Conference Transcript - ICFI 2026-08-12

Jason Tilchin, Analyst — Canaccord Genuity

All right. Good afternoon, everyone. I'm Jason Tilchin, Senior Research Analyst at Canaccord Genuity. It's my pleasure to welcome the team from ICF International, including John Wasson, Chairman and CEO, and Ann Choate, President. John's been with ICF for almost four decades, which is quite a long time, and was appointed to the CEO role back in 2019, prior to which he was Chief Operating Officer, and was promoted to President last year, previously led the company's Energy, Environment, and Infrastructure Group. Thank you both so much for joining us today.

John Wasson, CEO

Great to be here. Thanks for having us.

Jason Tilchin, Analyst — Canaccord Genuity

I have one for John to start. I just mentioned you have a wealth of experience with the company, so no better person to maybe walk us through a little bit of background on the history of the company, what type of services the business provides, and who it's providing those services to.

John Wasson, CEO

Okay, sure. Well, thanks again for inviting us. So ICF, we're a global advisory and technology services company, about $2 billion in revenue, 9,500 employees. we've been publicly traded on NASDAQ for 20 years we'll have our 20th anniversary this September in terms of the company what we do so we provide front-end advisory services to our clients in the domains we serve we do that leveraging deep subject matter expertise within the company and so those advisory services include strategy and program design and policy and economic analysis and research and then we also then stick with our clients into the implementation so once we've designed their strategy, designed their program, we then help them implement that. And that we do through leveraging a set of cross-cutting, industry-leading implementation services, including IT technology, complex program management, and change management. In terms of the markets we serve, first, we are diversified. We serve a balanced roster of both government and commercial clients. About two-thirds is for governments, one-third is commercial, primarily energy and the vertical markets we serve are basically two pillars about half the business is in energy environment infrastructure and disaster recovery about 35% is in public health education housing and other social programs and then 15% is in defense and a few other cats and dogs and so I think at a high level that's kind of who we are in the markets we serve okay perfect it's great overview and if you just think about where the businesses today versus where it's been.

Jason Tilchin, Analyst — Canaccord Genuity

You look at the stock chart for a company that's been publicly listed for so long. And for most of that period, it was up and to the right, very consistent, steady growth story. And then you look at what happened at the beginning of last year, and there was a disruption to the business, revenue declined. And now you're sort of working back from that. So maybe just give a little bit of background on what caused that decline, and then what you've been doing to help put the business in a stronger footing going Sure.

John Wasson, CEO

So, I mean, I think, as you know, I mean, it's certainly in the period we've been a publicly traded company, I think we've been a strong growth company. If you run a CAGR on revenue for that period, I think it's 12 or 13 percent growth, about half organic, half inorganic, with even higher earnings growth in that period. And so consistent growth company, 2025 was, we call it a transition year with the new administration, the Department of Government Efficiency impacts in the market with respect to our portfolio. Our federal business was down about 25% in 2025. But that's behind us. You know, I think we managed through that. We maintained our profitability. This year, we will return to growth. The midpoint of our guidance is 3% revenue growth, 5% growth on non-GAAP EPS, and we'll accelerate that growth as we go forward. And so I think that the impacts of 2025 are behind us, and I think we're executing on our growth strategy and are confident in our return to growth.

Jason Tilchin, Analyst — Canaccord Genuity

Perfect. We're going to get into that growth strategy in a bit and sort of walk through each segment. But maybe before we do that, Ann, your new role as president that you moved into last year. Maybe talk about the prior experience in the energy practice, which has been a growth engine for the company for some time, and how that prepared you to sort of move into this new role and responsibility.

Anne Choate, Other

Okay, sure. And also, thanks for having us. So I've been at ICF about 30 years, so not as long as John, but I have had an opportunity to work in a lot of corners of the business. And over time, I did have the responsibility for various parts of the company, But I had stayed very tight to the infrastructure energy technology or transportation pieces. And so in my former role as the group leader for the energy environment infrastructure group, I was very focused on growth. I was focused when I took that job, the goal was to see if we could double the energy environment infrastructure group in five years. And we did a pretty good job of that. and our you know our focus was you know first on organic growth and then obviously looking for areas where we could grow inorganically as well where it made sense where we found the synergies and I think we that was that was pretty successful as well we were patient I think in the end we did you know we added both services clients contracts etc in a way that was really you know it was easy to find the synergies and and where we were able to integrate those companies effectively. So now they really, in all three cases, I think that they feel very core to ICF's mission now. They're not sort of satellite type parts of the company. When I moved into this new role, I think that now I'm thinking about growth for the whole company. And I think I'm taking some of the lessons from having led other pieces of ICF's portfolio. So social programs at one point was under me. There's some other aspects of our health business that used to sit with me because they were environmentally oriented. And so having an opportunity to sort of now, okay, step back, understand with this technology business that we've built over the last several years, how does that change our value proposition? One of the things we were very successful in doing in EEI was cross-selling. And so cross-selling a specific service to state and local commercial energy and federal clients, we are taking that same approach now. And obviously, as you pivot in the context of the new administration, That pivot means moving from one agency to another agency, but also thinking about what services we were providing to the federal government that may be relevant in a state and local context or a commercial context. So those are the kinds of things I'm focused on. We're very, very focused on agency-specific account strategies and taking all of ICF to the customers where we have contract access and relationships.

Jason Tilchin, Analyst — Canaccord Genuity

Okay. Very helpful overview. You guys just reported Q2 results last week. for the consistency sort of with that one sort of exception from last year, the consistency of the business on display again. I'll maybe leave it to you in terms of if you want to talk about federal versus non-federal or if you want to talk about sort of some of the end markets that you're selling into, but maybe just talk about the operating environment, what drove growth in the quarter, what you're seeing on the ground, and maybe in each of those areas.

John Wasson, CEO

Well, sure. So I think we were quite pleased with our Q2 results overall. Our revenues were essentially stable, which I think demonstrated we're past the challenges of 2025 and on the way to returning to growth. I would divide the business. I think 60% of our business is non-federal, so it's commercial energy. It's state and local work with the most significant majority in disaster recovery, and it's international work. That 60% of the business grew about 7% in the quarter. That was certainly led by our commercial energy business, which is the first among equals in terms of the growth prospects in our non-federal for obvious reasons around energy demand and data centers and all the changes going on in energy. Our international business grew 20%. We've won quite a few large long-term contracts in the last year there. We expect that to continue. And, you know, the state and local business is a good business. We do think in the long run, disaster recovery will be a key component of our growth. So strong growth in that component. The 40% that's federal, again, I think we're past the challenges of 2025. The second quarter was the second quarter in a row in which, sequentially, our US federal government grew, primarily in the technology front, IT modernization for the federal government. We do expect that to continue. And so, as I said, we'll deliver low single-digit growth as a company based on the performance of those two halves and expect to increase from there. We certainly, on the U.S. federal side, see the half of that business that's in technology modernization offering us significant opportunity, and we saw that in the second quarter.

Jason Tilchin, Analyst — Canaccord Genuity

And we're going to touch on that opportunity in a second, but just more broadly, you sort of teased it there a little bit, but you've given a framework, not formal guidance, but a framework for how to think about growth trajectory exiting this year and moving into to 27, what are sort of the building blocks from an organic growth perspective that you sort of rely on over the medium term?

John Wasson, CEO

Yeah, well, I would talk about it the same way as I talked about the Q2 results. I think, you know, the 60% of the business that's non-federal, you know, I think as we look at 2027 and beyond and the trends in that portion of the market, we can grow high single digit to low double digit organically for 2027 and beyond for some time again that will be led by our commercial energy business which is about a third of the total business and the tremendous opportunities there strong growth on the international and opportunities in the disaster recovery and so so that's how we look at that market i think for 27 and beyond in the federal business we think that that can be a low single digit to mid single digit growth market that 40 percent of the business, that will be driven by IT modernization, where, you know, I would say the federal government is in the fourth or fifth inning of modernizing their backbone systems, you know, that are running right now on cobalt and Fortran and all kinds of agent software. And I think each of the last four or five administrations have understood the importance of making investments to address that. And so I think we're in a very strong position to do that. And that will drive that, gives us the tailwind to drive that growth in the federal business. So net-net, I think, as we look to 27 and beyond, mid-to-high single-digit organic growth for ICF, which you mentioned. I mean, we had the transition year in 2025. For the period 2020 to 2024, so the five years before that, that's exactly what we delivered, mid-to-high single-digit organic growth, strong cash flow. So we were able to improve our profitability 10 to 20 bps a year in that period. We've had the transition year 25. We think for 27 and beyond for those next three or four years, we can deliver the same growth we saw in the prior period. I would just note that from 2020 to 2024, our stock went from $80 to $180. With that growth and that strategy, we're obviously hoping now that we've gotten through the transition year, if we can have the same performance, we can see the same kind of trajectory in in terms of this talk.

Jason Tilchin, Analyst — Canaccord Genuity

Makes sense. And you mentioned, as it relates to the IT transformation, there's still some innings left to be played there. And I think everyone expects what's going on with AI today to sort of potentially accelerate that transition. And so there's a few different sort of ways to go with this topic, but I guess one thing that stood out to me on the call, you talked about as this federal business has recovered, you've seen a little bit of a shift in the way that agencies are working, the way that they're doing sort of bidding processes and all that, a focus more on testing things out, prototyping. What are you seeing on the ground, and then how are you positioned as a company to operate in that sort of changing and evolving environment?

Anne Choate, Other

So I think AI offers us an opportunity to demonstrate potential solutions faster. So where you would have had to take a really long, you know, several weeks probably to build some sort of prototype, a less complete prototype, and then share it back with a customer. Now we're able to do that very, very rapidly, and we can even iterate with customers kind of almost in real time. There are ways that we would have done this in the past, but the whole procurement cycle and the way that the agencies were engaging with consultants in the past was also much more at arm's length there were 36 month 18 month lead times there were procurements that were posted in the register and so you would watch these procurements you know had come down the pike towards you oftentimes you would have to go into a quiet mode and then you know it would drop there was an RFI there was an RFP it was mostly about writing a response you know in words and prose telling how you were going to do this technology project and then there might be some competition at the end sort of like an in almost like a like an in-person test, you know, to show me how you're going to do this, you know, implement the solution. Now we have an opportunity, partly because they don't have enough contracting officers or procurement officials, partly because, you know, there's this fatigue around the procurement activity and difficulty when large awards get protested. There's an openness on the part of the government to come in and show me what you can do. And so if we go in, we have these conversations with the people who are maybe in the CIO shop but trying to understand how they can service the program offices or in the program office trying to serve the needs of the CIO or trying to basically get in the good graces of the CIO we have an opportunity to be that bridge and we have an opportunity in in person use our fathoms sort of AI sandbox to demonstrate a potential solution to hear their question to hear their challenge to stitch together what we think is an appropriate response to show it to them and then to iterate and that may drive the way that they design the procurement it made may lead to a modification and so it's just a very different way of selling it means that

John Wasson, CEO

you know our BD team is less about writers and more about you know you know full-stack architects I would just you know we get this question a lot on AI and what's the impact on ICF and you know our government services technology business. And in the market, obviously, government services, firms with IT folks have taken, you know, had those questions. Commercial IT services, the SaaS providers. I just would say a couple things with our business. One is the federal government is and certainly civilian federal government clients, which is our primarily portfolio in the government, are going to be very conservative. They're going to be late and very conservative adopters of AI. And so they're not leading. I'm not going to say they're not leading in, but they're are not leaning forward. I think the second thing I would say is, it certainly will improve productivity, highly repeatable tasks. Some of the basic coding can be done leveraging AI, and we're doing that and using those tools. And so the size of the projects are coming down as you modernize, because you're leveraging AI. But we're not seeing any degradation in our fees in terms of the work we're doing with AI, I'm in the value we add around AI you know we're our fees are holding up and if we with the average project size coming down we can get it done more quickly but given the backlog I just mentioned of you know there's we're in the fourth or fifth inning here there's still 10 or 15 years of work to be done here with AI informed IT modernization so we just move on to the next project and I think that will continue we have any number of clients where we've got projects done more quickly, we just move on to the next one. It's not that it's reducing our revenues. And so based on what we're seeing, and certainly in the last couple of quarters, we've been growing, we've been maintaining our fees, and our view of the market, I don't see the downside at the levels that some of the reactions on the market would suggest.

Jason Tilchin, Analyst — Canaccord Genuity

That's a fair response on that subject. Two follow-ups to the comments you made there. One is you feel like you could end up winning more business on a go-forward basis because it's more merit-based showing your capabilities versus a little bit more obtuse, you know, abstract writing about what you can do, which may or may not end up being provable out in the world.

Anne Choate, Other

I mean, we've gotten pretty good at the writing. But I think it is a way for us to expand. We've been trying to pivot because of the changes in the federal government over the last two years. And so that pivot has, you know, it's certainly easier for us to make the pivot if we can get in front of a customer who doesn't know us, who doesn't know our reputation, who hasn't seen us deliver, and sort of mini-deliver right in front of them. Then I think they might be willing to give us a chance more easily, more readily than they might if they just received our proposal along with several others. And so I think in that way, it helps us. I think that's probably the best, I think.

John Wasson, CEO

I mean, I should also say that with our, we've really built this business in the last 10 years. And this administration in particular, I mean, they're very focused on efficiency gains. They want things to be AI-led. They want it all to be fixed price or performance based. And they really want to focus on avoiding you know waste fraud and abuse and I think we're our business is highly aligned with that given it's been built in the last ten years eighty percent plus of our work is cost is a fixed price or performance based you know we we have a significant bulk of waste fraud and abuse business at CMS I think we're demonstrating our innovation with our authentic AI platform fathom I see a fathom that Ann mentioned and so you know I think given and we're not running old legacy systems that are 40 years old that many of our competitors have been in this business much longer are. And so I think that's helped position us as somebody who can be more agile, kind of aligned with what this administration is trying to do, and is helping us win more business, for sure.

Jason Tilchin, Analyst — Canaccord Genuity

And last one on this subject, very quickly. Can you just give an example, just sort of connect the concept of this AI sandbox to actually like an example of how that would be used in a situation where you're going in and bidding for something?

Anne Choate, Other

Sure. I'm trying to think of one.

Jason Tilchin, Analyst — Canaccord Genuity

I'm assuming no actual.

Anne Choate, Other

Yeah, I was going to give you the, yeah. Didn't want to give one that hasn't been, you know, come to the world yet. So in transportation, let's just say, so the Department of the Secretary of Transportation, you know, and at the department level, they're trying to integrate and update and maximize efficiency of a suite of grant management programs across all these modal agencies. So under DOT, there's modal agencies for federal highways, transit, et cetera, et cetera. But each of them had their own way of doing this. And so the CIO needs this. And so we can go in, work with the CIO to understand the needs. But we also have administered grants and supported grant management under FTA and under federal highways. We've also been supportive from the standpoint of the subject matter for these various grant programs, providing technical assistance or whatever. so connecting those two we were able to go in have a substantive meeting we knew more about what the modal agencies are trying to achieve with these grant programs than the cio could know just on the face of it and we're connected to those program people so we could bring basically what the cio is trying to achieve from a modernization efficiency standpoint together what we know with the mission that we know that these these modal agencies are trying to achieve we have the conversation, we, you know, put together a prototype, we brought it back, we were able to basically demonstrate what are the pros and cons, how is federal highways going to view this, how is federal transit going to view this, how is motor carrier safety going to view this, where are they going to gain, where are they going to lose, from the standpoint of what they currently have.

Jason Tilchin, Analyst — Canaccord Genuity

And so it was just that kind of insight and then something that, you know, an actual prototype that could show them where they would gain the efficiency and that's very helpful we're running a little bit low on time and I want to make sure to spend a few minutes talking about the commercial energy part of the business given the growth there on a recent I don't think it was this last one but the one before I believe you talked a little bit about the market share gains you're seeing with your energy efficiency programs maybe just talk to what that work is at a high level and then what is driving those share gains?

Anne Choate, Other

So yeah, we've, we have been out, you know, our growth in the energy efficiency part of our business has been outgrowing what we think the growth in the market is. And I think that the, you know, the share gains come from takeaways where we have competitors in regions of the country or working with a particular utility customer where we didn't have much relationship, but where we think that there might be an opportunity for us to come in because we have a different solution or because we've performed well for, you know, a sister, you know, operating company. And so we'll go in, we, you know, we have these conversations. We're very strategic about where we're going to focus our efforts there. We just put out a press release about one example like that where we won a large project in Louisiana. And so that's one way. Another way is adding services. So we, a couple of five years ago, said we were going to add some non-traditional energy programs. They were pilots, they were small, and you could really only do it with the utility customers who we had the long 15-year relationships with. Now we have a lot of our utility customers across the country are open to those pilots on things like electrification, battery storage, even some of the work that we're doing in behavioral, how they can run behavioral programs that will actually achieve their goals. And so those are the kinds of opportunities that will expand the service offering. And then last, I would say we often provide marketing support to these programs. And sometimes the marketing support is an umbrella over the full portfolio, even though ICF might only have residential or the commercial piece. And so that gives us a window into how we might, you know, expand our way into programs that might currently be run by a competitor, but where we think we could, you know, if they're not performing or whatever, where we think we could add value.

Jason Tilchin, Analyst — Canaccord Genuity

Very helpful. And then on that commercial energy side of things, there's also been a lot of talk about data centers. maybe just help us frame the opportunity in two different ways one the capabilities you have internally today and whether you think you can attack this opportunity in completion with what you have versus maybe going out and having to add something through m&a or things like that and then also across the different stakeholders in this ecosystem where you see the most opportunity today and then maybe where you see it moving down the road so yeah so the clients related to data centers are utilities who obviously have needs as relates to data centers and the demand, hyperscalers, and then developers.

Anne Choate, Other

And so of those three, the hyperscalers are the only ones who are kind of new customers to ICF. In the other two cases, for utilities and for developers, we've been working for them for years. And so the range of services that we provide, like M&A, technical and financial due diligence for M&A, technical and financial diligence for siting, doing analyses of whether it's environmental factors, demand interconnection all of that work is totally relevant to the you know to that those that audience the utilities I think need help in a different way that the modeling work that we do to help support them and figure out how can we design demand response or demands that management programs that are going to basically complement their demand you know what they see as as challenges from data centers and other reasons that's a place where we have been able to to leverage our expertise and basically take what we do for integrated resource planning, combine that with what we do for demand-side management program administration and what we understand about the data centers to be more useful to those utility customers. In terms of what we need, we did a tiny acquisition a few years ago and we gained some engineering like substation design and other that have been very helpful in this data center surge as you well. And so I think that that kind of expertise has allowed us to expand into areas that five years ago we couldn't have and play a role here.

Jason Tilchin, Analyst — Canaccord Genuity

Okay. Very exciting. I'm sure you're going to be I got nervous about the time. Oh, no, don't worry. We're basically out of time, but just the one quick last one for John. Capital allocation, the board just approved a big increase in the share purchase program. How are you thinking about that going forward?

John Wasson, CEO

Yeah, we have balanced capital allocation. I mean, I think capital allocation. We certainly have been buying for us a historical amount of stock back in the past two quarters, given that we thought the stock was undervalued. And I think we'll continue to consider that. As you said, the board added $100 million of authorization for that recently. And we've also been acquisitive. M&A has been part of our strategic strategy over the years. In the 20 years we've been public, I think we've done 32 or 33 acquisitions. We have a very strong balance sheet right now, very strong cash flow. I think we'll also continue to be in the market, particularly around our commercial energy market. And we pay a small dividend. We always buy back enough stock to avoid dilution from our employee stock programs. But I think it's balanced, but the focus is balancing share buybacks versus M&A.

Jason Tilchin, Analyst — Canaccord Genuity

Perfect. All right. That's a great place to stop. Thank you both very much for being here today and good luck in the second half yeah thank you thank you everybody for coming sorry we ran over