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Date
Thursday, July 31, 2025 at 8:30 p.m. ET
Call participants
Chairman, President, and Chief Executive Officer — John Wasson
Chief Financial Officer — Barry Broadus
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Takeaways
Total revenue: $476.2 million (GAAP) in Q2 2025, down 2.4% sequentially and 7% year-over-year, reflecting continued federal revenue weakness and in-line company expectations.
Commercial, state, local, and international revenue: Grew 13.8% year-over-year and represented 57% of total revenue, up from 47% a year earlier.
Commercial energy revenue: Increased 27% year-over-year, driven by utility client demand for energy efficiency, flexible load management, electrification, and grid resilience services.
Adjusted EBITDA: Adjusted EBITDA was $52.9 million, compared to $56 million in the prior year’s second quarter; adjusted EBITDA margin expanded 20 basis points to 11.1%.
Gross margin: 37.3% gross margin, up 160 basis points year-over-year, supplemented by a shift toward higher-margin contracts and expansion in the commercial business.
Federal government revenue: Declined 9.8% sequentially and 25.2% year-over-year, primarily due to contract curtailments and a slow pace of program procurement.
Book-to-bill ratio: 1.3, reflecting renewed contract flow and a rebound in federal awards via recompetes and modifications in the quarter.
Backlog: $3.4 billion backlog at quarter end, majority federal, with 54% of backlog funded, characterizing visibility and contract stability into future periods.
Operating cash flow: Operating cash flow was $2 million in the second quarter and $18.9 million year-to-date.
Debt and leverage: Debt decreased by approximately $40 million to $462 million; adjusted leverage ratio improved to 2.1x, with fixed-rate debt now at 38% of total.
Share repurchases: 11 million shares repurchased in the first half of 2025, offsetting dilution.
ICF Fathom launch: Launched proprietary AI solutions for federal agencies, intended to automate processes and increase productivity, with early client interest noted.
2025 guidance: Management maintained its prior full-year outlook, does not expect full-year 2025 revenues to decline by as much as 10% from 2024 levels, and anticipates adjusted EBITDA margins comparable to last year, with GAAP and non-GAAP EPS likely to be at the higher end of guidance.
Summary
Federal government revenue declined sharply, with a 25.2% year-over-year decrease, and remains a primary contributor to total revenue contraction, despite sequential stabilization in cancellations.ICF International(ICFI 1.74%) cited a sustained shift in revenue mix toward higher-margin, non-federal clients, particularly commercial energy, driving margin expansion and backlog composition changes. The company continued to manage down debt, increased the share of fixed-rate obligations from 35% in Q1 to 38% in Q2, with an expectation to reach approximately 50% by year-end, and advanced targeted AI capabilities through the launch of ICF Fathom, aimed specifically at federal digital transformation needs.
CFO Barry Broadus said, "Subcontractor and other direct costs declined 15.5% year-over-year and represented 23% of total revenues, down 240 basis points" primarily due to lower federal pass-throughs.
Management noted, "fixed price and T&M contracts now represent approximately 93% of our total revenues, up from 88%" and resulting in higher overall margins.
The company projects that commercial, state, local, and international clients will compose over 55% of total revenues in 2025, with aggregate growth forecast at approximately 15% for the year.
CEO Wasson said, "we are maintaining the guidance framework for 2025 that we provided at the time of our fourth quarter 2024 earnings release," but flagged an improved business outlook and higher confidence in end-result metrics for fiscal 2025.
Recent contract wins in international markets, including the EU and UK, began ramping in the second quarter and are expected to contribute meaningfully to 2026 revenues.
Industry glossary
Book-to-bill ratio: The ratio of new contract awards in a period to total revenues recognized, indicating future revenue visibility and demand trends.
Fixed price contract: A contract type whereby the service provider is paid a predetermined amount regardless of actual costs, transferring more risk but typically offering higher margins than cost-reimbursable contracts.
T&M (Time & Materials) contract: An agreement where payment is based on time spent and materials used, balancing risk between client and provider.
AI agent: A software entity leveraging artificial intelligence to autonomously execute designated tasks, improve workflow automation, and support decision-making.
Full Conference Call Transcript
John Wasson: Thank you, Lynn, and thank you all for joining us today to review our second quarter results and discuss our business outlook. I am pleased to report that we executed effectively in the second quarter with results benefiting from our diversified client base, and demonstrating our agility and adapting to changing market conditions. There were several key takeaways worth noting. First, second quarter revenue was generally stable with first quarter levels in line with our expectations. Revenues from our commercial, state and local government, and international government clients increased 13.8% in the aggregate and accounted for 57% of our second quarter revenues.
Second, within this client set, revenue from commercial energy clients remained robust, increasing 27% year on year thanks to continued strong demand from our utility clients for our energy efficiency programs and ICF International, Inc.'s expertise in flexible load management, electrification, and grid resilience. Third, we expanded our adjusted EBITDA margin by approximately 20 basis points year on year reflecting favorable business mix and cost management initiatives. And fourth, we only experienced an additional $2 million impact on our 2025 revenues from contract cancellations in the US federal market. In the past month, we began to see a pickup in federal procurement activity.
Taken together with our strong second quarter book-to-bill ratio of 1.3, these factors give us confidence in a more positive business outlook for 2025. Taking a closer look at 2025 business trends, revenues from commercial clients increased 25.2% in the second quarter led by the 27% increase in commercial energy that I just mentioned. This growth was driven by new and expanded energy efficiency, electrification, flexible load management, and customer engagement programs for utility clients as they address rapid load growth. ICF International, Inc. is the market leader in designing, developing, implementing residential energy efficiency programs and we are progressively gaining share in the commercial energy efficiency market as well.
These energy efficiency programs represent the core of our commercial energy work, and as a reminder, they are funded by a small surcharge on ratepayers by public service commissions in over 30 states. Over the last twenty years, ICF International, Inc.'s track record of meeting, or exceeding the energy savings goals of our clients has enabled us to significantly increase our utility client base. And that's where we've built out our capabilities. We have been able to considerably expand the scope of services we provided these clients allowing us to capture a larger share of a growing market.
We believe that the demand for energy efficiency and other demand-side management programs will expand into more states, and be relied upon even more in the coming years with the unprecedented demand for electricity associated with the construction of data centers. Already seen early signs of this in several stateside centers working in including New York, Georgia, and Illinois. Our energy advisory practice saw a sequential revenue increase led by a recent increase in grid engineering projects, and new business wins in the second quarter that included a broad range of activities, including grid transformation planning, fuel constraint analysis, price forecasting, renewals development, and M&A support.
Additionally, we have seen an uptick in activity since passage of the one big beautiful bill and anticipate an increase in development in M&A activities over the next six to eighteen months. Now the regulatory uncertainty has been eliminated and developers seek to meet safe harbor deadlines associated with expiring tax credits for projects already underway. We experienced strong demand for our environment and planning services for commercial clients in the second quarter, driven by growth of renewable and transmission permitting, construction monitoring, wildlife restoration, and new awards in additional work areas.
This included a new project to increase mineral extraction, by developing the first-ever environmental impact assessment for a coal facility associated with the January 2025 executive order directing federal agencies to accelerate critical energy infrastructure projects. The current pace of our work for utility clients and energy developers together with the opportunities we see on the horizon, underpin our confidence that we will see sustained growth in commercial energy for the foreseeable future.
Revenues from state and local government clients increased by 1% the quarter, in disaster management, accounts for about 45% of this client category, ICF International, Inc. is currently supporting more than 90 disaster recovery programs in over 20 states and territories with the largest being in Puerto Rico and Texas. Late last year, Congress appropriated nearly $11.9 billion in CDBG-DR funding to enable long-term recovery from disaster declarations in 2023 and 2024. And in January 2025, HUD released these funds to 46 states and localities. We are actively positioned to compete for this work and we expect decisions and additional procurement to take place in the second half of this year.
Additionally, in response to uncertainty with the respect to future role of FEMA, ICF International, Inc. has been actively developing an approach and delivery model to provide disaster recovery support to state and local governments should greater responsibility shift from the federal to the state and local levels. Our climate, environment, and infrastructure services for state and local clients represent about 40% of our state and local government category. We're also seeing growing opportunities for our environmental business rising from changing federal priorities and increasing state-based environmental initiatives.
As federal emphasis on environmental protection declines, we are seeing many states increase their efforts to fill the gap creating opportunities for ICF International, Inc. in state planning, rulemaking, stakeholder engagement, permitting, and compliance. Moving to international government, our second quarter revenues increased 2% representing a slow ramp-up of our recent sizable contract deal wins with the European Union and the UK government. We were pleased to see a pickup in new task orders being issued under these contract vehicles towards the end of the quarter which will benefit our revenues in 2026.
Despite the delayed activation of work in the international government arena, ICF International, Inc.'s revenues from commercial, state, local government, and international government clients are on track to increase approximately 15% this year and will represent over 55% of our 2025 total revenues. Now to our revenues from federal government clients, which declined 9.8% sequentially, representing a 25.2% reduction from last year's second quarter. As I mentioned earlier, the dollar amount of our total 2025 federal revenues that has been impacted by contract cancellations remain stable with our last report on May 1. As of today, July 31, that number stood at $117 million, only $2 million more than we reported on May 1.
This does not include the impact of the slower pace of program procurement activity that is also affected our federal revenue comparisons. As we await final decisions on the reorganization of the Department of Health and Human Services, we continue to support our clients' public health programs, for example, CDC's biosensit surveillance system, and the National Program of Cancer Registries. Likewise, we continue to build a database of substance abuse mental health treatment facilities helping families in crisis find care. And our scientists review studies and resources for inclusion in clinicaltrials.gov so people needing treatment might more easily find a clinical trial.
Recently, also begun to see new opportunities come out from the Health Resources and Services Administration, NIH, Administration for Children and Families, and CDC. We believe our expertise in key areas such as nutrition, obesity, suicide prevention, cancer research, and the health risk associated with the use of pesticides, chemicals, and food additives position us well for future opportunities. In IT modernization in the federal arena, while the pace of new opportunities in contract modifications has slowed this year, second quarter procurement activity was up from Q1. And that trend is expected to continue in Q3.
This improving procurement momentum combined with our skills of positioning gives us confidence that this portion of our federal business will return to growth in 2026. ICF International, Inc. is well positioned to respond to the needs of our federal clients as we believe our differentiated approach to building agile, flexible, and lean engineering product teams allows us to deliver value quicker, and more efficiently than competitors.
And as the federal government continues to shift, IT modernization procurements towards outcome-based contracting, that is deliverable-based and/or fixed price, ICF International, Inc. can easily adapt to these changes and support our clients in the transition given that approximately 80% of the work we currently perform in this area is in agile scrums and sprints and at least half is under fixed price for outcome-based contracts. Further, to help address the pressure for federal agencies to modernize quickly, improve service delivery, and operate more efficiently, this month, we are introducing ICF Fathom, a new suite of tailored artificial intelligence solutions and services designed specifically for federal agencies.
This is a production-ready solution that can integrate seamlessly into existing systems at scale to unlock the full potential of AI. To support mission outcomes, ICF Fathom is built on a proprietary platform. It offers a suite of tailored solutions and services and includes a set of intelligent AI agents that can be directly and securely embedded into existing workflows and infrastructures. The agents automate complex tasks, support informed decision-making, reduce waste, and boost productivity. These agents can be configured to support a wide range of functions from software development, cybersecurity, to document processing, grants management, and regulatory analysis.
Our early discussions with clients have generated considerable interest in other programs and we look forward to providing updates on our progress in the coming period. To sum up, we are pleased with our second quarter performance as it was in line with our expectations, demonstrated sequential stability, and reflected our sales agility in managing through a dynamic environment. Now I'll turn the call over to our CFO, Barry Broadus, for the financial review. Barry?
Barry Broadus: Thank you, John, and good afternoon, everyone. I'm pleased to provide you with additional details on our second quarter financial performance. Revenues in the quarter were $476.2 million, down 2.4% from the first quarter and in line with our expectations. On a year-over-year basis, total revenues declined 7% or 4% from the exclude subcontractor and other direct costs. Compared to 2024, revenues from our commercial, state, local, and international customers grew 13.8% and accounted for approximately 57% of total revenues, up from 47% a year ago. This performance was led by revenues from our commercial energy clients which increased 27%, reflecting the robust demand from utility clients for our extensive domain expertise and implementation capabilities.
The continued strong growth in revenues from our non-federal government clients offset a significant portion of the 25.2% year-on-year decline in federal revenues, which was primarily due to contract funding curtailments and delays in federal program and procurement activities that John mentioned in his remarks. The federal government business environment continues to evolve, our outlook for this client category has improved since our first quarter call. As we have not experienced a significant increase in contract terminations and we have begun to see some positive movement with contract modifications, funding, and pipeline opportunities more recently.
Our book-to-bill for the quarter was 1.3, which included an uptick in federal sales with the majority of the federal new wins generated from recompetes and contract modifications. Subcontractor and other direct costs declined 15.5% year over year and represented 23% of total revenues, down 240 basis points from 2024, primarily due to lower pass-throughs in the federal business. As a result, a higher percentage of our revenue was tied to ICF International, Inc. direct labor, which generates higher margins. Our second quarter gross margin expanded 160 basis points to 37.3% as compared to the second quarter of last year.
This increase in gross margin was attributable to three main factors: First, direct labor as a percentage of total direct billable costs increased by 270 basis points as compared to the same period last year as we continue to transition to a higher percentage of revenue being driven by direct labor, as I previously noted. Additionally, the continued expansion of our higher-margin commercial business accounted for approximately one-third of our second quarter revenues compared to 24% last year. And finally, we continue to see the favorable shift in our contract mix as fixed price and T&M contracts now represent approximately 93% of our total revenues, up from 88% in the prior year quarter.
While our cost reimbursable contracts accounted for less than 7% of total revenues. Indirect and selling expenses declined 3.2% to $120 million and represented 25.8% of total revenues. We're closely managing our indirect costs while continuing to selectively invest in growth markets, expanding our capabilities in AI and other technologies, and implementing more efficient and effective front and back office systems and tools. These investments will help us scale efficiently as revenues rebound. EBITDA was $53.1 million versus $55 million in 2024. While adjusted EBITDA was $52.9 million compared to $56 million in the prior year's second quarter. Adjusted EBITDA margins expanded 20 basis points to 11.1%, reflecting our gross margin expansion.
Second quarter net interest expense was $8.4 million compared to $7.7 million in the comparable period last year due to a higher debt balance. The higher debt balance was due in part to our acquisition of AEG in December 2024. We also repurchased an additional 11 million shares during the first half of this year as compared to the prior year as well as funding seasonal working capital needs mainly in the first quarter of this year. Our tax rate was 21%, below the 26.3% reported last year as we continue to realize benefits from our tax optimization efforts.
Net income was $23.7 million with diluted EPS of $1.28 versus net income of $25.6 million and diluted EPS of $1.36 in last year's quarter. Non-GAAP EPS totaled $1.66 which was slightly below the $1.69 reported one year ago. Backlog at the end of the second quarter was $3.4 billion which incorporates year-to-date contract cancellations and other changes in the administration's priorities. 54% of our backlog is funded reflecting the stability and long-term visibility we have in the business. At quarter end, our new business pipeline remained healthy at $9.2 billion. Operating cash flow in the second quarter was $2 million and $18.9 million on a year-to-date basis.
Our second quarter results represented an improvement of approximately $85 million from 2025. This improvement reflects the continuing success of our cash management initiatives. Day sales outstanding were eighty days, down one day sequentially. And capital expenditures were $9.2 million, down from $10.4 million in the comparable prior year quarter. Debt at the end of the quarter was $462 million as we reduced our debt by approximately $40 million in the second quarter. This reflects our strong cash flow generation and supports our plan to meaningfully reduce debt by year-end and position ICF International, Inc. for future acquisition activity. Approximately 38% of our debt is set at a fixed rate, up from 35% in the first quarter of this year.
We expect to continue to improve on that fixed rate. We expect approximately 50% of our debt will be fixed at a fixed rate by the end of the year. Our adjusted leverage ratio was 2.1 times at quarter end compared to 2.25 times at the end of the first quarter. Absent any acquisition activity, we expect our leverage position to decrease by about a half a turn by year-end. We maintain our balanced approach to capital allocation.
In addition to paying down debt, we remain focused on funding organic growth initiatives, expanding our capabilities and service offerings, especially those infused with AI, pursuing strategic acquisitions, maintaining our quarterly dividend, executing opportunistic share repurchases along our standard buyback program designed to offset the dilution from our employee stock programs. Today, we announced our quarterly cash dividend of $0.04 per share payable on 10/10/2025, shareholders of record on 09/05/2025. We are maintaining our prior expectations for the following metrics for full year 2025: Our depreciation and amortization expense is expected to range from $21 to $23 million. Amortization of intangibles is expected to be $35 million to $37 million.
We anticipate interest expense to range from $30 million to $32 million. We continue to expect a full year operating cash flow to be approximately $150 million. Capital expenditures are anticipated to be approximately $26 million to $28 million. Full year tax rate is expected to be approximately 18.5%. We expect the fully diluted weighted average share count to be approximately 18.6 million shares. And with that, I'll turn the call back over to John for his closing remarks.
John Wasson: Thanks, Barry. As we noted in our earnings release, we are maintaining the guidance framework for 2025 that we provided at the time of our fourth quarter 2024 earnings release. But our business outlook has improved since then. Based on our year-to-date results and current visibility, we do not foresee full year revenues declining by as much as 10% from 2024 levels which was the floor indicated by our original guidance. We continue to expect 2025 adjusted EBITDA margins to be similar to those of 2024, and our GAAP and non-GAAP EPS are likely to be at the higher end of our guidance framework.
This guidance framework does not contemplate an extensive government shutdown this year or a prolonged period of process and funding modifications existing contracts or procurements. Our increased confidence in ICF International, Inc.'s 2025 year-on-year comparison is underpinned by our expectation for continued robust demand from our commercial energy clients, stable revenues from state and local government clients, and the increasing ramp-up of recently won contracts by international government clients.
Together with the agility and resourcefulness that we have demonstrated, to date in serving our federal government clients, we are looking ahead to ICF International, Inc.'s return to revenue and earnings growth in 2026, supported by continued growth from our non-federal government clients, improvement from portions of our federal government business, and the continued support of our professional staff who have shown tremendous commitment to ICF International, Inc. and to our clients have been instrumental to helping us manage through challenging industry conditions. With that, operator, please open the call for questions.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone, wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster.
Operator: Our first question comes from the line of Sam Kusswurm with William Blair. Your line is now open.
Sam Kusswurm: I think I'll stick around more of the backlog for my questions. You know, believe you referenced having a backlog of $3.4 billion which was down year over year but flat sequentially. In recent quarters, both before and after the creation of Doge, you referenced several large government contract wins that I believe are still in that backlog. Can you give us a sense, the mix of federal work in your backlog and how you're thinking about timing and visibility into those contracts?
John Wasson: Sure, Sam. Thanks for the question. Yeah. So from a backlog perspective, our federal government backlog has the majority of the backlog and, you know, it is about in the neighborhood of half the backlog, maybe a little bit more. And then, you know, the rest is divided amongst the state and local and commercial client base.
Sam Kusswurm: Okay. And maybe another way to ask too, you know, we've been hearing that the federal government has been a bit slower to convert, award contracts that you know, have been funded, into actual task orders. So although the contract awards look good, the translation into actual work and revenue has been a bit slower. I guess, is that something that you're also seeing it all on your end kinda as we enter this budget flush season, of the federal government's fourth quarter?
John Wasson: Well, you know, I would say that from a procurement activity perspective, yeah, I would say that new procurement certainly has slowed, you know, and we're just getting back on track with, you know, contract modifications, you know, additional funding, extensions, etcetera like that. I would say that with those type of activities, we're seeing, you know, what I would consider a normal battle rhythm activations, and getting to work. There have been some slowdowns. You know, as the various agencies, you know, figure out what their priorities are and get to work. But I would say that we haven't really seen a slowdown. You know, once we get the contracts, you know, activated and online.
You know, to do the work. You know? So I haven't seen a significant drop off on that respect.
Sam Kusswurm: Great. Well, we'll leave it there. Appreciate the color.
Operator: Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open.
Kevin Steinke: Thank you. So you referenced a pickup in government activity in the last month or so, and also expected improvements from parts of the federal government business in 2026. I'm just wondering if you could add a little more color or detail on the specific parts of the client set or, you know, program level where you're seeing the improvement, the pickup in the expected improvement, whether it be, you know, IT modernization, health, or elsewhere?
John Wasson: Sure, Kevin. This is John. So, you know, I guess I would start by reiterating. Obviously, we're pleased to see that, you know, the contract cancellations have flattened out here and didn't really see a material increase there in Q2. Across our five-year client set, I would say that certainly in Q2 here we've seen a pickup in, you know, modifications and plus-ups on contracts. I would say we've seen those broadly across our client set, certainly I think the technology showed the first signs of that and has been leading the way, but we've also seen a pickup, you know, across our appropriate complex public management or domain consulting. As we got later into Q2.
And so we have seen progress, as I say, with modifications and plus-ups. And then on the awards front, on the RFP front, I mean, again, I think the technology area, IT modernization, and certainly shown more life, and we're seeing more green shoots there. And that, you know, that we saw that in that area first. Although most recent, we've also seen a few green shoots in our complex program management opportunities. I think as we look to 2026, certainly we would expect the federal technology area to return to growth. Given the priority of this administration and the focus on technology modernization and the use of AI.
And we would expect to return to growth in that business in 2026. You know, I think complex program management and domain consulting has certainly been more challenged. That it could perhaps take more longer there, but we're certainly, you know, optimistic on the enough confidence that we can return to growth on the federal technology side next year.
Kevin Steinke: Okay. Thank you. And as you talked about in your Outlook section, you don't see full year 2025 revenues declining by as much as 10% from 2024. If it's, you know, just I don't know if there's any more color you can provide on how high much higher you raised the floor there, you know, in terms of the potential decline or be trending more towards the midpoint or, you know, I don't know if there's again, any additional color you could provide on that.
John Wasson: Yeah. You know, I'd say that well, I guess I would just first remind you. I mean, when we obviously, when we gave our guidance, in February 2025, it was a very dynamic environment. And, you know, we obviously indicated at the bottom end of the range was minus 10%. Across the key financial metrics, and that was really meant to be a floor. You know, I think we shared our analysis of the maximum downside risk at that time with federal clients. And I think we said it was a, you know, it was a floor, and we really were setting it so we did not have to come back to investors meeting here with a bigger number.
So you know, I think, you know, based on the visibility we have and know, what we've seen here in Q2, we certainly don't think we're gonna decline by as much as 10% from 2024 levels. And I think it's a little too early for us to hold them specific number on that. And, you know, it's Q2. There's still risk. We're waiting to see how the 2026 budget shakes out. You know, how the continuing resolution plays out. There's a lot of changes going on with the federal government. So, you know, I think more to come in future calls. I don't think I'm ready to give a specific number.
I think we'll certainly come in less than 10% down. And as we said on the earnings side, you know, I think we'll be at towards the high end of our range there given the strong growth in our commercial energy business and the strong cost management we've had. And so I think I'm gonna leave it there in terms of any more color on it.
Kevin Steinke: Okay. Yep. Understood. That makes sense. Thanks for taking the questions.
Operator: Thank you. Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open.
Marc Riddick: Hey. Good evening, everyone. Wanted to touch a little bit on, maybe you could share what you're seeing with state and local activity, specifically are we seeing are we beginning to see any shifting of responsibilities slash dollars from federal that's talked about as much? And if so, maybe you could touch on maybe a few highlights or points to where you might be seeing that, whether that's in service particular services or particular geographies where you're beginning to see some activity along those lines?
John Wasson: You know, obviously, there's been a lot of discussion and discussion around the future role of FEMA and what the impacts of FEMA's role would be on a future disaster recovery and what the federal or state or local will be. And let me just say unequivocally, I don't have a crystal ball. On, you know, where any of this is gonna land. And I guess I have a couple observations for you. First, note with all of the speculation going on, we have not seen a decrease in federal funding. Certainly authorized for FEMA programs. And, you know, there hasn't been a discernible decrease in the number of federal disaster application approvals.
Now while the approvals are moving more slowly and we did have one recent request from the state of Maryland that was denied. We've seen a in terms of the day-to-day operation, you know, the disasters underway, we haven't seen a shift in how the work is being done. And so, you know, I think that and, you know, there's the funding on this. I mean, you know, in the lame duck session at the 2024, you know, Congress did pass an additional $29 billion for the disaster relief fund. As part of the continuing resolution. For, you know, storms in '23 and '24. You know, the disaster refund at FEMA has a $14.7 balance right now.
I talked about the CDBG opportunities that are the housing opportunities that are playing out. And so, you know, I think that there will be opportunity for us there. Our business continues to we're quite active in the work we have. And we're also, you know, preparing if there is a commission looking at this, if in fact, more of the responsibility is pushed to the states, think we'll be in a good position to support them. Simply in a larger leadership role. So and so, you know, I think and so those discussions continue but, you know, the business dated air force right now continues.
And I think regardless of where it lands, will be disasters, and there will be disaster recovery will be funding for it. And, you know, we will continue to one of the market leaders in that area.
Marc Riddick: Okay. And I was wondering, shifting gears here, maybe you could talk a little bit about the maybe what you're seeing as far as acquisition pipeline that's out there available? Has that changed much since the beginning of the year? Have valuations made any shifts and maybe sort of how you're feeling about what's out there today versus, you know, beginning of the year?
John Wasson: Well, you know, I would say that from an acquisition standpoint first of all, acquisitions is we've been acquisitive over the years and been a key element of our strategy. And I think from a long first terms perspective, it will remain that I think our focus right now, you know, certainly, you know, we're seeing tremendous growth in our commercial energy business.
We're a market leader in several aspects of what we do, and I think we're taking a hard look at other firms that could bring potential acquisition targets that could bring additional scale, additional geographic scope, client scope, or would be kind of, you know, the next concentric circle out from the work we do across, you know, to energy programs, grid modernization, advisory consulting, environmental planning consulting for utilities. So we're taking a very hard look at that market, and if the right opportunity came along, I think we certainly should seriously consider that. I think that market is experiencing unprecedented change.
There's tremendous opportunity and I think more scale and more geographic reach would be very helpful to us. So I think that's our number one priority. And we're, you know, we're out in the market and we're looking. You know, I think that in federal, I think we're unlikely to do anything in federal certainly this year. Or early next year. There's still a lot of uncertainty certainly in the context we serve in terms of budgets and, you know, where budgets and all that land and, you know, procurement uncertainty. There's not a lot of activity in the markets we're in. And, you know, I think the valuations are, you know, uncertain.
So I don't think we'll do anything in federal in the near term. You know, disaster recovery, I think, again, I think there's a lot of uncertainty there. I do believe in the long run, the frequency and severity of disasters is gonna continue to increase. And there will be funding, but I think in the short run, the uncertainty there is pretty high. So, yeah, it's a long-winded way. Think it's we're pretty focused on energy. Although, it will certainly look at disaster recovery in other areas. If an interesting opportunity arises.
Marc Riddick: Great. And then the last one for me, maybe to swing back to, your commentary around, on Fathom. Maybe you could talk a little bit about the some of the competitive advantages and dynamics that you're looking at there that and maybe tell us a little bit more about that rollout.
John Wasson: Sure. I mean, think it's obviously, I think everyone on this call knows. I mean, this administration is very focused on leveraging technology and an AI first approach to implementing technology in the federal government. And so, you know, I think having leading-edge AI skills is absolutely you have to have it. You know, they're very focused on efficiency, reducing waste from abuse, increasing automation. And so, you know, the ICF Fathom that I discussed is really our platform so that we can use agentic AI approaches.
To help modernize federal technology systems and to also develop applications to support specific areas that are critical to their mission before what they do, whether and so you know, it's really that's what we're really focused on. I think we've we just began announcing it this week, and there'll certainly be more to come here in the coming weeks on it. We have been we have been getting using this platform with several of our clients.
I think it is allowing us to do rapid prototyping very quickly and natural way to demonstrate value very quickly, you know, so the clients can get a very quick sense of what the power of AI could be in terms of their specific programs and needs. And so we're pleased to know, finally get this launched and to be out of the market with it.
Marc Riddick: Great. Thank you very much.
Operator: Thank you. Our next question comes from the line of Tobey Sommer with Truist. Your line is now open.
Henry (for Tobey Sommer): Hi, all. It's Henry on for Tobey. Thanks for taking my questions. Just a quick one to start on the procurement environment for this coming quarter. Do you guys see any risks kind of on this budget flush season from lower staffing levels for contracting officers?
John Wasson: You know, I would say that say a couple of things. First of all, I just I know you folks know the third quarter is usually our strongest quarter for sales. And, you know, I would expect the third quarter will be seasonally. It's our best quarter and it's in the government fiscal year and we would certainly expect that to be the case. This year again based on what we're seeing. I could think there is to your point, there has been a lot of, you know, folks retiring and change of different staff and change on the procurement front. And so think there's risk there that you know, that could have some impact.
I do think at the end of the day, we still believe we'll have the third quarter would be a quite a strong sales quarter, but the question you question about the risk on the procurement there is some risk there. I think the good news is we are seeing some pickup here. I mean, we could see the RFPs proving, you know, we can see new opportunities entering the pipeline. So you know, I think we'll be stronger, but procurement the turnover on the procurement front the organization's going on. You'll have created some uncertainty.
Henry (for Tobey Sommer): Thanks for that color. And switching to the commercial energy side, you know, how much do you see data centers, the growth there, you know, driving that growth kind of this year and maybe, you know, in some out years. You know, are utilities growth plans for data centers kind of stabilizing now, or do you see those forecasts kinda keep increasing?
John Wasson: I mean, I think that the growth in electricity demand associated with data centers in the next decade is unprecedented. I think ICF International, Inc. put out a report looking at our views on what electricity demand is gonna be in North America over the through 2030 and, think, 2050. And I think it's an enormous step up, you know, enormous step up. The demand for how they're going to meet this load, how it's gonna be generated, how it's gonna be transmitted, you know, transmission, you know, how they're gonna manage their businesses to meet it. I mean, it's pretty I'd say it's unprecedented. And while it's certainly the most significant driver, it's not the only driver.
Think with all this going on to meet this demand, you know, it's the solution has to be, you know, every form of generation has to be maximized, whether it's natural gas, whether it, you know, in the long run, it's nuclear, it's hydrogen, it's renewables. It's energy efficiency, you need all of the above, and you need it as much as you can. And so, you know, I think in our view, this is a long-term problem. There's this is gonna be tremendous opportunity in this sector because of that. In addition to the data centers, you know, crypto requires significant power generation to mine that. You know, the economic growth.
And as part of this, the industry is also undergoing a change to a more distributed, less centralized structure which is also driving significant investments, significant change. So I think this is a ten to twenty year or more challenge. And it's gonna create enormous opportunity for survey, you know, in this industry.
Henry (for Tobey Sommer): Thank you.
Operator: I'm showing no further questions at this time. I would now like to turn it back to John Wasson for closing remarks.
John Wasson: Okay. Well, thank you for participating in today's call. We look forward to connecting at upcoming conferences and events, and have a good rest of the summer, the dog days of summer. Take care.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.