ICFI - Earnings call transcript Q3 2018

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Operator

Welcome to the ICF International Third Quarter 2018 Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. [Operator Instructions]. Please note this conference is being recorded on Thursday, November 1, 2018, and cannot be reproduced or rebroadcast without permission from the company. And now I would like to turn the program over to Lynn Morgen of AdvisIRy Partners. ahead. go Please

Lynn Morgen

CEO; Good us Vanessa. With and you Chairman thank today and and Thank Morgan, James review afternoon, ICF's joining CFO. and Kesavan, Sudhakar to ICF performance. Wasson, third for President from COO; you, are everyone, John quarter us XXXX

events assist a could our conference risks. These future and call, to statements make results discussions number for ICF that understanding and are forward-looking will this of in materially, SEC actual our November management's refer to of differ performance. cause risks to During you those filings statements release X, subject and we you to expectations about press XXXX I our

specifically We to during cause call to turn our our point, anticipate may, to discuss today Please based update change. statements future the forward-looking addition, Kesavan, In developments We Sudhakar the XXXX call will third that now made our statements light. I to this in quarter obligation performance. will disclaim information but of at over ICF's CEO, so. presented Sudhakar? some views any to the are on that consider elect today. views as do

Sudhakar Kesavan

us you X.X% review year-on-year, joining was consistent with and up all on and this XXXX expectations afternoon of to us firmly solid putting revenue to track full quarter earnings another year Lynn, guidance. you, our business Thank with and ICF, our revenues total thank results quarter achieve This third for discuss outlook. execution our and for our

align and the to business, revenue positive dynamics results with sources that benefit capabilities. continue inherent and diversified expertise the domain implementation ICF's our Our demand from in

built and which state revenues And over government in backlog Puerto was tied revenue state year-on-year substantial Growth assistance have government and recent several reflected government slightly lower from performance revenue years. offset the that than international the international execution on substantial provide our Rico. contract increases in and disaster clients. continued closely in both we local more to represented government local federal quarter to recovery Third last work, growth

also energy both on large XX.X% and by down are services, revenue investments. businesses, projects. EBITDA lower points for XXX These margin high single-digit growth of and into tax benefited rebounded along convert our year-on-year, with quarter diluted commercial than Our the ICF's quarter's basis double-digit stage markets sequentially The per while that we have more marketing third wind drivers several a Adjusted substantial performance EPS. increases infrastructure service aviation enabled the offsetting us rate, in strong and and share our consulting this up continued set results, to earnings non-GAAP XXXX. in growth results year-to-date revenue to

work our expected amount of we from clients. wins dollar XX% government a pipeline fourth government and additional is business awarded We across federal work year, our new last broad a year's over this to significant year. year-to-date The with be First, quarter. opportunities we pickup all is expect range agency next our in contract federal of see what robust, of federal federal value the than higher won dollar in of contracts

are that with a leadership, we we area to opioid opportunities of Department have areas leverage impressive tracking Centers and with we won by align next and supported an million client, federal particularly Disease opioid in $XX Health expertise focus of Control, significant Year-to-date, and year. at building Two, opportunities this are that for additional a pipeline which see year new Services, our in at value there renewed thanks won amount we dollar the was our other have for potential work cybersecurity, funding, new one, largest an the of to aggregate health by a and in in date Specifically, we our additional specialized in Homeland win for the from abuse. year, substance hurricanes. year significant Human the to total public of Department we're rebuild Department recovery contracts XXXX at In short, driver of we which local pipeline and expecting after of the substantial after have revenues, revenue skills. Department the of federal clients we flat State, a expect the XX% of wins Security our Work And will accounted and next Defense. based growth the recent market Protection government and the Department government to of disaster tied Agency, for data, won to primarily to growth assist in of XXXX. on this state revenue XXXX Justice, three, finally, that clients, be the Environmental key revenues contracts

and ICF's response should our enhancing years. our next has broad which The in DMS, been work provide As growth of prospects that recent of aggregated state for these close the contracts potential Also to activities markets this have segregated major funded recovery acquisition award in for contracts in and and win platform local disbursed us local by Year-to-date, in several and you reach we and to federally scope know, growth appropriated expertise the contract expand and a ability additional three our million have in notifications several over years. for these then be XXXX disaster authorities. and work. and to performing monies market wins delivered extends recovery which to state are $XXX is

in in response which For Carolina example, Florence this we're and Michael, year. hurricanes Florida pursuing and several and work October areas Panhandle to those post the of opportunities damaged September related North today

XXX-person and out government from year-to-date points. revenues our growing moved same backlog to anticipate time, Thus up we markets. in three Following we contribution next additional X We revenue growth, substantial we international based pipeline. XXXX growth the growth current value of our We this wins business revenue of of In quarters provider. we month, contract look consulting we to integrated this percentage business are growth commercial our research, market our prospects year, in the the see significant engagement digital see services, dollar Highly both strategy, total by next over earlier government international marketing and in At U.K.-based development federal, a as and a development. on work in to recognized commercial announced acquisition services about and its across Also, Vista, pipeline. the content communication year. digital state our potential our and has for its business enthusiastic are further expect of

retail, representing on and of growing distributed we categories, around our planning. developed pipeline for client growth; transportation We important can in continue the In RFPs brands will support continue from in we sector energy in all where successful are ahead growth. a greater some and campaigns summary, one, invest Vista therefore, benefits are we're our resiliency two, work while in in private energy both and This we the scale in each and Europe. infrastructure Energy to in looking in of organic benefit acquisition drive XXXX, we to in technology, consulting our expect public efficiency, industries. the which markets year virtually clients to to has and should our should service energy enable financial, the release growth our expand revenue and future to that XXXX margin expands well-known offer both robust us support our

operating early growth ICF's At full our the year annual to point, John? provide year. announcement time provide the will insight of into Chief and additional our XXXX around turn our performance. I Officer, expectations markets of our give specifics Operating John in guidance results XXXX next each will call more we Wasson, at We over this these to when President

John Wasson

Thank you, Sudhakar, and good afternoon, everyone.

X% in guidance last quarter Third in were for year-to-date supporting In federal in results the the our to saw government by significant third contract XX.X% of and in this in and increase third representing year-on-year. quarter. quarter results and through expectations, agencies the and a but increased anticipated appropriations declined fourth contract just about, with total activity we issues positioning our by consistent us into associated we with with RFPs. in sequential Also, quarter, under RFP in our year's record XX.X% growth clients quarter, given from quarter. expectations, Revenues federal line with our year revenues. quarter then government this the line wins little These the government budgets are of and with spoken have pickup phase increased share going developing the a awards business X% from sequentially what our throughout represented our the awards third revenues decision under lion's

finish As quarter this to in million. from fourth flat a enabling government contract federal wins amounted strong us and in Federal XXXX. year federal third guidance $XXX for result, year government in acceleration representing of we expect to the full our quarter, a achieve this revenues clients to revenue an year's

awarded BioSense for Demographic U.S. significant its of by states the addition BioSense over quarter CDC continue X-year a new $X million recompete is third and with We Control In Program, new in won our and a trends to financial federal analytical public Surveys after with a to IDIQ included: were to advanced to Department critical implement actions; million this used contracts key this billion with contract the surveillance which order task and monitor supporting to data U.S. Program, quarter's provide disease Health and National new of USAID robust from outbreaks federal sources to $XX the quarter $XX health management technical and $XXX Justice in the Disease system Environmental we and wins, from support Agency additional Protection for for Centers and the XXXX. a EPA funding $XX regulatory recompete in country. support our across Program to water capabilities. the million pipeline the in significant government the the market Water assistance; policy favorable major million single-award contract to business add the expectation ended

continued year year-on-year achieve just putting revenues, year International to XXXX X% up Our well XX%. track business government for to from of only full accounted reporting in X% of X quarter, year-to-date international the us total third growth government under over over ago. XX.X% on growth just perform and

over the into of pipeline positive XX.X% third the category growth represented XX% was which have and of quarter state over year. year's level, local our above and increased up for revenues from of revenues. be end will the indicating by Year-to-date, revenue client full XXXX. major The and this government heading of year-to-date was revenues the significantly for and quarter quarter, total XX% our driver last XX% increased business, XX% the at Additionally, trends

Puerto large we by were the Maria. of of was hurricanes in the government quarter and awarded disaster catalyst start-up last Here, contract Irma the Rico post to assist our recovery

disaster in in awarded last year's to the recovery-related a U.S. contracts, of response hurricanes. $X in quarter training Islands the contract on-the-job million to terms third In provide we additional services were Virgin

with a of awards the value million and of were currently in the activities negotiations of after contracts $XX notified potential recovery we disaster Additionally, Texas. end third for support are in to quarter,

Further, resiliency of the our contracts, associated in reduce we excellent of be as and is communities how round natural aligns CDBG-related ICF. an into are planning funds competencies number the pursue a that recovery The months for expands Given Florida in and of that continue else we but in acquisition These has this to costs DMS spending a These state-wide over Florida, for that next ICF's time the Also, is large, core see disaster strategic associated North available in shift with Puerto Michael. Carolina at-risk disaster, Rico, wake the several drive spent, in decided next and and us first the and we Florence opportunities negotiations, as available future growth each opportunities projects. capabilities. we would and acquisition we major scope in mitigation fit significantly of opportunities community-level expanded area. in are clearly to hurricanes this what with other and there expect continuing which disaster recovery percentage strengthen could new well both with revenue can Texas funds It potential with the seeing to can be not disaster the well year. are we we projects several recovery say. relief of limited are

have for business. Now let quarter XXXX, energy marketing were expectations. environmental the Olson and projects. commercial utilities on bringing revenue projects to Total won on full revenues could commercial from year are services and engagement our programs stable me our to expertise Olson commercial expertise neither focus in to together last with independently. marketing, rate dollar year's grow $XXX we with over positioned yield were with mid-single-digit ICF that sales bring domain consistent we and at comment our components category's third work million, value our advisory on clients up energy. key for the acquired quarter, and but efficiency, integrated all aviation business, won executed In nor impacted in our by wind-down The In since positive continues of aviation the consulting were energy comparisons our namely commercial contracts the commercial services, third year-on-year, results, that of a of markets

the Additionally, this leveraging acquisition potential. Customer with further we significantly have Future acquisition ICF's earlier month services in to marketing for provides And win work the The are increased cross-sell growth Vista clients. We existing of succeeded with London-based additional The opportunities have scale. greater integrated of

creativity our Lead behavioral the is we brand resource what tremendous experience market to that and President of Executive He Vice bringing September and has key early more John technology, John to result, swath serving determine and organizations. pleased organization significant in go a a ICF across business joined in to most to across a has multidisciplinary As ICF of optimize is, announce clients. and were a with analytics Group together broad than Armstrong as $XXX engagement, how as commercial million look disciplines to we for capabilities today, Olson. effectively government

development. of driven activity, X.X% for restructurings markets with in to up was wind-down in ICF's and The sector several advisory modestly asset year-to-date gas energy only several renewables benefited power services was transaction third financial due quarter to the the significant contracts business from significant technical Our demand support and quarter utilities. environmental up and growing by largely support services but the

has resources. energy business energy-generating well resources also distributed consulting impact utilities the as of address and performed distributed states Our

category, ended and some well electrification in Jersey the New opportunities In energy new beneficial efficiency, of substantial and of this states as with terms represents programs pipeline in area. recompetes of quarter majority continuation Virginia. as a of which existing such the comprised we expansion a the saw We as expansion California,

expected XX regional energy in efficiency in collaboration its to opportunities, gas greenhouse next our localized needs, segment XXXX There and later further growth million of programs. address loyalty ways energy growth. the in bigger almost opportunities our digital many released utilities ICF efficiency, continue with As are the and renewable see smaller energy third business finding reduction. ones leverage contract In revenues programs we have year-to-date and essentially for to said continued alters we social the are the quarter At $XX California continued opportunities state and was energy early QX services, we growth marketing client and as performance expect $XX Also, of and into new market and by represents to customers and from energy the pipeline to larger ahead RFPs past, solid see and efficiency summarize, market be their end conditions using year, these through and million approach and we were of with between million. favorable to engagement, after constraints. We To utility development with with our wins. work government XX quarter reach clients. efficiency prospects behavioral expand record our $XX a delivery categories engage our clients, $X.X and pleased commercial listening to all XXXX, continued markets, are third engagement leverage the to in business programs billion, quarter, each in than our

XX.X%. James annualized financial James? I CFO, turnover now personnel will call a over was the Our our for Morgan, rate to review. turn

James Morgan

financial you our Good XXXX. into remainder our for you, I'm report additional with performance everyone. of third John. on provide the thinking to and Thank quarter afternoon, pleased insight

European of accounted which to third reported year-over-year for in which Puerto revenue million, our driven local XX.X% Third clients, a XX% work of account was X.X% than and double-digit for third year's in quarter work to federal year. in communications for the events in quarter in a pass-through largely revenues that from increased XXXX offset XXX reported to as $XXX more higher Service disaster work XX.X% to was XX.X% This driven revenues up revenue related This of in revenue. million last million $XXX.X Due part higher more in Pass-through decline margins, quarter. lower $XXX.X to of million, point and a the year-on-year third X.X% XXXX. is Commission, and Gross revenues, million, third in million by increased well revenue quarter third with as from to growth government the $XXX.X basis revenues. government and as client in that from last increase we decline the which increased recovery of gross total subcontractors from $XXX.X than we in quarter XX% the international the revenue. and profit X% shift increased X.X% up for the $XXX.X margin revenue compared increases state Rico mix quarter reflected clients. from yield by a government

of the quarter million $XX.X points revenues our on $XX.X compared EBITDA service XX.X% for of Adjusted XX.X%, flat in charges, on closures, more stayed cost quarter XXXX, quarter third million. to the EBITDA consolidation of quarter in was and $XX severance with special this year's in eased acquisition-related for special amounted XX% mentioned third to service It basis to expenses, down last modest a at expenses after to revenue above facilities reflecting proposal exclusion XX.X%. quarter in the the significant points as second million the Bid office slightly future year, XXXX. XX investment be selling margin XX was which XXX basis improvement, it compared point variance up Exclusive percentage certain $XX.X reduction million, in compared activities, million and gross $XX.X in adjusted of a of quarter. infrastructure the to margin third gross adjusted that growth. the charges, had third as essentially include year-on-year EBITDA and basis the sequential was as service due of to year's accelerated due margin support from first EBITDA mix Indirect business and third this revenue projects. should half quarter. that the increased earlier I of was last to aviation service in revenues above the showed third $XX lower revenue to higher-margin and on mostly year--but However, well million noted margin

and ramp-up of significant diluted diluted expense, expect Net a EBITDA $XX.X XX.X% expected even up confluence on XX.X% higher the was to XX.X% margin this of payments year-ago income share. XXXX, due the growth, revenue the of new the of revenue utilization full including than in are was by we to XXXX. period. XXXX well the EPS guidance depreciation to normal that benefit factors, lower as was the to year-over-year, increase positive several The lower the continue reflects as XX.X% tax for for adjusted are For margin in and in unusually diluted in EPS service rate greater reported we $X.XX quarter to be quarter XX.X% contracts. million, from and year amortization expecting reach fourth driven quarter be per with incentive comparable high compared to the The

exclusive and charges, This increase domestic lower rate from of flow previously quarter deductible year-over-year include. by the reported a cash factors we provision of to $XX.X operating be the for quarter's XX.X% to were at our intangibles amortization There to the to million all year. that third million and timing explained had the contributing compensation XX% adjustments. can in year items, driving this which activities, $X.XX, At return last considerably sequentially below of by Non-GAAP point $XX.X we EPS lower expense related guidance special of various XXXX. equity-based from variance, $X.XX several tax due below $X.XX reported issues--about quarter-end, tax of marked of provided cash of operating four and mentioned for full was diluted

of advance was XXXX roughly the for but benefited XXXX million first flow received buys the paid sum XXXX, during First, there cash which which in XXXX, media an the cash payment of for year-end of fourth flow. but was quarter $XX our reduced quarter year-to-date

which the the flow quarter similar We payment the expect XXXX offset more than fourth advance benefit impact. year-over-year XXXX, in fourth and of will quarter cash a

and months Second, of from we million the in replenished XXXX milestone during first quarters than first $XX services that nine marketing had three advanced of were clients more government the of XXXX. payments not international

payments we with expect marketing collected related However, clients business be of in international fourth government nearly milestone $XX the XXXX. our services and quarter to of million to

had of delayed receivable week accounting receivables collection which roughly slipped lastly, client has collection a new into collected. was been fourth we of Third, which to for a the to system, the million which the was million $X.X $X quarter. roughly for And the first majority there since respective switching due

flow our the these taxes, flow capital working cash strong. with and $X Given four plus that fourth cash operating to fact than we will expected fourth million extremely associated quarter we items benefit are operating quarter our more be of expecting performance receive a

the We up are, million our reducing a guidance to process and large to associated recently us to that client approval $XXX cash of a a XXXX new operating time result invoicing awarded estimate with by been $XXX $XX is and required from $XXX stand resources to of million This both million. related contract. previous the million and have flow our however,

due million As increase investments nine I $X.X first for in outstanding of sales infrastructure continue mentioned by of of quarter issues. million at to property. higher mentioned in Future invest was the our our in the we year-over-year Borrowings XXXX $XX.X the $XX.X on credit resulted the previously past the end and was of timing DMS. XX. year-end on September the XXXX XXXX. increased It X to to capital a facility developing calls, days These mainly and expenditures due intellectual The the months million quarter acquisitions in third for Customer to Days from third

range outstanding of sales to days. the XX in We for to XXXX XX be to anticipate continue days

guidance. summary items models. financial line fine-tune for highlight our I'll several you to help your year-end of Now a

year billion the billion, year-over-year our X% expect to revenue range $X.XXX to continue a we from First, full to representing midpoint. XXXX $X.XXX growth at

GAAP We diluted to expect $X.XX special charges. any $X.XX, continue XXXX exclusive from to EPS of to range

We $XX $X.X $XX XXXX. be to of expect be to amortization We expense the million the million in to depreciation and range of million $XX million. in intangibles range for amortization to anticipate the of

expect We expect to to be year diluted $XX in million. shares million. full outstanding effective average $X.X range will in interest expense we from to million And $X be expenditures Capital lastly, and XXXX to expected million of be the for fully XX.X are closer $XX be range our now tax weighted will rate for approximately XX%, the will year million. XXXX the

and priorities a shares repurchased offset Our making in total of XXX,XXX allocation incentive our $X.X repurchase our In nine months for the the to paying XXXX, business, under our our the delivering, from million we investing remain outlay first capital dilution share programs. employee acquisitions, of dividend. quarterly program same: partially

per back shareholders declared $X.XX to on a payable dividend December like ICF cash Sudhakar? With turn I'd share record of November Lastly, that, Sudhakar. call XXXX, XX, the on quarterly of to X, today, XXXX. January to XXXX X,

Sudhakar Kesavan

To solid double-digit quarter period earnings our strong this performance James. supports guidance you, ICF the Thank year. sum third another was and for growth of for up,

questions. stage wins all record now $X.X would pipeline a to and of growth Additionally, the in set I XXXX. higher backlog, contract call Vanessa, strong to billion development like close open to for the business

Operator

our with from Sommer have first SunTrust. we And Tobey question Instructions]. [Operator

Tobey Sommer

had those get stemming success storms the sense could addressable firm I'm market for winning assist company's off consulting With the the and the it a respect a Community some sort in Development sort in Or some disaster XXXX, yet allocated Grant perhaps, quantify work with. addressable you terms to to remaining available firms. paying be Block to funds the trying of to of market to consulting from to even recovery contracts. of

John Wasson

of Virgin the would Community I John $XX has appropriated talked so in Islands Puerto help by Congress folks, the storms. I geography - remind the to the that under Wasson. we've billion the Development Rico, as let's that do damage Florida respond to Block It's Texas, just about Grant I Tobey. Sure, and guess past, funds geography. from program U.S. would

HUD allocated and we've that And and has billion so gotten about $X.X billion $XX Puerto been funds; $XX Virgin money and Texas, Islands, CDBG Florida - each. by such billion; that Rico the of indicated has about that, U.S.

So to CDBG-related implementation opportunity, Rico. the have No awarded contracts undertake largest Puerto yet Puerto Rico. in been obviously, in remains yet

and going in are forward. capture opportunity, into opportunities opportunity certainly, awards next on there proposal year, very a expect the stage us. in We largest and And remains significant that for

value year. rest this year There's more to come that we Texas largest been more and intent We've is the help noted are in into certainly opportunities of a was and support Second a awarded to of potential we've notified award about allocated $XX to Texas, opportunity $XX billion. CDBG million throughout couple next contracts. been Texas that in to to and of us. opportunity of out We expect us Texas. couple that also contracts play

that resources, and next would still most areas allocated that the And with and the significant so two I - there's the here quarters. have will say out been in largest months play in the opportunity,

Tobey Sommer

is existing Puerto most a Rico, successful if to by applying the winning sort Okay. work, additional path likely separate in it that respect vehicle? of FEMA is be funds additional the transpire contract would to you're With contract? - to for Or your

John Wasson

vehicle. mean, that program. programs requirements are are different my a expectation FEMA programs. I They separate for to that and mean, be is the CDBG - would than I contract specific rules it

there set awarded and expect certainly separate CDBG I contracts different be will it - to will would a be And of support activities contracts so that in Rico. Puerto

Tobey Sommer

there prepared the business? you this give not what cash know specific us With some we year, at flow year, to, based could if numbers catch-up guidance you're next that without Okay. color, of for in expect sort to some on should respect least, the but now giving we is

James Morgan

there is This the that year, would James, in bit of would. certainly catch-up next would a first be expect a little you quarter. Yes, We the Tobey. into beginning of

help benefit to the XXXX cash would flow. that So

Tobey Sommer

queue. the and a wanted I then And commercial in side, ask the back question Okay. on I'll to get

energy natural that You a those color any just mentioned color Could nature was little projects other some - bit about provide? anticipated, in of a you the could provide more you projects Or winding whether down. phenomenon?

John Wasson

mean, - to had down. electric think - projects, work, winding been tends be support or had the energy I environmental expected down, construction transmission and environmental I lines. large primarily large projects several them transmission it that We've Sure. to monitoring infrastructure wind environmental lines for we permitting electric so

guiding I the year. and think to digits expect year, mid-single our noted, that's, as do the in I commercial the business for for we've I what been we grow think,

we've into think - our think was is guidance, this not I and so surprise. And factored a it

Operator

our Lucy have with Cowen and from Company. question next Guo We

Lucy Guo

follow just like any just awards in It you you - funding at clarify characterize this up and the there recovery maybe. getting question Tobey's adjudication situation, chunky to terms of be wanted the that received about may done? have to awards seem quarter. on Would postponement the least, I disaster pace or doesn't prolonged

John Wasson

more support firms process time that the been there's our year I programs, run and a or the RFPs mean, and to to will help adjudication design out, been a of we've experience the implementation. wouldn't approval, - that has think I the appropriation from kind prolonged storms I of select run generally delay. one takes the get say out or it I mean,

we're out. this - the play - out bidding will end delayed. chunky I we still think think I And the next these and and expect There certainly as that have I year, of that as year not so there would or you certainly next don't opportunities note, there's in And - through were awaiting it decision. I characterize would over early clarity. capture so been should are, into

Lucy Guo

those related named, to of are clearly that Is that right? million, recovery. Okay. And some opportunities over the $XX you disaster had

John Wasson

yes. correct, That's

related that And of the some disaster would recovery. category be largest to in

Lucy Guo

you And on your can then potentials great. give color That's Or in mentioned? comments opportunity are there besides any the Okay. there opioid there. that had Are some mentioned was just any side. federal prepared you QX government the

John Wasson

go and budget on we've I XXXX, ramp to pretty start our we will flow opportunities the we'd for in I occur Trump seeing take given early I increase consistent into would will budget start federal and growth it real QX civilian and that and in time year. been expected, we as mean, that to commentary money for say XXXX think the awards that the next from year into two start budgets that and impacting our

broad-based. our they'll seeing and be the expectation opportunities think pretty is I we're

expected, think of in State, to as noted AID, Security, Homeland And guess, increase in that across commentary, those I starting of as seeing what be the federal. we're up clients. first in ramp to flow. I I going fourth budgets, growth I with here his X%, Department quarters. including into and associated we're opportunities Department civilian mean, Sudhakar end we're were say the all money and saying is mean, that it'll would EPA, see a the as expect Justice, of the in federal noted next year the decline I the through we under slightly at flat we back on in to We're commentary, quarter our we three year. the HHS,

next into continue we growth, in and So it'll implies a that think year. obviously ramp-up

Lucy Guo

do revenue commentary Got it. the the to that those maybe on the better just made do of Just there. - getting expect James going And to projects, about more aviation-related the higher-margin, of forward? some then there's consulting you hardly mix going mix

John Wasson

it's business, business. Yes. had a can down. mean, up can aviation We year, and cyclical our strategy quite opportunities last drive This margins mean, It's some the win and those growth. It of We I those of haven't had drive projects. set the dependent. very year. we large I that goes really

one profitable a It very most And is profitable so our it's a volatile of businesses. business. business,

when a industry a kind us help earnings. drive It's And really that business. This trend broad there's I business. less it's than our so But a don't would think it for will. to can has been it's our that challenge that lead cranking, of year revenues. of small X% believe

I we're business think it it very should for profitable. improvement, really can strong, It show when that drive earnings. next year. is cautiously and But is optimistic

Lucy Guo

Make sense.

be side, the Lastly, the year? this there any good which you case Is have typically just reason that very wouldn't on in QX. commercial is why seasonality

John Wasson

don't anything I No, expect seasonality. with our unusual

business think and think this our experience fourth I quarter. growth typical in will the the indicated be seasonality. mid-single-digit year, see we've And we'll commercial certainly we growth again, we'll

are positive we're think services. marketing certainly on and and I - energy

Operator

Steinke with Research. from Barrington Our next question comes Kevin

Kevin Steinke

those about hit already assume payments about I on that to slippage you just I quarter, believe in those the you've is there come timing of fourth expect quarter. that they're or the in fees higher-margin going fourth are secure incentive to how opportunities. curious some if talked you terms through Or are And them. I'm potential the received for those? any

James Morgan

incentives. they're metrics efficiency achieving based have We James very those those work payments Majority it us on very our of - tightly. is certainly, certain on contracts. we And paid relate metrics, success this Morgan. Kevin, manage energy to

what insight quarter. and in year-end, fourth to good the see don't we is to I there be have that any so of significant We those expect slippage going very at as

Kevin Steinke

fourth bid you're Okay. so fourth the you've are down third expenses quarter, is further And gross I think been to how kind guess, expecting and in margin trend expected - and to relates but I and seeing? and quarter in you tick trending? that the quarter, of the them in in margin proposals ramp-up proposal that

James Morgan

little that If bit And drive those have with we of proposal it's that spending. to in our But our to expect to also out, bit to impact say, to necessary after going we of QX. go recovery, little what's disaster investments. come on that regard out And could it have With expenses, these Yes. come some be - of timing a I to certainly, do eased regard that's will it. the will on in less opportunities depending QX.

Kevin Steinke

Right.

Okay.

maybe potentially say - in historically targets in you growth a relative to best that business years would trying XXXX. that, years growth about federal I'm in mean, I the one potentially any or You your to government was significant would above business. I just terms just your longer-term for trend in be your pickup growth? of frame in - this wondering be government talked best could - of to could of get or some if government your federal terms way of federal that there's a

Sudhakar Kesavan

a The what federal XX%. it's that we see, is basically, business I think XX% between Kevin, very business. substantial part and of our

been single traditionally, think I low it's flat So digits. to

increase certainly give better. be it'll think there, of from a sense we will you and But certainly much it will it. I better

be, the our recall we think profitability given it certainly, forward. But ARA, Now had size we've after expect XX% years I business, will it'll had to rest that. our XX%, don't wouldn't best the - our were, businesses, to of relative but I significant And good make difference growth. growth. what I think I going a our of

Kevin Steinke

there rest in of size any marketing your the business? Okay. We the helpful. of And Vista on the commercial terms strategy or acquisition detail are That's with more

Sudhakar Kesavan

Sure.

I based and think in - that X of X firm or London the - and it's XXX-person U.K. locations. in the other the

consistent strategy strategy I think last over - our that many years. been quite has the the

We of have We've top the Europe, build our strong North set in we had and here of doing the Commission the are And U.K. in Similarly, here. But commercial European business. U.K. both the America. same government-type had government strong a that, federal had an on business, we've ICF in European we and a continent, federal-like in business. businesses. the analog

the we it's that analog we for the there, of want which of that out have And an available And what for need services, of resources government clients engagement we commercial serviced sure done get London are clients. here. office. kind our make clients. to activity And just have as We for more we've

think which So and did us, what Europe, are is large lots in is has going are build way economy and we has which just to of business we a similar need, here. data a - in we very which doing to an to similar I what is

basically strategy. So the that's

Operator

comes Our next from McHugh Tim William with Blair. question

Timothy McHugh

I First, in to seasonality want commercial on a on question business. follow up the

costs year, wasn't - growth fourth spike heart of we was seasonality commercial normal also had think it last much when you - pass-through I pronounced. look the impact had more spike prior and I'm quarter, - last big revenue how the I to get the years really is fourth in I trying that I question in you guess that if what, - I pass-through think a quarter. And expenses the the about a year. much know kind a the in Is in guess, that, to to of for that,

John Wasson

things. of I'd Yes. so I couple mean, say a I - think Tim,

significant like fourth we I amount think expect quarter. revenues several had clients we in those our a commercial on media the the in are pass-through with for investments associated who, do reasons, side business buys in of Those of XXXX, make XXXX. commercial

up in marketing I So in associated expect I our parts think case that of business the quarter, ramp services side - around advertising, XXXX. Olson would that fourth the the to our with certainly also be particularly certain on holidays. do

as to that from we've energy about, incentive we the high so drives get And payments year. be in do programs them this particularly then And we And it. efficiency quarter. these expect talked fourth

are we think really I revenue in that So we'll quarter are and total driving higher revenue see like those the that XXXX. XXXX, things fourth saw service in much

Timothy McHugh

year? what - you this know, at or I number for this point? a did have don't you pass-through And expenses expect Okay. you They're give reimbursable

James Morgan

the As full the for year as year full far - estimate?

Timothy McHugh

Yes. Yes.

James Morgan

going be we basis, for have we've that were a in there's on certainly at would QX subcontract we move activity, as mean, a to said higher I We forward, say level. that total. running I XX%.

disaster work about think quite that the a activity recovery subcontract there's goes we with you that. do, of If bit

in into run we past, as forward - future XX%. I to we the suspect closer move that to XX%, So would quarters used

I think XX% we'll or be in future, a more. little the bit

Timothy McHugh

Okay. Or And seasonally higher quarter? that... is in the fourth

James Morgan

fourth it's correct. seasonally the That's higher Yes, in quarter.

Timothy McHugh

Okay. the at business the - state The hurricane that? this mostly I quantify call to I but growth hurricane in the and simple could late, joined the apologize. as is related as local slightly you from work? thinking And impact all about

John Wasson

driven three a over the in years. Rico local and I'll award by reported which, quarter, think been of our the remind million last Puerto an significant $XXX was today. business guess, quarters contract, that growth on the everybody, Obviously, I couple over of state we it I has

million work the in the years. we've small contract the for had in U.S. of up you'd won Islands, Virgin CDBG-related then average notice award And a growth. we've basis, of over couple sense there's on upside described of so get on the if a Texas potential you talked - did the an I a about to And we where of contract. math that opportunities also we've $XX And

are That needs business. activities that that in here - are over about that Puerto quarters. to talked play mean, to robust in out months have opportunity then I and the and And that we've the continue so and will And next those we hand Texas. Rico the pipeline drive

Timothy McHugh

we hurricanes? Or such other you've guess, maybe a growth won, ramp stages... to we that this run need Let look from of the does those? additional guess, still Or at the if quarter one way. contracts you ramped up the contracts on me rate you reflect I - terms third drive from in I ask are are

John Wasson

a would the No. ramp-up. in would fully we're yet. up Rico, on ramped say come way long not that I that Well, say I we've Puerto

ramp more fourth that And Texas still there's - think up. on contract, we'll to this ramping work, up certainly, quarter. need fully I going we're the ramp we on once in get that

ramping so we're quarter. here up still full at at the work. not there's third still capacity And the the We're end - of

Operator

is next question with Loop Our from Capital. Vafi Joseph

Joseph Vafi

congratulations of you do all, guess, coming on from you some feel out notice first of that of think there the if or a award down-selects Or do I notice have secondly, award But down-select Texas, have a On other that haven't you - been that. of there's is then And that first I this follow-up. Texas? yet, gotten? kind haven't you gotten for,

John Wasson

contract in our and is of is set come. set awards multiple Texas - significant I initial us. weren't won an more winners, we've mean, I think the won initial for an jurisdictions. only think opportunity there of say wins would We've We so first fair there's I remains that this to - still there's from in Texas. this share. the I

Joseph Vafi

again finally, us Rico kind Okay. is ramp? business? work then you is just margin then of profile could starting remind you're you differentiated can the to say ramp, Puerto overall some just that And what remind just cyber us in And as on the how you to starts just of

James Morgan

the is piece. this margin cover I'll Morgan. James Joe,

Rican Typically, said we've our disaster as end spectrum profitability the government-type of the in it's past, the recovery work. think it government I But Puerto at upper it's is typically. work, work.

X% XX% near that can work in from, perspective. we've say, the upper that you our a anywhere So said end past to that picture can certainly or from government - to yes, run be profitability It's John? so.

John Wasson

Yes.

couple would I I'd mean, I side, say we that - a of say things. cyber the On

cyber-related have I'm on on supporting We the the activities long history the sorry, Research a Army, Army Army. opportunities. cyber-related Lab sorry, - Force Air of I'm

those civilian there, we so - relationships so we we leverage of and and able into clients, cyber cyber have of arenas. deep have in And to pull deep so leveraging we're relationships those. have And And obviously, obviously we have a clients variety civilian side work. we're through then the our relationships on some to the

both drivers. would we area, civilian the say relationships, I I mean, primary the that's and on do at we're the leveraging work Army so And the first-rate in side. and that

Sudhakar Kesavan

contract, And we based on work does also done. Joe, work a won Army the want the similar with which Force, Air

it I have TS any to don't used I longer. have clearance. So

is if what very But doing Army. do. also assistance, whatever the doing enough Air to they me Force won So they seeking they're me shoot they and the was Army services contract for also what we that we of I the are think a are will interesting similar lot tell

Joseph Vafi

kind workflow a just really of to kind process if more recall. of pure not It's Okay. that of little I But just cyber. down It's drill a just just cyber, kind and IT more, it's IT on sites? - not

be would Just there more a great. clarity little

Sudhakar Kesavan

in ways and incoming in Yes. which sophisticated they detect. It's at patterns recognition what cyber-attacks quite there's that cyber, cyber can that is, you it's pattern look potentially

some emerging we requires who can are and, at perhaps the ways people highly which patterns really figure So therefore, look it in respond. out trained which

- processed. are what I but - know - but it it don't aspect you're [indiscernible] don't referring the to not is that, that you'd call process not what it's is that is exactly think And I I So there know

James Morgan

Yes, that's right.

So in defensive cyber...

John Wasson

protective measures. mean. And folks we I working cyber, doing are who site Defensive XX/X on have defensive,

I here. So some do think technology have capability real we

Operator

Company. & Our comes Sidoti next Riddick from question Marc with

Marc Riddick

outside about sort there in, to then from more versus seen a seems of preparing now yourself prepare number to investment on more of it be guess, finding And step of you and taking it though was I now disaster these, to How for steady-state from be what you're that preparation historically, recovery given wanted recovery looking being for base are portend the to sort are of more more. contracts. of a historically, spending I as back doing opportunities. we the the disaster - are forward? in just should standpoint may touch at opportunities for thinking maybe of - what - I some what you've initial looking The that for going

John Wasson

there's and we've I storms, playing to for I that mean, been The there. think to the the made significant prior clear opportunities. we opportunity build the I XXXX significant think two investments position this, Those out. quarters pipeline pretty are from

invest. to continue we think I

further With in in related the we'll XXXX investments QX down storms, we the QX to investing. although it still expect to here come be coming down even would

- think appropriates. investments And to - We of now our we'll into we'll think on storms get to I in response of decisions I that, CDBG amounts proposals year, those had the cycle expect recovery. we're are as many the that months coming out coming opportunities then are into what those as year and And to that ultimately nine we're bake think But I need think written we'll shake there'll and there'll later we'll response and XXXX to after from in a get in Congress this. at here. And going front to this - out depending I XXXX opportunities. storms, would guidance. in year, in being I and that kind a invest a the reflect XXXX address I next be storms, investments the terms to say, getting into of we and point the see cycle And storm into appropriations as of we on we those year. down. in storms our next need that year, we've this the where we're deep awards on that two a early we'll say make to months be guidance set in there's into storms then would XXXX later

Marc Riddick

as about order backlog. was around we count increased of take overall, in expectations just into going not opportunities, next course, but advantage of you're just should overall necessary year, far how Okay. overall, disaster I the be as what be to may wondering, thinking total head recovery given thinking

John Wasson

add then our the we leverage end a if - generally, X%, I need our would going pick we look we to would growing - people think to we're the we possible we're if up to as I time. add grows But and would existing hope going is mean, additional to and go I but Yes. add... going - opportunity. we're staff we're so and number existing we're with more to some business that get the have of we're philosophy we'd let's a would staff staff have X%, much additional as people. growing leverage I and firm day, grow, if at X% as look say utilization mean, additional - and over the to

James Morgan

Staff...

John Wasson

work that staff get done. of to lot A

Operator

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

Sudhakar Kesavan

participating all Well, thank in for you today's call. - for

all Thank and you season, you. wishing year. Here's a holiday you next happy very see we'll

Operator

disconnect. participating, conference. We And thank thank and concludes you, now today's This may ladies gentlemen. you you and for

ICF International (ICFI) 4 Nov 182018 Q3 Earnings call transcript