ICF International, Inc. (ICFI) Q1 2021 Earnings Report, Transcript and Summary

Welcome to the First Quarter 2021 ICF Earnings Conference Call. My name is Vanessa and I will be your operator for today's 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] Please note, this conference is being recorded on Tuesday, May 4, 2021, 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.

Thank you, Vanessa. Good afternoon, everyone, and thank you for joining us to review ICF's first quarter 2020 performance. With us today from ICF are John Wasson, President and CEO; and Bettina Welsh, CFO. Joining them is James Morgan, Chief of Business Operations. 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 May 4, 2021, 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 view 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 over the call to ICF's CEO, John Wasson, to discuss first quarter 2021 performance. John?

Thank you, Lynn, and thank you all for joining us today's to review our 2021 first results and discuss our business outlook. ICF first quarter results represented an outstanding start to the year, setting the stage for considerable growth in 2021. Indeed, the outperformance led us to a full year service revenue, EBITDA and APS expectations to the upper end of the ranges despite it being early in the year. There are three key takeaways from our first quarter performance that I'd like to point out. First, our qualifications, positioning and contract vehicles in high growth markets in both government and commercial arenas drove substantial growth in service revenue, which together with higher utilization, and quarter specific margin benefits resulted in year on year increases in EBITDA and EPS that significantly outpaced revenue growth. Second, this was the third consecutive quarter of record contract awards for ICF, resulting in a trailing 12 month book to bill of 1.44 times, which is the highest level in recent years, and is overwhelmingly related to bids submitted prior to the Biden administration, assuming office. And lastly, the greater clarity we have on the Biden administration's funding priorities, the more confident we are about ICF additional long term growth potential for 2022 and beyond. First quarter revenue growth was led by strong results from our government and commercial energy businesses, which together accounted for 88% of total revenues. Looking more closely at our first quarter results by client category, the increase in our government business was driven by a 13% increase in revenues from federal government clients, led by IT modernization, digital transformation, and public health work a key civilian agencies, including the Department of Health and Human Services, the Federal Communication Commission, the Department of State, as well as the Department of Homeland Security. This is also a strong quarter for ICF contract winds in the federal market, particularly in IT modernization, public health and cyber security. We continue to win new task orders and contract modifications to perform COVID related response work, which brings the cumulative value of these awards to over $45 million since the onset of the pandemic. More than the dollars however, these wins continue to strengthen our positioning for future work related to COVID-19 recovery and reinvention programs, which we expect will include the modernization of disease surveillance systems, and new initiatives to improve the country's readiness in the face of future pandemics. We are monitoring how the new administration is working to define and implement its policy and funding priorities. Just looking at the Biden Administration's $1.9 trillion America rescue plan act that has been passed by Congress, we see significant opportunities in our addressable market. Notably at least $2 million has been allocated for federal agency IT. And this includes $1 billion in new funding for the technology modernization fund to help complete modernization projects at federal agencies. Additionally, it's $150 million [ph] specifically designated to the cyber-security and infrastructure security agency, which is a new client of ours. Another $40 billion is earmarked to support childcare, childcare providers and headstart but ICF currently provides services to headstart grantees in six of the 12 headstart regions across 40 states and the District of Columbia. Other funding includes $12 billion for food support to families in need to nutrition programs, $500 million to the CDC for data monetization and analytics, and $9 billion for central tribal and federal safety net programs that serve native communities. These opportunities did not even include the proposed $2 trillion American jobs plan, where for example, our project permitting and monitoring of infrastructure projects, and our expertise in resilience, mitigation, and clean tech come into play, nor the fiscal 2022 budget proposal that includes a 16% increase for civilian agencies, including a 23% increase for our largest client HHS, a 41% increase at the Department of Education, the 21% increase at EPA and a 15% increase at HUD. This gives you some idea of the magnitude of proposed federal spending over the next several years in areas and agencies where ICF has strong qualifications relevant contract vehicles. As we mentioned in our conference call last quarter, we are utilizing a portion of the savings we have gained from the optimization of our real estate footprint and reduce travel and entertainment expenses, to invest in people and technologies to expand our capabilities in these high growth markets. In local revenues declined by 6% in the first quarter, probably due to lower pass to revenues, or disaster management. Business continues to track well, and is expected to meet our expectations for double digit growth in 2021. Last week, we announced a first quarter $46 million award from the government of Puerto Rico's public private partnership authority that includes elements of ICF previous work to provide FEMA funded project formulation services to support long term disaster recovery from hurricanes Irma and Maria, and hazard mitigation efforts to protect against future disasters. This contract includes an initial four month term through June 30 of this year, plus two additional one year options to extend. Additionally, during the first quarter, we ramped up existing mitigation contracts, and added new clients in Oregon related to the wildfires in 2019 and 2020. And expanded work in Louisiana related to the winter power outages. As noted in our earnings release, revenues from international government clients increased substantially in the first quarter, or maybe reflecting a sizable short term project, which we expect to line down throughout this year. The recent $11 million contract award to manage the EU climate plaque has placed ICF at the heart of the Commission's activities, and provides ICF with a high profile role in stimulating climate action within the European Union. We expect to see a return to growth in revenue from non US government clients in 2021, but not at the magnitude we saw in the first quarter. Moving to review of our commercial business, commercial marketing services accounted for just under 10% of total revenues in this year's first quarter. With the year on year decline tied to the impact of the pandemic on a portion of this business. We have closely managed expenses in this area. While continuing to do great work for clients, which we were recognized for with awards for multiple campaigns in the first quarter. I am pleased to report that we added several new clients in the first quarter across the health, consumer product and financial sectors. Adjusting for the completion of the large media buying related contract at the end of 2020, we expect revenues from commercial marketing clients in 2021 to be down slightly compared to last year. Commercial energy markets had a great first quarter of 12% year-on-year, and representing 16.5% of total revenues. Specifically revenues from our utility programs business, which includes energy efficiency, electrification, and flexible load management programs increase at a high single digit rate, reflecting the startup of new contracts, the expansion of existing contracts under extensions awarded at the end of last year, and the timing of performance related incentive fees on several contracts. At the same time, we saw significant demand for energy advisory service activities, which include financial and ensuring due diligence services, Rapid Deployment and development of renewable resources and energy storage. Additionally, in the first quarter, our environmental services business won new contracts with utilities and renewable energy developers, including an additional contract to do an environmental study for an East Coast offshore wind project. ICF leadership and expertise and energy related issues is broadly recognized in both the commercial and government markets as long term advisors to the US Department of Energy, we were called in real time to provide a detailed situation analysis at the time of the winter vortex, the cost energy blackout in Texas and surrounding states in February of this year. ICF is also supports electric vehicle programs at the federal and state levels and we design and run several utility EV programs. Our expertise in renewable energy and transmission issues, energy efficiency, climate science, decarbonisation, infrastructure resilience and client climate adaptation aligns well with the Biden administration's priorities and creates significant long term growth opportunity for both ICF commercial and government energy business in a multitude of areas. Summarize this’s an extra quarter price yet, continuing the positive momentum we experience it end of last year and supporting our expectations for strong growth in 2021. We achieve record contract sales of $596 million of 67% year-on-year and our business development pipeline was over $6 billion at the end of the first quarter. With that I’m going to turn the call over to the Bettina, our CFO for a financial review, Bettina?

Thank you, John. Good afternoon, everyone. I will provide a more detailed look at our first quarter 2021 results which exceeded our initial projections. First quarter 2021 total revenue was up 5.6% to $378.5 million driven by strong performance of our government and commercial energy businesses, which increased 13% and 12% respectively. We are especially pleased with service revenue growth of 9.5% year-on-year, which we see is a better indicator of our trends in our business, as it represents the work done by ICF employees. Pass-through revenue accounted for 26.1% of total revenue compared to 28.7% in last year's first quarter. Gross Profit increased 14.7% year-on-year to $146.4 million. Gross margin on total revenue expanded by 310 basis points to 38.7% and gross margin on service revenue grew to 140 basis points to 52.4%. Gross Margin benefited from strong service revenue growth and lower fringe costs. Additionally, there was a significant quarter specific benefit primarily from the timing of several recently awarded fixed price energy efficiency contracts, on which certain program costs will be incurred in the upcoming quarters and the timing of energy efficiency incentive fees on several contracts. Indirect and selling expenses were $110 million compared to $103.3 million in the year ago quarter. However, as a percentage of service revenues, indirect selling expenses declined 110 basis points to 39.3% compared to 40.4% in last year's first quarter. EBITDA was $36.4 million, 49.5% above last year's $24.4 million inclusive of $1.3 million in facility closure in severance costs. Excluding special charges adjusted EBITDA was $37.7 million compared to $28 million in last year's first quarter. Adjusted EBITDA though margin on service revenue expanded 260 basis points to 13.5% thanks to higher revenue, favorable mix and the timing of contract awards and incentives fees I mentioned earlier. Operating income of $28.1 million increased 72.4% from $16.3 million reported in the first quarter of 2020. Our tax rate was 26.7% in line with our expectations, this compared to 18.3% in the first quarter of 2020. Net income for the quarter was $18.4 million or $0.96 per diluted share inclusive of $0.05 of tax effective special charges; this compares to $10.6 million or $0.55 per diluted share in the first quarter of 2020 inclusive of $0.16 of taxes record special charges. On a non GAAP basis, excluding the impact of special charges and amortization, EPS were $1.13, up 36% from last year's $0.83. Moving to the cash flow statement and balance sheet, we are pleased with our positive operating cash flow of $5 million compared to use of operating cash flow $15.2 million in the comparable period of 2020, which is more typical of our first quarter seasonality. The upside was a function of the higher net income and the timing of accounts payable. Capital expenditures in March were $3.6 million compared to $4.7 million in the prior year. Day sales outstanding for the first quarter were 80 days compared to 88 days in the similar period last year. Our net leverage ratio at the end of March improved to 2.38 times compare to 2.47 times at the end of 2020. As for capital allocation, moving forward, we will continue to prioritize organic growth, acquisitions and debt reduction as well as funding our dividend and doing share buybacks to offset dilution. Speaking of share repurchases and dividends in the first quarter, we repurchased 151,200 shares for $12.8 million to offset the dilution of our employee incentive program. Also, today, we declared quarterly cash dividends of $0.14 per share payable on July 14 2021, to shareholders of record of June 11 2021. Given the very strong performance we had in Q1, we are expecting less seasonality, and more evenly distributed revenue and earnings this year than in the past. For modeling purposes, the following metrics remain our expectations for 2021. Depreciation and amortization expense is expected to be in the range of $20.5 million to $21.5 million for the full year 2021. Amortization of intangible should be in the range of $11.8 million to $12.2 million. Full year interest expense should range from $11 million to $12 million. Full year tax rate will be no greater than 27%. We expect fully diluted weighted average share count of approximately $19.1 million for 2021. And capital expenditures are anticipated to be between $20 million and $22 million. We also reaffirm our operating cash flow expectations of approximately $100 million. With that, I will turn the call back to John for his closing remarks.

As I mentioned at the outset of this call, our outstanding first quarter performance has led us to move our expectations for full year service revenue EBITDA and APS to the upper end of the initial ranges we provided the time of our fourth quarter 2020 earnings release. And we are reaffirming our guidance for total revenue growth and operating cash flow. Approximately 55% of our 2020 service revenue represented ICF work in key growth areas, namely IT modernization, public health, disaster management utility programs, along with climate, environment and infrastructure consulting, all of which are closely aligned with the priorities of the new administration. Taken together, we expect the growth rate in these areas to be 10% or more over the next several years. We are well on our way to achieving this objective for 2021. We are making the requisite investments to capture the organic growth opportunities on the horizon. Additionally, we have the financial resources to pursue acquisitions that can further expand our addressable market. At ICF, much of our business is in service areas that enabled us to create positive impacts. And in fact, in 2020, over 85% of our total revenues were derived from our two largest markets, namely energy environment and infrastructure, and health and social programs, areas which benefit society. At the same time, ICF has prioritized being a good corporate citizen, remaining carbon neutral for the last 15 years, and embracing diversity, social justice and equal pay. This has attracted likeminded people who've shown a shared commitment to environmental and social issues and have a passion for their work. Encourage you to access our most recent corporate citizenship report. To learn more about how ICF addresses its ESG responsibilities. With that operator now we'd like to open the call to questions.

[Operator Instructions] And we have our first question from Tobey Sommer with Truist Securities. Please go ahead.

Thank you. I was hoping to get your perspective on the growth in the sort of complement of the business, the non 55%, that you say is going to grow double digits for a number of years. How should we think about the growth there? You know, some of those businesses were impacted cyclically, and maybe can bounce back cyclically as well. Could you give us some color?

I think our assumption, Toby, you know, generally, as we look forward, as you know the 55% that are in the key growth markets, I think we certainly see 10% and beyond growth there. And as we continue to look out, given the Biden administration priorities, we, we get more excited about this opportunities. You know, over time, I think the rest of the get a 45% of the business, I think we're generally thinking kind of flat to low single digit growth as we look forward with those businesses. And so I think that's how we're generally looking at those over the longer term.

Okay. Thank you. In the budget that the Biden administration proposed, as well as the infrastructure related bill, if those are passed, and let's pick a day, let's say it happened today, when would the influence of those appropriations start to flow through most likely in the contracts, and then eventually into the income statement of the company?

I think generally, once a budget is passed, and infrastructure Bill is passed, you know, I would say three to six months. I mean, realistically, I don't think these the infrastructure bill is going to be passed until I mean, what I've read you I'm sure you've read the same thing I read your towards the, later on the summer, the end of the summer, obviously, the budget, you know, would start on October 1. I think it's very unusual for the government to have a budget in place, you know, right on time. But I think if those falls into place, it's a three to six months, I think the infrastructure money could potentially move more quickly. And so I think the way you should think about the budget and the infrastructure bill is that's really if that's plays out positively, very significant upside for us in 2022. And beyond, you know, I think our guidance for this year, obviously doesn't assume any materially impacts there. You know, I do think that the stimulus bill that Biden passed provides some opportunity for us. But, obviously, over the last few quarters, we've had very significant sales very strong to bill, which are predated the Biden administration has set us up well, already for very strong growth. As we look forward.

Can you talk about the M&A in what the pipeline looks like? Your appetite in areas of interest?

Yeah, sure. So, I would say that as you know, I think M&A has been a key element of our strategy over many years, over the last 15 years since we've been public, I think our growth has been robust, about half of its been organic, half of it's been an organic, we're certainly, you know, constantly out in the market looking to add skills and capabilities, either on the domain side or the implementation side that could help us grow our business. I think we've talked about the fact that we're focused particularly on the federal side around IT modernization and digital transformation in the federal arena, on public health, in the federal arena, certainly looking at opportunities in the energy commercial energy arena, I would say the market right now is active become quite active, we're seeing a lot of potential deal, strong deal flow, like the pricing is quite frothy. You know, I think, obviously interest rates are low. Like there are concerns about the capital gains rate here before the end of the year. And so, of the deal flow is certainly picked up. And so there's certainly a lot of opportunity out there. As you know, I think we were obviously focused on funding companies in the markets I just mentioned, that are a good strategic fit a good cultural fit. And we want high quality companies where we really see on the synergistic revenue, you know, and if we can find those companies, we have found even with strong valuations that, if you can really go get that synergistic revenue, it can make the deals, very attractive and very, very good for long term growth. And I think ITG acquisition was a great example in the last year for us. And so we're out the market. We're looking as you know, we did have ITG, a year ago, we levered up. Now our net leverage ratio is down to about 2.5 or 2.6. I think by year end, we don't do a deal. It'll be under two. And so we certainly have the capacity here on the acquisition front, looking forward.

Thank you. Last question for me is what would gross margins on a normalized basis have been if there weren't some of the items that you called out?

I'm going to look at the Bettina for that question.

Good question. Absolutely. No, we're real pleased with our gross margin this quarter, for sure. But I would say that there's probably the upside is approximately 200 basis points of the gross margin related to the timing of the fixed price awards on those several energy efficiency contracts and the timing of the energy incentive award. So hopefully, that gives you a good sense there.

Thank you.

Thank you. We have our next question from Sam England with Berenberg. Please go ahead.

Hi, guys, it's Alex [ph] for Sam, my first question is. You commented previously, that your work with health agencies on pandemic response could exceed your work, but you did on HIV and AIDS, you still confirm on this?

You know, I think there's sort of the potential for that. And I think, as we've talked about, on the HIV AIDS front, for NIH, we've run a clearinghouse and a website that focused on providing the latest treatment options and sharing information to healthcare providers, and physicians, I think we've announced in several quarters ago that we had begun efforts on a similar website, on the COVID front. And so I do think as we look down the road, once we get past the immediate response, and we look down the road to the longer term, response to recovery from COVID, there could be quite sizable opportunities for us. I think we're following those carefully. I think that's more of a second half of this year and then out into 2022 and beyond type opportunities, but I think there's the potential for those opportunities to be quite sizable.

Okay, great. And given the strong performance in Q1, how are you guys thinking about hiring for the rest of the year?

You know, I think obviously, you know, we're a people in the business; it's all about the gray matter between the two years of our employees. And so, with service revenue growing, you know, 9.5% in the first quarter, we're obviously need to be adding staff and aggressively adding staff. So we're out of the market for place, we're leaning forward on the recruiting front. I think it's going to be critical. I think, as I've said, in the past, as our revenue grows, our revenue grows 10%, we need to be adding 8.5% to 9% additional staff, we're always trying to leverage and raise the utilization over time, but it's a people business, we need to be out there recruiting, and we're working quite hard on that for sure.

Okay, great. Thanks, guys.

And thank you. Our next question comes from Joseph Vafi with Canaccord. Please go ahead, sir. Your line is open.

Hi, guys. Good afternoon. Just wanted to kind of circle back on some questions I've kind of asked in the past relative to number one, kind of what you're seeing and average deal size now, in the quarter on bookings, especially on the federal side and with strength in the business to give some commentary on your bid and proposal pipeline, perhaps getting larger contracts. And then, you know, specifically perhaps, and IT modernization what you're saying there. Thanks.

Sure. So, I think, as we've talked about in the past, Joe, and I think you hit on some of the key areas. I mean, I think generally, not the it modernization front, I think one of the attractions for us in our market, and the basis for doing the APG acquisition is that as a market where you can see quite significant contract opportunities. And as we've talked about as ICF grows, we're a $1.5 billion company, we're going to double get and become a $3 billion company down the road, we need to be winning larger size deals, certainly in the IT modernization program. You can find your $100 million, $250 million deals in our client sets, you know, around IT modernization. So, certainly part of that strategy is to identify and take down, put in capture and win larger deals and IT modernization, I would say, similarly, in some of our program areas and in HHS around Public Health, Education, Human Services. Again, we are focused on larger opportunities and trying to kind of go to the next level in terms of taking down the larger deals. And as part of that, you know, we've been investing quite significantly and upping our capture capability and hiring people who have experience and taking down these kinds of deals help us on this journey. And so that is certainly part of our strategy. And I think, we continue to make progress in building that pipeline. Now, both in the federal space, I will also say that we continue to see sizable deal opportunities in the commercial energy arena, around, the energy efficiency programs, and I'm certainly put significant capture resources into those two and then also disaster recovery. I mean, there, I think, as you know, we've won quite sizable contracts over time, we've obviously been in capture for some time on some of the mitigation opportunities, particularly in Puerto Rico, that could be quite sizable. And so that's a long winded way of saying it's a key part of our strategy. And we are investing a significant amount in business development right now, capture proposals, marketing, and just writing more proposals. I mean, I think it's a unique time for us, we have these growth drivers. And my view is we have to bid everything to fit our sweet spot. And so we have to invest the resources. To do this, you can't let these kind of opportunities pass you by.

That's helpful, John. So it does sound like you're going to perhaps bit more, I mean, I know the company's growing, and obviously, you'll get more company grows. But at the margin, maybe it sounds like maybe there's a little bit of a step up in proposal activity on top of that this year [indiscernible].

We can find these much larger deals, Joe, we are working hard to put those in capture. And as you know, I mean, if you're going to take down those kind of deals, you have to be in cash or a couple years in advance, you can't start working those deals three months before they're up.

Thinking about some of those I know, you mentioned, some of the mitigation work. Would you say a lot of the newer, larger things that you're looking on? Are those repeats within companies, or that kind of brand new work that are emerging and materials leading those areas? Or is it a combination?

It's a combination of both. I mean, we're obviously looking to add new opportunities to the pipeline at scale. And that's certainly been the focus as we invest more and bring in new talent. There's always a, I mean, our contracts tend to be four to five years in length. So, you know, every year, you've got a set of repeats, and you've got to take those seriously and do the capture, too. But, again, I think we're, you know, as we invest more, I think you should think of it as we're investing more to pursue more newer opportunities in the growth markets that we’re in.

Got it. And then one other question, kind of going back to part of the other part of the business on ICF next, I might have missed it, if you particularly called out what you're expecting there. And how that business is faring, especially perhaps in reopening scenario with some of the clients. Thanks a lot and great quarter.

Yeah, thank you. You know, I would say on the marketing services front, commercial marketing services. I think, we generally expect it to be flat for the year. You know, obviously through the first quarter of a year ago, the comp is still challenging in the first quarter, given this mostly pre pandemic, but I think as we look forward, we are assuming a significant rebound in the commercial marketing business this year. I think several the verticals that have been impacted, hospitality, travel and tourism. We're generally assumed a late third quarter fourth quarter improvement, improvement, welcome, those will rebound. You know, with the end of the pandemic and the economy improving. We haven't assumed that this year, I will also note that when you look at the total growth in the marketing business, we did have a large media buying contract last year with a client that ended and so when you take that out, we're expecting generally flat a revenue but so that's a commercial marketing, I think, in Europe in a similar way the commercial marketing services we do for the European Commission. You know, that business we generally in Europe, we are seeing a rebound expect growth this year, but we're generally being conservative there in terms of when Europe will open up in terms of marketing and face to face meetings. As you know, their vaccination rates have not been as high as other countries. So that's generally how we're thinking about it.

Thanks very much.

And thank you. Our next question is from Andrew Nicholas with William Blair. Please go ahead. Your line is open.

Hi, good afternoon, everyone, this is actually Trevor Romeo in for Andrew, thank you for taking our questions. First was just a question on your expectation for, you know, kind of hitting the high end of your guidance ranges? Is that more of an increased expectation for the balance of the year or kind of just a reflection of the performance in the first quarter? And kind of related to that if you do end up outperforming guidance for the full year? Would you expect that to come from more continued strength in the strong areas like IT modernization and energy or more of kind of an accelerating rebound in some of the softer areas like marketing?

Yeah, I think that, the fact that we've gotten to the upper end of the guidance range, I think is largely reflective of the first quarter performance. Having said that, I mean, we have very strong momentum. And I do think if, obviously, it's still early in the year, but I think, if we were going to reach. If in the long run, we were to exceed or for the year, we were to exceed our guidance, I think it would come into growth areas. I mean, I think we are not assuming significant, as I just said on that kind of marketing services front, certainly, we're not assuming a significant improvement there but for the rest of the year. And so, I think we've had a very strong first quarter, we'll call them that that takes the upper end of the range. It's still early in the year. But these are robust growth markets, and we're hopeful to continue to execute as we go throughout the year.

Okay, great. Thanks. That's helpful. And then just I guess, appreciate some of the detail you provided on the new contract you're awarded in Puerto Rico. We're just kind of curious whether you see additional opportunities there for disaster recovery in that market. And then, you know, if so, the timing of any potential award decisions going forward?

Sure. So in addition to the contract, we won in the first quarter, you know, to support FEMA funded public infrastructure work, there's several proposals we're awaiting award on in Puerto Rico, on the housing front. I think there are at least two contracts I'm aware of that we're awaiting award on to provide upside. I've mentioned the mitigation contract or RFPs. That RFP that we expect to be forthcoming here, from may the first half of the year, Puerto Rico, as we've discussed, a number of times on these calls, $10 billion in mitigation funding, they have received approval from HUD for their plan, under those under that funding. So I think there will be our fees forthcoming, and we'll certainly build those. And so I think there's a fair amount of opportunity for us in Puerto Rico still to come. And we're going to be there for the long run. I think we've also talked about more generally with disaster recovery. I mean, obviously, it's partially dependent on the frequency and severity of storms each year, which I think the data shows are certainly increasing. But the mitigation funding, there's a new bucket, and I think that will continue to be funded by the by the Biden administration, and for both under HUD programs and FEMA programs. And you know, we were a market leader there? Well, I think we've talked about we've won four or five state level contracts on mitigation in the last year. And so, you know, again, I think we've seen we see disaster recovery as a long term growth driver here. Said it's certainly going to be a double digit growth driver for us this year. And I think there's a, we have long term confidence in the growth of that business.

Alright, great. Thank you, John. Appreciate it.

We have our next question from Marc Riddick with Sidoti.

Good afternoon. So I was wondering if you could talk a little bit about the cadence of how things developed throughout the quarter and into the more recent timeframe and talk about maybe some of the things that have given greater confidence conviction around what you're seeing from the new administration that sort of support your level of competency and what should be to come?

Yeah, well, I mean, I think I touched on many of those in the remarks, but it's a good question. I think obviously, for the last several years, we've talked about four of the key growth drivers IT modernization, Public Health Disaster Recovery and utilities. And I think those were growth drivers for some of the last couple years. The Trump administration, I think they will remain strong growth drivers in Biden administration, I think in addition, based on just what we've seen in terms of his policy priorities, and his initial budget proposals. I see, obviously, climate change and kind of resilience as is an area of focus for the Biden Administration. I mean, they recommitted to the [indiscernible] accords, the first day in office. They've put in place several executive orders. He just had a meeting of 45 countries on climate change at the White House a week or two ago. And if there's any question that they're going to move out and take steps to address climate change, we have the largest climate change consulting practices in the world. That will be that will certainly be very beneficial for us. And then obviously, you know, I think, given the American jobs plan with the focus on infrastructure, I talked about in my remarks, we do environmental work on the front end of traditional infrastructure, roads, bridges, rail, and also on clean technology and some of the broader definitions of infrastructure that Biden has embraced. And then his budgets, his proposed budgets for civilian agencies are up significantly for 2022, and obviously, those are proposed budgets, and so proposed infrastructure bill, but if only a portion of that becomes reality, that would be very good for ICF. And so I think that's what's giving me a lot of confidence in terms of the Biden administration.

And then I was wondering if you could bring us up to date on what you're seeing with specifically with California around that outsourcing effort and an update there. Maybe you gave an update on this at the end of the year. Just wondering if there's a little further information there and as far as what we might see as far as timing and actual work being done there. And then I have one last follow up after that?

Sure. So I think we remain quite focused on energy efficiency, opportunity California. I think in the fourth quarter call, we said we'd won, I think north of 16, the perhaps $65 million of the contracts on energy efficiency last year, I think we have a robust pipeline, I would hope we'd win. A similar, those kinds of numbers could be accomplished again this year. I think there are those kinds of opportunities out there. And so we're quite focused on the California market. You know, I will say in the first quarter, we did win a significant number of new energy efficiency contracts and plus ups on our existing contracts one week competes. The world came more quickly than we expected. I think Bettina spoke to how some of those contracts with grey star gross margin and Q1, I would say, I'm not willing to call it a definitive trend. But you know, I think again, I think energy efficiency will be a central aspect of addressing climate change going forward. And so the Biden administration is successful, or undertake steps to address that issue, it will provide additional impetus to grow our energy efficiency business. And so anyway, we remain quite focused on California and are quite up to offer up remain optimistic about the energy efficiency market general.

Okay, great. Then one last thing for me, I wanted to just go over, where you see things as far as leverage levels, I think, as far as comfort level, and then what we might see throughout the course of the year is to use of cash. Thanks.

I'll say a few words. And I'll let Bettina get into all the details of leverage ratio. I mean, I think, you know, generally as I think I answered Toby's question, I mean, we have a history of acquisitions are a key part of our strategy. Every two or three years, historically, we've levered up, we use a strong cash flow to pay that down. You know, I think generally, we're quite comfortable when we do it, leveraging up into the 3.5, 3.75 leverage ratio range, and then paying it down over the next several years, which we've certainly done with ITG. I think we've had very strong cash flow here. And so, I think that remains a part of our strategy. Do you just want to talk about [indiscernible].

Sure. Absolutely. So, you know, if you recall, you know, when we levered up with ITG was certainly in over three and a half times but by the end of the year, we brought that down to 2.47. And we just described in the script that down to 2.38. We project by the end of the year is should we not purchase company to continue to buy down our debt, and get down to about a 1.65 ratio. Clearly we're maintaining our fodder for M&A. And that's our primary objective, as we in the meantime we'll continue to pay down the debt.

Much appreciated. Thank you very much.

And thank you. We have no further questions in queue. I will now turn the call over to John Wasson for closing remarks.

Okay. Well, thank you for participating in today's call. We look forward to meeting with you at upcoming events. Thank you.

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