Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Date

Thursday, May 7, 2026 at 4:30 p.m. ET

Call participants

  • Chairman and Chief Executive Officer — John Wasson
  • President — Anne Cho
  • Chief Operating Officer and Chief Financial Officer — Barry M. Broadus

Takeaways

  • Total Revenue -- $437.5 million, a decline of 10.3% year over year due to timing shifts and prior-year federal contract cancellations.
  • Federal Government Revenue -- $182.3 million, up 8.6% sequentially, reflecting stabilization and initial recovery in this client segment.
  • International Government Revenue Growth -- 17.5% increase driven by significant contract wins with European Union and UK clients.
  • Commercial Energy Revenue Growth -- Reported 2% increase; would have been 8.3% excluding $8 million of project work shifted to later quarters.
  • Book-to-Bill Ratio -- 1.21, indicating a healthy level of contract awards relative to revenue recognized over the past twelve months.
  • Contract Awards -- $450 million awarded, sustaining momentum in new business generation and pipeline growth.
  • Business Development Pipeline -- $8.5 billion at quarter end, supporting management confidence in multi-year revenue visibility.
  • Backlog -- $3.4 billion, with approximately 51% funded, reinforcing projected revenue for the remainder of the year.
  • Adjusted EBITDA -- $48.9 million; adjusted EBITDA margin was 11.2%, consistent with the prior-year quarter's 11.3%.
  • Net Income -- $20.5 million, or $1.12 per diluted share, versus $26.9 million, or $1.44 per diluted share, last year; non-GAAP EPS was $1.50 compared to $1.94.
  • Gross Margin -- 38.1%, up 10 basis points year over year, reflecting favorable mix and contract structure.
  • Indirect and Selling Expenses -- $118.8 million, declining nearly 10% from the prior year and representing 27.2% of revenue.
  • First Quarter Operating Cash Flow -- Used $3.1 million, an improvement from $33 million used in the prior-year period, attributed to stronger collections and working capital management.
  • Days Sales Outstanding -- 74 days, reduced from 81 days in the comparable quarter last year.
  • Net Debt -- $436 million at quarter end, down from $499 million at the end of last year's first quarter.
  • Adjusted Leverage Ratio -- 2.23 turns compared to 2.25 in the prior-year quarter.
  • Share Repurchases -- 217,500 shares repurchased during the quarter; year-end fully diluted share count expected at 18.3 million.
  • Quarterly Dividend -- $0.14 per share announced, payable July 10, 2026, to shareholders of record as of June 5, 2026.
  • Tax Rate -- 25.1% in the first quarter, above expectations; full-year tax rate guidance reaffirmed at approximately 20.5%.
  • M&A Strategy -- Management plans to be more aggressive in pursuing acquisitions, focusing primarily on commercial energy, with discipline on financial and strategic criteria.
  • Revenue Guidance -- Full-year revenue expected in the $1.89 billion to $1.96 billion range, equating to 3% growth at midpoint.
  • Full-Year EPS Guidance -- GAAP EPS range of $5.95 to $6.25; non-GAAP EPS range of $6.95 to $7.25, implying 5% year-over-year growth at midpoint.
  • Full-Year Adjusted EBITDA Margin Expansion -- Expected growth of 10 to 20 basis points.
  • Capital Expenditures (CapEx) -- $2.8 million in the first quarter and projected $24 million to $26 million for 2026.
  • Federal Contract Mix -- Approximately 93% of contracts are fixed-price or time-and-materials; only 7% are cost-reimbursable.
  • Recompete Win Rate -- Management stated, "we continue to win north of 90% of our recompetes."
  • Commercial, State, Local, and International Client Mix -- Over 58% of first quarter revenues; management on track for these segments to exceed 60% for full year.

Need a quote from a Motley Fool analyst? Email [email protected]

Risks

  • Chief Financial Officer Barry M. Broadus reported, "first quarter total revenue came in below our expectation, this was entirely due to timing of certain commercial energy and international government contract work." The $12 million revenue shortfall must be recognized later, increasing dependence on timely execution in future quarters.
  • The first quarter tax rate of 25.1% was materially above expectations, negatively impacting GAAP EPS by $0.07 and non-GAAP EPS by $0.09 for the quarter.
  • Revenue comparisons for 2026 will reflect the impact of federal contract cancellations that occurred between February and May 2025, contributing to the reported year-over-year revenue decline.

Summary

Management maintained full-year revenue and EPS guidance despite a 10.3% year-over-year revenue decline attributed to project timing and past federal contract cancellations. Contract awards totaling $450 million, an $8.5 billion pipeline, and stable margins underscore recurring visibility and operational discipline. Strategic focus includes aggressive pursuit of commercial energy acquisitions and efforts to capitalize on secular trends such as AI-driven modernization and energy transition. Management articulated a shift toward fixed-price and outcome-based contracts, supporting earnings resilience and adaptability to evolving government procurement demands.

  • The business development pipeline of $8.5 billion and a funded backlog comprising 51% of $3.4 billion provide strong multi-quarter revenue visibility.
  • Revenues from commercial, state and local, and international clients are expected to grow at a double-digit rate and represent over 60% of total revenue in 2026.
  • Management reinforced its M&A playbook focus on commercial energy, with leverage capped at historically prudent levels and an emphasis on rapid post-acquisition deleveraging through free cash flow.
  • AI-infused solutions and technology modernization remain central to future growth strategies across federal, state, and international client sets.
  • Back-office ERP and AI investments are credited with both cost efficiencies and capacity for reinvestment in long-term margin expansion and innovation initiatives.

Industry glossary

  • Book-to-Bill Ratio: The ratio of contract award value to revenue recognized, indicating growth or contraction in future business opportunity.
  • BRIC Program: FEMA's Building Resilient Infrastructure and Communities program, which funds projects improving disaster resilience at state and local levels.
  • IDIQ Contract: Indefinite Delivery/Indefinite Quantity contract, a type of contract with no specified amounts, allowing for variable order volumes over a period.
  • Adjusted Leverage Ratio: Net debt divided by adjusted EBITDA, used to assess borrowing risk and debt servicing capacity.
  • Recompete: A scenario in which a contract holder must bid again to retain existing business, as the current contract nears its end.
  • Outcome-Based Contract: A fixed-price agreement where payment is tied to specific project milestones, deliverables, or performance metrics.

Full Conference Call Transcript

John Wasson: Thank you, Lynn, and thank you all for joining us this afternoon to review our first quarter results and discuss our business outlook. The first quarter represented a solid start to the year. We executed well across our client set, reflecting successful strategic initiatives to diversify our business model and our track record of delivering positive outcomes for our clients. This track record is a function of ICF International, Inc.'s deep domain expertise paired with cross-cutting capabilities in technology, digital transformation, complex program management, and engagement.

By going to market with this unique combination of capabilities and experience, we continue to maintain healthy win rates, record industry-leading book-to-bill ratios, and build our business development pipeline — all metrics that underpin ICF International, Inc.'s future growth potential. Key takeaways from 2026 include: First, an 8.6% sequential increase in our revenues from federal government clients, representing a strong indication that this part of the business has stabilized and is on the upswing. As we noted last quarter, we expect to see sequential improvement in our revenues from federal government clients through the third quarter of this year, with year-on-year growth in this client category anticipated for the 2026 fourth quarter.

Second, a 17% year-on-year increase in revenues from international government clients, which was a strong showing tied directly to recent contract wins, many of which are single-award contracts. Third, of the total of $12 million in revenues that shifted out of the first quarter through the timing of project work for commercial and international government clients, we expect one-half to be recognized in the second quarter and the remainder to come through the second half. And lastly, we continue to win north of 90% of our recompetes. New business, including modifications, represented 65% of this quarter's awards, a strong indication of how well our qualifications are aligned with client demand.

ICF International, Inc. was awarded $450 million in contracts in the first quarter, maintaining our 12-month book-to-bill ratio at a healthy 1.21. After this quarter's awards, our business development pipeline stood at $8.5 billion. Also, we were pleased with our strong margin performance in the first quarter, which we achieved while continuing to invest organically in areas we have identified as drivers of long-term growth for ICF International, Inc., namely commercial energy, disaster recovery, and federal technology modernization.

There are several important secular trends supporting our growth expectations for these areas, including rapidly growing demand for electricity in North America highlighting the importance of energy efficiency and grid modernization programs; increased frequency and severity of natural disasters, including hurricanes, wildfires, and other extreme weather events, which often result in major damage to homes, businesses, and critical infrastructure; and the tremendous need for digital and AI-driven technology modernization to improve mission delivery across federal civilian agencies. ICF International, Inc. is well positioned to capture more than our fair share of growth in these markets, which supports our confidence that ICF International, Inc. will return to mid- to high-single-digit organic growth in 2027, and continued growth beyond.

When you layer on the potential for accretive acquisitions, you see a clear path to return to double-digit growth. Given our expectations for continued favorable business mix and our ongoing internal efficiencies, many of which are coming from AI and other tools, we expect our earnings growth to continue to outpace revenue growth as we look forward. I know that investors are concerned about the impact of AI tools on the technology modernization work that is being done at federal government agencies. While we understand the concerns, we are doing work in this market every day, and over the last two years we have adjusted our offerings to strengthen our resilience to just that concern.

For example, we focus on longer-term demand drivers including AI-augmented application development, foundational modernization, and AI governance and orchestration. Here are several insights that are relevant to ICF International, Inc. First, 80% of our technology modernization work for federal clients is fixed-price or outcome-based, and our civilian agency clients require a lot of support in this area. As AI-augmented methods enable us to complete projects in less time and at a lower cost, we will simply move on to the next project more quickly than in the past. Technology is moving quickly, and there is a substantial backlog of modernization work to be done to address the existing technical debt in the federal civilian arena.

Second, as our clients move to advance AI at enterprise scale, we anticipate even greater demand for foundational data, cybersecurity, and cloud services. This is the foundation that determines whether AI deployments produce reliable, secure, and scalable outcomes or fail in production. We are prepared to help our clients continue on their journeys to improve and modernize their data and cloud architectures in order to capitalize on the promise of AI. Third, these AI capabilities also open up a larger technology market. We will see new opportunities for smarter workflow automation as agencies reimagine what is possible. Also, people will address legacy technical debt that was heretofore too expensive to address through traditional modernization.

Finally, we will help our clients in addressing new challenges with AI governance, orchestration, and platform optimization that are all emerging as we speak. These areas we talk about require technology and domain expertise combined with human judgment and oversight to get it right. The upside is that the government technology market is expanding in scope, shifting in shape, and asking more of its partners than it did before AI. ICF International, Inc. is positioned to lead and grow through this evolution. Before turning the call over to Anne Cho, our President, who will provide a more detailed business review, I want to comment on M&A.

Last year, we were fully concentrated on building our capabilities across our non-federal client base and on tightly managing our federal government business in light of the volatility that we experienced in 2025. This year, we are taking a more aggressive stance with respect to M&A given the substantial opportunities we see in our key growth markets, and in particular, commercial energy. We remain disciplined, but if we find an acquisition that meets our criteria for driving revenue synergies in growth areas and for being accretive soon after completion, we will move forward. Acquisitions have been an important part of ICF International, Inc.'s growth chassis over the last 25 years.

We have a great track record of using free cash flow to pay down debt quickly. I will now turn the call over to Anne to discuss first quarter business performance across our client set. Anne?

Anne Cho: Good afternoon, everyone. I am pleased to be presenting our business review on my first official call as President of ICF International, Inc. During my 30-year tenure, I have had the opportunity to work in many areas of the company, which makes it very exciting for me to be able to speak to you about the totality of the business. First quarter revenues were led by commercial, state and local, and international government clients, accounting for over 58% of total first quarter revenues, and are on track to exceed 60% of our full-year 2026 revenue. Taking a closer look at our client categories, I will start with commercial energy.

There continues to be strong underlying demand for our utility programs, which include energy efficiency, flexible load management, and electrification. These programs represent approximately 80% of the trailing 12-month commercial energy revenue. The addressable market for these services is large, and ICF International, Inc. is a market leader. We continue to gain share, receiving plus-ups on existing contracts reflecting the results we are delivering, introducing new services, and then winning contracts from competitors. Our commercial energy advisory work delivered mid-teens growth in the first quarter. This growth reflected considerable demand for our market assessment and due diligence work, which supports client M&A; the expansion of the grid reliability and protection work; and increasing demand from data center developers.

In addition, our engineering support to utilities working to accommodate data center loads continues to accelerate, as those clients expedite the development of new substations. Many of these engagements draw on our proprietary tools like Energy Insights, SightLine DER, and ClimateSite Energy Risk. We pair these model outputs with actionable decision support within the confines of the regulatory and stakeholder environment. From a Q1 perspective, as John noted, there was a timing shift affecting our work on several fixed-price energy efficiency programs that must be completed in 2026. Without this shift to the right, commercial energy revenues would have increased 8.3% in the first quarter instead of the reported 2%.

Next, I am going to talk about our state and local portfolio. Q1 state and local government revenues were stable. For the full year, we expect revenues in this client category to increase at a mid-single-digit rate. ICF International, Inc. is a recognized market leader in disaster management and recovery services, which continue to account for about 45% of this client category's revenue. In February, we announced the award of a comprehensive management services contract by the State of Florida, which positions us to compete for a broad portfolio of projects that extend beyond disaster management to include habitat conservation planning and agricultural land conservation.

We are also encouraged that, following the confirmation of the new Secretary of the Department of Homeland Security in late March, DHS went on to approve the obligation of $730 million Hazard Mitigation Grant Program funding, signaling the continued intent to fund rebuilding efforts that mitigate future disaster loss. DHS also recently indicated its intent to restart the FEMA Building Resilient Infrastructure and Communities, or BRIC, program that we have historically supported.

The combination of these events supports our confidence that disaster management and recovery services will continue to be a driver for ICF International, Inc. over the mid and long term, and will expand our efforts well beyond the current 75 disaster recovery programs in 22 states and territories that we support today. Technology has always played an important role in our work for state and local government clients, and we have expanded our offerings there to include advanced technology solutions and services as well. As we discussed in our last call, our international portfolio is growing nicely.

International government revenues increased 17.5% in the first quarter, reflecting the significant contracts that ICF International, Inc. has been awarded over the last 18 months by the European Union and UK clients. The additional $4 million that shifted into the second quarter and second half of this year represented the timing of pass-through revenues that are associated with outreach and marketing events that are under fixed-price contracts requiring the work to be completed in this year. Sales continue to be strong across our international portfolio, winning key recompetes and securing new contracts with international government clients to support growth for the next several years. Finally, I will talk about our work for U.S. federal clients.

Our federal business has stabilized, and we continue to expect consecutive revenue growth in Q2 and Q3 and then year-over-year growth in Q4, as we execute on the nearly $1 billion in federal government contracts that we have won over the last 12 months. We are pleased to see procurement activity pick up in the first quarter. Some opportunities that were paused or canceled last year have re-entered the market. We have seen a restart of some of the work we were awarded in the past, such as support of a grant program for the Department of Energy.

The procurement environment has changed in the last year, and we have pivoted, focusing more on rapid prototyping and demonstration of capabilities than ever before. Several sweet spots exist at the intersection of the administration's priorities, the agencies' gaps in manpower, and our expertise. These include applying AI and advanced analytics for fraud prevention and supporting child and family services, transportation safety, grid reliability, and technology modernization. A good example of how we combine deep domain expertise and advanced technology with human judgment is our work modernizing the Center for Medicare and Medicaid Quality Improvement and Evaluation System.

The program involves the transition of more than 278 million clinical assessments into a national repository, enabling real-time monitoring of care standards across skilled nursing facilities, home health agencies, and hospitals. This work advances the administration's priorities around quality of care, fiscal responsibility, and system resilience. In summary, the trends underlying our business are aligned with our expectations. Our leaders are leaning in across the full portfolio with a winning mindset and eagerness to emerge as a partner of choice as our clients navigate what is a really fast-moving and exciting time. Now I will turn the call over to our Chief Operating Officer and Financial Officer, Barry M. Broadus.

Barry M. Broadus: Thank you, Anne. Good afternoon, everyone. I am pleased to provide additional details on our first quarter 2026 financial performance and the factors shaping our results, as well as our outlook for the remainder of the year. At a high level, first quarter results reflect solid execution across our diversified client base. Margins remain strong, contract awards resulted in a book-to-bill above one, we continue to have a healthy pipeline of opportunities which we are pursuing, and, as Anne mentioned, procurement activity in the federal space is showing signs of improvement. In fact, in the federal space, we submitted nearly $400 billion of bids in the first quarter, the majority of which were for new opportunities.

While first quarter total revenue came in below our expectation, this was entirely due to timing of certain commercial energy and international government contract work. We fully expect to recover these revenues throughout the balance of the year, with half expected in the second quarter. I would also note that our first quarter tax rate came in above our expectations, which I will address in more detail shortly, but our full-year outlook for a tax rate of 20.5% remains unchanged. Before discussing the first quarter financial metrics, I want to highlight some of the strategies that are supporting margin improvement and helping to drive shareholder value.

First, cost optimization has been a key theme as we work to manage our infrastructure costs while funding growth initiatives. We continue to invest in modernizing our ERP systems and our back-office operations while implementing AI tools. These ongoing investments have and will continue to make us more efficient, providing us the ability to scale over time by offering both operational and financial benefits. From a strategic financial standpoint, we continue to focus closely on capital allocation. To that end, organic projects, share repurchases, and acquisitions are top of mind. In the first quarter, we repurchased slightly more than 217,500 shares, and we will continue to opportunistically repurchase additional shares.

Further, as outlined by John, we are actively pursuing acquisitions given our strong cash flow and borrowing availability, which was expanded as part of the refinancing we completed last month. In summary, we are executing on our strategic plan and remain on track to return to growth in 2026, and deliver on our full-year top and bottom line guidance. With that context, I will now review our first quarter financial results. Total revenue in the first quarter was $437.5 million, a decline of 10.3% compared to 2025. As we discussed on our fourth quarter call, both first quarter and full-year 2026 revenue comparisons will reflect the impact of federal contract cancellations that occurred between February and May 2025.

First quarter revenues were approximately $12 million below our expectations, reflecting a push to the right of roughly $8 million in project work for commercial energy clients on fixed-price contracts and $4 million in international government. The timing of the work simply shifted later in the year. We will recover all of these revenues over the balance of the year, approximately half expected in the second quarter.

As a result, we are reiterating our expectation that revenues from commercial, state and local, and international clients will grow at a double-digit rate and represent over 60% of total revenues for the full year, supported by strong underlying demand from utility clients, continued ramp-up of international contract wins, and growing state and local revenues. In our federal government business, we were encouraged to see revenues grow 8.6% sequentially to $182.3 million, which was aligned with our expectations. The sequential improvement was supported by our technology modernization work, which we are well positioned to win and deliver in the current procurement environment.

Subcontractor and other direct costs were $102.7 million, representing 23.5% of total revenues, up from 22.7% in the prior-year quarter due to higher pass-throughs on certain non-federal contracts. Despite the year-over-year decline in revenues, gross margin rose 10 basis points to 38.1%, highlighting our favorable business mix and a contract mix that remains largely comprised of fixed-price and time-and-materials contracts. Fixed-price and T&M contracts represented approximately 93% of first quarter revenues, with cost-reimbursable contracts accounting for only 7%. Indirect and selling expenses were $118.8 million, a decline of nearly 10% year over year and representing 27.2% of total revenues.

As I mentioned previously, as we optimize our indirect spend, we will continue to invest in high-growth areas, including energy and technology modernization, while preserving our core capabilities in the programmatic side of the federal business, ensuring ICF International, Inc. is well positioned when the market recovers. First quarter EBITDA was $47.3 million compared to $52.1 million last year. Adjusted EBITDA totaled $48.9 million with an adjusted EBITDA margin of 11.2%, stable compared to the 11.3% reported in last year's first quarter, demonstrating the effectiveness of cost management initiatives and the structural improvement in our business mix. We continue to expect adjusted EBITDA margin expansion of 10 to 20 basis points for the full year.

Net interest expense in the first quarter was $6.7 million, down 8.5% year over year, reflecting a meaningful reduction in our average debt balance compared to the prior-year period. Our first quarter tax rate was 25.1%, above our expectations due to less-than-expected deductible equity-based compensation expense. This compares to 10.5% in the prior-year quarter, which, as a reminder, included a one-time tax benefit. We continue to expect a full-year tax rate of approximately 20.5%, with each of the next three quarters expected to see a lower tax rate than the first quarter, the largest offsetting benefit expected to be in the third quarter.

To close out on taxes, I should note that the higher-than-expected first quarter tax rate had an unfavorable impact of $0.07 on GAAP EPS and $0.09 on non-GAAP EPS in the first quarter. But given that we still expect a full-year tax rate of approximately 20.5%, the Q1 tax rate does not change our outlook as to how taxes will impact our full-year EPS guidance. Net income in the first quarter was $20.5 million, or $1.12 per diluted share, compared to $26.9 million, or $1.44 per diluted share, in the prior-year period. Non-GAAP EPS was $1.50 compared to $1.94 per diluted share in 2025.

As noted, both GAAP and non-GAAP EPS for the first quarter of this year reflected the unfavorable tax item that I previously described. We remain confident in our full-year outlook, which calls for 3% revenue growth at the midpoint of our guidance range, supported by recent contract activity and the strength of our backlog and pipeline. Our backlog stood at $3.4 billion at quarter end, approximately 51% of which is funded, and our business development pipeline remains healthy at $8.5 billion. Taken together, these metrics provide good visibility for the year. Now turning to our balance sheet and cash flows.

We used $3.1 million in operating cash flow during the first quarter, a meaningful improvement compared to the $33 million used in last year's first quarter, reflecting improved receivables collections and working capital management. Days sales outstanding were 74 compared to 81 days in last year's first quarter. Capital expenditures totaled $2.8 million compared to $3.5 million in the first quarter of last year. We ended the quarter with net debt of $436 million, down considerably from the $499 million at the end of last year's first quarter, and approximately 40% of our current debt is at a fixed rate. Our adjusted leverage ratio was 2.23 turns versus 2.25 turns at the end of last year's first quarter.

Subsequent to the end of the first quarter, we refinanced our credit facility and remain well positioned to invest in organic growth, repurchase shares, and pursue strategic acquisitions in our key markets while maintaining our dividend. Today, we announced a quarterly cash dividend of $0.14 per share, payable on 07/10/2026 to shareholders of record as of 06/05/2026. To wrap up, we are pleased to reaffirm our guidance for a return to revenue and EPS growth in 2026, with our revenues expected to range from $1.89 billion to $1.96 billion, representing 3% growth at the midpoint; GAAP EPS from $5.95 to $6.25; and non-GAAP EPS from $6.95 to $7.25, or 5% growth at the midpoint.

To further help you with your financial models, please note the following for the full year 2026: both depreciation and amortization, and amortization of intangibles are expected to continue to be $22 million and $24 million, respectively. Likewise, we continue to expect full-year interest expense to be between $27 million and $29 million. As I mentioned earlier, our full-year tax rate expectation remains unchanged at approximately 20.5%. In the second quarter, the rate is estimated to be around 23%, with a significant reduction in the third quarter. We anticipate capital expenditures to total $24 million to $26 million.

Given share repurchases in the first quarter, we now expect our year-end fully diluted share count to be 18.3 million shares compared to our prior expectation of 18.5 million shares. And we continue to expect operating cash flow of $135.15 billion for the full year. With that, I will turn the call over to John for his closing remarks.

John Wasson: Thank you, Barry. We are pleased that 2026 is shaping up as we expected — to be a year in which ICF International, Inc. returns to growth. In many ways, the trials of 2025 have made us a stronger company. We are more diversified, more efficient, and more agile. As we look to the future, we see a clear path to return to mid- to high-single-digit growth in 2027 and continued growth beyond. The dedication of our professional staff has been critical in helping us navigate dynamic business conditions, pivot to take advantage of new opportunities, and set the stage for ICF International, Inc.'s future growth. We appreciate their support. We will now 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 and wait for your name to be announced. To withdraw your questions, please press 11 again. Our first question comes from the line of Jason Tilgin with Canaccord Genuity. Your line is now open.

Jason Tilgin: Good afternoon, and thanks for taking my question. I believe in the prepared remarks you talked about the advisory business for commercial energy growing mid-teens year over year in the quarter. I am wondering if you could help give us some additional color on where you are seeing the most activity today as it relates to the data center opportunity, how those conversations are evolving, and what exactly, as it relates to your skills and capabilities, is giving you an edge to continue to win business in that area. Thanks. And then one additional follow-up.

High level, in terms of some of the investments that you are making today in the ERP system and other technology, I am wondering if you could help frame how much of those investments today are offsetting some of the benefits from recent cost optimization efforts, and how we should be thinking about the cadence of maybe more substantial gross or operating margin expansion over the coming quarters and years? Thanks.

Anne Cho: Sure. When I mentioned the advisory side and that growth, it is important to point out the work we are doing expanding our client portfolio. A couple of years ago, we acquired a firm called CMY, which added engineering capabilities. We have been able to expand our client set in that area, providing those engineering skills to utilities, for instance, that are trying to build out capacity to support data centers in their area. Our power modeling team has been benefiting from a resurgence of work from renewable developers across a suite of technologies — not just wind, but solar, storage, etc. — and then increased demand from data center developers as well.

Barry M. Broadus: Yes. This is Barry M. Broadus. From an overall perspective, we have had a program for the last few years where we are modernizing our ERP systems, and that is driving efficiencies. We do this in a balanced way whereby we are receiving benefits — becoming more efficient and able to process and work faster internally. In addition to ERP systems, we are also implementing AI in many of our back-office processes, which is continuing to drive additional efficiencies. We have the ability to deliver more margin, but we are using dollars we save to invest in long-term growth initiatives in the areas that John Wasson and Anne Cho mentioned as part of their opening comments.

We do this in a balanced way, and I do not see it detracting from our ability to continue to improve margins as we move forward.

Operator: Thank you. Our next question comes from the line of Samuel Kusswurm with William Blair. Your line is now open.

Samuel Kusswurm: Hey, everyone. Thanks for taking our questions here. To start on the commercial energy business, it grew 2%, but I think you shared it would have grown 8% if we were to add back the $8 million in project work that got pushed out. At the start of the year, you shared you were expecting at least 10% organic growth for the year in this business. Do you still expect that, and what are you seeing in your backlog that is really supporting it? And then also, can you comment on how the residential and utility energy piece of the business performed versus more of the commercial and industrial energy piece?

John Wasson: I will start off. We remain confident in 10% growth for our commercial energy business. We have a strong backlog and a strong pipeline. Those markets are growing high single digits, and we have been benefiting from plus-ups and takeaways that increased our growth rate above the market average. We remain confident that we will continue to do that. In terms of residential versus industrial and commercial, we are the market leader in residential energy efficiency programs. We have about 35% market share and think we can continue to expand that. We are also placing significantly on the commercial building side, where we have about 15% to 20% market share.

Anne Cho: I do not have an update beyond what we discussed on the last call in terms of the share of residential versus commercial. One more thing to underline what John Wasson mentioned about the long-term growth trajectory: upstream of these programs we run, we also provide regulatory and consulting support to utilities, which gives us a good sense of the programs coming down the pike. That is another indicator supporting strong sales for both recompetes and wins on the program side.

Barry M. Broadus: Historically, in our commercial energy business, we typically recognize roughly 47% of our annual revenues in the first half. The back half is when we typically hit certain milestones with regard to energy incentives, which creates a natural uptick in the back half versus the front half.

Samuel Kusswurm: Got it. I appreciate the color. I think I will ask about the federal business next. There was something that caught my ear in the prepared remarks — capturing more of the federal opportunities aligned with the administration's priorities. Could you expand upon that more? From an operating standpoint, what does it mean to pivot in that direction? Are there any recent successes you could point to, or is it still early?

Anne Cho: There is definitely a different way of selling in this environment in the federal space — more focus on showing what we can do. We come in with prototypes and good ideas that we can demonstrate, and where we can demonstrate the ability to take a client to a relatively quick win. That is an example of pivoting in capture and business development. In terms of new opportunities, we have been successful winning in new areas and offices at agencies where we have worked before — for instance, the Department of State, Department of Labor, and Department of Defense.

We recently won a large BPA with the Defense Counterintelligence and Security Agency, and that is one where we incorporate AI-driven components to modernize very complex operational processes, with human oversight and deep expertise. Those are the kinds of places where our skills resonate.

John Wasson: I would also add the administration wants work to be outcome-based or fixed-price, and the vast majority of our work is in that category. We are in the single digits now on cost-plus, and that has been declining. There is a real focus on AI-first. We have our ICF fathom AI platform, which allows us to do rapid prototyping and other work for federal agencies. We also have a real capability around waste, fraud, and abuse at CMS that came to us with the Semantic Bits acquisition. It is a material part of our technology business and our HHS work, and that is an area where there is a lot of focus and we are seeing a lot of opportunity.

Operator: Thank you. Our next question comes from the line of Tobey Sommer with Truist. Your line is now open.

Tobey Sommer: Thank you. I was hoping you could give us a sketch of what your M&A could look like given the pressures in the federal space. The valuation in your own stock and the group largely has declined. How do you think about multiples and leverage in this context? How engaged and active do you expect to be? Also, from a commercial energy perspective, I understand some work was pushed to the right. What kind of growth cadence do you expect this year, and how quickly will the year-over-year or sequential growth resume? And you talked about a resurgence of renewables — could you give us more context around that in a little more detail?

John Wasson: As you know, M&A has been a key part of our strategy over the last 20 years as a public company. There have been three or four times where we have levered up and then, within a year or 18 months, paid down the debt. It has been quite successful for us in terms of both organic and inorganic growth. It remains a priority for us. Generally, we are focused on opportunities in our key growth areas. Right now, energy is first among equals, and the primary focus on the M&A front is on the commercial energy side. We would look for opportunities aligned with our core energy business — bringing us additional geographies, scale, capabilities, and clients.

We will also look at adjacencies with more of an engineering focus. Anne Cho mentioned CMY, which brought grid engineering and large-load capabilities; that is an adjacency where there could be real synergies for us. At a high level, we want any acquisition to be accretive in the first year, with strategic and cultural fit, and we would need to see material revenue synergies to achieve those goals. On multiples, the energy arena for our current business retains premium multiples, so we need the right fit with the right synergies to meet our criteria.

On leverage, historically when we have levered up, we have gone to about 3.0x to 3.5x — maybe 3.75x at the peak with Semantic Bits and ITG before that. I do not see us going higher than that. We want something we could pay down quickly with our strong cash flow — within a year or 18 months.

Barry M. Broadus: On the commercial energy cadence, you could expect mid- to upper-single digits as we move into the next quarter or so, and then it will go beyond that and continue to ramp up as we move throughout the second half. The fourth quarter continues to be the strongest growth period as many energy incentives are realized during that time.

Anne Cho: On the resurgence of renewables, there is renewed interest, and “all of the above” is really more of a thing. Hyperscalers have made commitments to provide renewable energy to support their data centers, creating opportunities for us to support the analysis. That can include stakeholder engagement and crisis communication, as well as siting and interconnection analysis. With developers, we are doing siting analysis, expanding renewable facilities, looking at brownfields repurposing with an eye on potential renewables, and gas procurement strategies are still in there. Understanding interconnection applications and speed to power is really important.

Battery storage is much more in the forefront now, and that has always been part of our work, but it is now of much greater interest to our clients.

Operator: Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open.

Kevin Steinke: Great, thank you. From a housekeeping perspective, can you expand on what resulted in the later timing of some revenue in both the commercial energy and international markets? And in the federal space, you mentioned you submitted $400,000,000 worth of bids in the first quarter. Can you give us more flavor around the type of work you are predominantly bidding on?

John Wasson: In terms of the shift of revenue to the right, it was a confluence of events on a handful of projects where we did not ramp up the work quite as quickly as expected, both for ICF International, Inc. and our subcontractors. These are all fixed-price contracts; it is all in backlog, and it all has to be recognized in 2026, but we have to meet certain milestones to book the revenue and that was pushed out a bit. Our fees are performance-related when we meet specific energy production goals, and those were pushed out. It was just a confluence of events that pushed to the right for a handful of projects.

There are no underlying challenges or problems with the projects. On federal bids, within HHS, CMS remains an area where we are seeing opportunity, and that was a key part of those figures. We are bidding more opportunities on the technology front at the Department of Defense. We have won several IDIQ contracts in the last year or 18 months, and we are seeing more opportunity for the types of skills we have. The Department of Homeland Security is also an area of opportunity that we are pursuing. We work at FEMA and other DHS agencies. Other civilian clients include NASA and EPA.

Barry M. Broadus: On that most recent Department of Defense vehicle John Wasson mentioned, we recently won our first task order on that too, which was good to see.

Kevin Steinke: Thanks. One more — you mentioned the target of returning to mid- to high-single-digit revenue growth in 2027. Does that contemplate a return to year-over-year growth in the federal government space?

John Wasson: Yes. That would assume a return to growth in the federal space. We have 60% of our business — commercial, state and local, and international — growing 10% or more collectively, and we believe that is a long-term trend. We have indicated that our IT modernization business will return to low-single-digit growth this year. That gets 80% of our business to grow. Our guidance this year for the remaining 20% of our federal business is down mid- to high-teens given difficult comps from last year’s impacts. We think we have bottomed out and are stabilizing there. If that stabilizes and the other 80% is growing, that gets us to mid-single-digit or better organic growth.

The upside would be doing better than stabilization in that remainder or higher growth in IT modernization and the other 60%. And, of course, acquisitions could move us to double-digit growth.

Operator: As a reminder, to ask a question, press 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open.

Marc Riddick: Hey, good afternoon, everyone. I wanted to touch on what you are seeing on the state and local government activity levels as far as RFPs and demand, as well as the disaster side of things. And could you also touch on what you are seeing internationally as far as the opportunity set?

Anne Cho: On the state and local front, beyond disaster, our environmental services to state and local governments have been buoyed by a focus on new broadband fiber installations and opportunities in the mining sector where gold and critical minerals are in high demand. We have won some recent engagements in broadband and see more coming. For state transportation and metropolitan planning organizations, we won a suite of separate but related projects that address the resilience of transportation infrastructure to extreme weather and also focus on safety and mobility. That work is interesting, utilizes proprietary ICF International, Inc. models and deep expertise, and focuses on providing actionable, investable recommendations.

We are also seeing opportunities to support states with advanced technology solutions akin to what we do for federal modernization. For a major state client, we are working on a legacy modernization project where we have the opportunity to pilot the use of generative modernization code to speed the process. That pilot is showing promise and is a new place for us to engage on the state side. On disaster, much of the work has shifted to states over the past several years, and we support state and local governments in proactive resilience. Leaning in to increase resilience before a storm is less expensive than responding after a storm. That is a priority of this administration.

Programs like BRIC, and others in that proactive resilience front, are important. Internationally, we are very focused on delivery — we have won a lot in Europe and the UK in the last couple of years and are ramping up large contracts. Procurement activity there has been exciting. We continue to see strong recognition of ICF International, Inc.’s brand with UK and EU government clients. With 17.5% growth in the first quarter, there is momentum, and we continue to expect strong growth over the course of the year.

John Wasson: Two points to add: our expectation is our state and local business will grow mid-single digits this year, and international will be strong double-digit growth.

Marc Riddick: Thank you for the details. One follow-up: on the prioritization of federal areas like fraud prevention, do you anticipate or are you beginning to see any of that type of work at the state and local level as well, or other examples where states are moving in the same direction as federal?

Anne Cho: Some states are more focused in areas that are priorities for the federal administration, and others are focused in areas that are not priorities for the administration. In both directions, we have skills that can support state agencies. Some states are trying to fill gaps they see left by the administration shifting away from certain priorities, while other states are aligning directly with administration priorities. We are following those cues accordingly.

Operator: I am showing no further questions at this time. I would now like to turn it back to John Wasson for closing remarks.

John Wasson: Thank you for participating in today's call. We look forward to seeing you all at upcoming conferences and meetings. Thanks again for attending.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.