Welcome to the Fourth Quarter and Full Year 2016 ICF Earnings Conference Call. My name is Eric, and I'll be your operator for today's call. At this all time, all participants are in a listen-only mode. Afterwards, you will be invited to participate in the question-and-answer session. [Operator Instructions] Please note this conference is being recorded on Monday, February 27, 2017 and cannot be reproduced or rebroadcast without permission from the Company. I'll now turn the call over to Lynn Morgen of MBS Value Partners. Please go ahead.

Thank you, Eric. Good afternoon, everyone, and thank you for joining us to review ICF’s fourth quarter and full year 2016 performance. With us today from ICF 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 February 27, 2017 press release and our SEC filings for a discussion 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 fourth quarter and full year 2016 performance. Sudhakar?

Thank you, Lynn, and thank you all for joining us today to review our fourth quarter and full year 2016 results and to discuss our business outlook for 2017. This was a year of significant organic revenue growth for ICF. The 5% revenue increase we reported was entirely organic and was consistent with the mid-single digit rate that we had expected. Each of our vertical markets and each of our three largest plan categories federal, commercial and state local governments posted year-on-year revenue growth, benefiting from the significant volume of new business that ICF has been awarded over the last two years and a high percentage of recomplete win. Highlights of the year included, revenues from federal government plans which were up 4.1% compare to 2015, the highest year-on-year increase since 2010. The positive momentum in our commercial energy markets group, which achieved double-digit year-on-year revenue growth. The steady revenue performance of our commercial marketing services business, which came in modestly ahead of last year and a 20% increase in diluted EPS to $2.40. In the fourth quarter, we experienced some revenue slippage on the part of certain federal government clients and transaction postponed once in our commercial energy advisory group. Strong performance from energy efficiency programs and our work and infrastructure projects with local government plans were compensating factors. The impact from service revenue, however, resulted in the fourth quarter diluted EPS coming in at $0.65, which product below our recent guidance range for the year. Since the beginning of 2017, our work with federal government plans and on commercial energy transaction has returned to normalized levels. With another year of record contract win for ICF, we have a strong foundation for growth in 2017 and beyond. ICF had a record year-end backlog of $2.1 billion, representing a book-to-bill…

Thanks, Sudhakar. 2016 was a record setting year for ICF. Revenues, net income, year-end backlog, contract awards and our new business pipeline were all at the highest levels in our history. Our 3.1% revenue increase in the fourth quarter was led by 10.8% growth in revenues from commercial clients, and 16.4% growth in revenues from state and local government clients. This performance more than offset the expected decline in international government revenues and the decline in the federal government revenues that we did not expect. The slowdown in federal government workflow in the fourth quarter was primarily due to delays in setting priorities and on start up of new process as certain of our federal clients. Also, we experienced the postponement in pass-through revenues that we were expecting in the fourth quarter. Result, federal government revenues declined 3.1% in the fourth quarter, in short contrast to the 4.1% growth in federal revenues that we reported for the full year. We have seen a return to more normalized pattern the past quarters in contract wrap ups in our federal markets since the beginning of the year. Our federal government work remains well diversified with no single contract accounting for more than 3.5% of total revenues. Our confidence in ICF's growth potential is supported by recent contract wins for process involved our domain expertise and implementation skills. The good example of this is our recent award from U.S. Center for Disease Control and Prevention, the CDC where we won nine contracts with the combined value of up to $34.4 million. Here we are combining our deep subject matter of knowledge in public health, if our marketing and communication services around traditional and social media and engagement to assist the CDC and its campaigns against opioid abuse, smoking and to raise awareness of…

Thanks, John. Good afternoon, everyone. We reported solid year-on-year comparisons in the fourth quarter, executing well across key operating metrics, which I will highlight and I walk through the major elements of the income statement. Total revenue for the fourth quarter of 2016 was $289.6 million, compared to $280.8 million in 2015, the increase of 8.8 million or 3.1%. Even though, there was one last working day, the fourth quarter of 2016, service revenue remained essentially flat at 206.8 million as compared to 207 million in 2015. Indirect and selling expenses for the fourth quarter were $77.7 million, or 26.8% of revenue, compared to 79.5 million or 28.3% of revenue in the prior year. Reported EBITDA was 29.5 million for the quarter, 2 million or 7.1% higher than the 27.5 million reported in last year’s fourth quarter. Higher year-on-year EBITDA was due to lower indirect expenses and slightly higher gross profits. EBITDA margin was 10.2% for the fourth quarter of 2016, as compared to 9.8% in the fourth quarter of last year. Adjusted EBITDA for the fourth quarter which excludes special charges related to acquisition, severance for staff realignment and international office closures was 29.9 million or 10.3% of revenue, as compared to 10.1% of revenue in the fourth quarter of 2015. Depreciation and amortization expense was 4.4 million, up from 4.2 million in 2015’s fourth quarter. Amortization of intangibles was 3.1 million in the fourth quarter of 2016, down from 4.3 million in 2015’s fourth quarter. Decrease is due to engaged with some prior acquisitions becoming fully amortized. Lower indirect and selling expenses and lower amortization intangibles were primary drivers that resulted in 2016 fourth quarter operating income, increasing by 15.4% to 22 million as compared to 19 million in the fourth quarter of 2015. The effective tax rate…

Thank you, James. To sum up our growth strategy remains the same. First, we are going to continue to focus on what we know, sustain and grow our distinguish subject matter expertise in our core vertical markets. Second, provide our industry leading function capabilities in technology and marketing and engagement skills to an increasing the broader range of our traditional clients. And third, seamlessly combined the distinctive core market expertise with these functional skills. In terms of 2017 we believe that our diversified business model will lead to revenue performance in the range of $1.2 billion to $1.24 billion and diluted earnings per share of between $2.50 and $2.75 based on several revenue assumptions the key ones being another year of mid single digit commercial growth driven by new market business and federal government revenues that are flat as compared to 2016 or increase at a low single digit rate. We expect the cash flow from operations to be between 90 million and 100 million. And operator, now we would like to open the call for questions.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question comes from Tobey Sommer from SunTrust. Tobey, your line is now open.

Hi, this is actually Kwan Kim on for Tobey. Thank you for taking my questions. Regarding President Trump's plans to cut back spending for EPA. Could you talk about the impact this may have on your customers in 2017? And how your customers have been reacting so far to the developments? And could there be more delays in contract from energy customers this year? Thank you.

So, as I mentioned in the first quarter of this year, things have been pretty normal. And I think that the -- and I've already stated in my remarks, we do about $15 million of work on climate change activities which might be affected revenue. I think the one nuance which I would like to people to understand is that the focus on climate change is an important one and that could certainly be cut back there, but I think from statutory perspective EPA has to regulate greenhouse gases. So, they may not do it using the Clean Power Plan, but they might do it -- doing something else, and we don’t really know what that would be. But whatever that would be that would create sort of work for us. So, I think that we are certainly expecting the EPA revenue to be affective because that's been stated multiple times, and I think the amount of work we do is around $115 million. How and when and where? We don’t know, but we haven’t seen any impact at least in the first quarter. On your question about energy clients, energy clients are primarily utility clients. The utility is basically do, all the energy efficiency work. I don’t see any impact because they all state. They operate under state jurisdictions and state law, and the clients are primarily utility, so we think that will continue to be fine and keep growing, and I think that impact there might be cases where certain states are even more aggressive in terms of regulating on energy efficiency issues. And therefore, in fact they’re might be potentially more work in that arena. So I think the energy and utility time will fine and I think we’ll continue to keep going the way or other are currently doing.

And on ICF also, could you talk about the near-term opportunities you’re seeing and how your pipeline is looking compared to the prior quarters in terms of the mix of new versus the legacy customers and the types of industries are also in the survey? Thank you.

I think on the ICF Olson front, the one thing which is important to understand is that we’ve gotten from significant benefits from them when we take them into our legacy client based, which is why we acquire them. So, we had talk about some of the [Indiscernible] in prior earnings calls to utilities, to aviation companies and to certain government client. So, we have been quite successful there. They continue to be quite successful in their efforts to grow their business and the whole retail, consumer another industries. They have been very successful in selling to hospitality companies, large hotel chains. We are one of the biggest providers of largely programs to some of the largest chain in the world. So, I think they are -- we have done a lot of work for the consumer product, good companies. So I think there will be pipeline is quite strong. We’ve continued to higher people at the senior levels, who have helped us expand the pipeline and have grown it. So, I think they grew 4.1% whatever 1% or something, 4.7% in the fourth quarter. So, I think there is some momentum going in and we hope to that is continue.

And our next question comes from Tim McHugh of William Blair. Tim, your line is now.

First thing is, Sudhakar, can you remind us the 80% that you have in backlog I guess in terms of visibility to ’17. I seem to recall just ahead of 70% number in the past, but can you remind us, sorry, how that compares, I guess in terms of visibility to what you’re guiding to?

Yes. I think is about 4 percentage points higher than loss year, it was 77 last year.

Okay. And then just the outlook for mid-single digit growth and commercial, given the growth you’re seeing in the utility or the energy sector especially in the first half of the year just given the run rate from the second half of ’16. It doesn’t seem like you’re expecting or embedding a big growth number for the marketing services side of the business. Is that wrong are how should I look at that?

Yes, I think that there are various components of our commercial business. So, it’s important to understand that a small portion, which is promotional healthcare. We do some TRPP work, which as you know that big contract which has over the last three or four years. We’ve done a lot of work two or three years ago and slowly ramping down. So, I think when you include all those elements in there that is what it comes to because if you lose $6 million or $8 million or $9 million in a specific infrastructure contract at TRPP that brings the growth rate down. So, I think that would be, as you point out that there is the utility work we continue, we think there is momentum in the future marketing service business that will continue. But I think that the TRPP and some our commercial healthcare work is very uncertain at the moment and I think that we assumed is going to be down, and the aviation business is going to be a little bit up. So, I think when you include all that than you basically get to that mid-single digit number.

Okay. And then just subcontractor fees I think you mentioned state and local, but just generally what's embedded as a percentage of revenue maybe or if you want to give a growth rate. But are you expecting that to continue to ramp up and add to the revenue outlook or we had a level where this is going to stabilize, just trying to think about the impact on revenue growth as well as margins for '17?

Hi, Tim this is James. If you take a look at our pass-through rates for the last couple of years and 2015 we were around 25% this past year we averaged around 27%. We're taking that towards 2017 that it's going to be some more in the middle of that range as what we're anticipating, a little bit less than what we have in 2016, but kind of the middle to invest to roughly.

And our next question comes from Joseph Vafi from Loop Capital. Joseph, your line is now open.

I thought first just one more question on the energy efficiency business given how big it is now, if you could give us a feel for what you think this total addressable market is, And if I believe you're going to start to run into upper growth ahead because you've penetrated market pretty successfully so far? And then secondly I was wondering if the European business is profitable right now? Thanks.

Yes, so just in terms of addressable market, Joe welcome back first, great to have you back. I think we let me just say numbers that is around $800 million of energy efficiency look at the pipeline which we have at the moment in addition to all the other work which we are currently doing. The addressable market we've done any number of exercises it's have accommodate specific numbers but it is $2 billion to $5 billion with the addressable market. And I give you that broad range because sometimes we underestimate the addressable market. The California market is the large one, we see that that will as we slightly waiting for -- we've been waiting for the California market to Pop for last year or two but now we think it will happen sometime in late-'17 early '18. And I think that that is a very large market where we have a very small share and we're at least focused on trying to see how we can increase that. so I think if you look at all of that it's a pretty strong good market. I think on the European business, Yes, it certainly generate contribution margin. It's not as much as we would like but we are trying to make sure that the focus on -- and we have an excellent group lead who has been there for now, who is very experienced general manager, who is really what he can pick up the profitability of that business. And John do you want add something on energy efficiency?

No, I think you covered the key points.

Right, thanks so much Sudhakar.

And our next question comes from Edward Caso from Wells Fargo. Edward, your line is now open.

Just some clarifications on the guidance, so what's the implied EBITDA margin?

The implied EBITDA margin is upper 9% range, somewhere between 9.6 and 9.8.

Okay. And sorry, fighting a cold here. Just have another question, I guess that’s it. I am good, thanks.

[Operator Instructions] And our next question comes from Ben Klieve from Noble Capital Market. Ben, your line is now open.

Two questions. First a follow-up to your commentary from Joseph's question, what are you seeing in California market that gives you a little bit of optimism regarding that market nothing really '17 or early '18?

This is John Wasson. I think in the California market we are seeing is California PUC has generally require the utilities to outsource about 20% of their energy efficiency program there are some room making underway in California in the PUC to up that to 60% outsourcing and so it’s a very significant market and obviously has a increased the amount of work that is outsourced by threefold that will be a significant opportunity for folks in the energy efficiency business. So that’s sort of a potential significant driver and I think there is a reasonable chance that will become a regulation by lead in 2017 or early in 2018.

One question regarding your exposure within Department of Health and Human Services. Do you have any exposure at all to the Affordable Care Act?

This is, John Wasson, again. No, we have basically no exposure to the Affordable Care At. Most of work in HHS is either public health related, dealing with chronic disease prevention, health informatics, and we do a lot of outreach using digital communication around public health issues. So most of work we have done -- we've continued to see it a lot of opportunity a lot of our pre-activity is obtained to be bipartisan programs; and so, we are constantly optimistic on the work we do within HHS.

We don’t do any work with CMS.

CMS, we don’t do anything for CMS.

Centers for Medicare & Medicaid Services is the one which run the ACA, we don’t do that one.

And then kind of transitioning here couple of questions regarding as M&A activity, I guess first of all regarding future debt reduction. What kind of debt are you comfortable with? What are you looking for give target at the end of -- by the end of '17 for our net debt levels?

This is James Morgan. If you look at where we are for ending the year 2016, we are at about 2.3 times EBITDA. Certainly, we are comfortable with that range. Our debt covenants allow us to go up to 3.75. We have plenty of room for acquisition for there. But it's -- we are comfortable in the low twos and if we don’t find an appropriate opportunity that makes sense for us this coming year given our cash generation, we would expect that we would get down to a leverage ratio of somewhere around 1.7 or so for this coming year, by the end of the year.

And then I guess last question. What are you looking at right now kind of provided from an M&A perspective? Where do you see opportunity here more? On the commercial digital sign, do you see any opportunity? And in the government sign, do you see a little bit everywhere? Where is your focus?

I mean the broadly the way, I think about the business as we have an energy infrastructure business. We have federal business and we have marketing services business. If you look at those three and I think we feel opportunity for adjacencies and debt and geographical sort of dispersion in each of those areas. And I think that we are constantly looking at various opportunities, the enormous opportunities in all these areas. I think and we just have to make sure the valuations such that we do the deal or not. As you would have noticed, we haven’t done any acquisitions since the end of 2014, which is about two years now. On the other hand, we’ve done about two on average of the year for the last 10 years. So, I think that we always looking and seeing whether we can find something which we understand and which we can afford in. And I am we'll continue to look and hopefully, which we find something, as Jim said we will -- we have the potentially do it. But it’s all the question of the fit and the evaluation.

Perfect. Thank you, guys. And actually I give one more question and then I’ll hop back in queue here. Given some of the pass-through revenue issues and then various kinds of delays you saw in Q4. Are you expecting any meaningful change in seasonality come up here in 2017, as it can be frontloaded towards front half of the year than maybe the year past?

No, I don’t think. So I think, we did see a bit of slowdown in Q4 as we said. We’ve seen a rebound in Q4. We’re back to expected levels on the federal business. I don’t think we expect any change in our seasonality.

We have no additional questions at this time.

Well, thanks very much for participating in our call then and we look forward to speaking to you next quarter. Thanks again.