ICF International, Inc. Q4 FY2025 earnings call

• John Watson noted 2025 results were within guidance, with non-federal clients showing robust growth. Commercial energy was a top performer with 24% growth in 2025, driven by utility demand for energy efficiency, etc. State and local government revenues had growth, with disaster recovery work a key component. International government revenues saw growth from new contracts. Federal business faced challenges in 2025 but expected improvement in 2026 with IT modernization opportunities. AI was seen as an accelerator and net positive for ICF. - Barry Broaddus provided financial details, noting fourth quarter and full year revenue, margin, EBITDA, and other financial metrics. Mentioned share repurchases, debt reduction, and capital allocation priorities.

2025 revenues were within guidance despite government shutdown. Non-federal clients' revenues increased 14% to account for 57% of full year revenues, led by 24% growth in commercial energy clients (15% organic). Commercial energy client revenues reached just under $550 million in 2025, grew 23% in Q4 and 24% for the year. State and local government revenues increased 4.3% in Q4 and 2.2% for the year, with disaster recovery work accounting for ~45% of 2025 state and local revenues. International government revenues increased 12.8% in Q4 and 7.6% for the year. Federal government revenues declined 25% in 2025. Fourth quarter total revenue was $443.7 million, down 10.6% y-o-y. Non-federal business revenues increased 16% y-o-y, accounting for ~62% of Q4 total revenues. Federal revenue declined 35.1% in Q4. Full year 2025 revenue was $1.87 billion, down from $2.02 billion in 2024. Non-federal business grew 14.2% y-o-y. Full year adjusted EBITDA was $207.2 million, down from $226 million in 2024. Backlog stood at $3.4 billion at year end.

2026 revenues expected to range from $1.89 billion to $1.96 billion (3% growth at midpoint). GAAP EPS from $5.95 to $6.25, non-GAAP EPS from $6.95 to $7.25 (5% growth at midpoint). First quarter 2026 guidance: revenues ~$450 million, GAAP EPS ~$1.20, non-GAAP EPS ~$1.55. Depreciation and amortization expenses expected to range from 22 to 24 million. Interest expense ~27 to 29 million. Capital expenditures ~24 to 26 million. Full year tax rate expected to be ~20.5%. Full year operating cash flow expected to be 135 to 150 million.

Risks associated with forward-looking statements, including factors that could cause actual events and results to differ materially. Discussed risks related to government shutdown impacts, potential changes in federal government procurement, and uncertainties in the regulatory environment for energy and other sectors.

Q: About commercial energy business growth in 2025 and expectations for 2026.

A: Commercial energy grew 24% in 2025, 15% organic. 2026 expected at least 10% organic growth, with utility programs and advisory business driving growth.

Q: Where is more growth coming from in commercial energy?

A: Both utility programs and advisory business, with advisory having more long-term potential.

Q: About commercial energy business comparison with other public companies.

A: Similarities in serving utilities, differences in focus areas like residential vs commercial industrial, and work on public sector entities.

Q: On non-federal share projection for 2026.

A: Trend of more non-federal business continuing, expecting north of 60% in 2026.

Q: On federal procurement environment.

A: Procurement environment improving, with IT modernization showing pickup, re-competes occurring, and broader programmatic business seeing improvement.

Q: On potential reconciliation bill benefit.

A: Budget passed timely, with areas like CMS, Department of Transportation, and IT modernization benefiting.

Q: On AI benefit to productivity.

A: AI used internally in areas like HR, contracts, business development, and externally in IT modernization, expected to contribute 10-20 bps of profitability improvement.

Q: On international growth.

A: International growth driven by large European contracts, with activation of contracts kicking in and double-digit growth expected.

Q: On market size of residential vs commercial industrial energy efficiency.

A: Total market for utility programs is $3 to $5 billion, with residential having ~35% share and commercial industrial ~20% growing share, and emerging areas offering significant growth.

Q: On adjusted EBITDA margin in 2026.

A: Expecting 10-20 basis points improvement year-over-year from growth in commercial markets and efficiency.

Q: On state and local business activity.

A: State and local business has growth in environmental-related work and disaster recovery, with energy infrastructure investments and weather events affecting disaster recovery.

Q: On pricing dynamic.

A: Focus on performance outcome related contracts and fixed price work, with pricing important but not the sole criteria.

Q: On acquisition pipeline.

A: Focus on areas like energy, state and local, and federal technology, with deal flow in energy, but valuations fulsome.