Two, one. Okay, good morning, folks. It's now 9:15 A.M. here on the East Coast, and we're ready to begin our next session. My name is Mark Riddick. I'm a senior analyst with Sidoti & Company, and on behalf of the company, I want to thank you for joining the Sidoti Year-End Virtual Conference. Our next company is ICF International, ticker ICFI, and joining us today is James Morgan, Chief Operating Officer, and Barry Broadus, Chief Financial Officer. Now, our time together will be a fireside chat format, but before we begin, just a reminder, we'll have some time for a little Q&A toward the end, so if you would like to submit a question, feel free to click on the Q&A prompt at the bottom of your screen. There's no need to wait until the end of our time together to do that. You can do that at any time. And so with that, we can get started. Good morning, James. Good morning, Barry. Thank you so much for joining us today. Hey, Mark. Thanks. Thanks for having us. We really appreciate it. Thank you very much. Absolutely. I wanted to start, maybe if we could begin with, for those who are new to the story, maybe we could just start with a brief profile of ICF International. Yeah, I can cover that. I'll give you a few high points. From an overall perspective, ICF is a professional and technology services firm. We generate approximately $1.9 billion in annual revenues, and we have approximately 9,000 professionals, and we're traded on the NASDAQ. We have a diversified client base. We serve a large roster of commercial, state, and local, international, and U.S. government clients. The majority of our business, roughly 55% of our year-to-date 2025 revenues, is with commercial and non-federal government clients, which has been growing nicely and, in fact, is expected to have year-over-year growth, a growth rate in the mid-teens for 2025. We classify our business into three key client markets. The largest is what we call Energy, Infrastructure, Disaster Recovery, and Environment. That makes up about 51% of our year-to-date revenues. The second pillar is our Health and Social Programs, which includes significant IT modernization-type work, which is around 34% of our year-to-date revenues. And then the third market is what we call Security and Other, and that's the remaining 15%. I guess the last thing I'd mention is that the company does have a long history of deep domain expertise in each of these core client markets. And that allows us to provide innovative front-end advisory solutions for our clients, plus provide a set of cross-cutting implementation skills in the areas of technology and engagement and change management and project management that enable us to implement our advice. Excellent. Now, you just reported not too long ago, about a month or so ago, and on that call, you reaffirmed that you expect non-federal client revenues to grow approximately 15% this year. Maybe you could provide a little bit of additional color on the components of that growth and how we get there. Yeah, Mark, I'll take that one. If you look at the non-federal piece of the business, it's really broken out into three different main groups of clients. The first being the commercial business, and as of the third quarter, that comprised about 34% of our revenues. Our state and local business is about 18%, and our non-U.S. international business is about 6.2%. So if you look at those three components, that's the growth that we're seeing in the mid-teens on a year-over-year basis. If you break down the commercial business, about 90% or so of that business is related to the energy work that we do, mostly with utility clients, and the vast majority of that business is related to work we do with utility clients on energy efficiency programs. We have a significant amount of work with a number of utilities across the country doing mostly commercial and residential energy efficiency programs. And if you look at the state and local business, which I said is about, as of the third quarter, about 18% of our revenue base, a lot of that has to do with the disaster recovery work that we do and have been doing for a number of years. And we're a leading company providing those types of services. And then on the international side of the house, we do a lot of work with the European Commission, U.K. government, and other organizations. And we expect that great things from that particular part of the business as things in Europe are starting to settle down. And we're seeing a lot of nice growth indicators as we turn the page into 2026. Excellent. Maybe you spend a little time talking about the drivers and catalysts that are leading the growth that you're seeing in the commercial energy space. Yeah, I can cover that. I mean, hey, the key catalyst behind our commercial energy growth is the rapid load growth demand being driven by the boom in data center construction fueled by the expansion of AI, as well as ongoing electrification efforts and ongoing economic growth, and the need to modernize the grid just compounds the issues related to meeting the demand and the resulting range of complex technical issues involved in generating and transmitting power, as well as growing affordability concerns, and the diversity of stakeholders involved is driving demand for our services, and we're well positioned to support the continued growth in the commercial energy arena. With regard to the nature of the services that we provide in the energy space, about 75% of our commercial energy business is with utilities. It's focused on designing and implementing residential and commercial building efficiency programs that are funded by a small surcharge on ratepayers that's levied by the public service commissions. That's in over 30 states. Over the last 20 years, we have a track record of meeting or exceeding energy savings goals under these programs for our clients. That's allowed us to continually capture a larger share of a growing market. We believe the energy efficiency and demand-side management programs will be relied upon even more with a significant spike in demand from the growing number of data centers in the coming years. The fact of the matter is, it's more economical for utilities to have energy efficiency programs than to build new power plants. With regard to the remaining 25% of our commercial energy business, ICF is working with a variety of clients to include utilities and hyperscalers and independent power and renewable energy firms, providing services ranging from location analysis or siting, transmission planning, distribution engineering, and construction permitting, M&A advisory and due diligence-related services. And that includes providing advisory services around community engagement and workforce development and affordability. And that's a space that we're seeing tremendous growth in, certainly in the double digits. And we expect that to continue for some time. Excellent. I guess maybe you can shift a little bit towards some areas that are not necessarily federal government spending priorities at this point. Can you sort of maybe share and discuss what you're seeing with the renewable energy and climate-related services at this point? Yeah, I can cover that one too. I think that we saw the shift in President Trump's first term, the shift from feds to state and local government on climate, and it's underway again, especially in states and regions like California, New York, the Midwest, and New England. Renewable energy, especially on federal lands and storage development, are continuing, but at a slower pace due to the advantaged economics of these technologies and the need to meet demands of rapid load growth, and the fact that matters of free markets driving demand for renewables even without incentives or grants and tax credits. Our non-federal climate work, I would say, is stable, and it reflects a continued stepping in by state and local clients and philanthropies to partially fill the void created by the changing federal priorities, as well as increased activity in the commercial sector that are particularly vulnerable to climate risk, so among commercial clients that we're seeing strong demand, it includes airports, airlines, aircraft manufacturers, both domestically and internationally, as well as from tourism and mining and pharmaceuticals and supply chain and entertainment-type clients. Additionally, we expect broad-based demand from commercial clients who are subject to increasing disclosure requirements, both domestically and internationally, especially among medium-sized firms who may be less well-prepared for those reporting requirements, and I think the only thing else I'd mention is that we have seen a short-term uptick in both development and M&A advisory activities. We're benefiting from work supporting technologies and fuels that are explicitly being encouraged by the new administration, especially gas generation and transmission assets. This increase in activity is also providing opportunities for our environmental businesses. Clients retool their plans to align with administrative policies that are requiring new kinds of environmental support. Overall, the business, we're continuing to see it's stable to growth in that area. Excellent. And then one of the other areas that has certainly been well talked about is the disaster recovery and FEMA and maybe moving some of that towards states. Maybe you could talk a little bit about it or maybe give us an update on what you're seeing on disaster recovery activity and maybe what you're seeing in those demand trends. Yeah. Yeah, I would say from just a baseline perspective, ICF is supporting more than 90 disaster recovery programs currently in over 20 states and territories, with the largest being in Puerto Rico and Texas. This includes new contracts in California, Oregon, Virginia, Michigan that were awarded during Q3. And in addition to that, we also had several contract modifications to existing contracts that totaled over $35 million recently that expanded work that we're currently doing in Oregon and Puerto Rico, for instance. As far as bigger picture, late last year, Congress appropriated almost $12 billion of what's called Community Development Block Grant or disaster recovery funding to enable long-term recovery of the disaster declarations that occurred during the 2023-2024 timeframe. And earlier this year in January, HUD released these funds to 46 states and localities. And we continue to see those HUD-funded procurement opportunities resulting from this federal funding. And we're actively positioning to compete for those procurements. And while there's a lot of speculation with regard to the future of FEMA, we do know that there has been no decrease in the federal funding authorized for FEMA Individual Assistance or Public Assistance programs. Although the federal disaster declaration approvals have been slower, I will say that. And, in fact, as of October of this year, I think there's been 115 federally declared disasters in the United States. And certainly, that's lower than the, if you look at a five-year average, it's around 160 disasters per year. But our pace of response to procurements is on track to increase by over 10% year-over-year. So we're seeing growth with regard to our offerings in that space. I think the last thing I'd mention is that with what is considered the Fixing Emergency Management of America's Act of 2025, that's set to move to the House floor for consideration. The FEMA Review Council, which was established by Trump, currently is considering changes to FEMA. With those changes being considered, we are seeing state governments showing additional interest in disaster case management as they consider the potential implications of taking on additional responsibilities for disaster recovery and response efforts. The fact that matters, we are actively engaged currently with state emergency management agencies. We're broadening our partnerships in emergency response and the disaster survivor assistance arena as states prepare for the possibility of taking on these additional responsibilities. Excellent. I think, as mentioned earlier, so we were looking at about 55% of total revenue being outside of the federal purview. Maybe you could talk a little bit about where that level could reach going into 2026 and sort of maybe the guardrails, obviously not guidance, but maybe sort of the guardrails that you're thinking about as far as a potential revenue mix for next year? Yeah, I'll take that, Mark. Given the mid-teens growth that we've seen on the non-federal piece of the business, we think that the non-federal piece can jump from 55% to north of 60%, with the catalyst being continued growth in the energy part of our business and the services that we provide to utilities and other organizations that James talked about, as well as the growth that we expect in our international business, especially with the European Commission and the U.K. government. We've won a series of very nice framework contracts, and we expect that those will ramp up. So given those and the continued growth that we see with the state and local business, I think that will be pushing those revenues to be, like I said, north of 60% in 2026. Great. And then you've provided updates on the impact of loss of federal revenues during the year. Maybe you could give an update as to what that impact is to date and maybe how much of that you think is now behind you. And then maybe as an aside, since you last reported a month ago, which I think the shutdown was still going on when you reported, or it was close to, and then maybe are you seeing any of that work pick up again that maybe was stopped during the shutdown? Sure. So let's start with the impact of the actions by DOGE and the executive orders that happened in the first part of 2025. If you step back and think about all the impact, and we've talked about like a $125 million impact for 2025 and then impact on longer-term contracts from a backlog perspective, about 85% of that work was really related to two main contracts that we worked for the federal government. One is the work we did with USAID, which had multiple contracts. But that work, along with the work that we did with ENERGY STAR, that was the bulk of it. So that's like 85%. And then there was a few other contracts that would get those other percentages up to 100%. and if you think about some of that work, for example, like the USAID work, a lot of that work is starting to roll back with help with some of the nonprofits and foundations that are interested in continuing the good work that we did on those contracts. In ENERGY STAR, we've won a number of contracts this year. The funding levels haven't been what we've had in previous years, but we're hopeful given the need and the desire from the user community that relied on ENERGY STAR information that those contracts will come back to the degree hard to tell. but once we turn the page into, say, for May and beyond, those actions from DOGE and executive orders really died off. and so there really hasn't been any activity on those types of terminations and reductions of funding since then. So we've kind of hit the level off point on that. As far as the government shutdown, we talked about the government shutdown, and it was about $8 million a month. And so that tracked pretty well with what we had seen with the government shutdown. And so with that being ended, thankfully, that work has picked up. And we'll see the revenues that were lost at the first part of the fourth quarter come back either in the latter part of the fourth quarter or may bleed into the first quarter of 2026. But we'll get the very, very vast majority of those revenues back. It's just a timing situation. Okay. Okay. Excellent. Maybe you could share a little bit on the pace of activity on the state and local side related to the pickup on their side from the changes of federal government spending. But how should we think about maybe has that accelerated a little bit as we've gone through the year or maybe what you're seeing now? Yeah, I can cover that. I mean, so I mentioned earlier, I mean, we are seeing states starting to fill the gaps left by changes in the federal support. For example, in our climate, environment, and infrastructure revenues, they've remained fairly stable. And as the federal emphasis on environmental protection declines, we're seeing many states increase their efforts to fill the gap and create opportunities for ICF and state planning, rulemaking, stakeholder engagement, permitting, and compliance-type activities. Also, the procurement pace in state and local, I'd say, is picking up in some areas as uncertainties about the federal policy and the grant reimbursements area get resolved and states proceed with new procurements. For example, state clients are moving to deploy their Climate Pollution reduction grants. And ICF continues to support more than a dozen states and metropolitan areas with the planning and/or implementation of grants and program administration. And I think the last thing I'd mention is that we're also experiencing increased demand from our state and local government clients for energy advisory and environmental services related to sectors with strong economic activity. So I think data centers and fiber networks being installed and mineral extraction and transportation. So we're seeing growth in the state and local area. And certainly, they're filling the gaps with regard to what's some of the changes due to or filling some of the gaps, I should say, that's being caused by changes in federal priorities. Excellent. So I know you haven't given 2026 guidance yet, but maybe we could sort of pick out a couple of things that may be going into the thought process there. Are there any particular areas or be they service lines or segments that you're thinking about as far as potential for pricing increases and maybe what we might see there? I would say that at least thus far in the markets that we serve, let's talk about the federal market first, that I think it's fairly stable from a competitive perspective and the pricing standpoint. I think that there's been a lot of discussions around more outcome-based pricing scenarios from the Trump administration, which, if you look at our IT modernization business, we're already doing that, and if you look at the programmatic side, most of that work is fixed price with some T&M, so I haven't seen much of a change or a shift with the usual suspects we see from a competitive perspective. I would say that from the commercial energy side of the house, there certainly is strong competition there as that's a market that's obviously significantly growing and the demand for advisory-related services has grown. But we think that that's fairly stable and that, given the economies of scale and our experience on that, that we feel very confident that any type of pricing pressures we can certainly manage and still maintain the profitability levels that we have been achieving thus far in that business, so I would say it's generally fairly stable right now, and we're happy about that. Okay. Great. And then as we sort of look at the federal business and given the timing of the impacts of when that kind of hit in 2025, is there sort of a time frame that you think you might begin to see sequential growth there in federal government revenues in 2026? Right. So Mark, I would break that down into the two main components of our federal business, one being the IT mod business and then the programmatic policy type of activities that we do. So on the IT mod business, that certainly is still, if you think of the federal government from a macro perspective, like in the early innings of modernizing all the systems that we have. And we believe that given the methodology and the capabilities that we have, we're well positioned to continue to see some growth in 2026, be it low single-digit growth. But we feel that that's kind of stabilized out and that we'll see some return to growth on that area. For the other side of the federal business, I still think that there's still a good amount of uncertainty on that side of the business. Would not expect that side of the business to return to growth this year as the administration is still trying to get its footing on turning priorities into actual contract actions and actual work that they want to get done. So we haven't seen those procurement activities return to what we've seen in previous years. Not exactly sure based on my crystal ball when that's going to happen. We're hoping that's going to be later, the latter part of 2026, may bleed into 2027. It just depends if we can get those administration priorities turned into new efforts, which will be turned into new procurements and the adjudication of those procurements, which I think we have that domain expertise. And there certainly was a significant vacuum of experts that left the federal government when they had all the folks leave the government for various reasons, the fork in the road actions, etc. So I think that the company is well positioned that once those procurements start coming out and the need for those services return, that we'll be right there well positioned to take advantage of that. I think one of the areas that's sort of been missed to some degree is the level of profitability. And I think in your remarks on the quarter, you mentioned that you're looking to maintain adjusted EBITDA margin similar to the level achieved in 2024, the 11.2%, while investing in growth areas. So for everything, a very busy 2025, but maybe you can talk a little bit about some of the investments that you're making for going forward and being able to maintain the margin. Sure. Yeah, I can take that. So I would say that it's really kind of categorized into two main areas. One is growth activities in the markets that are growing, especially in the energy efficiency business. So we are investing in that both from a CapEx perspective as well as making sure that we have the capabilities and the resources to serve that market as it's expanding and there's more demand for the type of work that we do. I'd say the other component of investments that we have been paying a lot of attention to and have done a great deal of work on is on the AI front. We have ICF Fathom toolkit that we introduced and launched this year. Been very well received by our clients. This allows us to go into clients, have rapid prototyping, and really show our clients how they can leverage the AI technology into real tangible results and making the lives of our clients easier and better and get more information more rapidly. So I would say that from an investment perspective, those are the two key things. I'd say from the back office side, we also are investing on streamlining and making our back office systems more efficient. So as we continue to get back on this growth track, that for every revenue dollar that we gain, we're not having to spend a dollar of expense to manage the business on the back end. So I've been really pleased at the level of efficiency gains that we've made in our back office environment and utilizing AI to help us gain those efficiencies. Great. And then maybe we can shift over to capital allocation priorities and how you view those going into next year. And maybe as a piggyback to that, maybe what the acquisition pipeline might look like, including maybe thoughts on valuation and maybe the breadth of the pipeline that you're seeing out there. Sure. I think that from a capital allocation perspective, we're going to be consistent in what we've communicated and what we've executed over the past years. We do pay a quarterly dividend. We do do share repurchases to offset employee incentive plans. And then we do prioritize paying down debt with the thought being is that we want to be able to have as much headroom as we can from an acquisition perspective. And then investing in the growth activities that I just mentioned. So I would say that that's consistent. I'd say from a CapEx perspective, the CapEx will be in the same range that we've seen in the past years. Most of that CapEx is devoted to client-facing activities, with it's probably 2/3 of our CapEx, with the remaining piece being for infrastructure-related activities. So I think that won't change as we go into 2026. Yeah, I would say on pipeline, acquisition pipeline. I'll try to. I know we're running out of time. I'll make this quick, Mark, but certainly M&A remains an important component of our overall strategy. And we've had a history of doing acquisitions, and we expect that to continue. And the area that we're quite focused on is looking at opportunities in the energy arena, that add scale or add geography or add capabilities. So we have to find the right opportunities that have the right strategic fit, the right cultural fit. And we're looking hard to find those opportunities. Certainly, the valuations are a little fulsome at this point in time, given all the business in that arena, but we're looking pretty hard there. And we're also considering opportunities in disaster recovery and infrastructure-related work for state and local markets. And there's some opportunities there that we're looking at. I would say in the federal space, we're less likely to do something just given the market remains challenging, but there may be something that we may find in the IT modernization space. We'll see, but in summary, we're primarily focusing on energy and disaster management infrastructure opportunities. Excellent. Well, that brings us to the end of our time together. I want to thank ICF International for joining us today as well as all of our participants this morning. Thank you very much, and everybody have a wonderful and productive remainder of the day. Great. Thank you, Mark. Thank you so much. Appreciate it.