Welcome to the ICF International Third Quarter 2015 Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Thursday, October 29, 2015, and cannot be reproduced or rebroadcast without permission from the company. And now, I would like to turn the program over to Lynn Morgan of MBS Value Partners. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to review ICF's third 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 our 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 October 29, 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 ICF's CEO, Sudhakar Kesavan, to discuss third quarter 2015 performance. Sudhakar?

Thank you, Lynn, and thank you all for joining us to review third quarter results and discuss our business outlook. We executed well in the third quarter reporting a 25% increase in EBITDA, a 130 basis point expansion in EBITDA margin and year-to-date operating cash flow that was more than twice the amount we reported last year at this time. This performance at the stage for significantly improved profitability in the second half of this year compared to the first half and both our expectations for EBITDA margins in the range of 10% to 10.5% in 2016. In the third quarter total revenues increased 9% and service revenues were up 13%. We estimate that on a constant currency basis, this equivalent of gross revenue growth of 11% and service revenue growth of 15%. On a sequential basis, we did not experience a seasonal pickup in revenues that is typical for the third quarter. This was primarily due to lower subcontracted revenues [indiscernible] to our international government business. However, we expect fourth quarter revenues to be similar to the third quarter rather than the traditional sequential decline that we have experienced in the past years. Our commercial business continue to be a key driver of revenue growth. Domestic commercial which accounted for about 90% on total commercial revenues grew 40% year-on-year. A key part of our commercial business of ICF Olson, the new name for our digital services group. It is comprised of ICF's legacy commercial and state local digital services businesses and the open acquisition. ICF Olson's profitability levels remain strong in the third quarter and except for brand, as revenues grew at a mid-single digit rate both year-on-year and sequentially. When the Brand issues that we discussed last quarter effect of ICF Olson's third quarter, by the end of…

Thank you, Sudhakar and good afternoon. As we expected, the revenue run rate we had at the end of second quarter combined with the strength of our contract award activity enabled us to significantly increase utilization rates across the company in the third quarter. And I am pleased to report that after the strongest second quarter sales on our history, we had another strong quarter for contract awards, bringing the year-to-date value of contracts won to $1.1 billion, an increase of 6.3% from last year's levels. In the third quarter alone, we succeed in line more than 700 commercial projects, over 100 U.S. federal government contracts in past quarters and hundreds of additional contracts from state and local and international governments. Looking at third quarter business mix by market, revenue from our commercial clients increased 35% to $101.9 million and represented 35% of total revenue. Significantly ahead, the 28% is accounted for last year's third quarter. ICF Olson and our energy markets put together accounted for 74% of third quarter commercial revenue. However, based on a current system for classifying revenue for market, not all of ICF Olson's revenues are accounted in commercial. Even though the pricing to the work is consistent with commercial work. Sudhakar focused his remarks on ICF Olson, so I will give you an update on our second largest contributor to commercial revenue in Q3, Commercial Energy. Our energy group performed as expected in the third quarter. Revenues increased sequentially but were flat on a year-over-year basis, accounting for 32% of third quarter commercial revenues. We have close to $200 million in proposals that have been working on to assist utility clients on demand side, management issues, including significant energy efficiency implementation projects. Another major area of interest for our utility clients has had a most…

Thanks, John. Good afternoon everyone. As anticipated, our 2015 third quarter results represented significant sequential improvement and profitability, driven mostly by higher labor utilization. The improved profitability and utilization rates are expected to continue in the fourth quarter and drive results that are similar on a sequential basis as the start of new contracts and a great contribution of commercial revenues, offset the traditional seasonal softness associated with our federal government business. As a result, we continue to expect a strong finish to 2015 and to be well positioned for improved profitability levels in 2016 with EBITDA margins of 10% to 10.5% for next year. With regards to the third quarter financial results, total revenue was $289 million with 9.1% above last year's third quarter. On a constant currency basis, total revenue would have increase in estimated 11%. Service revenue increased 12.6% to $216.4 million. Our year-over-year increase from gross margin was due mainly to the higher mix of our more profitable commercial business. Third quarter 2015 gross margin was 38.4% an increase over the 37.3% reported in the third quarter of last year, and in absolute dollar terms, third quarter gross margin was $111.1 million, an increase of 12.5% as compared to the similar period last year. In direct and selling expenses for the third quarter were $81 million, a year-over-year increase of 8.4% primarily related to the Olson acquisition. Operating income was $21.5 million for this year's third quarter, up 16% year-over-year. Reported EBITDA was $30.1 million for the quarter, 25.2% higher than the $24 million reported last year's third quarter. EBITDA margin was 10.4% for the third quarter of 2015 as compared to 9.1% in the third quarter of last year. Adjusted EBITDA for the third quarter which excludes special charges related to international office closures and…

Thank you, James. One of our objectives has been to position ourselves to take advantage of positive business conditions in our major market and conversely build resilience to negative trend. While we successfully diversified our revenue sources to counter the decline in federal government spending, we remained committed to the huge market and trends for 2016 look more positive than they have in the last four years. As a result, we are cautiously optimistic that we will see growth in federal government revenues in 2016 at the same time as our pipeline points to improve performance of our commercial business. We expect this year's fourth quarter revenue performance to be similar on a sequential basis, balancing the absence of a seasonal pickup in the third quarter. Profitability levels and EBITDA should also be comparable, thanks for the continuation of high utilization rates and greater contribution of the commercial business. The full year 2015 we expect revenues to be approximately $1.4 billion, non-GAAP EPS between $2.65 and $2.70 and adjusted EPS in the range of $2.10 to $2.15. Cash flow from operations expect to exceed $90 million. Operator, at this time, we'd like to open the call to questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we have our first question from Bill Loomis with Stifel.

Hi, thank you. Good evening. Just looking at the state and local business you probably didn’t expect the first question on that one, but I assume with the last call you said you thought state and local would be about flat year-over-year looking at the whole year, and based on what you had in the third quarter we'd have to see a pretty big sequential growth like $8 million or something from third to fourth to do that in state and local. What's – so what's kind of the outlook now for state and local and why did it drop off as much as it did?

Yeah Bill, this is James. I think we probably have to take a look at your numbers but if you look at sequentially we're really looking at revenues going up somewhere in the neighborhood of a $1.5 million, $2 million from Q3 to Q4 which is comparable to what we had last year. So, we're expecting basically we're flat year-to-date through Q3 and then we expect over Q4 to be essentially flat also. So, flat for the entire year, so I think probably we need to check what we have for Q4 state local last year.

Okay. So when you said and you've expect that to be flat you were talking about just second half of this year versus second half of last year – last quarter when you said that comment?

We're saying for the full year.

Okay. And then with international – well first of all just on the guidance generally, I mean look, you did lower guidance a little bit and state and local, international or below estimate. What did materialize in the quarter that prompted you to do lower the guidance slightly from last quarter, what were you looking for to get to kind of the midpoint of private audience?

Yeah, I think that Bill we expected certain positive revenues which didn’t materialize in the international business. So that basically was…

The largest driver.

The largest driver for our revenues in that and I think that basically made us a little caution about the international government business.

Okay. Okay, great. Thank you.

Thank you. Our next question comes from Tim McHugh with William Blair & Company.

Hi, thanks. Just – there are some charges for office closures and severance I guess can you tell us what offices were you closing and where were you I guess taking severance charges in the business?

Yeah, this is James, I'll cover the office closures. And I think as we've talked about in the past we continue to look to ensure that where we are working oversees internationally that we're working out of offices where we have appropriate level of scale. And so we did end up closing a small office in Spain which we took some charges for in Q3 of this past quarter.

Okay.

So that’s for office closure department of the company. Yeah, and really the staff – the realignment of staff that’s also associated with our international business and making sure that we're appropriately aligning the staff for the size of business that we have there.

Okay. And let me just – on the commercial business you talked about a pickup – I think you referred as very significant pickup in I guess the commercial revenue but it seems like it was flat sequentially versus the second quarter. And so what am I – were there, are you talking about pieces of it and were there other pieces that felt fluff or I guess what's the mix there?

I think if you look at the domestic commercial business it grew about 3% organically from Q3 last year to Q3 this year. So I don’t think I mentioned significant pickup in commercial, I just said that the commercial business overall grew obviously because of the Olson acquisition. And if you're asking about organic revenue growth of domestic commercial it's about 3% Q3 2014 to Q3 2015. I'm talking about domestic commercial only because I don’t want to effect issues.

Okay. All right, that’s fair. Okay, I guess – and then the international business that you talked about some revenue being pushed in the past. I think if I recall in the past some of the work you've done has been tried immigration and others a lot of [ph] scrutening of that in your point now, is that accounts for [indiscernible] permanent push out or it seems at least medium term push out or is it you saw work moved just from Q3 to Q4 and I guess you think it can come back.

Yeah Tim, this is James. I mean actually we just spoken to the locals there. And what they're anticipating, there is no – it's a temporary timing issue, it's not a permanent. The work is still there, the work has to be done, it's a matter of timing when they do it they are now doing more of it in Q4. So it's being pushed from Q3 to Q4 and then some of it actually maybe pushed a little bit into Q1, so we're anticipating.

Okay. And then…

The international – Tim just, the international revenue business actually from a constant currency basis has been quite strong. I mean if you just look at the numbers, even that there is push out etcetera, if you look at the numbers, the numbers are pretty strong. It's just that unfortunately we have an FX issue which doesn’t help us in terms of the U.S. dollar numbers, but I think just in terms of the fundamentals of the business despite the push out I think it's been quite strong, grew by I think 11% on a constant currency basis. I just thought I'd mention it just so that you have [indiscernible] with the fundamental of the business are pretty good I think.

This is John Wasson, the thing I'd add is, in terms of contracts that have been kind of pushed out, couple of those were contracts with significant media campaigns which would have a high level of pass-through's. And so it's also because of the handful of contracts that have been put were particularly planned to be intense in terms of the broad media campaigns, media buys those types of things.

And their activities.

That’s certainly have the impact.

Okay.

And I think that there is both going on, on integration issues which our office is doing currently. So in fact that continues, it's just that some of these things around the contracts which were more media related, media buys were the ones which are pushed out.

Okay, fair enough. All right, thank you.

Thank you. Our next question comes from Tobey Sommer with SunTrust Robinson.

Thanks. Looking at the relatively small changing in guidance, how would you kind of rank order the two of your factors, I think the currency moved a little bit probably against you since the last time we spoke – I don’t know where that would fit in to the top two or three reasons for the slight change in guidance.

So, when you would say change in guidance I assume you are speaking to revenue and EPS both, I mean certainly from a revenue perspective we've just mentioned some of the items basically revenue being pushed out and pushed into the next year and it's just the slowness of various media buys and things with that nature. Obviously with that revenue being pushed out there is profitability that goes along with it and really that is what is – it's the reduction is in line with the reduction revenues.

Okay, I guess with the disconnect I don’t understand, if it's media buys and pass-through that would suggest margin?

Yeah, and actually that in oversees there are actually are some fairly healthy profits associated with that activity.

Okay. Should we be on the lookout I guess going forward just over for slightly more variability based on media buys being a component of the P&L that were not used to historically I guess?

I think that generally that would be the case. I think that if you look quarter-to-quarter the variability is more than what we had normally seen. I think that’s the fair statement, but I think the – yeah, I think that certainly adds to the volatility.

A question, I didn’t catch it if you gave it I apologize. What was the organic growth in the commercial business?

I think I said – just so that I wanted to be with that effect, the domestic commercial organic growth is of 3%. The digital interactive business grew nicely, the energy markets business grew. So I think that I'll just give you the overall domestic commercial business because then I don’t have to deal with the FX issues.

Okay. And does that represented improvement on that same basis or is that sort of a stable growth rate on that basis, because I don’t have the historical number in front of me?

Well, we certainly hope that it'll accelerate going forward given what we've seen in the pipeline, but I think it is certainly an improvement from the prior periods.

Of the contract announcements that you've press released in recent weeks, is it fair to assume that most of those are captured in the book-to-bill and contract awards in the quarter or are some of those – do they belong to the fourth quarter in fact?

The ones that we're announced were captured in the quarter but I think the one thing that in Q3, the one thing that to keep in mind is that when we announce our total awards number it does not include the value of the large vehicles – the value of those won the task underneath those vehicles are awarded.

Yeah, so there is no number in the book-to-bill…

That came in Q4.

That came in Q4 or which – or we have announced something which – yeah, so you should be – that consistent are the numbers.

Okay. And then I'll get back in the queue. If you could just make a comment about what you think a potential budget deal in which you've seen so far would might impact your business and any kind of broad comments you could make would be helpful? Thank you.

So I think I commented the last time about the return to – at least what we thought with a more normal course in terms of winning awards and then revenue flowing from the backlog. If you recall over the last three or four quarters, we have been – we have won a lot of work, the backlog has increased but somehow the revenue hasn’t flown through. And we have seen as I indicated last quarter too, we have seen a return to normality which as you can see is evidenced by the fact that there was some slight revenue growth overall and certainly significant revenue growth in the mid-single digits in our federal business sequentially. And I think that’s a good sign because that really does a manifest the fact that when the backlog increases at a book-to-bill which is to say 1.10 then you will see hopefully over the medium term 10% growth because that’s what normally would be the case. So I think that that behavior have been not been quite consistent over the last two or three years and we have seen that return over the last quarter or two and now with the budget deal we hope that comes right back to normal as it used to be say three or four years ago.

Thank you.

And thank you. [Operator Instructions] And we have our next question from Edward Caso with Wells Fargo.

Hi, good evening. I was wondering if you could talk a little bit about the competitors that ICF Olson faces, are you going after the large ad agencies say the large integrators like Accenture or are you just budding up against the local firms?

I think that a good example Ed, what we have seen is that, like for example, if you look at the lottery contract we went up against a major integrator and we went up against a firm very well known for its loyalty product, both quite well known and both having significant footprints. In certain other cases for example, in certain regional competitions we tend to go up against local firm. We tend to go after like for example in the Canadian Utilities contracts we won, there was an integrator who was really the program manager and they had bid out the work. So they sat in on the competition, so all the work was outsourced to them and then they basically didn’t have the skills to do the specific customer engagement stuff which we were hired to do. So we were one of two or three competitors and most of the competitors there where there was one U.S. and there were I think a few more Canadian ones. So I think that it varies all over the place. I think in terms of the size of the job we tend to go after, I think it is smaller than the ones which the bigger size will go after. So I think that there is perhaps less interest on the part of those FIs to go after the size of the job which we traditionally go after, because it's not worthwhile for them to pick up their pen I think to bid on the job. So I think that we are trying to cater to the middle market and obviously we will try and raise to the occasion if we know the client really well and we think that we can do the work, and once in a while we might go up against the big guys. But I think we are trying to avoid doing that, we're trying to make sure we go up against the size of job which is sort of like the lottery or like the Canadian utility one which have both in the $10 million plus range.

And the federal space, is the Olson brand or the ICF brand help you in the process or is it still just a fill out the RFP, I mean is there some brand value in that market?

No, I think that in the federal space I think what helps the qualifications which Olson has in terms of commercial best practices because they obviously do it for well-known companies. And so our creditability improves I think in the federal space, I don’t think the federal government client is aware of the Olson brand but I think it's certainly aware of the companies they have worked with and therefore the kinds of work they have done. And as you know, there has been some effort within the federal government to change the way [indiscernible] certain things and also to push for commercial best practices and to reach out and see what's happening in the commercial arena, especially in the whole digital services business. So I think that we have been using the fact that they have qualifications in certain areas which are quite sophisticated and significant. This is what they do for certain clients and we can do perhaps similar things for you if you would like, that’s sort of the effort. So, I don’t think that there is any significant brand value of Olson that these enormous value of the kinds of work they do and in that specific kind of work which we would like to do more for the federal government. And I think that it also improves – and they have done stuff which is transactional, they've done stuff which is sophisticated in terms of branding and creative work, and I think they can certainly improve our delivery in the federal arena but we certainly don’t think there is a huge brand value for Olson within the federal government.

Last question, can you provide us with a constant current organic growth number? Just trying to figure how that 9% translates.

For the international business?

No, the whole company.

For the whole company I mean it's basically flat, essentially flat.

Flat, but I think it's down…

Slight – slightly down, but close to flat.

Okay. And when does that grow over ends starting the first quarter of next year?

Yes.

Okay, great. Thank you.

And thank you. 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 look forward to speaking with you at upcoming conferences and our next call review 2015 yearend results. Thanks very much.