ICF International, Inc. Price & Performance (ICFI)

Please consider the information presenting in that light. We may at some point elect to update the forward looking statements made today but specifically disclaim any obligation to I will now turn the call over to ICM's CEO, John Lesson, to discuss fourth quarter and full year 2024. Chad? Thank you, Lynn, and thank you all for participating in today's call to discuss ICF's fourth quarter and full year 2024 performance and our business outlook. 2024 was a year of solid growth substantial profitability and robust cash flow. Key highlights are the continued strong demand for our broad based energy advisory and program implementation for commercial clients which was an important contributor to our revenue growth and favorable business mix. The 30 basis point expansion of adjusted which together with lower interest and tax expense drove a 15% increase in non GAAP EPS to 7.45 Our trailing twelve month book to bill ratio of 1.24 our year end acquisition of Applied Energy Group a leading energy technology and advisory services company with substantial growth prospects for 2025. And between mid November twenty twenty four and today, we have repurchased 395,000 shares in the open market demonstrating our confidence in ICF's long term outlook.

I will provide a closer look at our 2024 business performance and then share our views on ICS federal government business in light of the new administration's spending priorities. To start, Commercial Energy had another standout year in 2024 driven by new wins and contract expansions for energy efficiency program delivery and new utility marketing, customer care, electrification and flexible load management programs. ICS innovative program design and technology innovations together with our track record of meeting or exceeding clients' energy efficiency objectives, have resulted in meaningful share gains for us in this arena. And our competitive position will be further strengthened this year by our acquisition of Applied Energy Group. AEG brings us a trusted energy technology platform that offers real time business intelligence to utilities state and local governments and state energy offices and its more than 100 utility management and demand side energy experts add strength to ICF's market planning, demand response, electrification, and program evaluation skill as well as to our expertise in gas utility planning and program implementation.

Innovation of AEG been proceeding as planned and we are identifying business synergies. As an example, we have been able to bring work in house that AEG was formerly outsourcing. Our commercial energy advisory work showed solid year on year growth reflecting increased development activity in both the distributed energy and utility markets supported by accelerated electricity demand and state policies. These drivers have resulted in increased demand for our Services in support of client M and A activities as well as ICF system planning services and substation design and protection work tied to grid modernization needs. And our environment and planning services for commercial clients have seen significant growth driven by many of these same factors. There is especially strong demand for our transmission and that relate to disaster and wildfire recovery including undergrounding and above ground infrastructure replacement. This is an excellent segue to our disaster recovery work which together with environmental services comprised the majority of our state and local government revenue. ICF has 85 active disaster recovery contracts in 20 states and territories and the supporting mitigation in more than 40 contracts, in 16 states and territories. While each recovery effort is unique to the specific needs of those impacted, this broad based experience gives ICF lessons learned that we can share with state agencies supporting near and long term recovery efforts.

That is exactly what we are currently doing in California We have a long history of working on state projects from environmental planning to high speed rail. We are in conversations with a variety of local agencies and other entities in the fire impacted communities of Los Angeles and we were just awarded a task order by utility to provide construction monitoring services associated with recovery efforts in the aftermath of the Palisades fire. Also, we recently were authorized by Los Angeles County to develop a website to aggregate recovery resources support those impacted by the wildfires. The large scale recovery work, however, will require federal appropriations, and we would not expect RFPs until later in the second half of this year. Oregon, are currently supporting the state's New Oregon program to help homeowners renters and communities recover from the wildfires by providing financial assistance to rebuild housing, repair infrastructure and revitalize local economies. We're also supporting projects to upgrade critical infrastructure to be more resilient against future damage as part of the rebuilding efforts. Also, our work for international government clients picked up considerably in 2024 thanks to new contracts won and in the fourth quarter and first quarter of twenty twenty five we were awarded two significant contracts with a combined ceiling value of over $210,000,000 by the European Commission and the Government of the United Kingdom, to span research and innovation, climate and the environment, and reflect our ability to deliver cutting edge solutions that address complex challenges facing clients.

Taken together, we expect our revenues from commercial, state and local and international government clients to grow by at least 15% in 2025 and account for over 55% of our total revenues. 2025, however, will be a transitional year for our business with federal government clients as the new administration determines which programs align with its funding priorities, As of right now, approximately 90,000,000 of our estimated 2025 revenues have been affected by stock work orders and by contract terminations. While cuts have taken place across a broad universe of federal agencies, the majority of the revenue impact relates to our USAID contract.

The largest of these contracts involves the delivery of global demographics and health surveys. We have taken a very hard look at all of our federal government contracts and pipeline of opportunities determine where there is potential for additional stock work orders or terminations. And or the likelihood for opportunities to fall out of the pipeline due to the shift in priorities associated with the new administration. While we do not want to enumerate the specific programs contracts and pipeline opportunities, we do want to convey that we've undertaken a conservative bottoms up approach on our assessment we have identified as at risk mostly involves our programmatic work which accounts for about half of our federal government revenues, rather than our IT modernization digital transformation services, which account for the other half and are closely aligned with the administration's mandate for greater efficiency and increased utilization of AI. After careful review, we estimate that the maximum risk to ICF's revenues in 2025 the new administration's actions is approximately a 10% reduction in total revenues from 2024 levels. As Barry will discuss in his remarks, we plan to maintain our adjusted EBITDA margins on '25 revenues at levels comparable to our 2024 margins.

As we noted in today's earnings release, this reduction level does not contemplate an extensive government shutdown [indiscernible] Europe long period of pauses and funding modifications to existing contracts, through procurements. Conversely, this estimate also does not consider any additional work that ICF may gain as a result of the changes underway For example, ICF has performed work for the federal government focused on prevention of fraud, waste and abuse we are well positioned to help the new administration with these priorities. Also, we have extensive public health expertise and experience in key areas such as nutrition, obesity, suicide prevention, cancer risk, health risks associated with use of pesticides and food additives we expect will be areas of focus. Under the new administration at HHS. Additionally, approximately half of ICS federal government client revenues come from our IT modernization digital transformation services, While there may be a temporary slowdown in spending, and potential delays in procurements as the new administration installs its vision, We believe this will be buffered in the medium term by increases in AI, for IT systems, and advancing innovative techniques to [indiscernible] improve data transparency, and increased reusability. These translate to our strengths enabling ICF to leverage our expertise in technology and AI, automation and advanced analytics and our extensive ecosystem of digital platforms as key differentiators remain competitive in this space, And there are few offsets to the opportunities we see on the horizon.

As ITF is not a supporter of legacy IT systems that are likely to be replaced by the new administration. Also, we've had initial success in leveraging our substantial and innovative IT capabilities in the state of local government market, As a complement to our disaster management expertise, This resulted in a new contract that we announced in the third quarter and we continue to pursue these types of opportunities in state and territories. Where we are working on disaster management contracts. We are also mindful of the opportunity to leverage our institutional knowledge to support key civilian agency programs and a shrinking federal workforce environment. To recap, is a lot of uncertainty in the federal government right now The name of the game is agility plus diversification. ICF has a proven track record of effectively managing through dynamic business environments by conservatively assessing challenges, and remaining agile to capture opportunities. We have a diversified business model that will serve us well in 2025 and beyond with over 55% of this year's revenues expected to be derived state and local and international government clients. And lastly, we have provided a conservative guidance range with a maximum downside risk to 2025 total revenues of 10% below 2024 levels When you consider a 15% growth projection a non federal government work, we can absorb a $350,000,000 reduction in our federal government revenues under our maximum risk scenario.

Which equates to more than 60% of our federal programmatic revenues. As I noted earlier, we already experienced a $90,000,000 revenue deduction reduction from contracts that have been paused or terminated this leaves us with $260,000,000 of additional cushion. To absorb any further revenue impacts. Now I'll turn the call over to our CFO, Barry Broadest. Provide a financial review and to share additional expectations for 2025. Thank you, John, and good afternoon, everyone. I'm pleased to provide you with additional details on our fourth quarter and full year 2024 financial Revenue in the fourth quarter increased 3.8% year over year to $496,300,000 dollars As John mentioned, our fourth quarter revenue growth was led by sustained demand from our commercial energy clients which drove a 22% increase our commercial revenues, to $133,200,000 dollars In the twenty twenty four fourth quarter, commercial revenues accounted for 26.8% of our total revenue, up from 22.9% from last year's fourth quarter. Fourth quarter revenue comparisons were impacted by a decrease in our federal government business, which declined 2.4%. The decrease in federal revenues was driven by lower pass through costs of approximately $14,000,000 Excluding subcontractor and other direct expenses, our federal revenues generated by our labor base increased approximately 4% as compared to the same period last year.

As part of our business continued to be impacted by ramp up delays on certain public health related contracts and the anticipated fall off of small business set aside contracts that were held by the IT modernization firms we acquired in 2022. U. S. State and local government revenue was $75,500,000 slightly below last year's $76,300,000 with a decline attributed to the completion of a contract with the state of Maryland. International government revenue was $30,000,000 was up 4.2% year on year, reflecting the ramp up of our recently awarded new contract wins primarily with UK government subcontract and other direct costs represented 25.4% of total revenues in this year's fourth quarter compared to 27% in the comparable period last year. Gross margin was 36.1% compared to 36.5% in the prior year period On a full year basis, gross margins increased to 100 basis points due to our favorable revenue mix. Indirect consulting expenses increased 4.9 percent $129,500,000 in the fourth quarter, representing a 26 of total revenue reflecting ongoing investments in our workforce, and digital capabilities to advance our growth and efficiency initiatives throughout the organization We remain focused on managing our indirect costs leveraging our scale and continuing to improve our utilization rates.

Our successful track record of managing our cost structure becomes even more important given the current environment our federal market.

Our fourth quarter EBITDA was $50,800,000 compared to $53,900,000 in the prior year quarter. Adjusted EBITDA was $56,300,000 with an adjusted EBITDA margin of 11.3% compared to $57,000,000 and 11.9% respectively in the fourth quarter of twenty twenty three. Interest expense in the quarter was $6,500,000 well below the $9,500,000 in last year's fourth quarter reflecting a lower year over year average debt balance and lower interest rates as our debt reduction remains a priority. We continue to execute our tax optimization efforts which yielded a tax rate of 20.9%, down from 25.6% in last year's fourth quarter. As a reminder, expect to maintain a tax rate of approximately 21% over the next several years Moving to the bottom line, our lower interest and tax expense contributed to a 10.8% increase in net income of $24,600,000 outpacing our revenue growth. Diluted EPS rose 12.1% to $1.3 inclusive of $0.23 in tax effected special charges, while non GAAP EPS was 11.3% to $1.87 per share in the fourth quarter. Now turning to a summary of our full year results Revenue was $2,020,000,000 up 2.9% from the prior year and up 6.1% from continuing operations These positive comparisons were driven by the strength of our energy environmental infrastructure disaster recovery client market which represents 46% of total revenue, and grew 15.4% year on year This growth was led by continued robust demand from our commercial energy clients, which increased 25.8% as compared to the same period last year.

Our federal government revenues were flat year over year as a result of decrease in pass through costs, which reduced our full year revenue growth by three fifty basis points.

Our federal government revenues generated by our ICS Staff Group 5% year over year Total company subcontractor and other direct costs represented 25.1% total revenue in 2024, down from 27.2% in 2023. The decrease was driven by a shift in our business mix.

Adjusted EBITDA was $26,000,000 an increase of 6% year over year.

On a full year basis, our adjusted EBITDA margin increased 30 basis points ahead of our historical guidance [indiscernible] in the 10 to 20 basis point range. GAAP EPS rose 33.8% to $5.82 per diluted share GAAP EPS included $5,700,000 or $0.24 per share in net tax effective special charges which primarily consisted of facility related, severance and M and A related costs. Which were partially offset by the gain on the sale of the commercial marketing business in the third quarter of twenty twenty three. 2023 GAAP EPS was $4.35 per diluted share, including $0.71 of tax effect special charges Our non GAAP EPS increased 14.6% year over year $7.45 Now shifting to our cash flows. And our balance sheet, our full year operating cash flow was $171,500,000 exceeding our guidance of $155,000,000 reflecting the bottom line of our performance and the impact of our cash management initiatives. Sales outstanding were seventy five days compared to seventy two days last year, Full year capital expenditures were $21,400,000 down from $22,300,000 in 2023.

At year end, our debt was 4 and $11,700,000 which was down from $430,400,000 at the end of 2023. Our debt reduction was inclusive of approximately $44,000,000 in share repurchases and $62,000,000 related to the acquisition of ADG. Approximately 66% of our debt is set at a fixed rate Our adjusted net leverage ratio was 1.8 times at year end, a significant improvement over the 2.16 times at the end of twenty twenty three.

As a part of our capital allocation strategy, we have been actively repurchasing our shares reflecting our confidence in ICS business outlook and our commitment to delivering value to our shareholders. From mid November twenty twenty four to date we have repurchased approximately 395,000 shares for $48,000,000 which is more than three times the amount required to offset the dilution of our employee stock plan for 2025.

Our capital deployment strategy is focused on several priorities.

Organic growth, pursuing strategic acquisitions, paying down debt, maintaining our quarterly dividend payments and conducting opportunistic share buybacks addition to our standard program to offset dilution from our employee stock programs, Today, we announced a quarterly cash dividend of $0.14 per share payable on 04/14/2025 to shareholders of record on 03/28/2025. Before discussing our guidance, I wanted to note our backlog as of 12/31/2024, dollars 3,800,000,000.0 of which dollars 1,900,000,000.0 is funded.

Underscoring the stability and strength of our business. Our year end backlog does not include the impact of any contracts that have been terminated as a result of the administration's executive orders or the actions of iDoge which is approximately $275,000,000 While the administration continues to implement its vision to reshape the federal government, As John noted, we continue to manage our business Our intent is to maintain margins consistent decreases in revenues from our federal business.

Our management team has a firm grasp on the current environment as a cost containment plan in place, we will execute as warranted to maintain our current level of profitability. We will proactively manage our business to achieve this target. To help you with your financial models, please note the following expectations. For full year 2025.

Our depreciation and amortization expense is expected to range from $21,000,000 to $23,000,000 Amortization of intangibles is expected to be $35,000,000 to $37,000,000 We anticipate interest expense will range from $30,000,000 to $32,000,000 Capital expenditures are expected to range from $2,628,000,000 dollars full year tax rate is expected to be approximately 20.5%. Due to our share repurchases, we expect a fully diluted weighted average share count of approximately 18,600,000.0 down from $19,100,000 and we expect full year operating cash flow to be in the range of $150,000,000 And with that, I'll turn the call back over to John for his closing remarks. Thank you, Barry. Looking ahead, we expect ICF's 2025 revenue GAAP EPS and non GAAP EPS to to range from flat with 2024 levels to down 10% from 2024 levels. The 10% decline representing the maximum downside risk we foresee from the loss of business, primarily from the federal government clients. And the slower pace of our RFPs during this transition year. Within this environment, we plan to manage expenditures to maintain similar adjusted EBITDA margins to those of 2024. Underpinning our 2025 revenue expectations, is our projection that ICS revenues from commercial energy, state and local and international government clients will grow at least 15% the aggregate the framework does not contemplate an extensive government shutdown this year or a pronged period of pauses and funding modifications existing contracts or new procurements, And again, it does not anticipate any potential upside from additional work we may be awarded given our strengths in several areas of priority spending.

For this year's first quarter, anticipate revenues of $480,000,000 to $500,000,000 GAAP EPS in the range of $1.35 to $1.45 and non GAAP EPS of $1.7 to 1.8 similar to last year's first quarter results for all those metrics. As Perry noted, we ended 2024 in a strong financial position This gives us substantial flexibility to effectively manage through the current dynamic business environment in the federal government arena. We will remain opportunistic with respect to capital allocation considering additional share buybacks purchasing contracts and making accretive acquisitions. Or a combination thereof. With that operator, I will like to open the call for questions.

Thank you. At this time, we will conduct a question and answer session. Our first question comes from the line of Joseph Faffy with Canaccord Genuity. Your line is now open.

Hey, guys. Good afternoon. Maybe we just drill down on that a little bit John and Barry. I know you provide some color there John on kind of maximum downside focused on how much extra programmatic revenue may kind of potentially be at risk. It does seem like a lot I was wondering if you could kind of go into a little more detail thereof kind of I know you said it's maximum downside risk, but is that much really truly at risk do you see at this point And then I'll have a a quick follow-up.

Yes. Thanks for the question, Joe. And I think we we intended to give a range here from flat relative to 24 levels or 25.2 maximum downside of minus 10% for the year. And we were really trying at the maximum downside to establish the floor and put a a marker on the ground of a level of revenue reduction the maximum level of revenue net reduction we would expect this year, but certainly we provided a range I will say that we've coming up with that range, we did do a detailed project ICF project level risk analysis of our federal business. Based on the priorities of the the new administration, So we went through a project by project. Pipeline by pipeline opportunity, certainly considered all the statements and documents in the public domain and also factored in a significant amount of input from our clients on approximate impacts And so with that, that kind of led us to expect that our IT modern digital transformation work, which is about half of our business, could see revenue shrinkage of mid to high single digits given the level of change occurring in in 2025 and a slowdown of procurements, But overall, I think we see a recovery in that business in the medium term.

Given it is aligned with administration's goals around leveraging code and technology solutions across the entire federal government, And then the other half is on the programmatic side, so that's seen the most significant? Impact to date. I think as we said, we've seen 59 of [indiscernible] I think when we look at the downside on the programmatic side, we'd expect future reductions to generally occur proportionate with our programmatic levels. In those civilian clients. But the minus 10% is really meant to be the maximum level of risk that we foresee in a conservative estimate to the potential as I say, the maximum risk we'd expect our federal business with a new administration for this year. Sure. Thanks for that color, John. And then then it sounds like obviously the utility and energy business is still really strong. Do you see any kind of ripple through effects from slowdown in federal initiatives to affect any of the utilities at this early stage? Thanks a lot guys.

Sure. No, I don't think we expect any material changes in the growth in our utility business, our commercial utility business from changes at the federal level. I think we continue to see very robust growth obviously in the demand for energy We have a very strong backlog, very strong pipeline. And so I think we're quite confident that we'll see robust growth there. As we noted, we grew 25% in that business. But last year, I think we would expect to see robust growth [indiscernible] and we don't think that any impacts Federal policy, it will be material. Energy business this year. Great. Thanks very much, John.

Thank you. Our next question is from the line of Sam Kusorm with William Blair. Your line is now open.

Hey, great. Thanks for taking our questions here.

I guess I'll start. I want to ask you a bit more about your full year guidance. Maybe on the other piece of this year, I think you shared you expect your business outside of federal to grow at least 15%. That would be a pickup from your historical average And I was wondering how much of that is organic and what is giving you that level of confidence?

Well, I would say that first of all, I think this year, last year of 2024, those businesses grew 13.7 in the aggregate led by our commercial energy business, which was up 26% As I said, I think the secular growth drivers remain quite robust. I think we believe we can maintain comes a level of growth in our commercial energy business. Also noted in our release that we won several very large international contracts the end of the fourth quarter and here in the first quarter. Will certainly accelerate our growth in our international business And I also mentioned in my remarks were ramping up our some IT work in our state and local markets related to to [indiscernible] Then the last thing I'd emphasize is, again, we acquired AEG I think as we said in that release would add [indiscernible] for 2025. And so I think there's three or four key key factors in our confidence in accelerating the growth and being worth the 15% across commercial and state and local. International for 2025.

Okay, got it. Thank you. That's helpful. And then switching gears here, with regards to your IT monetization business, In recent weeks, it does sound like Doge ICF be announcing some contract cancellations. Or some enterprise IT service contracts over the next few months here. So I guess my question is really twofold. First, do you think anything currently in your backlog sticks out as being at risk of a cancellation And then second, do you expect any type of slowdown in new awards announced over the next several years? This is for IT monetization specifically.

Yes. Hassain, this is Barry. Thus far, we haven't seen any issues with any of the contracts that we have. In the IT mod business. I think we're obviously well positioned given the capabilities that we have [indiscernible] expand our presence in the space and utilize some of the things that that you're seeing and hearing from Doge and the administration on IT mod efficiencies, cost reductions, We have a good deal of experience on detecting fraud in some of our contracts CMS. So we can leverage those capabilities across the industry And I think we can [indiscernible] a great benefit to our government customers.

Got it. Thanks guys.

Thank you.

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

Thank you.

I would like to ask within the programmatic work, what sort of agencies constitute the 40% that is not at risk Within the programmatic [indiscernible] I mean, I would say that we as I said, I think across our civilian client base, we would expect that you would see programmatic impacts [indiscernible] Generally, the portion of the revenue mix we have I would say that obviously USAID should be seen significant impacts there. And I think that revenue is obviously contracts have been terminated at this point. And so Across the rest of the portfolio, I generally think it will be Consistent with percentage makeup of that portfolio, I think we do see programmatic impacts in each of our clients. Across the portfolio. I might add that I think there are a number of client groups said We don't feel we're at significant risk. We have a lot of work DHS, we have treasury, DoD.

That's more technology. More The technology we're again, [indiscernible] the programmatic work within each of our clients. But it certainly indicates that all clients, we do have different mix of technology versus programmatic. For higher end technology, we're not going to see as much of the reduction because we don't we don't think we'll see it on the technology side. [indiscernible] When I think of your federal government business and just split it simplistically into IT modernization on one side and programmatic on the other. To what extent is that IT modernization directly overlapping with those same customers as opposed to maybe being involved in different areas of the government outside of your core civil agency focus? Well, I think that I mean, I guess it depends on when you say client, you mean all of EPA or all of HHS? I mean, I think the technology work tends to be more heavily engaged in the CIO office, There's not as much overlap would say it's not as much overlap between our domain clients and our technology clients within our major the same specific offices And so but I mean, if you go up to the EPA or I mean, for example, at HHS, half our work is technology, half our work is domain, [indiscernible] the overlap in clients between who are the clients that are leading the technology versus who are the clients in the domain.

As you move down those organizations, it's not the same same client, but again, it depends on when you talk about HHS, CDC, offices within CDC and what's the overlap.

But so that's how I think about it. Okay. Thank you.

My last question well, I have two more actually if I could.

Could you comment on [indiscernible] FEMA and community development block grant expertise as applied either to disaster recovery or potentially on the supply side or on the demand side of IRA projects, that's been in the news as sort of a maybe a bureaucratic process or certainly requires a lot of compliance by design. I'm curious about your thoughts there.

Yes. I would say that, certainly you're right. There's been a lot of Discuss in the news about potential cutbacks in the workforce or reorganization, certainly cutbacks in the workforce related to the opportunities on the block grant.

Related work including [indiscernible] And that's the vehicle that's used for housing disaster recovery, the Community Development Block Grant program, There's been discussions about reductions in FEMA and reorganizations with FEMA for the public infrastructure related disaster recovery I would say that in the disaster recovery context, generally, we don't believe a cutbacks in the step federal level in HUD and FEMA would necessarily adversely impact our state of local disaster recovery business. Those federal staff are obviously providing training and technical assistance federal monitoring and oversight of state and local disaster recoveries those programs that have to follow the CDBG and FEMA was So to cut back presumably there'll be less oversight of the state programs From the federal level, I think our expectation would be that Congress would still continue to authorize federal funds to support disaster recovery by states under CBG [indiscernible] the states will be hard to comply with those rules. It would just be done with less support from the federal government on training and technical [indiscernible] and oversight and monitoring of those programs under those rules But I would expect that the core of our disaster recovery work will continue and the opportunities would be there So I don't think we foresee a significant impact on that for Thank you.

Last question for me. In the worst case scenario, it was down 10%.

How do you keep the Esprit de Corps of the firm alive? So you got to put plans in place to try to do that. And then Barry, what sort of cash outlays would you have to have to reduce the staff At those kind of levels?

Yes, I guess, I mean, in terms of [indiscernible] the staff, I mean, I think we as you know, I think we have people who are keeping committed to having an impact on leading social and economic and technology issues that we support. I think we're the good news is we do have a portfolio of business as we discussed. 55% of our revenue is in commercial and state and local and international and So we're certainly going to look for every opportunity leverage that staff and the capabilities across the full portfolio work and as we always have and obviously, there's some potential for impacts here, but we're going to be transparent and fair and Manasat is effectively as we can over many, many years. And certainly try to leverage the portfolio and and finally deliver staff across other projects if we can do so. Barry, do you want to comment on that? So as far as that second part of the question, Tobey, obviously, that depends a lot on the degree in which contracts and what goes away. We've had a really good history of being able to deploy staff from one contract to another contract, if one particular contract ends.

So it depends on the mix and the timing. Of that. So it's kind of hard to quantify that because that's obviously what the people, it's a big driver of the cost.

But as we stated, the goal that we've with this is that we're going to maintain our margins and we'll be able to do that by aggressively managing the cost structure as there are changes with our revenue [indiscernible] Thank you.

One moment for our next question.

Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open. Hi, thank you. I wanted to ask about in commercial energy, some of the work you do for renewable energy developers. I know that's a a smaller part of the business, but do you see any risk there in terms of funding for those projects etcetera?

I think that well, I mean, I think first, [indiscernible] [indiscernible] I think largely renewable development market is driven by economics. And economics think, remain attractive. Solar and onshore wind, offsetting tax incentives such as those including the RA have been a benefit, but I think that market is largely driven by the economics. And I think we believe that even if the new administration really limits or or stops the tax incentives, stops leasing of federal lands for offshore [indiscernible] majority of renewable projects will continue. Due to strong electricity demand, as I say, the economics of the technology and honestly supportive state policies. And so I think we think that solar onshore wind will get Generally, obviously wind offshore wind development would be more impacted given some of the policies the new administration But for us, [indiscernible] $5,000,000 to $7,000,000 per year. Commercial energy business. So it's really not that it's not material if it's curtailed. [indiscernible] Okay.

Thank you. That's helpful. And I think you've referred to it a number of times, to 2025 as a a transition year Just want to dig into that a little bit. Is that Are you kind of thinking about the IT modernization business there and some of the pauses and maybe a bit of decline there in that coming back in 2026 or what What other characterize as kind of putting 2025 as more of a transition year and what might look like beyond 2025? I think that's a great question. I think it's certainly on the IT modernization transformation front, No, I think we will I think as the administration puts its new technology strategy in place, and finalizes that, and continues to review the existing projects.

I think that will slow down IT modernization efforts here for a few quarters. It will slow down some But I think we do believe as we get to the second half of the year and we go forward, there will be new opportunities with this administration on the technology front. I think it's committed to efficiency, to innovation, to leveraging AI, to leveraging software across all the federal government. Play in on the technology front. So I think we would expect to see growth opportunities as we go forward into 2026 and beyond and that market, I will also say that I think there will be opportunities with this administration for us on the public health front as you know The new administration settles in and focuses on chronic children's health, pesticides, food additives, obesity, combating opioids and fentanyl. Those are areas we work in and I think could be very helpful. I also think that given the magnitude of potential reduction in the federal workforce here there may be more outsourcing of opportunities or [indiscernible] Assistance needed in specific domain areas or program areas that could offer opportunities. So I do think that 25 is a there is a transition here and there's a reset of the priorities and where the focus is going to be with this administration.

But I think once once we get beyond 25, there will be opportunities. And our goal is to manage the business very carefully And as we see shift in revenues in the business in '25 We maintained our profitability We maintain our financial strength. So that we can come out on the backside and then we continue to invest, continue to leverage the balance sheet and return to growth. That's very focused on that right.

Okay.

Thanks. That's helpful. Can I sneak in one more please? [indiscernible] Yes. I just wanted to ask about you talked about the ramped up repurchase activity. From November on.

ICF that's something you're contemplating contemplating continuing in 2025. [indiscernible] Kevin, I think that's something that we definitely keeping a close eye on we do have capacity to do that balance sheet perspective, and we'll continue to repurchase shares as we believe that the stock price is undervalued. So we've been able to take advantage of that and continue that in 2025.

Great. Thank you.

Thank you.

Our next question comes from the line of Mark Riddick with Sidoti. Your line is now open.

Hey, good afternoon. I wanted to sort of just continue on that want to continue on that threat, I guess, a little bit as far as cash usage and prioritization. Maybe you could talk a little bit about granted you've got quite a bit on your plate at the moment, but I was sort of curious as to how you're looking at the current acquisition pipeline ICF you have feel as though there'll be an opportunity to act on anything out there, maybe what you're seeing out there or what valuations are looking like ICF if those have changed given the uncertainties we've seen over the last few months and then I have a follow-up after that.

We have on the acquisition front, there's tremendous uncertainty in the federal arena. There's tremendous change going on. I think It's highly unlikely we'll do an acquisition in the federal arena this year given given the uncertainty and the change in I think activity is certainly slowed materially there. I do think the one area we continue to look at and we're active in the market in the energy area, seeing tremendous growth opportunity there.

The right opportunity came along. ICF could potentially see us doing a tuck in acquisition like something like AEG perhaps this year, second half of this year, I don't think we're going to do transformational or that was a scale in 2025. I think we're quite focused on managing the firm carefully through [indiscernible] And we'll certainly continue to look at buying back stock. I think we [indiscernible] increased our capacity last quarter. I think we still have about $120,000,000 capacity to potentially buyback more stock We'll certainly look at that and we think it's undervalued. Think hard about that. I think that I think I think that's how we're looking at the balance sheet right now.

You said that we don't do a tuck in acquisition, and we'll look to continue to delever.

I mean, we're down to 1.8 leverage ratio at We had very strong cash flow. We'll delever if we don't see the right kind of opportunities on the M and A Okay. And then I guess the second part I sort of wanted to touch on, everything else is sort of covered, but I was sort of And I just wanted to sort of note that The guide that was provided not only included the full year, but also give some thoughts into not just specifically what the numbers are, but just providing the quarter and whether you're given the level of uncertainty that's out there, is that something that you think you guys will be doing for the foreseeable future at least until we sort of of bridge the current level of uncertainty. Thanks.

So, I mean, traditionally, we haven't given quarterly guidance, but that's something that we can certainly consider given the volatility that we're seeing in the marketplace, and we'll take that as we move forward. We thought that it was important to give guidance for the first quarter, just to give everybody some direction on where we're headed So hopefully, we think that was valuable.

Absolutely. I appreciate it. Thank you very much.

Thank you.

Our next question comes from the line of Tommy Tobey Sommer with Truist. Your line is now open.

I just wanted to ask a follow-up on the acquisitions and in particular the recent recent one. Is there an an ample set of Sort of captive utility owned energy efficiency businesses that over time maybe could be better optimized outside of your utility customers? Is that Is that a fertile ground for you to look at over time?

I would say that the core of the business is largely our our energy efficiency program implementation business, I think that that's largely it's utility oriented business, Tobey. I'm not sure We do occasionally see state and local clients and states are more involved in energy efficiency [indiscernible] The newer program ideas that have provided additional growth there around electrification, electrical load management, are all utility oriented programs. So I'm I don't really I don't think we it's not obvious to me that there's a play to take those set of skills and leverage them outside of the utility industry. I think it's Let me rephrase the question. I was kind of asking are there are there internal businesses at other utilities that would make attractive acquisition targets for ICF that's what I was going for, not sort of applying your skills to to other customer sets.

Yes, I don't I don't think we've identified that We've seen those to date. In our core markets, Utilities, the types of programs we're running utilities generally aren't running internally. I mean, they don't have energy efficiency arm. [indiscernible] competing with us or providing programs that they're looking to outsource or divest. And so I know there's other players in utility market that have had I've done those kind of deals but I don't think we see it in our core.

Thank you very much.

Thank you. I'm showing no further questions at this time. Would now like to turn it back to John Lawson for closing remarks.

Hey, Will. Thank you for Thank you for your participation in today's conference.

This does conclude the program. You may now disconnect.