Welcome to the First Quarter 2021 ICF Earnings Conference Call. My name is Vanessa and I will be your operator for today's call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. Please note, this conference is being recorded on Tuesday, May 4, 2021, 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.

Thank you, Vanessa. Good afternoon, everyone, and thank you for joining us to review ICF's first quarter 2021 performance. With us today from ICF are John Wasson, President and CEO; and Bettina Welsh, CFO. Joining them is James Morgan, Chief of Business Operations. 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 differ materially. And I refer you to our May 4, 2021, press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our view to change. 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. I will now turn over the call to ICF's CEO, John Wasson, to discuss first quarter 2021 performance. John?

Thank you, Lynn, and thank you all for joining us today to review our 2021 first quarter results and discuss our business outlook. ICF's first quarter results represented an outstanding start to the year, setting the stage for considerable growth in 2021. Indeed, the outperformance led us to raise our full-year service revenue, EBITDA, and EPS expectations to the upper end of the ranges despite it being early in the year. There are three key takeaways from our first quarter performance that I'd like to point out. First, our qualifications, positioning, and contract vehicles in high-growth markets in both government and commercial arenas drove substantial growth in service revenue, which together with higher utilization and quarter-specific margin benefits resulted in year-on-year increases in EBITDA and EPS that significantly outpaced revenue growth. Second, this was the third consecutive quarter of record contract awards for ICF, resulting in a trailing 12-month book to bill of 1.44 times, which is the highest level in recent years and is overwhelmingly related to bids submitted prior to the Biden administration assuming office. Lastly, the greater clarity we have on the Biden administration's funding priorities, the more confident we are about ICF's additional long-term growth potential for 2022 and beyond. First quarter revenue growth was led by strong results from our government and commercial energy businesses, which together accounted for 88% of total revenues. Looking more closely at our first quarter results by client category, the increase in our government business was driven by a 13% increase in revenues from federal government clients, led by IT modernization, digital transformation, and public health work across key civilian agencies, including the Department of Health and Human Services, the Federal Communications Commission, the Department of State, and the Department of Homeland Security. This was also a strong quarter for ICF contract wins in the federal market, particularly in IT modernization, public health, and cybersecurity. We continue to win new task orders and contract modifications to perform COVID-related response work, which brings the cumulative value of these awards to over $45 million since the onset of the pandemic. More than the dollars, however, these wins continue to strengthen our positioning for future work related to COVID-19 recovery and reinvention programs, which we expect will include the modernization of disease surveillance systems and new initiatives to improve the country's readiness in the face of future pandemics. We are monitoring how the new administration is working to define and implement its policy and funding priorities. Just looking at the Biden administration's $1.9 trillion America Rescue Plan Act that has been passed by Congress, we see significant opportunities in our addressable market. Notably, at least $2 million has been allocated for federal agency IT. This includes $1 billion in new funding for the technology modernization fund to help complete modernization projects at federal agencies. Additionally, $150 million is specifically designated to the Cybersecurity and Infrastructure Security Agency, which is a new client of ours. Another $40 billion is earmarked to support childcare providers and Head Start, but ICF currently provides services to Head Start grantees in six of the 12 Head Start regions across 40 states and the District of Columbia. Other funding includes $12 billion for food support to families in need through nutrition programs, $500 million to the CDC for data monetization and analytics, and $9 billion for central tribal and federal safety net programs that serve native communities. These opportunities did not even include the proposed $2 trillion American Jobs Plan, where, for example, our project permitting and monitoring of infrastructure projects, plus our expertise in resilience, mitigation, and clean tech come into play, nor the fiscal 2022 budget proposal that includes a 16% increase for civilian agencies, including a 23% increase for our largest client HHS, a 41% increase at the Department of Education, a 21% increase at EPA, and a 15% increase at HUD. This gives you some idea of the magnitude of proposed federal spending over the next several years in areas and agencies where ICF has strong qualifications and relevant contract vehicles. As we mentioned in our conference call last quarter, we are utilizing a portion of the savings we have gained from the optimization of our real estate footprint and reduced travel and entertainment expenses to invest in people and technologies to expand our capabilities in these high-growth markets. In local revenues declined by 6% in the first quarter, probably due to lower pass-through revenues in disaster management. Business continues to track well and is expected to meet our expectations for double-digit growth in 2021. Last week, we announced a first-quarter $46 million award from the government of Puerto Rico's Public-Private Partnership Authority, which includes elements of ICF's previous work to provide FEMA-funded project formulation services to support long-term disaster recovery from hurricanes Irma and Maria, and hazard mitigation efforts to protect against future disasters. This contract includes an initial four-month term through June 30 of this year, plus two additional one-year options to extend. Additionally, during the first quarter, we ramped up existing mitigation contracts and added new clients in Oregon related to the wildfires in 2019 and 2020, and expanded work in Louisiana related to the winter power outages. As noted in our earnings release, revenues from international government clients increased substantially in the first quarter, maybe reflecting a sizable short-term project, which we expect to wind down throughout this year. The recent $11 million contract award to manage the EU Climate Pact has placed ICF at the heart of the Commission's activities and provides ICF with a high-profile role in stimulating climate action within the European Union. We expect to see a return to growth in revenue from non-U.S. government clients in 2021, but not at the magnitude we saw in the first quarter. Moving to a review of our commercial business, commercial marketing services accounted for just under 10% of total revenues in this year's first quarter, with the year-on-year decline tied to the impact of pandemic on a portion of this business. We have closely managed expenses in this area while continuing to do great work for clients, for which we were recognized with awards for multiple campaigns in the first quarter. I am pleased to report that we added several new clients in the first quarter across the health, consumer product, and financial sectors. Adjusting for the completion of the large media buying related contract at the end of 2020, we expect revenues from commercial marketing clients in 2021 to be down slightly compared to last year. Commercial energy markets had a great first quarter of 12% year-on-year growth, representing 16.5% of total revenues. Specifically, revenues from our utility programs business, which includes energy efficiency, electrification, and flexible load management programs, increased at a high single-digit rate, reflecting the startup of new contracts, the expansion of existing contracts under extensions awarded at the end of last year, and the timing of performance-related incentive fees on several contracts. At the same time, we saw significant demand for energy advisory service activities, which include financial engineering due diligence services, rapid deployment and development of renewable resources, and energy storage. Additionally, in the first quarter, our environmental services business won new contracts with utilities and renewable energy developers, including an additional contract to conduct an environmental study for an East Coast offshore wind project. ICF's leadership and expertise in energy-related issues is broadly recognized in both the commercial and government markets. As long-term advisors to the U.S. Department of Energy, we were called in real time to provide a detailed situation analysis at the time of the winter vortex—the cost energy blackout in Texas and surrounding states in February of this year. ICF also supports electric vehicle programs at the federal and state levels and we design and run several utility EV programs. Our expertise in renewable energy and transmission issues, energy efficiency, climate science, decarbonization, infrastructure resilience, and client climate adaptation aligns well with the Biden administration's priorities and creates significant long-term growth opportunity for both ICF's commercial and government energy business in multiple areas. Summarizing this quarter's results, we continue the positive momentum we experienced at the end of last year and supporting our expectations for strong growth in 2021. We achieved record contract sales of $596 million, a 67% year-on-year increase, and our business development pipeline was over $6 billion at the end of the first quarter. With that, I’m going to turn the call over to Bettina, our CFO, for a financial review. Bettina?

Thank you, John. Good afternoon, everyone. I will provide a more detailed look at our first quarter 2021 results which exceeded our initial projections. First quarter 2021 total revenue was up 5.6% to $378.5 million, driven by strong performance of our government and commercial energy businesses, which increased 13% and 12% respectively. We are especially pleased with service revenue growth of 9.5% year-on-year, which we see as a better indicator of our trends in our business, as it represents the work done by ICF employees. Pass-through revenue accounted for 26.1% of total revenue compared to 28.7% in last year's first quarter. Gross Profit increased 14.7% year-on-year to $146.4 million. Gross margin on total revenue expanded by 310 basis points to 38.7% and gross margin on service revenue grew by 140 basis points to 52.4%. Gross Margin benefited from strong service revenue growth and lower fringe costs. Additionally, there was a significant quarter-specific benefit primarily from the timing of several recently awarded fixed-price energy efficiency contracts, on which certain program costs will be incurred in the upcoming quarters, and the timing of energy efficiency incentive fees on several contracts. Indirect and selling expenses were $110 million compared to $103.3 million in the year-ago quarter. However, as a percentage of service revenues, indirect selling expenses declined by 110 basis points to 39.3% compared to 40.4% in last year's first quarter. EBITDA was $36.4 million, 49.5% above last year's $24.4 million inclusive of $1.3 million in facility closure and severance costs. Excluding special charges, adjusted EBITDA was $37.7 million compared to $28 million in last year's first quarter. Adjusted EBITDA margin on service revenue expanded by 260 basis points to 13.5%, thanks to higher revenue, favorable mix, and the timing of contract awards and incentives fees I mentioned earlier. Operating income of $28.1 million increased 72.4% from $16.3 million reported in the first quarter of 2020. Our tax rate was 26.7% in line with our expectations, which compared to 18.3% in the first quarter of 2020. Net income for the quarter was $18.4 million, or $0.96 per diluted share inclusive of $0.05 of tax-effective special charges; this compares to $10.6 million, or $0.55 per diluted share in the first quarter of 2020 inclusive of $0.16 of tax record special charges. On a non-GAAP basis, excluding the impact of special charges and amortization, EPS were $1.13, up 36% from last year's $0.83. Moving to the cash flow statement and balance sheet, we are pleased with our positive operating cash flow of $5 million compared to the use of operating cash flow of $15.2 million in the comparable period of 2020, which is more typical of our first quarter seasonality. The upside was a function of the higher net income and the timing of accounts payable. Capital expenditures in March were $3.6 million compared to $4.7 million in the prior year. Day sales outstanding for the first quarter were 80 days compared to 88 days in the same period last year. Our net leverage ratio at the end of March improved to 2.38 times compared to 2.47 times at the end of 2020. As for capital allocation, moving forward, we will continue to prioritize organic growth, acquisitions, and debt reduction, as well as funding our dividend and conducting share buybacks to offset dilution. Speaking of share repurchases and dividends in the first quarter, we repurchased 151,200 shares for $12.8 million to offset the dilution of our employee incentive program. Also, today, we declared quarterly cash dividends of $0.14 per share payable on July 14, 2021, to shareholders of record on June 11, 2021. Given the very strong performance we had in Q1, we are expecting less seasonality, and more evenly distributed revenue and earnings this year than in the past. For modeling purposes, the following metrics remain our expectations for 2021. Depreciation and amortization expense is expected to be in the range of $20.5 million to $21.5 million for the full year 2021. Amortization of intangibles should be in the range of $11.8 million to $12.2 million. Full year interest expense should range from $11 million to $12 million. Full year tax rate will be no greater than 27%. We expect fully diluted weighted average share count of approximately $19.1 million for 2021. And capital expenditures are anticipated to be between $20 million and $22 million. We also reaffirm our operating cash flow expectations of approximately $100 million. With that, I will turn the call back to John for his closing remarks.

As I mentioned at the outset of this call, our outstanding first quarter performance has led us to move our expectations for full-year service revenue, EBITDA, and EPS to the upper end of the initial ranges we provided at the time of our fourth quarter 2020 earnings release. We are reaffirming our guidance for total revenue growth and operating cash flow. Approximately 55% of our 2020 service revenue represented ICF work in key growth areas, namely IT modernization, public health, disaster management, utility programs, along with climate, environment, and infrastructure consulting, all of which are closely aligned with the priorities of the new administration. Taken together, we expect the growth rate in these areas to be 10% or more over the next several years. We are well on our way to achieving this objective for 2021. We are making the requisite investments to capture the organic growth opportunities on the horizon. Additionally, we have the financial resources to pursue acquisitions that can further expand our addressable market. At ICF, much of our business is in service areas that enable us to create positive impacts. In fact, in 2020, over 85% of our total revenues were derived from our two largest markets, namely energy, environment and infrastructure, and health and social programs, areas which benefit society. At the same time, ICF has prioritized being a good corporate citizen, remaining carbon neutral for the last 15 years, and embracing diversity, social justice, and equal pay. This has attracted like-minded people who've shown a shared commitment to environmental and social issues and have a passion for their work. I encourage you to access our most recent corporate citizenship report to learn more about how ICF addresses its ESG responsibilities. With that operator, now we'd like to open the call to questions.

We have our first question from Tobey Sommer with Truist Securities. Please go ahead.

Thank you. I was hoping to get your perspective on the growth in the sort of complement of the business, the non-55%, that you say is going to grow double digits for a number of years. How should we think about the growth there? Some of those businesses were impacted cyclically and maybe can bounce back cyclically as well. Could you give us some color?

I think our assumption, Toby, is that generally, as we look forward, the 55% that are in the key growth markets, I think we certainly see 10% and beyond growth there. And as we continue to look out, given the Biden administration priorities, we get more excited about these opportunities. Over time, I think for the rest of the 45% of the business, we are generally thinking kind of flat to low single-digit growth as we look forward with those businesses. And so I think that's how we're generally looking at those over the longer term.

Okay. Thank you. In the budget that the Biden administration proposed, as well as the infrastructure-related bill, if those are passed, and let's pick a day, let's say it happened today, when would the influence of those appropriations start to flow through most likely in the contracts and then eventually into the income statement of the company?

I think generally, once a budget is passed and the infrastructure bill is passed, it could be three to six months. Realistically, I don't think the infrastructure bill is going to be passed until later in the summer, as you've probably read. The budget would start on October 1. I think it's very unusual for the government to have a budget in place right on time. But if those fall into place, it presents significant upside for us in 2022 and beyond. Our guidance for this year doesn’t assume any material impacts there. However, I do think that the stimulus bill that Biden passed provides some opportunity for us. Over the last few quarters, we've had very significant sales and strong bill-to-bill ratios, which predated the Biden administration, setting us up well already for strong growth as we look forward.

Can you talk about the M&A pipeline and what it looks like? Your appetite and areas of interest?

Certainly. M&A has been a key element of our strategy over many years. Our growth has been robust; about half has been organic, half has been inorganic. We're constantly in the market looking to add skills and capabilities that could help us grow, particularly on the federal side around IT modernization and digital transformation, as well as in public health. The market right now is quite active, and we are seeing a good deal flow. Pricing is quite frothy, and there are opportunities out there. We're looking for companies that are a good strategic fit and cultural fit, with high quality where we see synergistic revenue. If we can find those companies, even in strong valuation situations, it can make the deals very attractive for long-term growth. The ITG acquisition last year was a great example for us, and we’re actively looking in the market.

Thank you. Last question for me: what would gross margins on a normalized basis have been if there were none of the items that you called out?

Good question. We’re very pleased with our gross margin this quarter. However, I would say the upside is approximately 200 basis points of gross margin related to the timing of the fixed-price awards on those several energy efficiency contracts and the timing of the energy incentive award. Hopefully, that gives you a good sense.

Thank you. We have our next question from Sam England with Berenberg. Please go ahead.

Hi guys, it's Alex for Sam. My first question is: You commented previously that your work with health agencies on pandemic response could exceed your work on HIV and AIDS. Is that still confirmed?

I think there's certainly the potential for that. As we've talked about on the HIV/AIDS front for NIH, we've run a clearinghouse and a website focused on providing the latest treatment options and sharing information with healthcare providers and physicians. We've announced in several quarters ago that we had begun efforts on a similar website for the COVID front. I do think as we look down the road, once we get past the immediate response and into long-term recovery from COVID, there could be sizable opportunities for us. I'm tracking those carefully, and I think they could present significant opportunities in the second half of this year and into 2022 and beyond.

Okay, great. And given the strong performance in Q1, how are you guys thinking about hiring for the rest of the year?

We’re a people-oriented business; it's all about the expertise of our employees. With service revenue growing 9.5% in the first quarter, we obviously need to be aggressively adding staff. We’re focused on recruitment, as it's critical. When our revenue grows 10%, we need to be adding 8.5% to 9% additional staff while we work on raising the utilization over time. It's essential for us to be out there recruiting, and we are actively working on that.

And thank you. Our next question comes from Joseph Vafi with Canaccord. Please go ahead, sir. Your line is open.

Hi guys, good afternoon. Just wanted to circle back on some questions I've asked in the past relative to number one, what you're seeing in average deal size now, in the quarter on bookings, especially on the federal side and specifically about IT modernization?

Sure. As we've discussed before, on the IT modernization front, it's an attractive market with significant opportunities. As ICF grows, we aspire to double and become a $3 billion company, which means we have to win larger deals. We're seeing potential contracts in the range of $100 million to $250 million. We're focusing on these larger opportunities and investing in our capability to capture them. We've been building our pipeline significantly in both the federal and commercial energy arenas.

That said, are many of these newer, larger opportunities repeat work with existing clients or brand new opportunities? Is it a combination?

It's a combination of both. We're certainly looking to add new opportunities to the pipeline while maintaining relationships with existing clients. We have to take repeats seriously and ensure we are in place to capture them. Our strategy is to invest more to pursue both newer opportunities in growth markets.

Got it. Lastly, how is ICF Next performing, and what are your expectations there, particularly in the reopening scenario for some of the clients?

On the marketing services front, particularly commercial marketing services, we generally expect it to be flat for the year. The first quarter comparison is still challenging, given it’s mostly pre-pandemic. However, we assume a significant rebound in the commercial marketing business later in the year, mainly due to sectors like hospitality, travel, and tourism. We are generally optimistic about the rebound with the end of the pandemic and the economy improving.

Thank you very much.

And thank you. Our next question is from Andrew Nicholas with William Blair. Please go ahead, your line is open.

Hi, good afternoon everyone, this is actually Trevor Romeo in for Andrew. Thank you for taking our questions. First was just a question about your expectation for kind of hitting the high end of your guidance ranges? Is that more of an increased expectation for the balance of the year or a reflection of the performance in the first quarter? And if you do exceed guidance for the full year, would you expect that to come from areas like IT modernization and energy or an accelerating rebound in softer areas like marketing?

The fact that we've reached the upper end of the guidance range is largely reflective of the first quarter performance. However, we have strong momentum, and if we were to exceed guidance by year-end, I believe that growth would come primarily from our robust areas like IT modernization and energy rather than significant improvements in marketing. We remain optimistic about execution throughout the year.

Thank you. Just curious if you see additional opportunities for disaster recovery in Puerto Rico?

In addition to the contract we won this quarter for FEMA-funded public infrastructure work, there are several proposals we are awaiting awards on in Puerto Rico, especially in housing. We expect forthcoming RFPs related to mitigation funding, and the Biden administration's support is likely to continue to provide significant opportunities in the region. The total funding available for mitigation is substantial, and we are well-positioned to take advantage of it.

Thank you, John. Appreciate it.

We have our next question from Marc Riddick with Sidoti. Please go ahead.

Good afternoon. I was wondering if you could talk about the cadence of how things developed throughout the quarter and into the recent timeframe regarding the support you're seeing from the new administration that contributes to your confidence in future outcomes?

Certainly. For the last several years, we've discussed four key growth drivers: IT modernization, public health, disaster recovery, and utilities. These were strong drivers under the previous administration and continue to remain so with the new administration. We've observed a recommitment to tackling climate change, significant proposed budgets for civilian agencies, and many executive actions highlighting infrastructure, all of which contribute to our confidence. If a portion of the proposed budgets and bills become a reality, it will be beneficial for us.

Can you provide an update on California's outsourcing efforts and any potential timing for associated work?

We're focused on energy efficiency opportunities in California. We successfully won significant contracts last year and expect to win similar amounts in the future. The market is robust, and we’re optimistic about our energy efficiency business going forward. The Biden administration’s commitment to climate initiatives can further catalyze that area.

Thank you very much.

Thank you for participating in today's call. We look forward to meeting with you at upcoming events. Thank you.

Thank you, ladies and gentlemen. This concludes our conference. We thank you for participating. You may now disconnect.