Welcome to the ICF International Fourth Quarter 2015 Results Conference Call. During the presentation all participants will be in a listen only mode. Afterwards you’ll be invited to participate in a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded on Monday, March 07, 2016, and cannot be reproduced or rebroadcast without permission from the company. And now I would now like to turn the program over to Lynn Morgen of MBS Value Partners. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us to review ICF’s fourth quarter and full year 2015 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 March 07, 2016, 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 ICF’s CEO, Sudhakar Kesavan, to discuss the fourth quarter and full year 2015 performance. Sudhakar?

Thank you, Lynn, and thank you all for joining us this afternoon to review our fourth quarter and full year 2015 results and discuss our outlook for 2016. First, I’m pleased to report that our fourth quarter performance represented a solid finish to 2015 and that profitability was in line with our guidance. Second half adjusted EBITDA margin was 10.4%, up 125 basis points from the first half of 2015 and 85 basis points ahead of last year’s second half. Revenue trends also are aligned with our expectations coming in at an estimated $284 million on a constant currency basis with fourth quarter only slightly below our historically strongest third quarter. The revenue growth rate of our U.S. federal government business reached close to a four year high at 4.7% in the fourth quarter compared to the same quarter last year bringing the average growth rate for the second half of this year to 2.4%. In the fourth quarter, we saw a continuation of the positive trends in federal government spending that have emerged over the last several quarters in the wake of congressional approval of a two year budget agreement. Notably the time between our contract wins and revenue generation on those contracts has come back to more normalized levels, which has improved our visibility and enabled us to increase utilization rates. As you know the administration have submitted fiscal 2017 federal budget request to congress and while it is too early in the process to draw conclusions as funding levels for specific agencies will change. We think that our several broad trends that will remain intact. One, the budget’s total spending appear to be in line with the original agreement; two, civil agency spending in respect to the increase from this year’s levels. And three, the major priorities…

Thank you, Sudhakar and good afternoon. As Sudhakar noted our Q4 revenues were only modestly below our Q3 revenues, which represents a shift in our historical seasonality that typically resulted in Q3 revenues falling off more severely than they did this year. We believe that this shift in Q4 seasonality is to the increasing proportion of our commercial revenues in our portfolio and will continue in 2016 and beyond as commercial revenues continue to grow more rapidly. The shift in business mix becomes most apparent in our full year comparisons for 2015. Commercial revenues increased to 35% of total 2015 revenues from 30% in 2014 and U.S. federal government represents 48% of total revenues in 2015, down from 51% in 2014. State and local remained relatively constant at around 10% and on a reported basis international government declined to 7% from 9%, as there are approximately 4% year-over-year growth local currencies was massed by the strength of the U.S. dollar. Digital services and energy markets together accounted for 75% of fourth quarter commercial revenue. Our current system for classifying revenue per market is based on the origin of a client that is in the nature of the work we perform. Therefore it is important to keep in mind that not all the ICF Olson’s revenues accounted in commercial even though the pricing for the work they perform for non-commercial clients is generally consistent with commercial work. Sudhakar covered ICF Olson, so I will give you an update on domestic energy markets, which was the second largest contributor to fourth quarter and full year commercial revenue. We were pleased that our domestic energy market revenues increased 6.7% sequentially, but is expected decline modestly year-on-year primarily due to the unbundling of an umbrella [ph] contract by one of utility clients was took…

Thanks, John good afternoon, everyone. Overall, we reported solid year-on-year comparisons in the fourth quarter executing well across key operating metrics. Total revenue for the fourth quarter of 2015 was $280.8 million or 1.6% for the fourth quarter of 2014. Service revenue increased 2.1% to $207 million. It should be noted that our reported revenues were impacted by the continued strengthening of the U.S. dollar against the euro, British Pound and Canadian dollar. On a constant currency basis, the total revenue in the quarter would have increased an estimated 3% year-on-year to approximately $284 million. Indirect and selling expenses for the fourth quarter were $79.5 million or 28.3% of revenue compared to $83.4 million or 30.2% of revenue in the prior year. On a year-over-year basis, the decrease of 4.7% was driven by improved labor utilization in the fourth quarter of 2015 as compared to 2014 and higher special charges last year. Due to revenue growth and a decrease in our indirect expenses in the fourth quarter of 2015 as compared to 2014, operating income grew 14.6% to $19 million for this year’s fourth quarter, up from $16.6 million a year ago. Adjusted EBITDA for the fourth quarter, which excludes special charges related to international office closures and severance for staff realignment was $28.3 million, or 10.1% of revenue. This performance represents a 6.3% increase in adjusted EBITDA from the $26.6 million reported in last year’s fourth quarter, a 45 basis points improvement in margin. Reported EBITDA was $27.5 million for the quarter 12.4% higher than the $24.5 million reported in the last year’s fourth quarter. EBITDA margin was 9.8% for the fourth quarter of 2015 as compared to 8.9% in the fourth quarter of last year. Depreciation and amortization expense was $4.2 million, up from $3.9 million in 2014’s…

Thank you, James. For 2016, we are expecting both GAAP and non-GAAP per share earnings growth that substantially outpaces revenue growth, reflecting improved utilization rates across the organization and the increasing contribution of higher margin commercial business. First quarter 2016 is expected to show significant year-on-year improvement, but will be effected by the implementation phases of certain large contracts and weather related government closures in January. Taking this into consideration, full year 2016 revenues from federal government clients are expected to increase at a low-single digit range. Our commercial revenue growth is expected to be in the high single-digits driven by both our energy efficiency and digital services businesses; EBITDA margin for the full year is expected to range from 10% to 10.3%, non-GAAP EPS from $2.79 to $2.94 and diluted EPS from $2.40 to $2.50, and our operating cash flow projection for 2016 is from $85 million to $95 million or $4.60 per share at the midpoint. In conclusion, we are pleased with ICF positioning, thanks for the portfolio diversification strategy we accelerated in early 2012. We have a comprehensive suite of service and solutions to provide to our growing commercial and government client base and we are well situated to benefit from what appears to be a return to more normalized federal government spending environment. Operator, I would now 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 Tobey Sommer with SunTrust.

Thanks. I guess my question is about the variables that could move you to the higher or lower end of your 2016 guidance range versus consensus in recent quarters, results have come in a little bit lower than expectations, but I understand in a budget environment the condition should be riper for kind of better growth and profitability. So I just wanted to get a sense of those variables this year. Thank you.

I think the variables are obviously federal government growth, commercial growth rates. I think that if the -- we’ve assumed we think reasonable rates for in both sectors. Our assumption for the government business is the low single-digits. But we did see the government business grow quite rapidly in the fourth quarter. So I think that if that keeps up then obviously there is enormous leverage with that if our energy business grows more rapidly we have a huge backlog in pipeline. We basically on the energy efficiency side we are optimistic about the future if that grows more rapidly, that’s great. The digital business we think is well set and we are coming out of the trough which we said we were hit in Q4; so far Q1 performance has been quite good. So I think that we just are making -- we think our guidance is reasonable and obviously some of these things are better than what we thought then that will make it go up to the upper end of the range.

Okay. How would we interpret some of the news around that the EPA and the clean power plant and litigation around that is either slowing down or if there was some rulings in the EPA’s favor speeding up the business opportunity for ICF? Thanks.

Yeah. John dealt with, and John will I am sure talk about the clean power plant. But let me just say that obviously there was no litigation will be better for us than if there is litigation. But at the same time I think that there is enormous transformation in the energy industry in the utility industry and over the last year or so we have really been focused on the utility of the future. We’ve had lots of work done on that specific issue and we have reorganized this past year to focusing on that big opportunity. Part of that big opportunity utility the future is obviously the full emissions trading and energy efficiency et cetera. But there is a whole bunch of other things, which we have been quite successful at which we think will more than make up for the slow down in the clean power plant implementation. So I think that all the efforts of grid modernization and distributor energy resources and renewable, the adoption of renewable is going to yield huge changes and if you read the New York Times and Journal yesterday there was a whole article on how renewables and solar investment is going up dramatically and would be a huge transformation in 2016 and that’s like with the highest increase in any energy source in terms of installation. So I think that there is enormous opportunity in that industry and we certainly hope to take advantage of that and we spent the last year positioning ourselves for it. So I think we are optimistic about all those things and some contracts we’ve recently won on that aspect which John talked about. So I think that that sort of the plus and the minus associated with the whole clean power plant Supreme Court. John?

No, I think that you picked up high points Sudhakar, I think the only thing I would add is that maybe of our utility clients are planning for a carbon constrained environment and they are well into their planning and well into developing business plans to operate in that environment. So we don’t see that stopping or necessarily slowing down. So the existing work we have with our key utility clients around a carbon constraint environment and the clean power plant has continued. I think it will obviously have some impact on potential new advisory assignments. But the other thing you have to realize is most of the work we’ve been doing in the last year on the clean power plant is kind of upfront advisory work which is important and good work for us to have. But it really hasn’t been that material to the overall revenues of our energy business. And I think to Sudhakar’s point we are seeing tremendous opportunities around grid modernization, renewables, energy efficiency that will more than make up for any loss in advisory work or slow down at advisory work related to clean power plant.

Thank you.

And also I would just tell you that Northern -- certain utilities which are quite progressive I think have certain regional greenhouse gas emissions trading programs which they have to adhere to anyway. So the fact with the clean power plant which is a federal program is not going to be implemented as quickly, is not going to change certain other utilities program. So I think that generally, the implementation of the clean power plant, the work we would have gotten as John says we’ve got an advisory work right now, the implementation work is delayed. But it wasn’t that much of an impact this past year.

Thank you.

Thank you. Our next question comes from Bill Loomis with Stifel.

Hi thank you, good afternoon. Just looking at the organic growth on the commercial, what was the overall organic growth rate for the commercial in the fourth quarter?

Organic, commercial growth was 2.2%. So let me just make sure that I give you the right number. Domestic commercial revenues, did you asked, can you repeat the question again?

What was the commercial organic growth rate for the fourth quarter?

Commercial organic I have...

If you just have domestic that’s fine.

Sorry, I’m just trying we’ve lots of numbers here, so we are just trying to figure out what the -- the domestic commercial growth, no it was overall grew by 2.2% domestic organic reduced by 4.8%.

Okay. So it was 4.8% lower on the domestic organic?

Yes.

So just looking out to 2016 in the guidance, can you talk about on the commercial you are looking at that going to a high single-digit so you have come year-over-year Olson now? So how where does that confidence come from is it everything that’s -- is it mostly in hand now or is the pipeline that materially stronger than say six months ago? Where is your confidence coming from on such a change in growth over the next year?

Yeah I think that the -- let me just first give you the reasons why it went down 4.8%. The wind down of the big, the utility contract you remember which we talked about at the beginning of the year, that had a tough comparable in the fourth quarter. So our energy efficiency business accounted for $4.1 million of that reduction. So basically that was a significant impact. And the other thing which was a big impact was that TRTP program, which we talked about that was reduced by $1.9 million. So both these contracts which accounted in commercial came down by almost $6 million in fourth quarter because of the comps of Q4, the prior year to Q4 this past year 2015. So that was basically the reduction. So we think that in the energy efficiency business we have a substantial pipeline, we won fair bit of work. And there will be some announcements in the next month or so of the wins we’ve had in the Energy efficiency. I think on the digital business, we have seen the performance in the first quarter comeback quite significantly especially in the brand world. So given both of those I think the -- we have fair bit of confidence there. And I think the pipeline the commercial pipeline at the -- in calendar year ‘14 was about $500 million and calendar year ‘15 is $730 million, that’s a 46% increase. And I would also say that if you look at the amount of revenue which is in contract backlog at this time is 77% for the year, which includes everything, commercial, government, state local everything. So 77% is a very high number for us in terms of the backlog we have currently for all our work going forward. So that’s the basis of the confidence.

Okay. And then just on the 2016 guidance, what are you assuming on international if we come I think it was a year ago where we really had that impact on the dollar. How is that looking for in the guidance international?

We’ve assumed flat Bill. No growth.

And Bill this is James the impact of FX since the beginning of the year has been negligible it’s basically flat.

And a year ago you had some delays because of the elections over there delayed programs. Why are you looking for flat? I would have thought the comps would be easier on international this year?

Yeah I think that the -- we are looking for flat because we have there is a certain contract called DFIT, Department of Foreign International Development, which is winding down. That contract basically DFIT is basically pulling out of one of the countries where we -- and they have told us that for the past two or three years, pulling out of one of the countries. So that basically reduces the revenues there and the added aspect is we won a lot of work. But we have not been able to predict too well exactly when the stuff how things have moved to the right and how things will basically start, how the projects will start. So I think in both those cases we think the conservative a good assumption is flat.

Okay. Thank you.

Thank you. Our next question comes from David Gold with Sidoti & Company.

Hey, good afternoon. Couple of questions for you. First, looking at the Olson business at this point, so obviously it’s fully as I understand have integrated now with the core digital offerings that you had question there A; is there anything left to do with regard to integration? And then B; just more broadly looking at commercial business be in 35% pretty consistently. I know there have been some puts and takes and some shifting around there. But what do you think it takes to get that moving more towards I think a year ago there was some talk of a goal being closer to 50%.

Yeah, I think that I would just also again point out that the revenues, which we have for even state and local work which we get through Olson and through some of the other work we do in the -- for the certain other several state and local agencies. The rates are commercial rates. So it’s not like -- so when you say commercial is only 35%, I would say that our federal business is around 48% and we have state and local is about 10% I think and commercial is about 38%. So the non-federal portion of the business now is more than the U.S. federal portion of the business. We certainly are hoping to continue to grow the commercial part of the business. But just from a profitability perspective all state and local work is not exactly the same as federal U.S. profitability work. So if you are looking at commercial as a proxy for profitability then you should increase that 38% to a bigger number in the low 40s because that’s how the some of the state and local contracts are in terms of profitability.

Got you. But I guess part two there were maybe the follow-up is if we think about -- so it sounds like we are catching the better profitability that you would like to see. But at the same time with kind of been stagnant in the growth of the pie by way of the commercial business, right?

Yeah, I agree. I think that we certainly are striving to have continued the increase commercial business which we think that we have there is no change in our intent. I think we are some of these puts and takes as you put certainly make it a little harder. But we certainly are thinking that going forward now we are better positioned and as my answer to Bill’s question I think that from a contract backlog perspective and from the stuff we have won both in our energy business and our digital business I think we are a little more confident now going forward that we will get to those levels in 2016.

Got you. Okay. And then just on the first question about is there anything left to do on the integration of Olson or are we essentially done at this point?

I think the integration has gone well, but we are always striving to do more, I mean it’s a big company we are always trying to get groups together in a more systematic way. So we’ve had seasonal meetings with our utility business and Olson so that they can take them into their clients. So now we are setting up a whole bunch of meetings with other potential client. So I think without message distracting them we have to make sure that we continue to get them to be familiar and the rest of our business familiar with their services. So that we can potentially set up over series of calls with our clients and make sure that we introduce them. So that’s an ongoing process David, I don’t know that the integration from a logistic perspective is certainly done and I would again encourage you to go to icfolson.com that would give you a sense of all the offerings. But I think from a perspective of getting the whole firm to know the business. I think that will continue for the next for a period of time.

Got you, okay. Just one last, when we look at the cash flow I know there was comment that the variance call it for $10 million, $15 million versus where you thought it would be a quarter ago had to do with collecting receivables and vendor payments. But curious if you’re viewing that as something that's now a permanent timing difference given that. I mean I know you said the first half of the year would be a little stronger year-to-year, but at the same time the guidance of say call it $85 million to $95 million basically implies you being at the same point even though it should be an incremental $15 million in there?

I think that I mean it's probably two fold. I don’t think that it’s necessarily permanent. I mean certainly it was timing issues. I mean cash basically came in a few days after year end to be quite honest with you. The other part though is we want to make sure that we’re hitting the cash flow target, we have a cash flow range that we feel confident that we’re going to achieve. So I think that’s part of what’s playing into the range that we have.

Got you, perfect. Thank you all.

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

Thanks, I missed sorry the energy growth rate that you gave earlier year-over-year.

Energy growth rate for 2016.

For Q4?

I don't think we got into that detail Tim. Did we give energy? I don’t think we gave energy we gave you organic domestic commercial is that what you’re looking for?

No I thought you gave it in the prepared remarks.

We gave sequential increase for domestic commercial is 6.7%.

And then I thought you gave it year-over-year, I’ll double check that.

No we said that year-over-year decline I think was negative low single-digits range.

Okay. And…

And I think as we talked about in the energy business, obviously energy efficiency is a big driver of our growth in our energy business. And we talked first quarter of last year about the unbundling of that large energy efficiency contract to Midwest, where because of that unbundling we won a portion of the work back that essentially took our expected high single-digit growth for energy efficiency for 2015 to flat to slightly down. The good news is that we haven’t had seen any other unbundling in 2015. And as I talked about, I think we won several new contracts here as we ended the year begin this year that I think do kind of give a pretty clear path for us to see growth in energy efficiency in a high single-digit rate for next year. And so I don’t think we’re going to see a repeat on the energy side of the performance we had in 2015 given it was driven in the specific contract that was unbundled in and we have that is not occurred again.

And what about the remainder I guess after you look digital and energy. It seems like that was fairly weak and there is a comment about aviation. Is there -- is that going to be a drag as we go into next year or this year?

No I think aviation I mean aviation was challenged in 2015 particularly in the airports piece of the business. I think as we’ve talked about we did see the second half of the year for our commercial business including aviation improved relative to first half. And I think we do have momentum and brought in new talent on the airport. So I think again we think that that business will return to growth in the high single-digit range for aviation.

Okay. And I guess let me just ask what I mean I know the second half of the year was much better profitability wise than the first half. But it came in a little below the EPS guidance even I think or at least the lower end I think it was of the EPS guidance for 2015. So what I guess what change there and then also versus even I think the last press release you’ve talked about 10% to 10.5% margins in 2016. So why at the lower end of that range now versus what you thought a couple of months ago?

This is James I can answer with regard to 2015 Q4 that been on the lower end. Part of that’s due to the fact that from the revenue perspective we are a little bit later on the revenues. Right, so the pull through of profitability associated with that impacted us to some degree Tim that’s really what drove the difference between the mid-range of what we gave before and where we actually ended up.

And I guess what was light in revenue then what part of the business was light relative to what you had thought?

The biggest part was associated with some of the international work with the EU Commission continue to push to the right.

Okay. And on the ‘16 margin, is there any I mean, what pushes you towards I guess that lower end of the range versus what you said before?

I think originally we had said 10% to 10.5% now we are seeing 10% to 10.3%. I think basically we have to continue to make investments in our commercial sales organization. We think that there are some senior people we need the Chief Marketing Officer et cetera for the overall business. And so given those investments we think that those are good investments to make. And we are taking a little bit of that profitability and investing it in the sales organization. Because as a number we have noted, we do need to make sure that our commercial business starts growing at a rate which is significantly higher. And we think that that is really essential to do in order for us to continue to grow in that part of the business.

Okay. And then lastly just state and local as we look into next year, I mean Hurricane Sandy and I guess I think there were some work that was going to roll off, but I guess what are you assuming for ‘16 in that market?

I think we’re assuming essentially flat. So we are winning some new contracts from the lottery work is obviously state and local transportation work. But as you say the Sandy is rolling off too. So I think at the end of the day and we see that market will be flat.

Okay, thanks.

Thank you. [Operator Instructions] And our next question comes from Edward Caso with Wells Fargo.

Hi, good evening. Given all the news around Flint Michigan and their water issues, is there an opportunity here for ICF around this whole sort of aging infrastructure some of our major cities. Anything, any thoughts there?

I would say that on the water issue. I think that that’s not a deep strength of ours kind of drinking water infrastructure issue. So pipes and water quality issues around drinking water is not a great strength for us in the water arena. I would say certainly with aging infrastructure, a lot of our environmental planning and upfront environmental work is around infrastructure bridges, roads, rail, energy infrastructure. And so certainly in other sectors, energy transportation there is opportunity and that’s driving our environmental work in the infrastructure area. But around water and water quality and water delivery, specifically around pipes for drinking water that’s not a great strength for ICF.

My other question it sort of around the election, there is generally a pause in decision making both before and after an election as the people in the seats shift here. But I’m picking in the last few days in talking to both your peers and talking to clients that there is sort of an increased worry here given some of the more unique candidates that may be in the White House in less than a year. What are you seeing, are you seeing your clients being increasingly nervous or not yet?

Ed we haven’t heard anything explicitly about that at the moment.

Okay, thank you.

Thank you. Our next question comes from Steven Steinke [ph] with Barrington Research.

Good afternoon. Kevin Steinke, Barrington Research. So you talked about flat growth internationally in 2016. What sort of is that organic and what are you baking in a currency impact into either international or the total of revenue growth guidance?

I think that we are basically -- the European commission we have noticed is a bit discombobulated at the moment because of all the immigration issues which they are dealing with. So some of the contracts which we had there which we thought would start at certain times and which we think will start have been moving to the right because the bureaucracy is all sort of focused on seems to be focused on this major issue. So I think for us we have -- we will continue to do work there, we think it’s a reasonable assumption to make and a good assumption to make that that issue will continue for the year and therefore we’ve assumed that things will start, but start slowly and therefore using a flat number is a good one. We haven’t baked in any currency fluctuations as we said in our press release I think that we’ve assumed that the currency issues will -- is hard to sort of predict exactly what’s going to happen there.

Okay. So I mean at the outset of the year you are not saying exchange rates are down versus last year. So we’ll just carry that forward and that has x percent impact on the total growth rate it’s just.

Hey Kevin, if you look at the effect of the exchange rates since the beginning of the year, if I go from January 1st through March 1st, I mean the impact is somewhat immaterial. So we are not trying to do a prediction as to what we think the exchange rates will do between now and the rest of the year.

Alright, fair enough. So the gross margin in the fourth quarter was down a little bit, you’ve been driving some expansion there as you had the mix shift towards commercial. Just how should we think about gross margins trending in 2016 and where does the EBITDA margin expansion come from in 2016, is it gross margin you get some indirect and selling expense leverages kind of what the mix there?

Yeah I think for our overall gross margin we ended the year if you look at the last few quarters of 2015 it was in the low 38% or so and for the full year it was 38.7% and for this coming year we are thinking at somewhere in the 38% to 38.5% range for the full year and where there will be expansion a lot that’s going to be driven more from on the indirect side trying to ensure that we are continuing to manage cost and maintain our utilization rates. So that’s what’s really what’s driving the profitability, the EBITDA up.

Okay, that's helpful. And did you call out the specific implementation cost and weather impact that you would expect to impact the first quarter or could you quantify that at all?

It’s tough to give and we didn’t say anything about it, but it’s tough to give an exact number. If you look at as we’ve gone through and kind of maximum calculation the impact on revenue at a maximum level will be $2 million to $3 million and profits probably around a million or so. But certainly we are working to try to make that up here in the first half of the year. So it’s just a matter of how much we can make it up by working above and beyond here for the rest of Q1 and Q2. But that would be the maximum extent that we would anticipate.

All right. Now you talked about earlier in 2015 some specific challenges and the branding portion of the Olson business. But that thing seem to be picking up towards the end of the year. I mean just can you give us some update on what’s going on in the branding piece of ICF Olson and how it looks going into 2016?

Yeah, I think that we have all the talent in place in terms of running that business. We have seen some new wins in that business, which have certainly improved the run rate in the first quarter as compared to Q4. So I think that we are just from a positioning perspective and from a wins perspective we are in much better shape in Q1 than we were in Q4. So I think that generally having the right people in the right jobs and making sure that we are making enough pitches is going well and we are winning work and as is evidenced by the run rate. So I think that’s basically the situation in brand. I think we are looking for it to progressively become better over the rest of the year and at least from the numbers we seen the first quarter it appears that it’s going to be better.

Okay, thanks for taking my questions. That's all I had.

Sure.

Thank you. We have no further questions at this time. I will now turn the call back over to management for closing comments.

Thanks very much for joining us for the call. We look forward to seeing you at the next call. Thank you. Bye-bye.