Welcome to the ICF International First Quarter 2015 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Thursday, May 7, 2015, and cannot be reproduced or rebroadcast without permission from the Company. And now I would like to turn the program over to Douglas Beck of ICF. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to review ICF's first quarter performance. With us today from ICF International are Sudhakar Kesavan, Chairman and CEO; John Wasson, President and COO; and James Morgan, CFO. During this conference call, we will make forward-looking statements to assist you in understanding ICF management's expectations about future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially and I refer you to our May 7, 2015, press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that light. We may at some point elect to update the forward-looking statements made today, but specifically disclaim any obligation to do so. I will now turn the call over to our CEO, Sudhakar Kesavan, to discuss the first quarter 2015 performance. Sudhakar?

Thank you, Doug, and thank you all for participating this afternoon to go over our first quarter results and our expectations for the remainder of 2015. Our first quarter started slowly, but we have seen a pickup in business across several of our key markets, which gives us confidence that we will rebound strongly in the remainder of the year. There were two main reasons why first quarter performance came in below our expectation. The first reason was that our smaller commercial advisory businesses faced issues surrounding the timing of projects and contract postponements. This was true of aviation, commercial health, as well as part of our energy advisory business that serves the oil and gas industry. What was unusual this quarter was that all three of these markets had a slow start. Based on our past experience, if one market was slow, the impact was offset by a strength in other markets. This time, there was unexpected slowness in all three markets. Trends in March and April improved from earlier in the first quarter and we expect continued improvement in the second quarter and sustained performance thereafter. The second reason for our lower first quarter results was a shortfall in international government revenues that was closely linked to the timing of the European Commission directives on communications. These were delayed because of 2014's European Commission elections to establish a new cabinet, which occur every five years. We expect to recapture a portion of the lost revenues and margin in the second half of this year. From a strategic perspective, our growth plan remains on course and is expected to drive better performance for the rest of the year. We had a strong showing in digital services, both from our legacy business and the contribution from our Olson acquisition, which…

Thank you, Sudhakar, and good afternoon. We had a slow start in the first quarter, as Sudhakar discussed. However, commercial revenues increased 48% in the first quarter to $102 million and accounted for 37% of total first quarter revenues, up from 28% in last year's first quarter, driven by the almost fourfold increase in digital services due to organic growth and the Olson acquisition. We also did well with respect to commercial contract awards, which amounted to $117 million for the first quarter, up 60% year on year and representing a book to bill ratio of 1.15. ICF won more than 800 commercial projects in the quarter. As Sudhakar also mentioned, our digital services business was very active on the business development front. It added new loyalty customer programs for a national restaurant chain, a designer eyewear company, and an international retailer, and a major hotel company. And won three contracts to provide public relations and marketing support for a large brewery, a major soft drink company, and a multinational confection company. In addition, there are significant joint sales efforts in a variety of areas, including health, both commercial and federal, aviation, and energy. To better reflect this evolving mix of our customers, we have added a new fourth market in our quarterly reporting called consumer and financial. The consumer and financial market includes commercial customers who deliver products and services primarily to consumers in areas such as retail and distribution, health, media, and financial services. All this new market previously was part of a broader legacy health market category. You will note in the last page of today's earnings release that this category currently represents 14% of our total revenue, up from 7% last year, primarily because of the Olson acquisition. We have also changed the name of our…

Thanks, John. Good afternoon, everyone. Total revenue was $273.5 million in the first quarter or 11.6% above last year's first quarter. Service revenue increased 14.9% to $210.3 million. As expected, Q1 2015 international revenues were affected by the strengthening of the US dollar, particularly against the British pound, the euro, and the Canadian dollar, which reduced first quarter reported revenues by approximately $3.2 million. We are pleased to report a year-over-year increase in gross margin due mainly to the higher mix of our more profitable commercial business. First quarter 2015 gross margin was 39.8%, an increase over the 37.3% reported in the first quarter of last year. Indirect and selling expenses for the first quarter were $84.8 million, a $15.2 million year-over-year increase in indirect and selling expenses resulted from acquisitions of Olson, Mostra, and CityTech as well as lower staff utilization. Operating income was $16 million for this year's first quarter, down 4.1% year over year. Adjusted to exclude the amortization of intangibles related to the acquisition of Olson, operating income was $18.8 million, 12.8% above the similar period last year and notably ahead of our revenue growth rate for the first quarter. Reported EBITDA was $24.1 million for the quarter, 11.3% higher than the $21.7 million reported in last year's first quarter. EBITDA margin was 8.8% for the first quarter of 2015, consistent with the first quarter of last year. Adjusted EBITDA, which excludes acquisition-related expenses and special charges related to office closures, was $24.5 million or 9% of revenues. This performance was 10.1% higher than the $22.2 million adjusted EBITDA reported in last year's first quarter. Depreciation and amortization expense was $3.8 million, up from $3.1 million in 2014's first quarter. The amortization of intangibles was $4.3 million in the first quarter of 2015, up from $2…

Thank you, James. In summary, today's release includes our full-year 2015 guidance, revised to reflect the slow start in the first quarter. We lowered revenue guidance by $15 million, of which approximately two-thirds was related to lower pass-through revenue. At the midpoint of $1.185 billion, this represents year-over-year revenue growth of 12.8% compared to our original number of 14.3%. Non-GAAP EPS guidance range is $2.68 to $2.83. We believe results of the remaining three quarters of this year will reflect average EBITDA margin levels of 10 to 10.5%, progressively improving throughout the year. Also we reaffirm our operating cash flow estimate of $90 million to $100 million for the full year. Operator, we would now like to open the call to questions.

Thank you. [Operator Instructions] And we have our first question from Bill Loomis with Stifel. Please go ahead.

Hi, thank you. Just can you clarify on commercial overall and then in digital what the organic growth rates was for both of those in the quarter?

We're not giving – I mean, we don't have organic growth rates for commercial -- for digital? So if you look at the -- I can give you organic growth rates for commercial overall. If you look at the -- for the entire Company. Is that what you are referring --?

He wants the commercial growth -- organic growth rate for digital.

Right. Organic growth rate for commercial, overall Company, and then specifically the organic growth rate for digital i.e., trying to understand what it is with -- if we put Olson -- let's do it this way. If you add Olson in both periods, like the old pooling of interests, what would that organic growth be for digital only?

Yes, so I mean -- you want to do it?

Yes, this is John Wasson. The numbers I have, I would say that our -- the legacy digital business, excluding Olson, was in the -- possibly about 11% -- 11% to 12% organic growth range. And then obviously, we have the deals and acquisition. I don't have an Olson organic growth number in front of me. And then for the overall commercial organic growth, I think it was flat to down slightly?

Yes, overall, organic commercial growth for the Company was slightly down by or -- little over 1%, 1.5%. But then if you take -- part of that is impacted by FX and part of it is impacted by we were looking at -- as you know, we announced last time the closing of the -- winding down of the Brazilian office. So if you take those into account, the organic commercial growth overall is roughly flat, slightly down. But it's somewhere around a half point down, basically. And then if you look at the digital interactive business organically, as John said, that's in the -- around 11% -- 11%, 12% range is where that is.

Great. And then just on the delays in the international. I didn't quite understand -- you talked about timing on the European election and I know in the press release, you said you will recoup this later in the year. Can you just clarify that a little more? Why the delay on international? And how exactly -- I assume this is going to the labor-based, so how you recoup that? You can only works in many hours a week. I'm just trying understand that better.

Yes, I think that the -- what we were – what I was trying to say was that the election was held sometime in September of last year. By the time the cabinet was put in place, they spent a lot of money in the first quarter because -- going up to the election. And by the time the cabinet was put in place, the spending priorities were not put in place quickly enough. So I think in the first quarter, the instructions didn't come to do things which would normally come in the course of the year, because this is a whole new set of people who had come into office. So the one thing which I would just point out is that the European business makes money both from pass-through revenues as well as service revenues. So some of the pass-through work and some of the communications work, which they normally do in the first quarter, they did not do. And therefore that, as they do in subsequent quarters in some of the pass-through revenue and some of the labor revenue, we will see a ramp-up of that work and therefore we will get back some of that in the course of the year. So some of the spending will come back in terms of the communication work, the pass-through spending, which I said was about two-thirds of the $15 million reduction. That will come back, and we will also get some of the labor revenue back.

Okay. And there's no issues on execution or any performance issues on that international program?

No.

There's no execution or performance issues. And I think we have the -- we will have the labor and the capacity with our existing staff to up the utilization to deliver -- to make up this work once it comes in. I'm not concerned that we can't. We won't have the staff time to make it up, but we will be able to do that.

Okay, thank you.

And thank you. Our next question is from Edward Caso with Wells Fargo Securities.

Hi, good evening. Just a follow-up on Bill's question. I don't think I heard the organic growth rate -- rough organic growth rate for the whole Company.

The organic growth rate for the entire Company was actually also similar to what it was for commercial, so it was roughly down by 1%, 1.5% range.

Okay. And then -- and that would make it very slightly down, excluding the FX?

Exactly.

Okay. The tax rate was high in the first quarter, but I think I heard you say for the whole year, you expect it to be a little bit below 38%. What happened in Q1?

Really, what it is is that if you look at our statutory rate, it's closer to what we recorded in Q1. What happened to that is that we book the discrete tax items at the point in time that we file the related tax returns, and typically that's not happening until later in the year. So for the full year, we expect to still be at roughly 38%. That's just the timing of when we are filing the returns.

Okay. And the FX impact that's three-whatever million it was. $3.2 million. How much of that was anticipated at the time of your guide? I mean, how much additional surprise was there from the FX? You didn't really allude to it in the commentary, so it made it sound like it wasn't a surprise to you.

Yeah, no, it wasn't. It's pretty much aligned with what we were anticipating at the point in time we gave guidance.

Okay. Great. Thank you.

And thank you. [Operator Instructions] And our next question comes from Tim McHugh with William Blair & Company.

Hi, just want to ask more about the healthcare and I guess broadly the commercial sector. Can you help us quantify how much better did it get as the quarter went on and into the second quarter I guess -- and just give us more comfort around why it changed? I will leave it at that.

Yes, I think that -- let me just put it broadly, that utilization rates went up from the beginning of the year towards the end of the quarter by 4 percentage points. So I think that as we started off the year in January at one utilization rate and by the time we ended March, the utilization rate was up by 4 percentage points. And it is -- we see continued increase in utilization rates. So that gives us comfort that those areas, the utilization rates are coming up and therefore the profitability is increasing.

Pardon me, Tim, your line is still open on our end. Perhaps you're muted on your end?

Yes, sorry. On the energy efficiency contract that got unbundled, what’s the risk that you see that elsewhere and what led the customer to do that?

We in fact talked about that with our energy efficiency guys. We haven't heard anything from any of the other customers. As you know, we just won a very large BG&E contract last year, which was the third time we won it, again fully bundled. So certain customers I think have other considerations, because they are a reasonably large contract. Almost $30 million or so. They split it up and they might have some other -- we don't really know what the motivation is. They might have other multi-critical [ph] considerations or whatever, but they wanted additional people, and that's what they did.

But this is the only customer where we've seen this, Tim. And we haven't heard -- there haven't any other dialogue from customers that give us indication that this where the market is going.

Okay. And I guess, I'm trying to look at the organic. What was the contribution from Olson this quarter?

The organic growth rate we gave you was the legacy organic growth rate number. So we basically did not include any Olson revenues in there.

The thing I would say about Olson is I think for the first quarter, Olson performed according to plan and as expected, so there were no surprises in terms of Olson's performance. I think they performed as planned in the first quarter.

Okay, all right. Thank you.

And thank you. [Operator Instructions] And it seems that we have – I’m sorry we do have another question from Stefan Mykytiuk – I’m sorry if I misspelt your last name, with ACK Asset Management.

Hi, good afternoon. I guess a couple questions. Can you just talk about whether you've seen a change in the federal environment in terms of award -- you've obviously had very strong awards, so -- and now you're saying revenues could be flat to up instead of previously, you had talked about them being down a bit. So is something changing in terms of the speed at which awards convert to revenue or what's going on there?

Yeah, as I mentioned -- as I said, yes, we think that there is a little more normality to the backlog going into revenue. When we talked the last time, obviously we were still hesitant to say that there was going to be any significant change, but we see some green shoots, so we're a little more optimistic now than we were two or three months ago. So certainly, I think we have the backlog and we have the contracts, but the situation has been -- the things have been slow to convert, but now we see that the conversion is improving and in our main areas, of course, we see some growth. I think we also see that some of the safety and security work has flattened out, in our case. And therefore, there is no reduction, net reduction in revenues therefore. And therefore, basically the numbers are up.

Okay. And the federal -- was it the federal awards were 266, was that the right -- am I getting the right number?

No, that's total.

That's total.

Total. What was – do you know -- do you have the federal awards?

Federal awards, roughly $80 million, right. And I think we've reported the commercial in my remarks, $117 million.

Okay. And so the federal was $80 million of awards against $126 million, so like a 0.6 or 0.7 book to bill, which I guess is pretty good for Q1.

It's typical -- yes, that's typical. I think usually, Q1 is one of our slower sales quarters.

Yeah, I mean, to put that in perspective, Q1 of last year, I think federal awards were only around $35 million.

Okay. And then James, I think at the midpoint, you took the EBITDA guidance down about $5 million, $6 million. And you kept the cash flow from operations guidance of $90 million to $100 million. So is there something else -- is there working capital changes that are benefiting you or what's the -- how come the free cash stays pretty much the same?

Yeah, we do believe we will have a little bit of a benefit more in the working capital changes and just as far as how we can manage the receivables on our EP positions. So we still feel comfortable that we can get in the $90 million to $100 million operating cash flow range.

Okay. And any change in terms of the priority for use of the cash, just deleverage?

No, not at the moment. It's currently still focusing on trying to deleverage is the primary use. And obviously, if we have a -- find the right opportunity from an acquisition perspective, we will pursue that. But it needs to be the right strategic fit and at the right price.

And the third, we will buy back stock as we've been doing to make sure there is no dilution.

Right.

Okay, terrific. Thanks very much.

And thank you. We have another question in queue from Tobey Sommer with SunTrust Robinson Humphrey.

Thank you. On the energy efficiency side, I was wondering if you could give us an update, since we're getting closer, I think, to the award opportunities and contract opportunities in California. And then I am interested in your perspective on the developments with the EPA and in regulation of greenhouse gases. Thanks.

As we said, there was going -- there is going to be a decision sometime in the mid-summer, a court -- a decision by EPA and then they will be reaching some core challenges to that. So it will take some time, I think 12 months subsequent to that before they put it in place. We still think that there will be some sort of program which we put in place, because the program has been designed with a number of major stakeholders involved, which include industry as well as NGOs as well as the government. So I think it's all proceeding at an expected rate. So I think -- so the time frame for that that we will know a lot more about once EPA comes out with its rules in midsummer. And then depending on what the court actions are or they aren't, we will know more about that time frame. So I think that that’s I think to your point about the EPA regulations. I think on the California contracts, I think that there are -- there are three major utilities in California. I think to the schedule -- for what we know the schedule is late 2015 and 2016, one of the larger utilities has moved the schedule from late 2015 to late 2016. So we are following that closely and we are keeping tabs on what's going on there in terms of their putting out the work.

And I would just add, I mean, I think in terms of the energy efficiency pipeline, I think we are -- still have a robust pipeline kind of in the neighborhood of three times our efficiency revenue in the $300 million range. And so it's still a robust pipeline and there's certainly awards that we expect this year.

Is that an area where you'd look to apply capital? Can you consolidate that? Are you kind better off just competing for the work?

I think we have certainly looked quite hard at seeing what we can consolidate. I think that we see -- the opportunities we see are very small entities and we have tried in the consolidation -- over the last few years to do some consolidation. It's hard to do these smaller deals because the companies have a certain emotional involvement with the business and the valuation is not quite right for us. So I think that we have tried, but there are no entities of any significant size, which we can look at -- which is of interest to us. So I think that has been -- but we are always looking to see what there is and what could potentially be done. So we are keeping our eyes and ears open and we certainly look to see what we can do.

Has the change in energy prices impacted the business, either energy efficiency or other areas of the energy market that you touch?

Well, I think it certainly has impacted our advisory energy business. We do have an oil and gas practice that provides advisory services, market analysis, financial due diligence, analyzes derivative markets, like liquefied natural gas. So they do that for pipeline companies. And I would say with the price of oil going down to $40, we really saw that market freeze in the first quarter. So certainly, the slowdown in our commercial advisory business has been around the pipeline companies impacted by the price of oil. Now I will say in the last several weeks, with the price of oil rising, we've seen that market improve. We've submitted a $2.5 million -- roughly $2.5 million of bids in the last several weeks to pipeline companies or related parties in the oil and gas market. And that's one of the reasons we have confidence that things are improving in that market. And so yes, certainly in -- the price of oil has impacted our energy advisory business -- the pipeline at the intersection of oil and natural gas.

Okay. I'm curious just about the general esprit de corps since the Olson acquisition. Any kind of comments or color you could provide that would convey what the integration has been like would be helpful.

I think the integration has been actually quite good. I think the new digital services group, which includes the Olson folks and our technology business, are quite excited by the scale that we now have in that group and by the opportunities to cross-sell in each of their client bases. I was with them yesterday. We were having a one-day meeting in Austin, Texas, to get the leadership of that new digital services group together. And I would say the energy level and the excitement was really quite strong. I think they are -- they really think that now that we have this integrated end-to-end capability in the Company, from digital strategy to the creative to the technology side, that we can really be a significant player in this market. And so I think there's tremendous energy, there's a lot of optimism, and we are -- as Sudhakar mentioned, we are starting to bid and win new work that neither set of companies would have won independently. So I actually think that's been going terrific and we are quite optimistic about it. And you can see from the first quarter results, I think we obviously have had certainly -- continue to have strong organic growth in our legacy digital business. And Olson did certainly essentially was on plan for Q1, so they certainly met our expectations.

Thank you very much.

And thank you. [Operator Instructions] And I see we have no further questions at this time. I will now turn the call over to management for closing remarks.

Thank you very much for participating in today's call. We will speak with you again at upcoming conferences and our next call to review Q2 results. Thank you.