Welcome to the First Quarter 2024 ICF Earnings Conference Call. My name is Liz, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Lynn Morgen of AdvisIRy Partners. Lynn, you may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us to review ICF's First Quarter 2024 performance. With us today from ICF are John Wasson, Chair and CEO; and Barry Broadus, CFO. Joining them is James Morgan, Chief Operating Officer. 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 2, 2024 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, John Wasson, to discuss first quarter 2024 performance. John?

Thank you, Lynn, and thank you all for joining today's call to discuss our first quarter results and review our business outlook. First quarter results represented an excellent start to 2024 and demonstrated ICF's positioning in key growth areas and the strength of our diversified business model. There are several takeaways worth highlighting. First, revenue growth for the quarter was quite strong. Excluding divestitures, revenues increased by 8.7% from last year's levels. Second, our margin profile continues to strengthen. Drivers such as revenue mix, high utilization and reduced facility costs continued to contribute to the consistent margin expansion that we have achieved over the last several years. And third, our forward-looking metrics point to continued growth for ICF. At the end of the first quarter, our backlog was $3.6 billion. Our trailing 12-month book-to-bill ratio was 1.23, and our business development pipeline was $9.7 billion. This speaks to how well aligned our capabilities are with the current spending priorities of our government and commercial clients. Taking a closer look at our first quarter revenue performance, ICF's work in the energy, environment, infrastructure and disaster recovery client market, again, was a meaningful contributor to our first quarter growth. Revenues in this client market increased 20% year-on-year to account for 45% of first quarter revenues. We are seeing very strong results across both our service offerings and our diversified client base. ICF brings together a complement of deep domain and implementation expertise across a broad platform of interconnected subject better areas, including energy efficiency, decarbonization, electrification, environmental and climate impacts and disaster recovery in mitigation. We combine our expertise with proven implementation skills around program management, environmental monitoring and grid engineering services, supported by cutting-edge analytic tools and proprietary energy models that have become the industry standard. Thus, we are offering unique…

Thank you, John, and good morning, everyone. I'm pleased to provide you with additional details on our 2024 First Quarter Financial Performance. Total revenues were $494.4 million, up 2.3% compared to the first quarter of 2023. After adjusting for the divestiture of our commercial marketing business lines in 2023. Revenues increased 8.7%, driven by robust growth from our commercial energy clients and solid growth from our government customers. Subcontractor and other direct costs totaled $120.5 million or 24.4% of total revenue, down from 27.3% in the first quarter of 2023. The year-on-year decrease was due in part to the divestiture of the commercial marketing business lines and lower pass-through revenue in certain U.S. government contracts. First quarter gross margins expanded 190 basis points to 37.2% of total revenue, benefiting from the timing of several recently awarded energy efficiency contracts, which are estimated to pull forward approximately $0.15 to $0.20 of EPS in the first quarter. So typically, these contracts tend to be more profitable during the start-up phase of the program. As costs ramp up over time, margins will level out over the period of performance. In the second half of this year, we expect that margins from these contracts will be more closely in line with margins we typically see with our other energy efficiency programs. Indirect and selling expenses were $129.1 million, up 4.3% year-on-year, reflecting the expansion of the business and investments in our staff and various growth initiatives. We continue to realize higher utilization and benefit from our increased scale and reduced facility costs. This, together with our favorable revenue mix and the quarter specific upside from the energy efficiency contracts I mentioned earlier, drove a year-over-year 21.6% increase in EBITDA to $56.4 million and an 8.2% increase in adjusted EBITDA to $55.2 million. Interest expense…

Thanks, Barry. We are very pleased with our results to date and the opportunities we see on the horizon. Our first quarter performance together with strong backlog, book-to-bill and pipeline metrics provide excellent visibility that supports our full year 2024 guidance. We're pleased to reaffirm our expectation that 2024 organic revenues from continuing operations will range from $2.03 billion to $2.1 billion, representing a year-on-year growth of 5.2% at the midpoint when compared to reported 2023 and 8.5% at the midpoint on continuing operations. EBITDA is expected to range from $220 million to $230 million, reflecting year-on-year growth of 14.2% at the midpoint. Our guidance range for GAAP EPS is $5.25 to $5.55 excluding special charges and for non-GAAP EPS is $6.60 to $6.90. The work that I described in today's business review involves helping clients address many of the most challenging issues of the day. We are proud to participate in this work and have attracted a like-minded group of professions we're committed to making a positive impact on society. And with that, operator, I would like to open the call to questions.

[Operator Instructions] Our first question comes from Sam Kusswurm at William Blair.

I know you just mentioned you're still expecting 48% of full year revenue to occur in the first half. Based on your first quarter that implies sort of flat growth on the top line in the second quarter here, if we're using the midpoint of guidance, I guess I want to make sure I'm thinking about that the right way? Or maybe there is more optimism in hitting the upper range of guidance there.

Sam, thanks for the question. Yes, we think that the revenues will certainly uptick in the second half of the year. We have great visibility into the revenue stream. And we think that we'll have a continued strong growth, as outlined in our guidance.

Got it. Okay. Maybe pivoting here, I guess this question kind of relates to your work in commercial energy and renewables. We've heard about many of the difficulties clients are facing in that industry, such interconnection permitting and just great organization in general. I guess I'm wondering if you can help us understand how this impacts your business just limiting some of the work you can finish? Or maybe it's creating complexity you can help solve. Just want to get your thoughts around that.

Yes, sure. I mean I think that we certainly work on grid modernization, grid interconnection, interconnection issues related to renewable energies. And so I think those challenges in the industry are creating opportunity for us, and we're advising utility clients and power producers on those issues. And so that's certainly an area where we're supporting our clients and seeing opportunity. We continue to see significant opportunity around renewable power generation resources at the project level, both solar and wind and are doing a significant amount of work for those clients. And that continues to be strong, and we're quite active on that. And so I would generally say that the specific issues you mentioned, we're working with our clients intently to analyze and assess the issues and help solve them. And so it's, I think, generally been a net positive for us.

The next question is from Tobey Sommer with Truist Securities.

This is Jack Wilson on for Toby. Maybe just to kick it off, can you maybe dig a little bit more in sort of what parts of the budget have been sort of most helpful? And if there are any sort of headwinds embedded in that other parts of the budget?

You did ask -- Jack, did you mean the federal budget? Or is that what you mean? Or...

Yes, budgets.

I think that in the federal arena, I think we've guided to high single-digit growth for the year in our federal markets. I think in our last call, we indicated we'd have low single-digit growth in the first half as we ramp up our new IT modernization work, and we expect our USAID work, which includes the capacities to ramp-up as we go forward in the year. And so we remain quite confident at the high level on that guidance. I would say as we've discussed regularly on this call over the last couple of years, the 2 major areas of growth for us are in public health -- and in IT modernization. And generally, the budget there have been quite strong. They're bipartisan. They've seen very strong budgets in the last several years. And I think we're confident we'll see robust growth there for this year. Also, obviously, these are very large agencies, and we have a small share. So we're also taking market share in these agencies. But generally, I think the budget situation in our key federal growth areas remains positive, and we're -- as I say, we've guided to high single-digit growth for the year, and we're certainly confident in that.

And then maybe just as a follow-up. When we dig into the IRA a little bit more, maybe using a baseball analogy, could you sort of describe what inning you think we're in? And if it's possible to segment that between sort of the supply and demand side of the equation, that would be helpful as well.

Well, I would say on the -- certainly on the IRA, I think we're still in the early innings. It's still ramping up. We're seeing that funding beginning -- has begun to flow. We're seeing it at the federal level. We're seeing it also getting to the state level, the states are turning around and starting to put out grants and move that money. And so I think we expect that will continue to ramp up for the next several years. And then from there, I think that's a 5- to 10-year money, and so it will be a long-term tailwind for us. And so I think we're in the early innings. I don't know the IRA is third inning, third or fourth inning. IIJA started a year, 1.5 years earlier. Maybe we're getting towards the middle innings there, but there's still a long tail of spend on the IIJA. And so [indiscernible] we think those will be tailwinds and continue to present material growth opportunities for us over the next 5 to 10 years. In terms of supply and demand, I mean, I think I would say -- if I focus on the IRA. I think it certainly had an impact on both sides. I mean, obviously, the tax credits are providing tremendous incentives around solar wind and hydrogen and carbon cater changing the -- improving the economics of those activities. And so we're seeing tremendous demand from that. And there's also funding available on demand side, and we're certainly supporting federal state clients, utility clients who benefiting from that around energy-related demand programs. And so we're seeing it on both sides. It is particularly strong right now on the supply side.

[Operator Instructions] Our next question comes from Marc Riddick with Sidoti.

So I wanted to touch a little bit on how we're feeling about what the potential acquisition pipeline might look like and maybe your current appetite and views as to maybe what you're seeing out there and valuations relative to maybe the beginning of the year, it seems like overall M&A seems to be picking up a little bit. I was wondering if you had any thoughts or views or how that might have evolved throughout the year.

Maybe I'll take a couple of words, and I'll let Barry speak to valuations. I think that -- I wouldn't say we've seen a material shift in the M&A market in the last couple of quarters. [indiscernible] as you well know, Marc, I mean M&A has been a key part of our growth strategy over the years. We did our last material deal in July of 2022. We've obviously paid down a lot of debt. We have capacity. I think we -- so we remain in the market and continue to look at potential deals. Obviously, we're focused on areas around our key growth drivers. So around public health, data and analytics, energy. The -- I would say the market is -- has not changed in the last 6 months. Valuations are still a bit frothy. But Barry, do you want to give a little more color on that?

Yes. As John mentioned, we are very active in the acquisition arena. We're continuing to look at different properties as they come through the pipe. I'd say from a valuation perspective, at this point, we thought that maybe the valuations may have should tick down a little bit based on where we are with interest rates and kind of the equilibrium between the 2. But we still think that -- we still see that the valuations are still not that much change from the previous 6 months or even longer than that. We have, as John mentioned, plenty of capacity. We paid down a lot of debt. So we're certainly looking for that as we've done in the past, we certainly see the different markets that we play in. And depending upon the market, the valuations will fluctuate a little bit between some of the hotter markets versus some of the others. But we are very active and continue to look for acquisitions.

Great. And then I just have one quick follow-up. I was kind of wondering with the sort of shifting economic landscape, I guess, or forecasting relative to maybe where we began the year. Are you seeing any changes in the pace of RFPs? Or are there any particular client verticals that you're noticing any shift of behavior that we haven't had chance to talk about yet?

I mean I would say on the government side, we really haven't seen a shift. I think we continue to see opportunities there. The RFP flow, proposal flow is good. The pipeline is at or near a record. Our book-to-bill is very strong. So on the government side, I think it's business as usual. I would say in the energy climate arena, I think the results speak for themselves. I mean, we had north of 20% revenue growth in our energy environment infrastructure and disaster recovery market. our commercial energy business grew 34% in the first quarter. I mean we're seeing tremendous opportunity there. I think I've said before, we have our 5 key growth drivers, but the key drivers that are in the energy environment infrastructure area. Those 3 are certainly coming to the floor, and there's significant economic activity and significant opportunity across commercial federal government, state and local and international. So in that area, I would say that we're -- it's accelerating.

This concludes the question-and-answer session. I would now like to turn it back to CEO, John Wasson, for closing remarks.

Okay. Great. Thanks for participating in today's call. We look forward to connecting with you all at upcoming conferences and events. Thank you.

Thank you for your participation in this conference. This does conclude the program. You may now disconnect.