Welcome to the fourth quarter and full year 2022 ICF earnings conference call. My name is Michelle, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Afterwards, you will be invited to participate in the question-and-answer session. During the question-and-answer session, if you have a question, please press star then one one on your touchtone phone. I will now turn the call over to Lynn Morgen of AdvisIRy Partners. Lynn, you may begin.
Thank you, operator. Good afternoon, everyone, thank you for joining us to review ICF's fourth quarter and full year 2022 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 February 28, 2023 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 fourth quarter and full year 2022 performance. John?
Thank you, Lynn, and thank you all for participating today to review our fourth quarter and full year 2022 results and discuss our outlook for 2023. ICF's fourth quarter was an outstanding finish to 2022, which was a record year for the company across all key financial metrics. There are five key takeaways I'd like to highlight. First, our strong year-on-year increases in service revenue of 24% for the quarter and 15.8% for 2022, which reflected double-digit organic growth across our key growth markets in the aggregate, plus the impact of our two acquisitions that benefited revenues from federal government clients.
Second, the substantial margin expansion we achieved, posting an adjusted EBITDA service revenue margin of 16.3% for the fourth quarter and 14.9% for the year, up from 14.3% in 2021. Third, we had record contract awards for both the fourth quarter and full year, which resulted in a 12-month book-to-bill ratio of 1.32. Fourth, our robust operating cash flow, which supports our capital allocation priorities. Fifth, our 2023 guidance for double-digit revenue growth, further margin expansion in GAAP and non-GAAP EPS of $4.90 and $6.30 respectively at the midpoints.
These accomplishments are due in large part to the growth strategy we outlined in 2020 and the strategic decisions we've made since then to expand our investments and capabilities in markets in which we anticipated accelerated client spending and where ICF already had recognized experience and success. These markets, namely IT modernization, public health, disaster management, utility consulting, and climate, environment, and infrastructure services, accounted for approximately 55% of our service revenue at the end of 2020. Since that time, revenues from these markets have grown considerably through a combination of organic investments in people and technology, the completion of three sizable acquisitions over the past three years, and the capture of initial revenue synergies. As a result, these high-growth markets represented approximately 75% of our service revenue as we exited 2022, and we expect this to increase for full year 2023.
In addition to driving service revenue growth, these investments have substantially expanded our margins together with various cost reduction actions. Adjusted EBITDA margin on service revenue increased from 13.7% in 2020 to 14.9% in 2022, and our guidance for 2023 anticipates a 15% margin inclusive of investments to support future growth. To fund this growth, we have taken on debt, which is in line with how we've built ICF. As in the past, after we have levered up, we've used strong cash flow to repay debt. In the fourth quarter of 2022, we repaid approximately $145 million in debt, bringing our adjusted leverage ratio down to 2.86 at year-end. Additionally, we were able to mitigate the impact of higher interest expense on our financial results.
As expected, offsets like lower facility costs, administration efficiencies, and effective tax strategies enabled us to report substantial growth in non-GAAP EPS for both the fourth quarter and full year of 2022. The midpoint of our 2023 non-GAAP EPS guidance points to 9.2% year-on-year growth. Looking across our client categories, there are several highlights worth noting. Revenues from federal government clients increased 45.6% year-on-year in the fourth quarter, comprised of 15.4% organic growth plus the contributions from our Creative and SemanticBits acquisitions.
IT modernization and public health, two of our key areas of focus in the federal arena, continue to show strong growth. One of our most notable contract awards in the fourth quarter was a new $160 million task order with the National Institutes of Health National Cancer Institute that demonstrates the success of combining deep health domain expertise and leading-edge technology solutions, plus extensive experience supporting the client. The fiscal year 2023 omnibus appropriations included significant agency-level IT modernization investments and additional funding for the Technology Modernization Fund.
Both our IT modernization and public health work will also benefit from the $9 billion in additional 2023 discretionary appropriations to our largest client, the Department of Health and Human Services, as increased funding is going to agencies where ICF is well-positioned, notably the Centers for Disease Control and Prevention, the National Institutes of Health, the Centers for Medicare & Medicaid Services, the Substance Abuse and Mental Health Services Administration, the Administration for Children and Families, and the Food and Drug Administration. In addition to the 2023 appropriations, our federal government revenues will benefit from the IIJA and later the IRA, which provide ICF with multiyear growth opportunities to capitalize on our long-standing credentials in clean energy, climate, and infrastructure.
Revenues from state and local governments increased 7% in the fourth quarter, reflecting year-on-year growth in both disaster management and environmental services in support of infrastructure projects. During the year, our teams in Puerto Rico disbursed more than $1.4 billion in FEMA funding, and we were the market leader in issuing CDBG grants to homeowners. As I mentioned last quarter, ICF won a $51.4 million award to continue to support the continuing housing recovery on the island, and we're tracking a number of procurements in 2023 where we believe that we are well-positioned and competitive. We're also very active in Texas, and our position there in environmental services has been enhanced by the Blanton acquisition, which we closed in September of last year. Revenues from commercial energy clients increased 17% in the fourth quarter, reflecting substantial gross growth across all services.
We saw robust demand from utility clients for energy efficiency, electrification, flexible load management, and distributed energy services programs. Additionally, demand for our energy advisory services relating to renewables and clean energy remains strong and will only increase with the significant IRA incentives once the associated rules and guidance come out later this year. Revenue comparisons in our international government business in the fourth quarter were impacted primarily by the completion in early 2022 of a short-term project with significant pass-through revenues and currency translations related to the euro and the British pound. We have continued to win multiyear contracts and have an active business development pipeline, leading us to expect mid-single-digit growth in this client category in 2023. Our climate, environmental, and infrastructure services, which cut across all of our client categories, continue to experience positive momentum.
The IIJA and IRA have created a uniquely favorable public policy and economic environment that has increased the number and value of renewable power, electric transmission, electric vehicle, and innovative fuel projects across the country. These projects can be large and take time to come to fruition, but we expect them to provide significant growth opportunities for ICF in the coming years. After a fourth quarter of record contract awards, we ended 2022 with a business development pipeline of over $8.5 billion, 20% higher than one year ago, in part due to revenue synergy opportunities related to the two larger acquisitions that we completed in 2022. The pipeline represents a diverse set of opportunities across our government and commercial clients that includes only a modest dollar amount associated with IIJA and IRA-related projects, which we expect to increase as the year progresses.
In mid-January, we announced the formation of a new group focused on increasing the company's technology capabilities and maintaining our growth momentum in the federal IT and modernization arena to be led by Mark Lee as Chief Technology Executive. As part of this, Mark will also oversee a new company-wide chief technology officer organization that will help drive further technology growth and innovation across all of ICF's markets. In summary, our 2022 results demonstrate how well aligned ICF's domain expertise and expanded implementation capabilities are with the spending priorities of government and commercial clients. Our performance in 2022 and our guidance for 2023 have put us on track to achieve the long-term financial goals we outlined in our May 2022 investor day.
Namely, to achieve high single-digit organic service revenue growth through 2024, driven by our five key growth areas, drive double-digit total revenue growth by adding acquisitions that are a strong cultural fit and offer revenue and earning synergies, and by the end of 2024, increase adjusted EBITDA to approximately $245 million. Operator, I'd now like to turn the call over to our CFO, Barry Broadus, for a financial review. Barry?
Thank you, John. Good afternoon, everyone. I will now provide an overview of our strong fourth quarter and full year performance that resulted in a record year for ICF and review our 2023 guidance. Our fourth quarter total revenue increased 22.6% to $475.6 million, and our service revenue was up 24% to $339.1 million, which led by a strong year-over-year revenue performance from our federal, state, and local and commercial energy client categories. Pass-through revenue for the fourth quarter accounted for 28.7% of total revenue, which was in line with our expectations and slightly lower than the 29.5% in the fourth quarter of 2021.
Gross margin expanded 50 basis points year-over-year to 36.9% on total revenue, and on service revenue improved 10 basis points to 51.8%. Indirect and selling expense decreased 280 basis points as a percentage of service revenue to 34.9%, down from 37.7% in the same period last year on an adjusted basis. This improvement reflects the benefit from our work to reduce facility-related expenses and increase scale as our indirect expenses increased by 19.4% on a year-over-year basis, which was at a slower pace than our year-on-year service revenue growth of 24%. Our fourth quarter interest expense was $9.2 million, $6.8 million above last year's level, reflecting both our higher debt balances related to our recent acquisitions and higher interest rates.
As I mentioned on our last call, we continue to successfully offset a significant portion of this higher interest expense through various cost reduction initiatives, including lower facility costs, higher utilization, managing our other non-direct billable expenses, and executing on our tax efficiency strategies. EBITDA for the fourth quarter was $36.9 million, an increase of 38.9% from the fourth quarter of 2021. Our adjusted EBITDA was $55.2 million, which is 45.1% above 2021's fourth quarter. Primarily for the same reasons I just mentioned, we delivered a fourth quarter adjusted EBITDA margin on service revenue of 16.3%, 240 basis points ahead of the comparable period last year. Our fourth quarter 2022 net income was $8.9 million or $0.47 on a per diluted share basis.
This number includes $13.6 million or $0.72 per share in tax-affected charges, mainly reflecting our strategic decision to reduce the office space associated with our commercial marketing services business. In last year's fourth quarter, we reported net income of $12.1 million or $0.63 per diluted share, inclusive of $0.43 in tax-affected special charges. Conversely, this year's fourth quarter non-GAAP EPS increased 31.1% to $1.56, up from $1.19 per share in the fourth quarter of 2021. I will now briefly review our full year 2022 results. Service revenue increased 15.8% to $1.29 billion, and total revenue was up 14.6% to $1.78 billion.
On a constant currency basis, total revenue would have been approximately $14 million higher or up nearly an additional 1%. Adjusted EBITDA was $191.8 million, representing a 20.6% increase over the $159 million in 2021. The 2022 Adjusted EBITDA margin on service revenue increased 60 basis points to 14.9% compared to the 14.3% in 2021. GAAP EPS totaled $3.38 per diluted share and included $24.9 million or $1.31 per share in tax-affected special charges, which primarily consisted of facility, severance, and M&A-related costs. In 2021, GAAP EPS was $3.72 per diluted share, including $0.63 of tax-affected special charges.
For full year 2022, our non-GAAP EPS increased 19.7% to $5.77 per share. We're very pleased with our success in enhancing our profitability. In addition to the actions I mentioned earlier, we are implementing multi-year tax strategies that we anticipate will allow us to maintain an annual tax rate of approximately 23.5%. Our full year operating cash flow was $162.2 million as we benefited from approximately $30 million related to the timing of collections and disbursements. For 2023, we estimate our operating cash flow will be approximately $150 million. Our full year capital expenditures totaled $24.5 million in line with our expectations and reflects our investments in facilities, technology, and software.
Day sales outstanding for the quarter improved to 71 days as compared to 76 days in last year's fourth quarter, benefiting from the timing I previously mentioned. We were able to utilize our robust cash flow to make significant reduction in our debt balance in the fourth quarter. We ended the year with $556.3 million of debt, a reduction of $145.4 million from our third quarter debt balance of $701.7 million. This reduction brought our adjusted leverage ratio down to 2.86 at year-end. This represents an improvement of approximately 1 turn since last quarter. Additionally, given this debt reduction and the additional hedges we've put in place since the end of the year, our fixed versus floating debt ratio equates to approximately 50% of our year-end debt balance.
ICF's capital allocation strategy remains the same. We will continue to prioritize debt repayment while maintaining our dividend policy and repurchasing shares to offset the impact of our employee incentive programs. In 2022, we repurchased 176,375 shares at an average price of $96.18 per share. As of year-end, we had $112 million remaining under our share repurchase authorization program. Today, we also declared a quarterly cash dividend of $0.14 per share on April 13, 2023 to shareholders of record on March 24, 2023. I will conclude my remarks with providing additional guidance metrics for 2023 to assist you with your modeling. Our depreciation and amortization as expense is expected to range from $23 million-$25 million. Amortization of intangibles should be approximately $36 million.
Interest expense will range from $32 million-$34 million. As I mentioned, our full year tax rate will be approximately 23.5%, with the first half of 2023 being approximately 28%. We expect a fully diluted weighted average share count of approximately 19.1 million, and our capital expenditures are anticipated to be between $26 million and $28 million. With that, I will turn the call back over to John for his closing remarks.
Well, thank you, Barry. As noted in our earnings release, we expect 2023 to be another year of record performance for ICF, supported by a backlog of $3.9 billion and a robust business development pipeline. We expect full year service revenue to be in the range of $1.405 billion-$1.465 billion, representing year-on-year growth of 11.6% at the midpoint. As I said earlier, we expect our key growth markets to continue to increase as a percentage of service revenue. Pass-through revenues are anticipated at approximately 27% of total revenue in 2023, implying total revenue of $1.93 billion-$2 billion. These numbers take into account the $13 million in revenue associated with the commercial marketing business we exited in the 2022 third quarter.
EBITDA is estimated to range from $210 million-$220 million. Adjusted EBITDA margin on service revenue is expected to be approximately 15%. GAAP EPS is projected at $4.75-$5.05 exclusive of special charges. Non-GAAP EPS is expected to range from $6.15-$6.45, representing increases of 45% and 9.2% respectively over 2022 at the midpoints. As we noted in our earnings release, ICF received several important recognitions in 2022, of which we're very proud. Being included in Fortune's list of America's best management consulting firms, America's best employees for diversity, and America's best employers for women reinforces ICF's corporate culture and has helped us to attract the talent we need to effectively execute on our growth strategy.
We have a highly engaged workforce, and we recognize the importance of maintaining a collegial culture and offering leadership development programs to provide growth opportunities across our diversified business disciplines. With that operator, I'd like to open the call to questions.
As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Tobey Sommer with Truist. Your line is now open.
Thank you. Good afternoon. I was hoping you could give us your current thoughts for the timing of the contract awards and financial impact related to the infrastructure bill and maybe what your current expectations are related to climate-related spending activity at federal and local customers. Thanks.
Sure. I think as we've discussed previously, you know, on the infrastructure bill, the IIJA, you know, we've, you know, we're beginning to see opportunities there. I think we've reported sales of about $40 million in 2022 on IIJA-related activities. I think we have a pipeline of close to $100 million-$150 million of opportunities in our pipeline. You know, I think we expect those to ramp up in the second half of the year and certainly, you know, present material growth opportunities for ICF in 2024 and 2025. That's the IIJA set of activities. I would say on the IRA front, as we've discussed previously, I think there will be significant opportunity there.
I think that's gonna take a little longer for that money to flow. We've begun to see some opportunities, but I really would expect that to be more material in 2024 and beyond. But obviously we're watching that carefully and paying close attention to it. You know, more broadly, I would say that, you know, our climate and resilience business is obviously one of our key five growth drivers. It cuts across all of our markets, federal, state, and local, commercial work with utilities, and our international business. It's been, as we've said, those growth drivers in the aggregate have been growing north of 10%. And I fully expect that climate and resilience will...
We will see, you know, robust growth there, robust double-digit growth, you know, over the next several years on that front, both given what's being appropriated and clients are spending, but also with the tailwinds from IIJA and IRA as we look down the road over the next couple of years.
Thanks. With respect to IT modernization, when you look at your closest and largest customers. Where would you say they are in terms of migrating their systems to the kinds of commercial systems that you could help in terms of a transition, either the baseball analogy or some sort of measure as to how far their progress is in this regard?
Yes, sure. As you know, you know, our IT modernization business is again, one of our 5 growth drivers. I would say it's the first among equals in that of those 5 growth drivers. We have a $500 million business that, as you know, Tobey, it's been growing 15% a year for the last couple of years, and I think we have high confidence we can maintain double-digit growth as look forward. We're primarily focused on civilian clients given our, you know, portfolio. I would say we see significant opportunity across those client sets. Obviously, HHS is our largest client, north of 20% of our total revenues.
As I mentioned in my opening remarks, I mean, we won a $160 million new task order at, you know, within HHS, within NCI to undertake IT modernization opportunities. We're certainly seeing a lot of opportunity there, a lot of opportunity within CMS, particularly given the SemanticBits acquisition. From a baseball analogy standpoint, I would say, you know, we're in the third or fourth inning here of modernization efforts with these clients. This is gonna take, you know, this is a multi-year effort, and I think it will continue to drive significant growth for ICF over the next 5+ years.
Thanks. I wanted to drill into one aspect of sort of the push in climate in towards green energy. Seen some media reports of kind of queues of accumulating of new e-energy generation, plants and sources that are having trouble connecting to the grid. Could you speak to that in broad terms and maybe what that means for the company over time?
Sure. You're certainly correct. There is a significant backlog in, you know, the ability of developers and, you know, to connect to the grid, and a backlog in on interconnection studies and approvals that are impacting, you know, developers of renewable power projects. I do think the government's trying to address this. I know the Federal Energy Regulatory Commission has taken steps to better plan and streamline the process around interconnections. There's a variety of interagency task force addressing the issue. It's certainly impacting developers of these types of clean energy projects. I will say for ICF, you know, we have not seen a slowdown in our advisory business related to renewable projects and are doing a significant amount of work on interconnection issues. I think it's more...
For us, you know, even with the challenges and the queue here that developers are experiencing, there's only a limited number of players that can provide these capabilities, and we're fortunate to be one of those limited players. As even as some of these projects are delayed, we still are very busy and have quite a significant pipeline. I do think over time, this will get resolved. But it's more of an impact for the developers as opposed to. As I say, we remain quite busy on these types of issues.
If I may sneak in two numbers questions. Cash flow from ops improved nicely about, I think an 80%-81% conversion from EBITDA up from 70% a year ago. Do you have any thoughts for what that'll be in 2023? Conversely, the adjustments to EBITDA were more significant this year as a percentage of the total number than the year before. Do you have an expectation for whether that trend will continue in 2023?
Hey, Tobey, this is Barry. I think that we'll answer the second question first. You know, we did have a number of, you know, unusual, you know, one-time charges that were related to the, you know, facility closures, and that was mostly related to the commercial market services business. I don't, you know, don't expect, you know, that to repeat, though we are, you know, always looking for ways to, you know, improve our facility footprint and, you know, lower expenses. I would say that those, you know, that was certainly, you know, a one-time charge. As far as the, you know, conversion on the cash, I would expect it to be, you know, similar fashion in 2023 as we had in 2022.
I don't see anything that would be a headwind on that.
Thank you.
Yeah, just to foot stomp that on the, on the facilities charge. I mean, I completely agree with Barry. I mean, we, you know, we've obviously taken additional charges here to get the end of 2022, but we certainly expect those to come down materially in 2023 and beyond as we look down the road.
Please stand by for our next question. Our next question comes from Joseph Vafi with Canaccord. Your line is now open.
Hey guys, good afternoon. Very nice results. Nice outlook. Congrats on all the great execution here in 2022. I was wondering if we could drill down following some of Tobey's questions on IT modernization. If you could perhaps walk us through this large joint win to the extent you can, with, you know, an IT component and a subject matter expertise component. You know, I guess the line of questioning I was thinking of is, you know, was there an opportunity to do a consultative type sell here a little bit before the RFP was issued?
You know, to the extent that that kind of opportunity exists, you know, across your client base to, you know, help the client to, you know, do their own transformations with your help even before the RFPs are issued, and then I'll have a couple follow-ups.
You know, I would say in general, Joe, on the IT modernization front, you know, I think we're at our best and can really differentiate ourselves when we are engaged with a client on both their domain-oriented efforts and kind of understand the types of questions they're answering and, you know, the issues they're addressing, leveraging our domain expertise. Also, as they look to modernize their system can kind of bring our top-notch technology skills.
I think we found when we're supporting clients on both sides and both sides of the client's house is engaged around the IT modernization, the civil servants who are, you know, driving the mission, bringing the domain expertise, and those on typically in the CIO shop focused on the technology side, we can really differentiate ourselves, and we can connect the dots between, you know, those sides of the house and work that white space to really help them make sure that the modernization efforts answer the questions that they're trying to address today as opposed to what they were trying to address 30, 40 years ago, and also bring top-notch technology. Certainly our...
The extent to where we can really differentiate, we can really, you know, separate ourselves from the competition in terms of how we approach the deals is opportunities where we're bringing our domain and we're bringing our leading-edge technology. In terms of the specific National Cancer Institute, I know we're working on both sides of the house in that agency, so I'm sure it helped us. That is kind of the unique value proposition that I think can bring in this market. It is certainly driving very significant synergistic pipeline opportunities and some very synergistic sales wins for us, given that we can bring both of those sets of skills in a variety of civilian client arenas.
Sure. Thanks for that, John. You know, just kind of another follow-up on the IT business. If perhaps you could give us a sense there. I'd suspect that it's probably your service revenue is growing a little faster there than perhaps some of your other key focus areas. I suspect that potentially the margins may be a little bit higher there as well. Just trying to get a feel for, you know, the trajectory of that business as we look into 2023.
Sure. I mean, I think certainly, I think we've said in the past, I mean, across our five growth drivers, the margins in those business tend to be at the higher end, you know, in each of those markets. Certainly in the federal arena, IT modernization tends to be at the higher end of our margin profile. You know, that work can often be fixed price, which is very good for us. And so, you know, that is certainly the case. And it's also true that, you know, we don't have as many, we don't use subcontractors as intensely in the IT modernization as we do in some of our disaster management and infrastructure work, which are also in the growth driver.
I agree with the, with the, you know, what you said, and certainly it is at the higher end of the margin, and it's certainly helping drive our service revenue growth, you know, given the nature of the lower level of pass-throughs.
Sure. That's great. Barry, I know you mentioned that you're focused on those offsets in infrastructure, tax, et cetera, to kinda offset the interest expense headwind that we have. I was just wanting to drill down on that a little bit more and how much, you know, how sustainable you see that being here if, you know, if we're in a high interest rate environment for the whole year, which we probably will be?
Yeah. Thanks for the question. I do think that, you know, a couple things on the interest rate. We, we have put in place some additional hedges, you know, to help us manage, you know, the interest expense impact on the company. If you'll, you look at, you know, where we were at the end of 2022, and with the new hedges, we're at about, you know, 50% hedged. That, that will help, you know, manage some of that. You know, there are things that we are doing. For example, I'd mentioned, you know, the work on the tax strategies. That can certainly help offset, you know, a good portion of that.
I do think that, you know, based on the work that we've done, that that is sustainable for, you know, 2023, 2024. That's the, you know, I think that we've got a lot of visibility in that, and we feel very confident that, you know, we'll be able to remain at that tax rate, you know, through this year, next year, which has certainly helped us offset some of the higher interest rate costs.
Sure. That's great. Then maybe just one final one kind of on a similar subject here. You know, you did bring debt down by a turn, and you'd probably be back in a nice position to maybe go acquisition hunting again, maybe on a larger scale. You know, given interest costs here, you know, just wondering how you're making the trade-off here relative to, you know, further debt paydown versus M&A. I'd also probably expect that the interest rate environment is perhaps helping bring target prices down as well. Any color on how you're balancing all of that? Congrats again on a nice year. Thanks.
Okay, great, Joe. Maybe I'll make a few comments on the last period. You know, on the acquisition front, I mean, I guess I would. Obviously, acquisitions have been a key aspect of our long-term growth strategy. I would say that, you know, given the three deals we've been working on to integrate, in 2022, the Creative, the SemanticBits, and Blanton. You know, I think, you know, and the, you know, the relatively high debt load we've had, and as you mentioned, the higher interest rates, I think, you know, certainly for the first half of 2023, we're gonna be focused on beginning to pay down debt. And, you know, in terms of where we might go from there, I mean, I think as you know, you know, interest rates are high.
You know, we started to see valuations come down a bit, but I wouldn't say they've come down a lot. For us, you know, we want our deals to be accretive right out of the gate. I think we remain out in the market, but I think we're primarily focused right now on debt repayment and focusing on cash flow with that. Barry, I don't know if you have anything to color on that.
Yeah, I would agree. I think that the laser-focused on debt repayment and delevering, you know, and look to do that, you know, through 2023. I think that, you know, depending upon from an acquisition perspective, if, you know, there's a good deal that comes along, we certainly will look at it, but, you know, that's the focus right now.
Sure. Got it. Thanks a lot, guys.
Thanks, Joe.
As a reminder, to ask a question, please press star one one. Please stand by for our next question. Our next question comes from Marc Riddick with Sidoti. Your line is now open.
Hey, good afternoon, everyone.
Hey, Mark.
Hey, Mark.
I was wondering, a lot of my questions were already answered, so I wanna sort of just jump into a couple of other areas. One of the things I was sort of curious about, you certainly have quite a bit on your plate and a lot going on right now. I wonder if you could talk a little bit about talent, availability, kind of where you are and, you know, are there, you know, some folks that you would like to add in certain areas? Maybe sort of what we should expect to see there or whether or not that, you know, kind of where you are in that relative to historical utilization and the like. I have a few follow-ups off of that.
Well, you know, I would say that, you know, obviously we're a professional services business, so it's all about the quality of the gray matter between our people's two ears. You know, if we're gonna grow, we need to be adding people. I think as I've said before, if, you know, for example, we're growing organically 10%, you know, we're gonna be needing to add, you know, 9.5% headcount to meet that growth. We're always looking to reduce utilization a little bit and, you know, continue to focus on that. I think have a track record of doing that. We absolutely need to be, you know, adding the talent for us to meet our growth objectives. I think we've been doing a good job of that.
We've been investing significantly in recruiting. You know, we have a strong culture. You know, we obviously pay attention to the market and the compensation trends and things of that nature. I would say we've generally been able to find the talent, add the talent, and deliver the growth. You know, I would say the market's gotten a little better in terms of the, in terms of being able to, you know, identify and onboard the talent, but it's still very challenging. You know, you have to make the investment in recruiting and human capital, and you have to do what you have to do to, you know, keep current on the compensation and wage front, and we're certainly doing that.
You know, as I say, the good news is we have a strong culture. We're growing. We're offering people a lot of opportunity, and we do a lot of really interesting work, which helps us to attract the talent too. We're certainly working hard on it.
Excellent. I was wondering if you could talk a little bit about are you beginning to see more. I mean, it's kind of hit and miss over the last few months, but are you beginning to see more, face-to-face activity as far as go-to-market needs? You know, are we seeing or are you modeling a level of take-up in travel and entertainment experiences or things of that nature? Maybe you could sort of talk about where you are with those initiatives?
Well, I would say a couple things. One is, you know, I think, certainly post-pandemic, travel has picked up. You know, I think it's still below what we were spending pre-pandemic. I'd say we're probably in the 60, 50, 60% spend on travel relative to pre-pandemic. You know, I think certainly ICF, we've shifted to a hybrid work environment for those who previously worked in the office. You know, our folks are in the office, you know, one to two days a week. Our clients are, you know, we're spending and seeing our clients face to face, certainly more. I don't think we're ever gonna return to the pre-pandemic level of, you know, travel and entertainment spend. I don't think we're gonna ever return to a five-page.
I mean, we're gonna be in a hybrid work environment here as we look forward. I think we're really looking to optimize the company and lean forward on how to best, you know, maintain our competitive edge, maintain the culture, and continue to grow in that environment.
Great. Then I know this doesn't apply to you as much as some of your peers. I was wanting to sort of talk about whether or not you're seeing much in the way of any changes in client behavior or client activity or project-based work or the like, based off of, you know, the current recessionary environment. I mean, granted you may not see it as much as others, but just wondering if there are any pockets of or areas that were, you know, were call-outs.
You know, I think as we've talked in the past, I mean, in terms of impacts on ICF of a recession or uncertainty economy, I mean, I think we generally think we're highly recession-proof. You know, 85%-90% of our revenues are in end markets that I think are, you know, typically don't see a significant impact from recessions. Obviously, you know, that cuts across our government businesses. I also think it cuts across our commercial energy business where, you know, actually a large portion of that is funded through, you know, tax on electricity delivery that funds energy efficiency programs. You know, I really, so we really haven't seen any material impacts across any of the business on, in terms of recession or a slowdown or clients showing more hesitation on their spend.
I would generally expect us to be pretty, as I say, pretty recession-proof on that front. That's not been an issue for us, at least so far.
Right. Excellent. Thank you very much.
I show no further questions at this time. I would now like to turn the conference back to John for closing remarks.
Okay. Thank you all for your participation. We certainly look forward to staying in touch through calls and meetings at upcoming conferences. Thanks for participating.
This concludes today's conference call. Thank you for participating. You may now disconnect.