenue growth before returning to year on year growth in federal revenues .
Speaker #1: In this year’s fourth quarter, procurement activity continues to improve, but award activity remains constrained and varies from agency to agency. Protests of large opportunities are also much more common.
Speaker #1: Accordingly , we've adapted our go to market approach to increasingly focus on rapid prototyping and demonstration of capabilities . Both on contract and to secure new contracts Technology modernization represents about one half of our $185 million in revenues from federal government clients , and increased 4% sequentially in the second quarter .
Speaker #1: Over 80% of ICF's technology modernization work is performed under outcome-based, fixed-price contracts. These are the preferred contract vehicles for government technology projects.
Speaker #1: Our federal agency clients remain focused on data AI speed , efficiency , and automation , and continue to prioritize modernizing legacy systems and improving interoperability across the federal technology environment .
Speaker #1: Areas that are closely aligned with ICS expertise while primarily serving federal agency clients , we have deployed our technology modernization capabilities across the company's client categories .
Speaker #1: As such , technology modernization represents approximately 2.6 billion of our pipeline . At the end of the second quarter , with respect to our programmatic work for federal government clients , we continue to execute key contracts across our long standing client agencies .
Speaker #1: At the same time , we are making progress , repositioning our federal portfolio toward areas aligned with administration priorities . For example , we are seeing growing opportunity as agencies look to move away from traditional labor intensive approaches and towards more data driven , AI enabled customer engagement models .
Speaker #1: We believe Isf's combination of technology , data and mission expertise positions us well to support this shift and at both DHS and HHS , we are seeing increased engagement and pipeline activity related to these capabilities On balance , we see significant opportunities for our integrated capabilities in the federal government arena In summary .
Speaker #1: Second quarter business trends across all four of our client categories were aligned with our expectations . Our business unit leaders are collaborating across client categories with a winning mindset and a commitment to assist clients with speed and agility Now I will turn the call over to Chief Operating and Financial Officer James Morgan
Speaker #2: Thank you , Anne . Good afternoon everyone Please provide additional details on our second quarter 2026 results . From an overall perspective , as you've heard from both John and Anne , second quarter results were consistent with our expectations .
Speaker #2: Our Nonfederal revenues increased just under 7% year over year , and our federal government revenues increased sequentially in line with the expectations we provided on our last call Additionally , we continue to execute various cost management initiatives that we have discussed on past calls , including modernizing our infrastructure , specifically our contract management system and our vendor management system .
Speaker #2: These ERP system implementations remain on track and are expected to drive meaningful efficiency gains , and our back office operations over time . And we have a disciplined programmatic initiative to implement AI tools across our internal processes to drive further efficiencies .
Speaker #2: While a portion of these efficiency gains will be seen in our margin expansion . We will continue to reinvest in growth initiatives to ensure ICF is well positioned to capitalize on the opportunities we see in front of us .
Speaker #2: With these efficiency improvements and a favorable business mix, derived from the greater contribution of commercial revenues and a higher percentage of revenues tied to fixed-sum TNM contracts, we remain well positioned to achieve our target of 10 to 20 basis points.
Speaker #2: Adjusted EBITDA margin expansion for the full year , as well as over the longer term . We have committed to this level of margin expansion over the last decade , during which we have averaged more than ten basis points per year , and we have the confidence that we will continue to be able to deliver this on this commitment into the foreseeable future Turning to second quarter results Total revenue was $474.5 million .
Speaker #2: Stable with a $476.2 million reported in the second quarter of 2025 . Revenues from federal clients declined 9.5% year on year . Given the difficult comparisons caused by the impact of contract cancellations that occurred in the first half of 2025 .
Speaker #2: non-Federal revenues in the second quarter grew 6.6 year over year On a sequential basis , total revenues increased 8.5% from the $437.5 million reported in the first quarter of fiscal year 2026 .
Speaker #2: As revenues with commercial clients sequentially increased 13.6% . State and local grew 9.1% . International government revenues increased 24.2% sequentially , and federal revenues again improved sequentially .
Speaker #2: Consistent with our expectations Subcontractor and other direct costs totaled $121.4 million and represented 25.6% of total revenues , up 23.6% in the prior year quarter , reflecting higher pass thrus on certain non-federal contracts In spite of the 200 basis point increase in subcontractor and other direct costs , our gross margin at 37.2% , remained similar to the 37.3% in the prior year , benefiting from the contribution of higher margin commercial revenues , as well as a healthy contract mix with fixed price and contracts representing approximately 95% of revenues Indirect and selling expenses totaled $123.3 million , representing 26% of total revenues in line with the prior year .
Speaker #2: As I mentioned before , we are carefully managing our indirect spend while continuing to invest in our highest priority growth areas Second quarter EBITDA was essentially flat year over year at $53.1 million .
Speaker #2: Adjusted EBITDA rose 0.9% to $53.4 million , and adjusted EBITDA margin expanded year over year by ten basis points to 11.2% . Net interest expense declined nearly 20% to $6.8 million , reflecting progress in reducing our average debt balance The second quarter tax rate was 17.8% , down from 21% in the second quarter of fiscal year 2025 .
Speaker #2: This year's second quarter benefited from various strategic planning , tax planning actions , which drove a tax benefit of $0.09 to EPS on a GAAP basis and $0.11 to non-GAAP EPS relative to the second quarter .
Speaker #2: 23% tax rate guidance we shared during our last earnings call in May We are still expecting our full year tax rate approximately 20.5% , with the third quarter carrying the largest offsetting discretionary tax benefits , net income in the second quarter was $26.9 million , $1.49 per diluted share , above the $23.7 million , or $1.28 per diluted share , reported in the prior year quarter .
Speaker #2: non-GAAP EPS rose 12% year over year to $1.86 per share , driven mainly by a lower tax rate , lower interest expense and a reduced share count , as well as improved EBITDA margins bottom line results are tracking well , and we continue to expect full year EPS to be within our guidance range .
Speaker #2: Turning to the balance sheet and cash flows Operating cash flow in the second quarter was approximately $99.7 million . The substantial increase from the $52 million generated in the prior year period .
Speaker #2: It is worth noting that the operating cash flow amounts include restricted cash that is mostly associated with energy efficiency programs for utilities . For those utility programs , the cash is passed through and tied to incentive payments to utility customers .
Speaker #2: The timing of which can be uneven Excluding this item , our core cash generation remained strong at $56.7 million for the quarter as compared to $50.4 million in the prior year quarter Excluding the potential impact of restricted cash , cash , which is aligned with the basis of our initial guidance , we continue to expect full year operating cash flow of 135 million to $150 million .
Speaker #2: De sales outstanding were 72 days , compared to 80 days in last year's second quarter , driven mainly by improved collections and increases in advance payments Capital expenditures totaled 5.7 million in the quarter , the same as the prior year quarter .
Speaker #2: We ended the quarter with net debt of $403 million, down from $457 million at the end of last year's second quarter, with approximately 43% of the debt at a fixed rate.
Speaker #2: Adjusted leverage ratio was 2.06 , and absent any acquisitions , we expect our year end adjusted leverage ratio to be under 1.6 . On capital allocation , our priorities remain unchanged .
Speaker #2: Organic investment to drive growth and operating efficiencies , ongoing quarterly dividends , returning capital through opportunistic share repurchases , and evaluating acquisitions , and our key growth markets On that note , we repurchased approximately 435,000 shares in the first half of this year As John discussed , we are actively evaluating acquisition opportunities with commercial energy .
Speaker #2: The primary focus . Today we announced a quarterly dividend of $0.14 per share , payable on October 9th , 2026 , to shareholders on record on September 4th , 2026 .
Speaker #2: We are pleased to again reaffirm the guidance we gave in February for 2026 . Revenue and EPS to return to growth full year revenues are expected to range from $1.89 billion to 1.96 billion .
Speaker #2: And as of today , more than 90% of the revenue is required to achieve our guidance for full year 2026 are already in backlog for EPS .
Speaker #2: We continue to forecast GAAP EPS of $5.95 to $6.25 , and non-GAAP EPS of $6.95 to $7.25 . Now , to help you with your financial models , please note the following .
Speaker #2: For the full year 2026, with regard to the cadence of the remainder of the year, we would expect sequential revenue growth in each of the next two quarters, accelerating at a faster pace in the fourth quarter than in the third.
Speaker #2: Depreciation and amortization and amortization of intangibles are expected to continue to be between 22 to $24 million . Full year interest expense is now expected to be between $26,000,028 million , compared to the prior guidance of 27 to $29 million .
Speaker #2: We anticipate capital expenditures of 23 to $25 million versus prior guidance of 24 to $26 million . We continue to expect operating cash flow of 135 million to 150 million for the full year , exclusive of the impact of restricted cash .
Speaker #2: As I previously mentioned , we continue to expect the full year tax rate approximately 20.5% . And lastly , we have lowered our full year weighted average share count guidance from 18.3 million shares to 18.2 million shares to reflect share repurchases in the first half .
Speaker #2: With that, I'll turn the call back over to John for his closing remarks. John.
Speaker #3: Thanks , James . We are pleased that 2026 is shaping up as we expected , and we are looking ahead to a return to growth this year in an acceleration next year .
Speaker #3: Bringing us back to mid to high single digit growth in 2027 . This could not be achieved without the ability and dedication shown by our professional staff and management teams , who have effectively pivoted to capture revenue opportunities while maintaining our margin levels .
Speaker #3: In many ways , the disruptions in 2025 have made a stronger company more diversified , more collaborative , more efficient and more agile .
Speaker #3: We're enthusiastic about the opportunities ahead , and with that operator , I'll please open the call to questions
Speaker #4: Thank you . At this time , we will conduct the 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 .
Speaker #4: To withdraw your question , please press star one . One again , please stand by while we compile the Q&A roster . Our first question comes from the line of Tim Mulrooney with William Blair .
Speaker #4: Your line is now open
Speaker #5: Yeah . Good afternoon . Congrats on the solid execution here in the second quarter . It sounds like the guidance is fully intact here .
Speaker #5: So I'm gonna ask some more targeted questions . The first ones on your Marshall Energy business . It it grew , you know , 4% in the second quarter .
Speaker #5: I think that implies a growth rate of about 3% in the first half . I think you need to grow more in the mid-teens range in the second half of the year to achieve your full year goal of at least 10% growth .
Speaker #5: For the full year . I guess my question is , am I right about that math ? And can you walk us through the , you know , the primary drivers that would help get you there
Speaker #3: Well , maybe I'll start off Tim , and then I'll let Ann and James weigh in . I think generally your math is correct .
Speaker #3: We'll have to grow mid-teens in the second half of the year to achieve that goal . I think , as you noted , and as I think we indicated in our remarks , you know , I think the way we'll get there is , you know , first of all , we did have strong awards in the second quarter , as announced in our release .
Speaker #3: You can see that the list of projects there , you know , second , we do have a set of projects that we since that time , we've been told we will be awarded , but we're still in negotiations with those contracts .
Speaker #3: And we have a robust pipeline of opportunities on the commercial energy front . So I think those three things are giving us confidence that we can achieve the double digit growth required in the second half of the year to get to our original guidance .
Speaker #3: I'd also note that our performance awards and performance fees are typically back half loaded . And so , you know , we'll certainly benefit from those awards coming in to help drive additional revenue growth for the year .
Speaker #3: And so I think that's at a high level , what we see getting us to that level of growth . But Ann , do you want to add anything on .
Speaker #1: Well , maybe I'll just mention that . So the energy advisory work , which you know , is a smaller percentage , but an important percentage of our commercial energy work , that was a little bit slower in the second quarter .
Speaker #1: And that reflected delayed timing of certain of the technical advisory and the independent engineering services that we provide , which actually had , you know , the the reason for that was that the administration's sunset date for some of the tax credits was July 4th .
Speaker #1: It put several of the client , their it put their focus on the immediate , you know , initiating construction to hit that tax credit deadline .
Speaker #1: And so now that we're past that date , we've already seen signs that the planning and the financing work that we do will proceed as expected for the rest of the year .
Speaker #1: So that's , you know , that's a piece of that . But otherwise , I agree with what John has said . The pipeline is really strong .
Speaker #3: And let me just yeah . And I would just reiterate , I mean , again , you know , the last two years , the two prior years and our energy business , we grew mid-teens for the year .
Speaker #3: And we have not seen a shift in the in the market and the trends driving that business . And so I think for us to return to mid-teens growth in our energy , commercial energy business in the second half of the year is is achievable .
Speaker #3: And it's , it's consistent certainly with the performance we've had the last several years in that market .
Speaker #5: Okay . Thank you . That's a good point , Sean . And appreciate all the color there . And I also heard you say in your prepared remarks to you , expect to pick up in M&A activity in the second half , maybe some other things too .
Speaker #5: So that's helpful . Color shifting gears really quickly to the backlog , which was 3.3 billion down slightly sequentially from the first quarter .
Speaker #5: We we've seen backlog flat to up the last couple of years . As you move from the second , from the first quarter to the second quarter , can you talk about some of the factors here that impacted that slight decel into the second quarter ?
Speaker #5: Is it still somewhat sluggish ? I guess , on the US federal side , or is it primarily a timing thing ? Just trying to understand your expectations for book to Bill as we move through the third quarter here
Speaker #2: Yeah , I guess I can I can speak to that a little bit . I would say as far as as we reported for the quarter , this is James for for the quarter , our book to Bill was up 0.85 .
Speaker #2: And where that was the main impact below one was in the federal space , where if we've mentioned , we've had a little bit slower in the procurement cycle , but we are seeing signs where that's picking up and has been starting to pick up even subsequent to the end of Q2 .
Speaker #2: So we are we're looking to have a healthier book to bill as we move into Q3 , which will certainly look at driving the backlog up as we move forward .
Speaker #2: Beyond that . So from an overall perspective , if you look at what the impact is on backlog quarter over quarter , it's more on the federal areas .
Speaker #2: Probably the biggest area impact
Speaker #5: Understood. Thanks, James. Thank you, everybody.
Speaker #4: Thank you . Our next question comes from the line of Jason Tilson with Canaccord Genuity . Your line is now open .
Speaker #6: Good afternoon everyone . Thanks for taking my questions . Start in your outlook commentary referenced that same return to mid to high single digit growth in 2027 that you mentioned last quarter .
Speaker #6: Just hoping maybe with a little bit more visibility , you could expand on your expectations for next year a bit more and help frame some of the key puts and takes that could drive either upside or downside relative to that range .
Speaker #6: Thanks
Speaker #3: Sure . So I think , you know , as you know , we do expect to return to mid to high single growth next year .
Speaker #3: And I think the way we discussed that in the past , I think and what we continue to believe today is for the 60% of the business that's non-federal , we would expect to deliver a high single digit to low double digit growth in the federal arena .
Speaker #3: We'd expect to achieve low to mid single digit growth . And so then if you do the math on that , I think it will get you to mid to high single digit growth across the portfolio .
Speaker #3: And so I think that's how we're thinking about that for next year.
Speaker #6: Okay . Great . Thank you . And then just wanted to unpack that particularly strong international growth both in the quarter and really the award wins .
Speaker #6: You've seen over the past 18 months or so . Just wondering if you could help dive into some of the underlying trends in those markets that are driving those wins and how confident you are that you expect that to be able to continue here going forward
Speaker #1: So , so I think I mentioned in my remarks that so we had won several of those contracts over the last , say , 18 months or so .
Speaker #1: And it's a matter was a matter of sort of mobilizing . It took a while as a result of elections and some other things happening in Europe for those contracts to really stride .
Speaker #1: But we now feel like they have hit their stride . We feel that the the runway for those contracts and our positioning is really strong in some cases , we're the , you know , we're the single award holder and other cases we are , you know , one of two or sort of at the top of a framework contract , sort of right of first refusal .
Speaker #1: And so as a result , you know , you're seeing the results of , I guess , of that long term business development efforts materialize here .
Speaker #1: And , and we continue to expand that footprint , which . So that's been that's , that's the part that from a standpoint that's been exciting this year is just using that as a launching off point for winning work with additional agencies that are under the EU umbrella
Speaker #2: Yeah , this is James . I would just add on top of that too . I mean , if you look at even going forward , certainly we're ramping up those programs in the past , but also the pipeline of opportunities that we have in front of us is actually healthier now than even what it's been in the past .
Speaker #2: There's a there's a multitude of opportunities coming . So if we have the largest pipeline of opportunities for our international government business beyond what we've had in the last ever , I mean , actually .
Speaker #3: I would say for I mean , you guys have seen the results for the first half of the year in terms of growth in international business .
Speaker #3: I think we expect similar growth results for the second half of the year . And , you know , based on the comments , both Ann and James made about the pipeline and the backlog , I'm confident in double digit revenue growth in international .
Speaker #3: So we look for 2027 .
Speaker #6: Very helpful . Thank you very much .
Speaker #4: Thank you . Our next question comes from the line of Toby Summer with Truist . Your line is now open .
Speaker #7: Thank you very much . Within your technology modernization business , what the trends been like on contract size and in in the procurement environment and pace of procurements and , and maybe if you could , as part of your answer , touching on this particular market , describe your experience with customers purchasing licenses and other things that historically have been passed through directly from OEMs .
Speaker #7: Thanks
Speaker #1: Hi there . So I think that in terms of you had several parts , but I think that we've seen procurements picking up in that area .
Speaker #1: We have a very significant amount of of , you know , a high fraction of our submitted , you know , bids where we're pending award relate to that technology modernization business .
Speaker #1: That's an area where , as we mentioned , you know , we've , we've . Been pivoting in the federal space . We've been using that those technology modernization services as a way to access new clients and new offices within client agencies .
Speaker #1: So that's been that's been pretty successful in terms of the size , I don't think we've seen a significant change in the average size of those deals .
Speaker #1: We have . As I mentioned , we have seen tremendous variability in terms of the time between knowing about an opportunity , seeing an RFP or not seeing an RFP , going to a , you know , going to either a limited competition or an open competition , and then actually getting to award and then in many cases , when it's large , seeing a protest .
Speaker #1: And so I think that is , you know , that's the part of that sales cycle that , you know , that we're trying to navigate .
Speaker #1: But I think that it's pretty consistent , you know , for technology modernization across the federal government right now , I'm trying to think of your last question , the licenses with OEMs .
Speaker #1: Can you say a little bit more about that ?
Speaker #7: Yeah, there's been news in the market about the government deciding to procure those sorts of things directly from the OEMs, rather than via an integrator.
Speaker #7: So I'm wondering if , if that's something that you're having experience with or not at this juncture ?
Speaker #1: I'm not that I'm aware of . So I think that we're working in close partnership with our customers , you know , and in some cases , you know , for instance , you know , their access to certain providers , you know , they may they may want us to sort of work in their cloud environment or something like that .
Speaker #1: But I'm not aware of anything beyond that .
Speaker #3: Yeah . I would say we haven't seen a material shift , as you know , Toby , we work and , you know , have the capabilities to work across a low code , no code , a set of players .
Speaker #3: And we're still seeing opportunities to support the federal government and partner across , you know , Salesforce , ServiceNow , Appian . But also can do , you know , deliver it modernization capabilities and services on open source .
Speaker #3: And I don't think we've seen a fundamental shift in , in , you know , in those markets or our relationships with those players to date on our IT modernization work .
Speaker #2: I guess I would also say too , I mean , the majority of the work we do is more labor based services . It's not passing through a license costs and things of that nature .
Speaker #7: Sure . Okay . Thank you . And last question for me on the capital deployment front , I , I think been maybe looking to reengage and be more active since the , in the wake of the Doge experience in the business , stabilizing and even , you know , kind of starting to grow .
Speaker #7: What are your expectations as you look at the back half of the year and into 27 for growing the business ? Inorganically
Speaker #3: I think it's we discussed in the past , I mean , I think , you know , we remain in the market looking for potential acquisitions that we think are good , strategic fit , good cultural fit and meet our financial criteria .
Speaker #3: I think will be very disciplined . I think , as I said in my remarks , I think we're primarily focused in on arena and the commercial energy area .
Speaker #3: I would expect us to lean more to tuck in acquisitions as we think about the rest of this year . And , you know , generally , I think we have a balanced approach to capital allocation .
Speaker #3: We're investing for organic growth . I talked about the stock buybacks . We've been active there and we'll continue to look to deploy it on the M&A front .
Speaker #3: If we find the right opportunity . And so so I you know , balance . But disciplined would be my my message . I don't know , James , do you want to know ?
Speaker #2: I mean , I think that's right . And you know , we're fortunate enough that we certainly have the capacity in our credit facility where we're not constrained , where we can continue to have that balance between investing organically and doing share buybacks , and then also the right opportunity comes across from an acquisition perspective to pursue that .
Speaker #2: So , and certainly that is that's a focus and identifying and finding those opportunities
Speaker #7: Thank you .
Speaker #4: Thank you . Our next question comes from the line of Kevin Steinke with Barrington Research Associates . Your line is now open .
Speaker #8: Okay , great . Thank you . In your prepared remarks , I believe you talked about on the federal programmatic side , shifting your focus from more labor intensive projects to more along the lines of helping your clients with AI enablement , efficiencies , etc.
Speaker #8: . I correct me if I'm wrong , but I think that's how I heard it , and I'm just wondering what that would do to kind of your business model in terms of project size or staffing levels or any other metrics
Speaker #1: So , Kevin , this is Dan . Thank you for asking because that I'm hoping that's not how it came across , but but what , what I did say was that we are looking to help the federal government in places where they , the federal government , these agencies are looking to move away from their traditional sort of labor intensive approaches like think of things like Grant management Think of things like , you know , data validation and things like that , where they're trying to move from , you know , many , many federal staff and support , you know , doing these kinds of tasks .
Speaker #1: We're trying to help them where you can tie systems together , you can have more data driven AI enabled customer engagement models that allow them to basically provide their to fulfill their mission .
Speaker #1: But in a more efficient , sort of streamlined way . And so that's where we have , you know , where we've been successful working with some of these agencies , combining technology and data and mission expertise .
Speaker #1: So , you know , where you can and where you can't , you know , find those streamlining efficiencies . And so that that's been a sweet spot for us .
Speaker #9: Does that help ?
Speaker #8: Yes . Yeah . Thank you for that . That color and that clarification . So I think you also , when talking about commercial energy , you mentioned one of the growth drivers is being the introduction of new services .
Speaker #8: And I don't know if there's been anything more recent on that front or if it's kind of been some of the other program management type services that you've discussed in the past contributing to growth ?
Speaker #1: Well , no , I think , you know , we a couple of years ago , maybe it was only a year ago , we started talking about how important large load and data centers were going to be .
Speaker #1: So obviously that's been a place where , you know , we have been introducing new services and new packages of services to address kind of a new need .
Speaker #1: So , you know , for , for , you know , as an example for hyperscalers , now we're helping clients evaluate the speed to power , what strategies should they use to get speed to power , assessing the alternative power and technology solutions .
Speaker #1: They're navigating procurement and funding in new ways . There are some that are trying to look to get the speed to power , but in a renewable or a sustainable way , kind of depending on where they are , that's obviously a , you know , a place where we can provide a lot of value .
Speaker #1: We also are supporting some of this community impact initiative . You know , to the extent that they're trying to work to balance , you know , the , the need for increased electricity with the impact on the communities we're helping to work with them to think about that strategy .
Speaker #1: Those strategies . That's one example or one suite of examples . But I could give you more
Speaker #8: So no , I think that's fine . Yeah . That's helpful . Lastly , I just wanted to ask a little more about international government .
Speaker #8: You know , you talked about these large contracts maybe being a a launching point for you to pursue work with other EU agencies .
Speaker #8: I'm just wondering how much of a focus international government is right now for , you know , growth investments , expansion of services or if you feel like you have the service footprint already in place that you need , there
Speaker #1: I think that we are , you know , I think that the role that that John's asked me to play does provide a little bit more connectivity .
Speaker #1: So for instance , our energy , our decarbonization or whatever skill sets that we have here where we can augment skill sets that we have in our , our Europe and Asia , you know , business lines .
Speaker #1: I think that , you know , that connectivity is strong and has been strong , but it can you know , I think it's even stronger now .
Speaker #1: I think that the business development engine that we have there is pretty tight . And efficient . And we have , you know , because of the work that we've done over the last couple of years , I think that our brand , reputation is really strong , both in the UK and the areas where we work and also in the EU .
Speaker #1: So I guess the answer is absolutely . We're committed to it . Absolutely . We're supporting it . But I don't see that we're investing more necessarily in that direction .
Speaker #3: I agree , I think , you know , it's a I mean , it's a business is doing terrific . I do think that there's ways we can connect the capabilities in North America to Europe .
Speaker #3: And find additional opportunity . And so we have a very strong fellow there running that business . And so it's a good business .
Speaker #3: I don't think we're . It's not one of our key . I mean , the scale and size , it's just not one of our key growth drivers .
Speaker #3: So it's not getting a disproportionate amount of investment . But we're certainly investing at levels as we have in the past . And we're seeing very nice results .
Speaker #3: So we'll we'll continue to do that
Speaker #8: Okay , great . Thank you .
Speaker #4: Thank you . As a reminder to ask a question , please press star one one on your telephone and wait for your name to be announced Our next question comes from the line of Mark Riddick with Sidoti .
Speaker #4: Your line is now open
Speaker #10: Hey . Good afternoon .
Speaker #11: Hi , Mark . Mark
Speaker #10: I wanted to touch a little bit on disaster recovery and mitigation, and maybe you could touch a little bit on some of the commentary you had—either in your prepared remarks, or, if it wasn’t there, just in the press release.
Speaker #10: As far as the , you know , the fewer disasters and funding delays that that you're seeing , maybe we could touch a little bit on , on some of the details around that and maybe the sources of that .
Speaker #10: And then I just have a quick follow up there
Speaker #3: I think as you know , I'll start off and I got that impression . You know , we've been in the business for quite some time .
Speaker #3: We were quite committed to that business . We're a market leader in that business . But I think , as Dan noted in remarks , I mean , there's been fewer disasters recently that have limited the number of of new opportunities .
Speaker #3: You know , with a long term view . You know , I do think this is a growth market and there's optionality , as those of you who have known IPPs , ICF for some time , we've had 3 or 4 periods in this firm when disaster recovery materially grew .
Speaker #3: The company , in response to significant disasters . And so , you know , we remain quite committed . But there is , you know , we've had fewer disasters .
Speaker #3: But this is certainly option optionality , in my view , versus for significant growth . As we look down the line , I think we've managed the business very well and are seeing opportunities in state and local markets .
Speaker #3: And we've also connecting the dots . I think some of the answer marks talked about how we've connected it to utility work and other areas .
Speaker #3: And so , so , you know , so I think we expect the business to grow and there will be there's optionality for very significant growth .
Speaker #1: I only thing I would say is that anybody who's looking at their phone at any point in the in the day , probably thinks , well , what do you mean ?
Speaker #1: They're less disasters ? There are there are plenty of natural disasters that are that are on the news . I think the issue is that the disasters of the size that really you know , that John's talking about .
Speaker #1: Those are the ones that have been that have been few and far between . And so it's , it's the size and the declaration that would then lead to the funding .
Speaker #1: That would be a large scale disaster recovery program .
Speaker #2: Correct .
Speaker #10: Okay , I got you then . And then I wanted to follow up on just the timing of procurement decisions on the federal side .
Speaker #10: And I think you made commentary as to that loosening up toward the end of the quarter . I guess , or going into , you going into third quarter here .
Speaker #10: But I was wondering if you seeing that as is that do you think that's something that's tied to approaching the end of the the , the federal year end or are or is the sort of driven more by current project needs and , and , you know , or maybe what's what's , you know , what might loosen up that that opportunity
Speaker #1: I , my take is that it's , it's so variable even within agencies , it's variable . There's , you know , in some places you have contracting officers who understand they have some sort of deadline , regulatory deadline , or otherwise .
Speaker #1: And they are incentivized to get these , you know , to get the contracts moving , even if they've been stalled . And in other places , you might have that same driver , but you don't have enough contract staff to , to get the thing out the door .
Speaker #1: And that's where you sometimes see some mods , you know , people are just modding repeatedly . They might also be modding because they're aware , you know , afraid of a protest .
Speaker #1: And so just to keep for continuity purposes , they mod . And so that sets up delays in other places . We've seen , you know , a pickup and things moving more quickly .
Speaker #1: So, it really is—I would argue it's really variable by agency. I'm looking at John and James to see.
Speaker #2: If that's a great hundred percent . That's right
Speaker #10: Great . And then last thing for me , maybe you can talk a little bit about some of the , the , the range of catalysts on the technology modernization side that that you're seeing and whether they , whether they differ federal versus non-federal or are you seeing any particular catalysts or needs that are sort of coming to the forefront that are driving folks to , to act as opposed to sort of , you know , standing on the sidelines and sort of waiting how some of these things sort of play out , whether it's an AI driven concern or a cost driven or the like
Speaker #1: In the federal space , I would say that the , you know , the drivers are much what we've been , you know , talking about probably not just us , but we have been discussing this , you know , desire for streamlining , desire for modernizing , you know , aging systems , the desire for more efficiency also , you know , a desire on the part of the federal agencies to find ways to utilize AI .
Speaker #1: You know , whether it's for efficiency purposes or whether it's for , you know , as part of this , this modernization activity .
Speaker #1: So I think that's all true . I think that when we get involved in technology projects at the state and local level , often it's because there's a mission orientation , whether it's disaster or energy or underground storage tanks or whatever it is .
Speaker #1: And , and there's a , there's a technology system that's getting in the way of doing that mission oriented work . That's where we actually , you know , have a lot to offer because we can say , well , we can unstick that technology barrier to achieving your mission outcome .
Speaker #1: And so that's , that's really where our sweet spot is outside of federal .
Speaker #10: Well , I know it's been quite the journey to , to get to growth resumption . And , you know , over the , over the last few quarters and certainly encouraging to see the pacing there .
Speaker #10: So congratulations on that . Appreciate it
Speaker #3: Thank you . Glad to see you too .
Speaker #1: It's a lot of hard work .
Speaker #4: Thank you . This concludes the question and answer session . I would now like to turn it back to John Watson for closing remarks
Speaker #3: Well, thanks everyone for participating in today's call. We look forward to seeing you at upcoming conferences and calls, so hope to see you all soon.
