Welcome to the ICF International Fourth Quarter 2018 Earnings Conference Call. My name is Vanessa, and I will be your operator for today’s call. [Operator Instructions]. Please note this conference is being recorded on Tuesday, February 26, 2019, and cannot be reproduced or rebroadcast without permission from the company. And now I would like to turn the program over to Lynn Morgen of AdvisIRy Partners. Please go ahead.

Thank you, Vanessa, and good afternoon, everyone, and thank you for joining us to review ICF’s fourth quarter and full year 2018 performance. With us today from ICF are Sudhakar Kesavan, Chairman and CEO; John Wasson, President and COO; and James Morgan, CFO. During this 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 26, 2019 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 fourth quarter and full year 2018 performance. Sudhakar?

Thank you, Lynn, and thank you all for joining us today to review our 2018 fourth quarter and full year results and discuss our outlook and guidance for 2019. Our fourth quarter performance represented a strong finish to a record year for ICF. Revenues increased 18% year-on-year and non-GAAP EPS increased 50%. Revenue in each of our planned categories grew, driven by increasing demand for our advisory and implementation services. In line with our guidance, we reported an exceptional adjusted EBITDA to service revenue margin of 16.5% in the fourth quarter, benefiting from a 10% increase in service revenue, higher utilization and a favorable mix of business. Additionally, the value of contract awards won during the year reached a record $1.08 billion at year end, 40% above the prior year, resulted in an annual book-to-bill ratio of 1.4, and our business development pipeline was $5.8 billion at the end of the year, up 38% year-on-year and 7% ahead of third quarter levels. These metrics underscore our confidence in ICF expected growth in 2019, as we continue to execute well across our diversified portfolio. Looking at market dynamics, we see four key growth criteria for ICF in 2019 and beyond. First, we expect growth in federal government revenues in 2019 based on our backlog, which includes a significant contract win in the second half of 2018. We also believe that the additional time that our civilian agency clients have this year to plan and issue procurements will allow them to spend their budgeted allocation in a more timely fashion. Additionally, there were record pipeline of qualified opportunities that we are pursuing. Second, our disaster recovery program was for state and local government clients will be an important growth driver for ICF in 2019 and beyond. In addition to our contract wins…

Thanks Sudhakar and good afternoon everyone. Business trends in the fourth quarter were in line with our expectations and reflected a positive momentum that we ensured throughout the second half of 2018 and expect to continue in 2019. Revenue performance came in ahead of our forecast, driven by our disaster recovery working for a recount and increases in our marketing services work for both commercial and international government clients. From an overall business perspective, we were very pleased with our results and continue to see positive growth catalyst present across our key markets. James will speak in a moment about some of the special items that affected our earnings results for the fourth quarter. Revenues in our government business increased to 22% in the fourth quarter and represented 60% for the full year 2018 revenues, and each client category within our government market showed year-on-year revenue growth. Revenues from several government clients in Q4 increased to 2% year-on-year bringing full year revenue performance to just 1% over 2017 levels. This growth in the quarter was slightly below our expectations due to slower ramp up of a couple of civilian agency contracts, importantly represented an acceleration in our federal business and a return to growth that augers well for 2019. The revenue impact of the partial federal government shutdown was approximately $3 million for Q1 2019. We expect to be able to recapture the lost revenue by the end of the year, although we will absorb of maintaining our staff in this year’s first quarter. We are expecting revenues from central government clients to achieve low to mid-single digit growth in 2019. Last year, we were awarded over 865 million in federal contracts, most of which were won in the second half and over 55% of that dollar amount represented new…

Thank you, John. Good afternoon everyone. I’m pleased to provide a more detailed look at ICF’s fourth quarter and full year 2018 financial performance. Fourth quarter revenue was $377.9 million, up 17.7% from the 321.2 million in last year’s fourth quarter, driven by double digit revenue growth from both government and commercial clients. Our revenue mix by client category in the fourth quarter showed considerable variations from the prior year fourth quarter, this reflected a significant increase in revenue from state and local clients, which accounted for 16% of total revenue in this year’s fourth quarter, up from a 9% last year. The other major change was on revenue from federal government clients, which represented 35% of total revenue in the fourth quarter of 2018, down from the 40% in December 2017 period. Both of these changes were driven mainly by our new work to (inaudible) the disaster recovery efforts, which is classified as state and local. Service revenue increased 10% to 239.6 million from 217.8 million in the fourth quarter of 2017. Gross profit increased 13.1% to $128.9 million from 113.9 million in the fourth quarter of 2017. Given the higher pass through revenues, gross margin was 34.1% in 2018 fourth quarter, compared to 35.5% last year. Conversely gross margin on service revenue expanded a 150 basis points year-over-year to 53.8% in 2018, as compared to 52.3% in the fourth quarter of 2017. Indirect and selling expenses for the fourth quarter increased 5.9% to $92 million, compared to $86.8 million in the comparable quarter of 2017. As a percentage of service revenues and after exclusion of special charges, indirect and selling expenses improved to 37.3% of total revenue, compared to 37.9% in the fourth quarter of 2017. EBITDA totaled $36.9 million that’s 36.1% ahead of last year’s $27.1 million,…

Thank you, James. In conclusion, we are very pleased with ICF position as we move ahead in 2019. Key to our success is the mission and results driven culture that is reflected in a relatively low employee turnover rates and deeply committed staff. As part of this, we have invested in human capital by establishing the ICF Learning Institute for Leadership and Management Development and by bringing in senior experienced staff, we have modernized our primary brand to reflect the broader scope of ICF services, we continue to invest in systems and processes to become more efficient and scalable. Through it all, we have maintained the agility and specialized our capabilities required to focus our resources and capabilities to capitalize on major opportunities. With this as a backdrop, we are pleased to provide full year guidance for 2019 that reflects significant year-on-year revenue growth and further margin expansion. We have good visibility into 2019, based on our existing contract backlog, which account for over 80% of our revenue guidance of $1.45 billion to $1.5 billion. This does not include any substantive new disaster recovery rate of contract wins that may occur nor any potential acquisitions. GAAP earnings per diluted share are expected to range from $3.75 to $3.95 exclusive of any [threshold] charges and non-GAAP diluted EPS should be between $4.05 and $4.25. Operating cash flow is estimated to be between $100 million and $120 million. Vanessa, now I’d like to open the call to questions.

[Operator Instructions] And we have our first question from Joseph Vafi with Loop Capital.

I was wondering if we could talk a little bit about that Q4 service margin performance that was strong, and I suspect there were two things going on, a combination of mix and utilization, and I wanted to get a little more color on what was driving that, and how we think about utilization into 2019, and then I have a follow up.

Hi Joe, this is James. It's what I mentioned that it really was driven by higher utilization. We had our highest utilization for the year in Q4 with a ramp up of the new contracts that we have won in the back half of the year, and in addition to that we had, as you know, we typically have higher incentive fees associated with our energy efficiency work that get realized in the fourth quarter, so that certainly benefited the quarter, and those were two of the biggest items and the rest that was just doing controlling of indirect expenses.

Is there more room for utilization upside from here, or are we kind of that at a comfortable level relative to utilization?

I don't think there will be much more increase, I mean as you would expect, when you win new contracts typically you're running a little bit harder on the front end and then you continue to adjust your staff and get back to an appropriate level, so that you can make sure you're investing and driving the long term growth of the business. So, I don't think that there'll be much upside to that utilization we recognized in Q4.

Okay, and then focusing a little bit on the digital marketing business, it sounded like you expect - I know there is probably a little less backlog there than other parts of your business. But just wanted to confirm that you were looking at potentially mid-single digit growth there in 2019?

Joe, it's John Wasson, I think as we said in the guidance for commercial, we're spending at least 5% growth in our commercial business, and I certainly think that applies to our commercial marketing services business. Obviously, we had a very strong quarter there, but certainly for the last year the marketing services business was in the mid-single digit range, and we expect that to stay there for 2019 in terms of organic growth.

And then since that business is kind of doing better now than it was say a year ago, how's the margin profile in that business changed, has it changed with more strength in the business or is the margin profile similar to where it was?

As we've talked about the past typically or actually it's more than typical it is our commercial margins are a little bit better than on average in the rest of our business, and we certainly expect that to be that way in that case as we move into 2019, and certainly as you would expect as you continue to have growth in the business, we were able to have some leverage and continue to improve our margins over what we realized in past years.

Okay, and then finally just one last one on disaster recovery, it sounds like some of those down (inaudible) in Texas have move forward, are there still additional contracts that have not been adjudicated in Texas and relative to that 2017 hurricane season, and do you have a feel for kind of dollar value yet to be adjudicated contract that you may be eligible to win?

It's John Wasson again Joe, we certainly have opportunities in the pipeline in Texas both at the state and local level on the housing recovery front that are awaiting adjudication or are in the proposal stage. As we talked about in our remarks, we've obviously won several opportunities in Texas that we talked about in our last quarter. I think we said there were $50 million in total over two years to three years. I would expect that opportunities are still out there to be in that magnitude range. I would say that we do see potential upside on those opportunities if we perform well. I think there's a lot of work to do there. So certainly in Texas there remains to be opportunities. I think initially they'd be like the ones we've won to date, but there will be upside. And as Sudhakar noted, we're still waiting on awards in Puerto Rico on our community development (inaudible) around housing opportunities, those proposals are in and we're waiting award decisions and as we talked about those type of the potential to be significant overtime too.

And I think there are also perhaps opportunities in the Carolinas and in Florida on the hurricanes of last year.

Which will play out later this year.

We have our next question from Tobey Sommer with SunTrust.

My first question is also on the disaster recovery side, if you could put the FEMA contract win in context from six months or seven months ago, what does that do to the TAM and kind of the markets that you're able to address as historically the company has kind of tapped into helping out with the distribution of (inaudible) block grant money in public infrastructure, contract of the size is kind of a relatively new thing, how do we put that into context and think about how that changes the opportunities for the company over time?

Well I think that the kind of work we're doing on this contract are not dissimilar to what we've done on CDBG contracts in the past, so they address a slightly different set of constituencies, small businesses, and sort of public municipalities, public infrastructures, so the kinds of work we're doing is quite similar. I think the way it helps is that we have significant infrastructure experience now and performance in Puerto Rico which obviously the clients if they can see, and so hopefully that helps us position well for other contracts in other areas as we move forward, and I think that it's a small community. So if we do well in one area people talk about it at another state, so I think it's just strengthens our capability to win other work in other jurisdictions going forward, especially given that the disaster recovery world is moving more and more toward block grants. So even in the non-CDBG world and I think knowing how to do this work sort of helps us across the country as we have to deal with increasing number of disasters going forward.

I would also add that I think that there is a shift in the market or an expansion in the market around resiliency in not only how do you rebuild immediately after strong (inaudible) it's housing or public infrastructure or public buildings, but how do you strengthen that infrastructure to prevent it from having damage and having to go through this cycle of repair after every storm, and that's a kind of set of expertise we've been developing over the years, given our broader set of work around infrastructure and climate change as how to really improve resiliency, and so I think what's also happening here Tobey is that we can leverage that expertise and the capabilities we're developing both into the FEMA market and into the housing market. So as you see under some of the recent storms in 2017, there’s been quite significant increase in funding pointed toward resiliency and infrastructure, both within FEMA and within the community development block grant program. So, I think that's a positive trend for us that I think allows us to play a larger role in those two markets overtime.

With respect to timing of Puerto Rican opportunities, how are things progressing, it seems like and I'm curious if the shutdown may have delayed I'm not sure the process was on a (inaudible) by the shutdown?

I think we still expect these awards in the next couple of months, next two months to three months. I don't think we have any insights into the exact date these will come forward, but I think we still expect them in the near term, and Sudhakar do you want to --?

Given the need and given the fact that there is a requirement to do this work, we do think it will take two or three months. Sometimes these decisions just take time longer than you would like, but it will just take time.

And Sudhakar you referenced that the storms from last year potentially being opportunities for the company later this year. So what kind of - would you have opportunities both on the FEMA kind of work that you've already won in Puerto Rico, as well as the residential side I guess you hope to win at some point in the future?

Yeah I think it would be, as I said, I think it's certainly on the housing side and under community development block grant around the whole resiliency, and how to strengthen the infrastructure in the face of future storms, which could span both CDBG and FEMA. I think there are opportunities in both places, and so we're certainly paying attention to those markets and (inaudible) capture around the set of opportunities.

One last question from me on the energy efficiency side, and I'll get back in the queue, are you noticing any increased level of competition or conversely sort of change in the size of projects that maybe helped the company because you are a scale provider, and maybe changes in the size of the contracts reduce competition, any dynamics there that you think are occurring now and likely too in the future?

I don't think we've seen any significant shifts in the competitive landscape in that market. I think we're obviously a market leader in that area, it is competitive, but I think we won our fair share. I think we've talked at some lengths that as utilities look to bundle contracts and opportunities, it plays to our strength, we've seen that in certain markets, and certainly in California as they look to outsource a higher proportion of their efforts, I think they will have to go to larger contracts overtime, and that will be a positive trend for us. But I wouldn't say there’s been a significant shift in the competitive landscape or the set of players in those markets.

We have our next question from Lucy Guo with Cowen & Company.

First, just to clarify on disaster recovery, you talk about that some upside is not in your guidance, is it the 310 million or so of contract awards to date that's in the guidance?

I think the contracts that have been awarded to date are in our guidance, and potential and upside that we see on those existing contracts is reflected in our guidance range, there are no material new contract awards either in Puerto Rico or Texas that’s in our guidance range.

Got it, and the potential is roughly, it could be as much as a couple of hundred million or a few hundred million or so that’s what I remember that you've said before, is that still the case?

I mean I would say that over multiple years the potential opportunities could reach those kinds of levels, I think that's correct.

And then maybe a question for James, in terms of your EBITDA margin, Q4 was obviously very good execution plus some timing of potentially milestone payments and such, but I understand you're still targeting the 10 bps to 20 bps per year increase on the service margin overall EBITDA on an adjusted basis, any thoughts on what could potentially offset the higher pass-through that you'll see on the state and (inaudible)?

So I would just say that as we move into 2019, we do expect that we'll do a little bit better than the 10 basis points to 20 basis points of margin improvement that we've been doing over the last few years. It's probably more in the neighborhood of 30 basis points, and actually that's after taken into account the impact of the government shutdown, which is impacting our margins in 2019 by, call it, 10 basis points to 15 basis points, so without the impact of the government shutdown we would be improving margins year-over-year in the neighborhood of 40 basis points to 50 basis points. So that's really what we're targeting as we go forward this coming year.

Is that a factor of - you mentioned the improved utilization, are you projecting changes to your bid and proposal expense or business development expense, and any other factors that you can point to would be helpful?

Yeah it's really a combination of factors. I mean it's everything from the fact that (inaudible) we continue to get more scale we have the ability to leverage and improve our profitability. The other part of it is just looking at our mix of our business, I mean certainly as we've said before our commercial business is a little bit more profitable than our government business, and we're looking at that growing faster than our federal business. And then we've also talked about the fact that our disaster recovery work, it's on the high end of the government margins, so the confluence of those two factors are helping to improve the mix of our profitability of our business. So those are two big drivers.

And then just also looking for some color, I think earlier on in your commentary you mentioned there were some slower ramp on certain federal civilian contracts, if you can talk about any details there?

Sure, its John Wasson. I think we had a handful of contracts that rental was slower; we had a water reclamation contract in California, but the interior department that ramped a little slower as they were working out some policy issues, had a contractor too at (inaudible) that ramped up little slower. So it's just a handful of civilian contracts, don’t think there's any underlying trend, they just ramped a little slower in the fourth quarter.

Thank you. We have our next question from Marc Riddick with Sidoti.

Just wondering if you could take a moment, and you had mentioned some of the bidding process and then maybe some changes as far as aggressiveness with bidding on cyber business I believe it was. So I was wondering if you can add a little bit of color to that commentary.

Well I would just say that we're seeing a significant growth opportunities in the cyber market, both on the defense side and in civilian markets. We do have a cyber security business, and I just think that they’ve given the underlying trends in those markets, and the focus across the government and on cyber. We're seeing a lot of opportunity, and we've been particularly successful here in the last year or 18 months both with the Army Research Lab, the Air Force, and so we're winning work both on the defense side. And obviously given the relationships we have through our civilian agencies, as budgets go up to support cyber work, it's a generally positive trend for us. So that is a market where we are seeing increases in spend and growth, and so I think that's really what's driving it.

And then I was wondering if you could touch a little bit, I know that the announcement around Next was only a little while ago. But I was just wondering if there is any sort of general feedback as to sort of the repositioning if you will with as far as feedback that you've received from clients, also you mentioned some positive commentary around commercial. But I was wondering maybe if you could talk about some of the benefits that you foresee for clients and how that could help in gaining new business wins.

I think we’re certainly are seeing benefits from ICF Next with our clients. I think one is, I think our clients they didn't fully recognize kind of the full scale and set of capabilities that we can bring to market across our commercial and our government and our international markets, and prior to ICF Next we used to go to market under several different brands in several different logos, and so frankly a big part of this was getting our customer sets to understand the full scale and set of integrated opportunities that we could bring. And I think frankly a lot of them have been quite surprised, and very positive as they've come to understand the breadth of capabilities and the scale and the depth of our experience, and so I think that's helped us a lot. I think we're also very focused from an account perspective, leveraging all of the relationships we have in specific accounts whether it's commercial accounts or government accounts of bringing the entire set of ICF capabilities into those accounts, whereas before we were going to market under these different logos we didn't bring the full company set of capabilities into each of those accounts, and so we've had very positive feedback from clients, I think they've been pleasantly surprised with all that we can do. And I've talked about some of the opportunities that we've won that of an innovative nature since the Olson acquisition. I think this ICF Next announcement has accelerated that. I can't name clients but we've had several clients where we've gone in with integrated (inaudible) under the ICF Next brand here in the last month or six weeks a couple of months and much larger assignments with much broader set of work. So I think the signs are very positive. I think you're seeing that momentum and that activity in the results. So I think we've had now four quarters of growth in our marketing services business and this will only help further on that front.

I would also add to that Forrester Wave is something which we’ve benefited from being a leader in our loyalty business. similarly there's been a Forrester Wave for mid-sized marketing services and digital services firms, and we are part of that Forrester Wave. So that's a great way of generating, they came out with a report about a month ago and that's a great way of generating enormous leads associated with that, and we had to go through a whole song and dance there to be a part of that. And I think that - and that's as ICF Next, because I think we could showcase a broad range of skills and understanding of customer experience technologies which helped us there. So I think that it's a promising start, and we certainly hope that that will generate leads in incoming calls on us being able to help those clients too.

[Operator Instructions] And we have a follow-up question from Tobey Sommer with SunTrust.

In 2019, are there any changes to the composition for waiting of incentive compensation for executive management or kind of the next level below?

I don't think we're foreseeing any significant changes in executive management compensation or the next level below, no I don't think so.

No changes in the mix for waiting. Okay, thank you. That was it for me.

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 all for participating in today's call. We look forward to keeping you up to-date on development at ICF. Thank you again.

And thank you ladies and gentlemen, this concludes our conference. We thank you for participating. You may now disconnect.