ICF International, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Q3 results with revenue from continuing operations up 6% year-on-year and 10% excluding pass-throughs.
• Outperformed profitability metrics, leading to a $0.35 increase in EPS guidance for the full year.
• Solid third quarter contract wins with a trailing 12-month book-to-bill ratio of 1.31.
• Record new business development pipeline of $10.6 billion.
• Growth in energy, environment, infrastructure, and disaster recovery markets, including 15.3% revenue increase in these areas.
• Wins related to IIJ and IRA totaling about $185 million, with a pipeline over $250 million.
• Climate-related services saw substantial revenue growth, with new contracts in areas like sea level rise assessments and refinery infrastructure studies.
• New contracts in health and social programs, including a $40 million task order for combatting human trafficking and a $70 million contract for a geospatial data management system.

Segment Performance

• Energy, Environment, Infrastructure, and Disaster Recovery: Revenue increased 15% year-on-year, with a 15.3% increase in revenue driven by commercial energy clients. This segment is a key contributor with higher margin revenues.
• Health and Social Programs: Revenue from continuing operations declined 5.2% year-on-year, but adjusting for pass-throughs, it was slightly ahead. The decline was due to fall-off in small business set-aside contracts and ramp-up delays on certain USAID health-related contracts.

Guidance

• Increased EPS guidance for 2024 by $0.35 at the midpoint, with revised guidance range for GAAP EPS at $6.05 to $6.15 and non-GAAP EPS at $7.40 to $7.50.
• Adjusted full year 2024 revenue guidance due to a $50 million reduction in pass-throughs, expecting gross revenues of $2 billion to $2.03 billion.
• Anticipates continued growth in 2025 with a strong multiyear backlog, record pipeline, and robust demand from commercial clients.

Risks

• Forward-looking statements are subject to risks that could cause actual events and results to differ materially, as referred to in SEC filings.
• Delays in contract ramp-ups and award decisions in the health and social programs segment, impacting revenue comparisons.

Question and Answer

Q: Regarding margins and future mix shift, how does the next few quarters look?

A: John Wasson stated commercial energy business will continue strong growth, and other business components will pick up, with margin improvement expected from energy business growth.

Q: About climate services, how much growth is from federal vs. state and commercial clients?

A: John Wasson said climate business has diversified clients, with federal component at 15%-20%, remainder in commercial and state/local.

Q: On federal IT contracts, mix shift and future project mix?

A: John Wasson mentioned focus on larger IT contracts, with pipeline showing progress and early wins, expecting to bid larger contracts.

Q: On profitability and tax rates, sustainability of direct cost percentage and future tax rates?

A: Barry Broadus said tax rate of ~21% expected to continue, and direct labor shift towards more ICF labor is contributing to improved margins.

Q: On declining government business parts and their size?

A: John Wasson noted health and social programs market down 5.2% in the quarter, with USAID business down this year but expected to ramp back up.