Good day, everyone, and thank you for standing by. Welcome to the Third Quarter 2024 ICF Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call to Lynn Morgen with Advisiry Partners.

Thank you, Operator. Good afternoon, everyone, and Happy Halloween. Thank you for joining us to review ICF's third quarter 2024 performance. With us today from ICF are John Wasson, Chair and CEO, and Barry Broadus, CFO. Joining them is James Morgan, Chief Operating Officer. 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 October 31, 2024, 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 views 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 the call over to ICF CEO John Wasson to discuss third quarter 2024 performance. John?

Thank you, Lynn, and thank you all for participating in today's call to review our third quarter results and discuss our business outlook. I want to echo Lynn's Happy Halloween wishes. I'm pleased to say we have no tricks and lots of treats in our Q3 results. So with that said, I'll move this along so those of you who are going out trick-or-treating tonight can get there in a timely way. So this was another strong quarter for ICF. Our staff executed very well on existing contracts, and our forward-looking metrics indicate that we are well-positioned for continued growth. Looking at the key takeaways from the quarter, first, revenue from continuing operations increased 6% year-on-year. Additionally, revenues from continuing operations less pass-throughs increased 10% year-on-year. This is representative of the work done by ICF employees. Second, we outperformed across all profitability metrics, reflecting favorable business mix and tax benefits, enabling us to increase our EPS guidance by $0.35 for the full year. Third, we had solid third quarter contract wins, resulting in a healthy trailing 12-month book-to-bill ratio of 1.31. And lastly, we ended the third quarter with a record new business development pipeline of $10.6 billion, providing substantial growth potential for ICF across our government and commercial client sets over the coming years. Third quarter revenue growth, again, was led by our energy, environment, infrastructure, and disaster recovery client market. We're accelerating demand for ICF's multidisciplinary solutions, our analytics, and our program management expertise led to over a 15.3% increase in revenue. Robust growth in our higher margin revenues from commercial energy clients continued to be a key contributor to our strong performance. Year-on-year growth reflected both the addition of new clients and the increasing scope of work we're performing for existing clients. ICF is a market leader in developing and implementing the latest generation of residential energy efficiency programs, and we're also gaining market share in the commercial and industrial energy efficiency markets. We have a long track record of consistently reaching and exceeding performance goals on our energy efficiency programs and have invested organically and through tuck-in acquisitions to significantly expand our capabilities in adjacent areas. As a result, we have earned the trust of our utility clients and have a broad range of very timely and relevant offerings that bring together our expertise in energy, climate, grid engineering, and disaster recovery, which is a unique set of capabilities that ICF possesses. This has led to consistently growing demand for our program development and implementation services beyond energy efficiency programs to include pilot programs on flexible load management, developing programs on electrification, and advising on grid resilience. And this demand has accelerated given the rapid pace of low growth from new data centers and transportation electrification. In the third quarter, we also continued to work for utilities in support of undergrounding power lines and advising on wildfire restoration and resilience. Additionally, third quarter commercial energy market revenue growth reflected ongoing work for renewable developers across solar, storage, and wind, where we have seen recent wins to provide the full breadth of ICF's licensing, permitting, compliance, and habitat conservation services. We continue to see opportunities from the IIJ and IRA. To date, ICF has won about $185 million in work related to the IIJ and IRA, primarily from federal and state government clients, and their pipeline is over $250 million. This does not include all the related work that we're doing for commercial clients, where it's more difficult to tie the engagements to specific legislation. RFPs from state and local governments for IIJA and IRA-related grant management support are being released, with many more expected in Q4 and early 2025. These RFPs for programs such as climate pollution reduction, solar for all, home energy rebates, and grid resilience and innovation provide significant opportunities for ICF, building on our existing work across the country for utilities and for state and local clients on climate and clean energy topics. In fact, we continue to see strong demand for our climate-related services across our client base in the third quarter, with revenues substantially up year-on-year, and solid growth in new contract wins. Indicative of the breadth and depth of our climate work with state governments, our third quarter wins include the state of Hawaii for sea level rise vulnerability assessments, the California Air Resources Board for a refinery infrastructure study, and carbon reduction strategies for the Texas Capital Area Metropolitan Planning Organization. Our disaster recovery work continues to be in high demand. As you know, we generally are not involved in the initial response to disasters, but we have won numerous small contracts from clients in Florida, North Carolina, South Carolina, and Virginia to provide immediate disaster assessment support post Hurricanes Helene and Milton. Later in 2025, we will respond to competitive solicitations to address their longer-term recovery needs, and these small initial assignments will raise ICF's profile and allow us to develop key client relationships now. ICF is currently delivering on roughly 50 disaster recovery programs in 16 states and two territories, and we're currently supporting more than 30 clients' mitigation efforts in 10 states and one territory. Our programs are expanding, as evidenced by a recent $38 million contract extension from an existing client to continue supporting their disaster recovery and mitigation efforts and a new contract with another existing client to provide services to support compliance with federal and local disaster management regulations related to its hurricane recovery efforts. Moving to our health and social programs client market, reported revenues from continuing operations declined 5.2% year-on-year, but that includes a reduction in pass-through revenues of approximately $12 million in the third quarter. Adjusting for the lower pass-through revenues, revenues from continuing operations in this client market were slightly ahead of last year. As we discussed last quarter, we have faced difficult comparisons in this client market in 2024 for two major reasons: the anticipated fall-off in revenues from small business set-aside contracts that were held by the IT modernization firms we acquired in 2022 and ramp-up delays on certain USAID health-related contracts. Please also keep in mind that several of our large international government contracts are included in this client market. We won several new contracts in the public health and social programs arena in the third quarter, including a new task order worth $40 million to deliver strategic and digital communication and engagement campaigns to combat human trafficking. We continue to see growth opportunities related to capacity building, training, and technical assistance for federal grantees. Currently, we support about $200 million per year of this work across the federal government, including at ACF, NIH, CDC, DOJ, and EPA. Also in the third quarter, we were awarded a new $70 million contract by the government of the U.S. Territory to design, build, and implement a new geospatial data management system. This is an excellent example of the increased traction we're seeing on opportunities that combine our technology and domain expertise, particularly when the scope of work includes a data or AI focus. Other examples of recent wins where we're combining our technology and domain expertise within the public health and social programs area include a new project for the Advanced Research Projects Agency for Health, or ARPA-H, in which we'll develop and apply methods to make genomic and other complex scientific data AI-ready. The biomedical research data from NIH institutes and centers will then be included in ARPA-H biomedical data fabric toolbox and be more easily accessible by researchers. Also, we executed on our expanded contract to monetize the data infrastructure that supports CDC's Youth Risk Behavior Survey, which is the largest public health surveillance system in the U.S., monitoring health-related behaviors among high school students like alcohol and drug use, physical activity, and unintentional injuries and violence. As we end the year and move into 2025, we believe that the federal digital modernization efforts will continue to remain a bipartisan spending priority and that this market will continue to grow at a high single-digit rate. Further, we're pleased to see an increase in the number of procurements being released with expected awards in the first half of 2025. On the topic of new business, as I mentioned earlier, we ended the third quarter with a healthy trailing 12-month book-to-bill ratio of 1.31, which is a positive indication of future growth. New business accounted for 63% of our year-to-date contract wins, demonstrating how well our capabilities are aligned with client spending priorities. In summary, this was a quarter of significant progress for ICF in terms of execution, profitability, and forward-looking metrics. I'll now turn the call over to our CFO, Barry Broadus, for a financial review. Barry?

Thank you, John, and good afternoon, everyone. I'm pleased to provide you with additional details on our 2024 third quarter financial performance. Our third quarter revenue was $517 million, representing an increase of 3.1% year-over-year, or 6% after adjusting for the divestiture of the commercial marketing business last year. These positive comparisons were primarily driven by 15% growth in our energy, environmental infrastructure, and disaster recovery client market, which benefited from continued strong demand from our commercial energy clients. Revenues from continuing operations, less subcontractor and other direct costs yielded a 10% increase year-over-year. While our federal business delivered revenue growth of 1% in the third quarter, excluding the impact of lower subcontractor and other direct costs, federal revenue grew an estimated amount of 6% year-over-year. Comparisons continue to be impacted by lower pass-through expenses associated with international development programs with USAID, as discussed in our prior calls. Subcontractor and other direct costs of $127.6 million represented 24.7% of total revenues, down from 27.1% in the third quarter of 2023. The 250 basis point decline in pass-through costs resulted in a shift in our revenue mix towards ICF direct labor, which is more profitable than revenues generated from subcontractor and other direct costs. This favorable mix, higher utilization, and a migration towards more fixed-price and time-and-material contracts, along with higher margin revenue growth with our commercial energy clients, led to a 160 basis point improvement in gross margin of 37.1%. Indirect and selling expenses of $132.8 million were up 1% year-over-year, well below our revenue growth, reflecting considerable operational efficiencies. As a percentage of revenue, indirect and selling expenses declined 50 basis points to 25.7% due to our continued emphasis on driving higher utilization rates, maintaining disciplined cost controls, and leveraging our scale, while at the same time ensuring that we are adequately investing in various initiatives to drive long-term growth across our markets. Our third quarter EBITDA grew by 18.4% year-over-year to $58.2 million, while adjusted EBITDA grew at 7.8% to $58.5 million. Adjusted EBITDA margin of 11.3 was 50 basis points above the prior year's quarter, reflecting our improved gross margins I previously mentioned, as well as actions to manage our indirect costs. Interest expense for the quarter was $7.2 million, compared to $10.6 million in last year's third quarter. The decrease in interest expense was driven by our lower year-over-year average debt balance of approximately $160 million. Our tax rate was 13.8% versus 1.4% last year, which was impacted by a one-time tax benefit associated with business investors in 2023. Our tax rate in this year's third quarter reflects various ongoing tax optimization strategies. As a result of these efforts, it is our expectation that we will continue to have an estimated tax rate of roughly 21% over the course of the next several years. Net income totaled $32.7 million, and diluted EPS was $1.73 per share in the third quarter. This compares with last year's net income of $23.7 million or $1.25 per diluted share, which included $5.2 million or $0.20 per share of tax-affected special charges. Non-GAAP EPS of $2.13 per share increased 17.7% year-over-year. As we noted in the release, we increased our EPS forecast for 2024 by $0.35 at the midpoint. The increase in our EPS estimates reflects our strong operational performance and the benefit of our lower tax rate. Shifting to cash flows in our balance sheet, our year-to-date operating cash flow totaled $76.2 million, well ahead of the $45.6 million reported in 2023, reflecting improved cash management, yielding a more favorable net working capital position. Day sales outstanding were 75 days compared to 73 last year. Year-to-date capital expenditures declined to $15.6 million from $17.9 million in last year's third quarter, due primarily to the timing of certain projects and the divestiture of the commercial marketing business. At the end of the quarter, our debt was $419.1 million, down from $533.9 million at the end of the prior year quarter, reflecting the use of our favorable cash flows to pay down debt. Approximately 65% of our debt is set at a fixed rate. Our adjusted net leverage ratio was 1.85x at quarter end, compared to 2.7x at the end of last year's third quarter. Turning to capital allocation, we continue to expect to deploy capital across a few key areas. These include organic growth investments, strategic M&A opportunities, debt reduction, quarterly dividends, and targeted share repurchase offset from our employee incentive plans. Today, we announced a quarterly cash dividend of $0.14 per share, payable on January 10, 2025, to shareholders of record on December 6, 2024. Now, to help you with your financial models, please note the following expectations for our full year 2024. Our depreciation and amortization expense is now expected to range from $20 million to $22 million. Amortization of intangibles is expected to be $32 million to $33 million. We anticipate interest expense to range from $30 million to $31 million. Capital expenditures are expected to be between $23 million and $24 million. Our full year tax rate expectation is now 20.5%, down from the 23.5% we previously guided to. We continue to expect a fully diluted weighted average share count of approximately 19 million shares, and we continue to expect a full year operating cash flow of $155 million. And with that, I'll turn the call back over to John for his closing remarks.

Thank you, Barry. Continued favorable business mix and utilization metrics, together with an estimated full year tax benefit of approximately $0.25 per share, have led us to increase the midpoint of our earnings per share guidance for full year 2024 by $0.35. A revised guidance range for GAAP EPS is $6.05 to $6.15, excluding special charges, and non-GAAP EPS is expected to range from $7.40 to $7.50, representing year-on-year growth of 14.6% at the midpoint. We have adjusted our full year 2024 revenue guidance range to reflect an estimated $50 million reduction in pass-throughs that reflect the slower-than-anticipated ramp-up of work on recently awarded contracts and delays in a few key award decisions. We are confident that these new business awards will be forthcoming in the near term, and the ramp-up on these programs will begin to accelerate in the upcoming months. The reduction primarily affects gross revenue comparisons in our health and social programs client market with no meaningful impact on margins. We are now expecting gross revenues of $2 billion to $2.03 billion compared to our previous guidance of $2.03 billion to $2.1 billion. Our forward-looking metrics point to continued growth for ICF as we enter 2025. We have a strong multiyear backlog, a record business development pipeline, and a solid track record of new business wins. We are experiencing consistent, robust demand from commercial clients for energy and environment expertise and related implementation and technology capabilities. We have excellent credentials in disaster management, resilience, and mitigation work to assist state and local governments with recovery after storms, flooding, and wildfires, as well as with their future resilience planning. The large majority of our federal work is in areas that have bipartisan support, particularly IT modernization, which remains an area of priority spending. Importantly, our people are fully engaged in achieving the objectives and missions of our clients, which underpins our confidence in ICF's future growth potential. With that operator, I'd like to open the call for questions.

Thank you so much. Our first question is from the line of Joseph Vafi with Canaccord Genuity. Please proceed.

Nice to see the strong margins. Maybe we'll ask a question on margins. Clearly, you've got some favorable mix shift going on, especially out of your utility and energy practice. Just wondering how you see the next few quarters. Perhaps do you still think favorable mix shift continues to play out from here, or do you think that perhaps some of the other practice areas' growth may accelerate a little bit and we don't see as much of a mix shift moving forward next few quarters? And then I'll have a quick follow-up.

I think, Joe, we certainly expect the commercial energy business to continue to have quite strong growth. And we also expect that other components of our business will also pick up their growth as we look into 2025. But I think given that the energy group is certainly experiencing the highest growth and has the highest margin, I think there's some more room for margin improvement even as other parts of the business also increase their growth. We would expect that to continue into next year. You can see from the results that our margin, our adjusted EBITDA to revenue is up by 50 basis points. We expect it to be up 50 basis points for the year. We've generally been guiding 10 to 20 basis points. So I think you can see the power of the commercial energy business in our margins.

Sure. That's great to hear, John. And then anything notable coming out of these last set of storms, I guess, here in the month of October? Is there anything we should read through on disaster recovery this year that might be different than previous years? Thanks a lot, guys.

Well, I think, as I said in my remarks, we continue to do significant work in Texas and Puerto Rico. Those remain important clients for us. We've had the recent hurricanes, Helene and Milton. We've picked up numerous small opportunities to do disaster assessments, to do quick analyses of the potential damage in areas. It is allowing us to develop relationships and get people on the ground, and I expect there will be significant opportunities. It usually takes 12 months for those opportunities to develop and get to the RFP stage. So I would say in the second half of next year, we would expect to see opportunities in Florida and the Carolinas related to disaster recovery.

Thank you. One moment for our next question. That comes from the line of Tim Mulrooney with William Blair. Please proceed.

Hey, this is Sam Kusswurm for Tim Mulrooney. Thanks for taking our questions here. I guess regarding your climate services, we've been receiving more questions just around some of the work being done, particularly with respect to your federal clients. I believe this business has been growing in the double digits, and I think investors would like to understand a bit better just how much of that growth is coming from federal clients versus more your state and commercial clients.

I would say that the climate business has certainly been growing double digits overall and sees robust demand. We do have a business that spans our commercial client set, our state and local client set, our federal government client set, and our international government client set. So we truly have a diversified portfolio and are a market leader in that market. I think all in, if you look at that business, the federal component is about 15% to 20% of the business. The remainder is primarily in commercial and state and local. The federal business is an important component, but it accounts for 15%. We are seeing strong growth, and we have scale in commercial markets and in state and local in that area, and so it's a diversified business. I would expect that we'll continue to see strong growth opportunities, regardless of what happens with the presidential election in the federal market. I think we have confidence that we can grow that business and grow it robustly on the back of our state and local and commercial and international clients. In prior administrations, when the federal focus shifted on climate, state and local governments stepped forward when needed. We would look for and focus on that possibility as we look forward.

That was very helpful, color, and kind of the angle I was approaching that with. Appreciate that. Maybe pivoting a little bit to the federal IT side, we noticed you announced another large contract on the federal IT side. I know a piece of your IT strategy is to really increase the share of some of these larger contracts compared to maybe more of your historical average of $10 million to $25 million, let's say. Can you help us understand if there's a mixed shift occurring here in your average contract size and how you think your project's mix might look like a few years from now?

I think we're certainly focused on trying to expand the size of contracts we're bidding on and move up in terms of the average size of our IT modernization contracts. Our sweet spot historically has been in the $10 million to $25 million range. We are winning contracts north of $50 million, and we're certainly bidding contracts worth $100 million. So you're absolutely right; that is part of our strategy. It doesn't happen overnight; you have to bid these large IT modernization contracts in the federal government and spend 18-24 months positioning to win them. The pipeline is showing good progress. We did win a very nice contract with the U.S. territory. We're seeing positive signs and positive developments, but that's exactly the strategy. We do believe we have reached a size and scale where we can bid larger IT modernization contracts and can differentiate ourselves, especially in civilian markets. We're making good progress, we've had some early wins, and the pipeline's looking good.

Thank you so much. One moment for our next question. And it's from the line of Toby Sommer with Truist Securities. Please proceed.

Thanks. In the commercial energy space, the press release and your comments talk about the elevated demand growth that utilities are now forecasting for a host of reasons. What do you expect the impact to be on ICF with respect to maybe the rate of growth of that business as well as sort of the length of time that you expect to have kind of good growth?

Yes, well, there's no question that these utilities are seeing significantly increased demand potential looking down the road, given several broad trends, including the latest with AI data centers. Our clients are certainly seeing that, which impacts our business in multiple ways. We do front-end advisory work for utilities; we help them on their load forecast and their load demand growth. We assist them in thinking about their portfolio of generation assets to meet that growth and how to manage it with programs like energy efficiency and electrification. This significant future growth will create long-term opportunity for us to assist our clients on the advisory side in developing their strategies and approaches to meet or manage that growth. It's not just utilities; it's also governments like the Department of Energy and other federal agencies involved. We're seeing a lift in our advisory and energy implementation work. I think this is a long-term trend. It's like a once-in-a-lifetime opportunity that will take decades to address. We're seeing substantial opportunities for growth in commercial energy. We grew 15% in 2022 and 2023, and we're projecting close to 25% in 2024, partly due to ramp-up opportunities. There's very significant long-term growth potential in this market. We're actively working across various parts of this market with scale, and I think we're quite excited about it.

Thanks. A couple of things helped profitability in the quarter and for the balance of the year. This uplift in direct cost percentage, is that episodic or sustainable? And is the annual rate down closer to 20% a good proxy for future tax rates? Or will we lap this next year?

Hey, Toby. This is Barry. I'll touch on the tax rate. We believe that the tax rate of approximately 21% is something that we'll achieve next year in 2025 and maybe in 2026. We're comfortable that the optimization efforts will stick for the fourth quarter and in the next couple of years.

From a direct labor perspective, if you think about the shift in the business towards more ICF labor-driven revenues, that is certainly pushing improved margins. We think that will continue as our advisory services continue to expand, particularly in the energy sector. We're pleased with that and the growth from a revenue perspective derived from our labor.

Yes. What parts of the government business specifically are declining, and how large are they?

We're seeing a decline in the health and social programs market area, which was down 5.2% in the quarter on total revenues. I think it would be higher on service revenue than the work done by ICF. We're generally flat in the low single digits in that market on work done by ICF. The USAID business is experiencing low pass-throughs for various reasons. We expect those to ramp back up. The USAID business is the biggest driver of this decline. Barry or James, is there anything else you want to add?

I would agree with that. The energy, environmental infrastructure, and disaster recovery areas for the U.S. government are growing nicely. We won new contracts with a variety of federal agencies. That market continues to grow. I would say in health and social programs, we've seen some programs not ramping up as quickly as expected. We are waiting for key awards that we think are forthcoming, and we expect that business to turn around.

Thank you so much. We have a question from the line of Mark Riddick with Sidoti. Please proceed.

So I wanted to touch on, and thank you for the commentary on the tax rate and the efforts there to bring that to the levels you are looking at for the current period and the next couple of years. I wanted to shift gears a little bit; there's been a significant amount of debt reduction. I wanted to touch on your comfort levels regarding where you are looking as far as positions for any potential acquisition activity. So I was wondering if you could bring us up to speed on your views on the current pipeline availability and the quality of assets that might be interesting to the company.

Thanks for the question. Our favorable cash flow this year has contributed to debt reduction, and we will continue to do that. I see our leverage ratios continuing to improve. We have plenty of capacity to look at different M&A opportunities. We are considering a number of prospects, and as they meet our criteria for capabilities, culture, and contracts, we will evaluate them. Our ability to de-lever gives us flexibility to pursue acquisition opportunities as they arise. We'll continue on that path.

I agree with everything Barry said. From a market perspective, acquisitions are a key part of our strategy. We've been paying down debt over the past couple of years. We'll focus on interesting assets in energy and federal health IT. We remain disciplined; those areas are where we're strategically focused.

I was wondering if you feel that the valuations out there are a bit more reasonable or about the same as they were maybe a year ago? How do we feel about that spread right now?

I think valuations generally have been lofty, but there has been movement toward coming back in alignment. It depends on the market. In energy right now, there's tremendous opportunity and interest, so valuations will be challenging. In federal, it depends on the focus of the business; in high-interest, high-value-added areas, valuations are still rich but workable for the right asset. It really comes down to whether we see synergistic value and can justify the opportunity.

Thank you. I will now close the Q&A session for today and turn the call over to John Wasson for final remarks.

Thank you for participating in today's call. We look forward to connecting at upcoming conferences and events, and we appreciate your interest. Thank you.

Thank you all who participated in today's conference. You may now disconnect.