ICF International, Inc. 2026 Q2 Earnings Call

Welcome to the second quarter 2026 ICF earnings conference call. My name is Lauren Cannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgen of Advisory Partners. Lynn, you may begin. Thank you, Lauren.

Good afternoon, everyone, and thank you for joining us to review ICF's second quarter 2026 performance. With us today from ICF are John Wasson, Chair and CEO, Anne Choate, President, and James Morgan, Chief Operating and Financial 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. I refer you to our August sixth, 2026 press release and our SEC filings for discussions of those risks. Our statements during this call are based on our reviews 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, specifically disclaim any obligation to do so. I will now turn the call over to ICF CEO, John Wasson, to discuss second quarter 2026 performance.

John? Thank you, Lynn, and thank you, all for joining us this afternoon to review our second quarter results and discuss our business outlook.

Second quarter business trends in our markets were consistent with our expectations, allowing us to deliver revenues in line with last year's second quarter, while we continued to carefully manage costs and directed our resources towards expanding our pipeline of new business opportunities. Key takeaways from our second quarter results included a 6% increase in revenues from commercial clients, led by commercial energy efficiency and related utility program revenues that increased 6.7% year-on-year. A sequential increase in revenues from federal government clients, as we had anticipated, reflecting growth in our technology modernization work. A 35% increase in revenues from international government clients as we ramped up work on the large contract awards secured in 2025 and earlier this year.

We maintained our strong margins with adjusted EBITDA margin of 11.2%, up 10 basis points from last year's second quarter. Non-GAAP EPS increased 12%, driven by the profitability I just noted, and year-on-year tax interest and share account benefits. Our trailing 12-month book-to-bill ratio was a healthy 1.09. Since the end of the second quarter, we've been awarded contracts in excess of $200 million. We ended the second quarter with a robust pipeline valued at $9.3 billion, a 9% sequential increase over the $8.5 billion reported at the end of this year's first quarter. In short, this was another quarter in which our diversified, integrated business model made a positive difference in ICF's results, positioning us to achieve our guidance expectations for the full year.

Revenues from our commercial, state and local, and international clients accounted for 61% of our second quarter revenues, in keeping with our expectation that these client categories will represent over 60% of our 2026 revenues, up from 57% in 2025. The diversification within our client set provides us with both resilience and the ability to shift our resources to capture growth opportunities as markets evolve. Approximately 75% of our second quarter contract wins were in these non-federal client categories, as delays in procurement decisions constrained federal government awards. We continue to invest in these non-federal client categories while at the same time pivoting to expand our presence in federal agencies that are benefiting from increased funding. Additionally, we are seeing greater opportunities to bring insights and capabilities from across client categories and domain expertise to help clients address complex challenges.

For example, many of the issues facing today's energy market, including load growth, grid reliability, transmission development, resilience, affordability, and energy security, are being addressed simultaneously by commercial clients, regulators, and other government agencies. The fact that we work with all these market participants gives us a broader perspective on emerging challenges and potential solutions, providing significant competitive advantage to ICF. Our work with state regulators and industry associations helps us to develop innovative approaches to transmission investment and grid planning and provides us with insights that we can directly apply to our energy advisory clients. Our work related to data centers leverages capabilities across planning, policy, financial, and engineering disciplines, as well as across our client categories. We provide assistance to states, counties, and other local governments as they evaluate the economic and energy infrastructure and community impacts of data center development.

That gives us valuable perspective on stakeholder concerns and public issues that we are able to bring to our hyperscaler, developer, and utility clients as they plan for and develop new projects. Our deep energy expertise, including decades of support to the federal government and to commercial oil and gas companies regarding critical reserves and potential disruptions, position us to support the state of California with real-time monitoring of refinery production, energy imports, and stocks so the state can better take actions to address price variability. Finally, we are adapting AI-enabled analytics and technical assistance solutions that we originally developed for federal government clients to support commercial and state and local government clients. As I mentioned earlier, we ended the second quarter with a business development pipeline of $9.3 billion.

Opportunities in the key long-term growth markets we have identified, namely commercial energy, technology modernization, and disaster management and related state and local government work accounted for approximately $5.5 billion, or 60% of that pipeline, supporting our expectation for continued growth in these markets. Summing up the quarter, we were pleased that our revenues were similar to last year's second quarter results in advance of our return to year-on-year growth for 2026 and to positive quarterly revenue comparisons beginning next quarter. We're also pleased with the way we have managed our cost structure to maintain strong margin performance while investing in growing our substantial business development pipeline. Our year-to-date repurchases of over 435,000 shares represent a first-half record for ICF and a strong indication of the confidence that management and the board have in our company's long-term prospects.

We continue to review acquisition opportunities, particularly in the commercial energy space, but we remain very disciplined. Our focus is primarily on tuck-in transactions that provide capabilities with the potential to drive meaningful revenue synergies and will be accretive soon after completion. I'll turn the call over to our President, Anne Cho, to discuss our business performance.

Anne? Good afternoon, everyone. I'm pleased to present a business review of ICF's second quarter results, which, as John mentioned, set the stage for our return to year-on-year growth in the second half of this year, starting at Q3.

I'm also happy to discuss how ICF's diversified and integrated business model continues to differentiate us and provide us with a unique multidisciplinary viewpoint in solving complex problems for clients. In my remarks, I'll walk through some specific examples of work in each of our client categories, starting with commercial energy. We continue to experience strong demand for ICF's utility programs, which include energy efficiency, flexible load management, electrification, and battery storage programs. Revenues from this part of the business increased 6.7% in the second quarter and represented approximately 82% of second quarter commercial energy revenues.

Our results in this area were driven by the continued success of our performance-based programs, the expansion of existing engagements, and the startup of new projects. The addressable market for these services is large, and ICF is a recognized market leader with our share gains coming from excellent results we are delivering to clients, introduction of new services, and winning work away from competitors. Energy advisory work for commercial clients increased 2.5% in the quarter, reflecting the timing of client transaction activity, and increased 8.6% for the first half, accounting for about 13% of first-half commercial energy revenues. Contributions from this part of our business tend to vary due to the timing of assignments and client transactions. As we look to Q3, we're expecting more robust M&A activity, which should drive our valuation and due diligence services.