Earnings call transcript Q3 2022

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Operator

Good day, and thank you for standing by. Welcome to the Q3 2022 ICF Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Lynn Morgen, Advisiry Partners. Please go ahead.

Lynn Morgen

Kurt. you, Thank and ICF's everyone, for us joining Good quarter thank XXXX review third performance. to afternoon, you

With us today CEO; from ICF are John Broadus, and Wasson, CFO. Barry Chair and

Operating Joining Morgan, is Chief them James Officer.

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

In presented so. We statements today this anticipate from obligation may at that on Please will our based today. developments addition, any to future do change. our cause light. to made will We call views statements are point update these that views but some of information during have disclaim the as specifically to our consider

over I Wasson, call will CEO, third John? now discuss of John to turn XXXX performance. the to ICF's quarter

John Wasson

Thank participating review in outlook. you, and results today's all our discuss for you third quarter to our call and thank Lynn, business

million, and comprised was third the X% revenues This quarter the quarter. Key revenue ICF. include in organic record wins XX% energy clients, book-to-bill year-on-year resulting commercial $XXX strong from a EBITDA-to-service year-on-year recent service margin in quarter growth adjusted for our and acquisitions, our revenue contribution growth in of from takeaways X.XXx XX.X% another of growth totaling XX.X% for a contract

support and in strong growth together development backlog trajectory, robust with confidence which our measures continued pipeline increased These and XXXX demonstrate beyond. ICF's significantly business growth in enhanced clearly our

end growth in double-digit namely to underscore our reach organic X drive laid goals long-term service through high single-digit Investor and to which in strong by total earnings from Day, XXXX, growth Our driven $XXX revenue revenue of fit reported our XXXX EBITDA CAGR by areas, roughly key we revenue May by the year-to-date $XXX a offer growth results million a our and the financial achieve ability XX%. synergies XXXX, also out of by adding implies XXXX, acquisitions and the cultural we approximately that increase million are

quarter third taken state local federal XX% accounted and of for our and work, clients government by led energy and growth our commercial ICF's period. together revenues the total the was revenue which over for company's

work, to for Within transformation, see climate, digital growth utility our revenues. in continue over positive accounted of comparisons management, infrastructure and disaster those public of all categories, client together our including our XX% year-on-year we consulting IT which modernization health, areas, year-to-date key and environment and

The fastest-growing client over category the by third quarter and up year-to-date. federal increased government, revenues the in are far was where XX% XX%

an And spending cloud Bloomberg contract to and areas. fastest-growing in increase to spending for in initiatives migration fiscal federal appropriations according line X.X% agency continues modernization surveillance year agency grow XXXX. been IT data, have Civilian with the among

organic recent capitalize well investments and trends. Our acquisitions us positioned on to these have

a and million, our IT leadership well and going growing already annual years. the we grow In and of run revenue addition several ICF-led well. coming to business double-digit at thus work a providing winning code, an also IT continue contributed With $XXX over at which we inclusive to open acquisition, SemanticBits bids to data in completed existing revenue SemanticBits rate very of of positioned ICF's position cloud modernization July source this is year, They've well new approximately in contracts solutions, modernization CMS. of the rate at are

reducing the to Services in time X illness large domains mission Substance substance for Mental the and of IDIQ of contractor our strong quarter a health support contractor Administration. Abuse at by a a billion have Health impact public X double-digit and of growing business, as also which pleased use communities. the compete a ICF for is to on the is is eligible selected rate. were mental This We been to Americas $X.X agency's

believe a recently support $XX health prevention, and new of funding Federal intersection [SAMHCA] at provide health. over employees, awarded domain there mental services range Health Additionally, ICF skills, and its programs. markets ICF multiple We disorder climate wide suicide and subcontracts for substance will and recognized use contracts health to other additional to be and million and recompete expertise behavioral valued in IT cross-selling the in specifically of

also agency currently been federal these the and approximately $XX formulas activities, detailed are procedures Federal tasked is support date the government million. IIJA to under already developing jobs and been and infrastructure for in ICF contracts or has very to implementing task valued agencies act existing active IIJA. this at

agencies support management and providing to are [indiscernible] communications technical including states assistance, programs. support assistance for We IIJA and

addition, states we environmental analytical planning, and are a initial In interest other recipients and IIJA funding seeing from of range potential for services. support

close to increasingly $X of our set the quarter, primarily a development representing business the At government end areas. larger of billion, was our third in key pipeline growth diversified federal opportunities

Revenues state from management contracts revenues, state XX.X% quarter Puerto clients continue to we key and represents and were Disaster effectively the local in up in and X/X on XX.X% approximately execute third government local and and recovery year-to-date. Rico increased of Texas. our

been XXXX follow-on Irma Hurricane now with the to COVID recovery Rico, and and by earthquakes, has hurricanes, complicated Puerto pandemic Fiona. In Maria

and as island more done. much there be been We for work remains of ICF other repair provider, responsible on any success than the rebuilding but our houses to are of more service proud the has

will from have in periods appropriately. the has another caused damage business in a delayed blackouts further manage effect cover and Our this and Puerto But been by ahead. Hurricane other contract remarks. confident this to expect and slow Puerto major from we million, and Department which of his $XX from September, situation in additional add-ons been we Rican expanded in ability flooding. perspective, Housing Rico are Fiona Collections of Terry by opportunities our the

is given Currently, also with working to on York, XX Virginia wins mitigation. the expanding This New all continue and Washington recent footprint. Texas, our at XX in levels Florida, states over ICF puts on We mitigation State range further increase see that over are stemming clients sea weather in government expects revenue aligned climate spending consequences the next events and more the how of excluding growth throughout rising the a change, from opportunities years, capabilities address several become meaningful the -- including IIJA significant with levels to our to contributor well U.S. to

have quarter year-to-date our revenue and third The comparisons business international government in several impacted factors. by been

large major this project, the there to a we completion called as in First, out the client was vessel revenue contributor XXXX growth of which category.

impacted especially revenues. to translations the and third related currency British quarter have negatively pound Second, euro

down U.K., the quarter-over-quarter of translation project decline special the to of roughly for normalize you currency from reported foreign compared in large the XX% If impact decline. the clients revenue the was the international and wind X%

we and right. difficult the U.K., [Indiscernible] has also clients The pipeline. good to matters, substantial a which and caused have of several investment, win contracts multiyear education, of news across move the and energy, continue that been economic including Europe hampered business we in sustainable situation climate, to category is variety the to a our development has subject by political resilience [programs] and

we will situation postponed business our awarded crisis XXXX, XXXX. Europe It to migrant and to improve in one was due in that we Brexit. that trends experienced the in are the activity Thus, contracts and on is a optimistic cautiously similar

steps services. to We quarter commercial. to took the streamline third Moving in commercial marketing

which new a and for have not scale. experienced loyalty By lack communications in the positive in technology on leverage and transformation, momentum material several pickup core services business year. which traditional business advertising Specifically, we platform demand able in verticals, we've post-pandemic our seen the be key sufficient and of better that will this we to focusing exited lines, account innovative across we serve clients wins

of revenues. continue closely We third X% accounted business, manage to X% year-to-date our our for this of which and of revenues quarter part roughly

new grow, to quarter revenues aviation rate and and large meaningful plan our around decarbonization high We a in out more this sustainable at of ICF's increasing marketing are continue up XX% seeking third to year-to-date, airline sector. and single-digit part clients driven unique the in drive consulting investor policies, sites finances. technologies Aviation than offerings, in the

which third business, markets and XX.X% with well business Energy across energy markets year-on-year. all quarter, energy our by this including key and demand These saw up in revenue reflect We the of material the before far demand performed environmental considerably metrics very future from strong for services years. and advisory in strong services, active area commercial getting efficiency, legislation, period. parts substantial rebounded recently the largest in we will which our and in benefits the our be infrastructure believe

technologies For enhance to and management, load flexible example, will programs. behind-the-meter deploy boost This other and charging utilities expertise managed the flexibility. and support to programs in IIJA [indiscernible] demand EV ICF manager that for implementing load storage, developing funding flexible

our and inflation from for our advisory services, environmental with centers to for tied already positioned infrastructure renewables for increase are energy services significant development. clean will demand increased is to and energy, Also, strong reduction active new services need project-related benefit the which

the area further We & strength with Associates in acquisition this the third our quarter. of in capabilities in Blanton

have permitting and resource We and been on in transportation, specialized Blanton's management and domain staff compliance by trained with have the and energy, several regulatory impressed work projects in renewable its expertise water environmental highly their sectors.

that our of local in trusted state, the one is to under most set receive as the & investment dollars and Associates the IIJA. Blanton to federal Also, presence significant agencies, strengthens partners state Texas

the end substantial energy third business the Our the quarter, of pipeline the a at billion $X.X of commercial indication [reserved] on development strong opportunities [rise].

local are continued the as significant a utilities, XXXX well across seeing experts. in-house climate-related and leverage are other and drive Reduction and banks the leader energy climate services, growth our environment Act, as biz and and state beyond. we Inflation market IIJA we climate, with service in clients the of participants area knowledge to market demand which an our government experience both Lastly, from and over X,XXX ability our and in The developers, federal for

million million the year XXXX. Day in at we market by expanded $X As noted believe beginning that this our ICF's approximately has Investor to IIJA May, $X past addressable we a

climate the the for will potential be a our While it early business energy-related that legislation. areas IRA, certainly boost it's will considerable clean us a to in about of still funding as of is XX% this be and from assess

well year-to-date of expertise with results in domain ICF's capabilities trends. wins, larger of market aligned increasingly In business summary, scale. our pipeline contract keeping opportunities a at our billion, and implementation After our are $X greater quarter expanded with comprised stood demonstrate record development how

Barry Now I'll financial Barry. review. for our turn call to over the CFO, Broadus,

Barry Broadus

everyone. afternoon, good and John, you, Thank

And in These for we by third the total within led to full third range commercial million. the is revenue, our foreign client revenue accounted growth impacts, $X.X quarter for which double-digit were million. $XXX.X reduced currency up inclusive our million, total the from to categories. increased XX.X% expect quarter approximately XXXX. energy Pass-through revenues revenues and revenue was gross comparisons XX.X% $XXX.X year by which government Our positive of exchange service XX.X% of

XX.X% to was gross of fixed XX.X% year. year. the compared Gross as impact Both that revenue on lower up EBITDA our timing compared third XX.X% metrics quarter margin the last in recognition acquisitions and quarter the primarily margin margins service higher but of last of margin third revenue the on Board reflect fees revenue on total was XX.X% Gross and contracts. to price have in

to expect XX% this fourth We to year's in about margins our gross increase quarter.

As basis down we XXX million. which year. and achieved discussed from and adjusted seeing year-over-year same have absolute In our in as is calls, dollars, We last expenses the are expenses $XXX.X period we XX%, benefit selling increased the to an previous percentage were revenue, which XX.X% indirect on indirect point of of on service improvement a XX.X% increased basis, scale.

last to hedged million, And reflecting call, Our higher higher cost Approximately third last interest related debt million expense of XX% rates. portion in through various an acquisitions our was to compared is $X.X significant as initiatives. we higher recent balances able of rates. offset same against our increase higher I quarter our debt year, period as were expense of the interest our to efficiency a and $X.X mentioned interest

Third was third X.X%, million above in $XX.X $XX.X the quarter quarter million XXXX. of EBITDA

utilization, above with was a charges, compares Excluding favorable line of our quarter XX.X% benefit year This was million, scale. EBITDA business for reported EBITDA continued of margin reflects XX.X%, the mix revenue $XX.X special XXXX third increased and expectations service and comparable quarter Adjusted XX.X% the adjusted high in XXXX. full the to in on last year.

$X.XX per of Net realignment, income totaled $X.XX charges. was inclusive $XX.X and tax-effected and special diluted million, EPS facility-related share, M&A staff and

and per EPS benefit was onetime in income EPS last net or diluted of million year's XXXX a share. quarter $X.XX approximately income third $X.XX included per million Third tax $X.X share. Net quarter was $XX.X and

share per of the share Now tax non-GAAP the increase of EPS reflects and benefit. from share $X.XX is a per $X.XX third XX% $X.XX onetime in inclusive quarter of XXXX per

flow. turning cash Now to

$X.X the was our to flow third and More payroll additional flow specifically, quarter that quarter reflects third an third timing integration been approximately reduced about activities was which delays approximately with acquisitions cycle will XXXX, billed million as which Our benefit the timing unbilled of of operating in in us billing which and occurred well various fourth collections recent temporary the and the QX. in million factors, as by cash year-to-date due which cash since million associated $XX occurred the quarter, in has equated impact quarter. of additional to $XX during collected in relating to AR,

impact payment associated estimate and cash acquisitions. of items, terms revised due temporary a our to million range have of from year flow customer point recent We potential $XXX contracts million a our million of delays from to include the billing milestone Rico] full $XXX with billing [Puerto to guidance with a which and $XXX collection

third were compared the XX days last for XX year's outstanding quarter. to sales quarter third in Day days

our year-end. the to mid- to by XXs DSOs expect to high return We

expected expenditures which capital our year-to-date $XX.X Our expenses year-to-date includes -- activities. correction, expenditures, recent totaled our acquisition capital with capital our million, associated

million previously mentioned. and temporary the net impacts of debt to flow September, was I at Our end operating which quarter recent the cash our that reflects acquisitions third $XXX.X

Our pro we guidance, ratio approximately on the of end at basis was to of flow a expect XX net end the XXXX. delever revised basis. our September on Based leverage by X.XX points cash forma

allocation quarterly debt value pay shareholders for As returning by by priorities, capital our will we shares down and repurchasing issuing dividends. to

price average per $XX.XX share. XXX,XXX months X ended shares an During XX, we at of XXXX, repurchased the September

September XX, plan. available share share XXXX, our remained million of repurchases approved for As XXX.X under

per X, In we December declared shareholders of $X.XX addition, quarterly to record XXXX. XX, dividend January on today, a XXXX, cash share on payable on

our For modeling year purposes, XXXX expectations. full are here

of range depreciation million. Our $XX to expense Amortization in be approximately $XX million. intangibles million is and expected amortization should now be of to the $XX

from expect expense we to For the XXXX, now full million interest $XX year to range $XX million.

be rate will Our approximately XX%. full year tax

and average weighted We approximately expect million. be XX.X million anticipated fully a million, million now And $XX midpoint $XX expenditures our guidance. to of diluted capital our share the of $XX count are below previous between

that, for turn back with closing to I'll call remarks. his the over John And

John Wasson

Barry. you, Thank

year earnings we have as As full special reflect revisions from you current release, we year-to-date. noticed have as our made incurred well expectations to to the guidance on charges our have

as million in brought our business and guidance the of down by business reflects impact well several [indiscernible] year-to-date service of postponement government the revenue service certain currency our midpoint in $XX.X international exiting narrowed We the lines of projects as in QX.

XX.X%, guidance of benefit range our of EBITDA revenue up our guidance. adjusted XXXX and EPS date We've impact reaffirmed this for the to to of service midpoint quarter's charges and the included improve and GAAP margin M&A this tax non-GAAP facility-related to the [filled] EPS severance increased

we and sector we're growth now EBITDA service revenue XX.X%. on of Based at pin points, growth adjusted expecting these end [indiscernible] of of growth XX.X% XXXX XX%, of top performance. believe EPS non-GAAP the are

approximately development it's new we in performance of quarter and awards be pipeline, funded, with business the XXXX fourth confident $X.X a backlog expectations the will of year that strong ICF. another billion, for robust And XX% significant are with for

we companies ranked our like ICF employers We is As release, we XXXX best of recognition of firms, execute in diversity in one noted appreciate growth ICF the of talent Forbes by challenges best most consulting earnings need as on women. the best effectively employers as the one the and this for attracting in for strategy. a one management is facing to

count about new quarter pleased our remainder organically to in the over I'm acquisitions. XX% X the of that report hires X% in increased to head coming added third

the the value-based experiencing strong flexibility. indicated and deep of results connection pace, employee are to and recent our culture We tied survey hiring record-setting a

sure part, is leadership On provide and employee benefits we disciplines. our diversified make the to priorities to our with at organization line that in all continue levels communication fluent development our our opportunities across growth are programs business that and

Operator, now open questions. I'll with call over to that, the

Operator

with Summer from question comes first Instructions] Our Securities. [Operator Tobey Truist

Tobey Sommer

impact as years or climate X of over What bill X think IRA? known do will the be the on you next the also growth

John Wasson

Sure.

as us, our So the as in Day key remarks based revenue the organic we of by of in thing, did those off drivers with would goals our I and saying in and long-term X acquisitions who double-digit expectation high as know, noted my than on Investor I front out our that, growth included single-digit lay -- that of EBITDA you growth financial of total growth, part Tobey, level higher revenue growth. start May, growth the

think background. just I was so And that

I also think us clean Day, the significant energy. Investor for a potential on as provide, does as I you my think, inflation I opportunity in reduction know, said remarks, our the after

In climate become in think XXXX. XXXX in I opportunities will develop It those material beyond. and fronts, should and

those our hard has certainly upside I of potentially it the on we And we'll to It it's characterize take -- have but plays double-digit the potential high Investor top has that to to fully out how single-digit organic opportunities, provide so to growth revenue, us can but think time. see -- at over Day. indicated

note, As our Act of Inflation it funding it. directly within about I Reduction a also business, XX% does the as impact

So opportunity it's certainly yes. a material us, for

Tobey Sommer

How the or you the company? expect what work the business? an you quarter awards represented for And that ramps much any do color contract of of expectation new on have in to

Barry Broadus

majority, of driven significant our in the by I growth recompete don't majority in X the in areas. growth new contract being I Obviously, opportunities our expect think the [indiscernible] breakdown growth side I pipeline, have would with would [ad] the the the wins. is be

XX% expect track XX% in of on certainly think the I so the business. new And our would I leads to majority, about

Tobey Sommer

of could outlook, And you talk changed talk to what's commercial low-growth top answer and also, international the the narrow what parts in the line outlook you cause for about of guidance lower including you range? the aerospace? to context the once the that marketing, And about company,

John Wasson

Yes.

what was, going and I right was the impact to of currency projects on think range guidance narrow the of with Ukraine what's and year the us issues to remarks, my mean, I the of overall as this of business, in I for caused economy. in given movement it the lower the the European in said and the remainder related the Europe war

about we So million. to guidance our $XX.X reduced

commercial that with about million $XX associated revenues about reductions to the million of think business marketing lines and our service in $X.X and I related was to related in specific services. down European shutting was

that's what think I so And the reductions. drove specific

services, think generally, discussed the the on low the the I achieving is of we've of it opportunities remainder rest your that and growth low We marketing Obviously, business, to see I forward. go pre-pandemic I is rebounded question as setting that growth. the levels. generally terms remainder aside, incremental haven't in digit, think not from business single-digit of of low we been in we the think business. see single-digit we But is mid-single

Tobey Sommer

you sneak a about I'll more that to one could. thinking headwind growth beyond if you expense are Okay. And into expense paying How I simply there down steps are of mitigate interest 'XX? in that take debt? as kind can

Barry Broadus

Well, at. down execute look timing best we'd that that. the One for would is critical then I things And a company, debt on like for to is Thanks and more Yes. of that. debt there's of the we'll component then the a number paying question. be the think of when the hedging

amount. look to delever flows we'll and and continue debt our those that flow to use reduce So and cash improve cash

John Wasson

that. Yes. just to I'll add

been forward in we've our full footprint, given managing leaning as we'll environment a reducing about, time think spending -- be rather using the and there in hybrid I mean, facilities office. our been I we've looking that than talked operating we've

in has there, investment doing savings invest increases to interest-related those both the the reduced so, seen. offset we've -- of been using to some we've business that we've and in the spend back And and

think, less we'll a be to as as Barry -- hedged that forward. expect do than I we it's at I continue X% to about his hedge, remarks, And Barry to would I rate. able I that mean said going XX% just do said, in interest -- also do

be to in So too. we front, want lean we the have on -- hedging

Operator

is And from Riddick Go Sidoti ahead, and please. open. your question line comes our next Marc of Mr.

Marc Riddick

done in on talk strength the little So the maybe to the wonder we're and about infrastructure there wanted state I seeing you could local the, levers so and activity if given level the touch a local that on bit the state spend there's sort just federal and of spend we're of and seeing involved. that eventually. to certainly, some and I be

as bit if I you wondering disaster talk some of as of give and if work us update could sort some looking forward the maybe little of you're about that you're if a doing. timing work a time of and projects to maybe getting for any the state customers moving putting of you're well sort you an at feedback projects, was from there that the could to on bit frame those local of

Barry Broadus

and know, So the state local about large split I X has our then think, business management as components work and work. major essentially middle, you that down permitting monitoring disaster our projects and our environmental infrastructure

noted that we I double think the business, -- third been in as and digit, that our quarter. growth in growing think double-digit I it's we achieved remarks, scalable

the we to market think to going provide billion year a ICF. said, as billion $X for funding, $X I for addressable IIJA

rail lot infrastructure and to infrastructure. opportunity a and of bridges the be think energy we'll roads at around be level, water-related projects traditional and state and local with will and I that

I think And opportunity future that is for source so us. an important of

to up XXXX, we growth that drive beyond. over come as to think begin assuming, years. fruition that half -- I the, and the see coming and our and in spent that discussed, will then to opportunity X-plus in really help we've 'XX of money to ramping But second be

And look to become company half I material to so second the the opportunity. really of would an it in and XXXX. for that's certainly

pipeline a have state do and front billion. at on IIJA seeing and robust overall $X.X is are pipeline We local our the we --

strong both have book The we disaster Rico executing recovery well of a are in and Texas. front, and again, business I think Puerto very

in Puerto be Hurricane will there Rico. think I on opportunities for Fiona additional time us over

there. that up underway a response I Puerto the Rico opportunities immediate expect we've said $XX to As remarks, million support Hurricane material plus And from the tracking will I down we'll be won activities from already in Ian to be could -- be beyond. there out of received my very of XXXX the that months second and next X and here play in in will potentially the X half carefully

of expect strong remain and we we drivers, those growth have local certainly the markets. They're going our to bullish in state part quite So growth on of both markets as forward. key and

Marc Riddick

And on I following one still. just about add sort months what I us X if it's But touch you year pipeline talk are could concerns you now maybe wanted could your might then little changed speed if look maybe the on views up of healthy Great. if be more over and recessionary a thoughts there. wonder to to given just the just question. bring maybe out to if on last seem bit that and appetite could SemanticBits, the the acquisition acquisition pipeline like

John Wasson

Yes.

focus a third the helped significant I integrated certainly IT in here on and acquisition think our the the -- improve significant Blanton and the and we've for I think tuck-in quarter, was acquisitions positioning front, & modernization on right greatly front. small business integration our Associates environmental the completed now us in is

My pay and here next of we're year. through expectation associated integration the be focused that, our is to acquisitions focused debt those down that going laser first going on of half flow. on laser cash carefully managing And with to we're be

least integrating we'll and at see think this next half or we've done I quite of in first focus in us our leaning paying deals the year don't front, making through significant end year, of I the M&A debt. the on the investments down and successfully So any simply on

opportunities still in terms I of the federal say the there's government markets. would In There's energy market. I market, mean, activity in still services that

companies out I there's still quality think there.

obviously market. the out so And in are we

year. a think pipeline, focus, seen a the next of say, to beyond we on haven't have half year and integrating for as first deals first close we'll the I stay through change the market. down half will our the Peter, to our debt the But -- paying in focus next we've the valuations next here Honestly, I market. We in done significant of

Operator

it now That remarks. like back was call. would closing last Wasson our John for turn I to to

John Wasson

for Thank today. forward Well, We thanks events. you. you of look upcoming at certainly participation all your meeting to

Operator

for Thank conclude program. you your does conference. in participation This the today's

You may disconnect. now

ICF International (ICFI) 3 Nov 222022 Q3 Earnings call transcript