All right. Good morning, everyone, and thank you for joining us for this fireside chat with the leadership team at ICF International. We are pleased to have them here at our industrials conference, and thank you all for joining. We are going to cover a number of topics today about ICF, both background on the business, trends, and what we are seeing in the market today and looking forward. Before I go too far into questions, I am going to pass it over to John and David to quickly introduce themselves, and then we will dive in.
Okay, great. I am John Wasson. I am Chairman and CEO of ICF. I have been at ICF for 39 years, so I have seen every corner of the business, and I am really pleased to be here. I appreciate the invitation from Jefferies.
Great.
All right. David Birken, Senior Vice President. I run our technology modernization and digital experience business, and been at ICF 21 years, as LinkedIn was so kind to remind me.
Like. No. Great. ICF, a really interesting business, an integrated business with a lot of different business lines across federal, state, and local, energy, digital modernization transformation. Maybe it would be helpful just to start high level, and John, I will probably start with you, to give a little bit of the ICF story. What makes you unique and different?
Well, sure. As you said, we're a professional services and technology services firm, about $2 billion of revenue, 9,000 employees. We're coming up on our 20th anniversary on the NASDAQ next week. I think in terms of ICF and our differentiation, first, since the founding of the company in 1969, we've always been known for the deep domain expertise, so the subject matter experts in the firm, in the verticals we operate.
They allow us to provide first-rate advisory, consulting services, so strategy, program design, policy, and economic analysis research. That's been a strong differentiator for many, many years. In the last 20 years, what we've done with our clients is also, in addition to providing those advisory services, we've developed a set of cross-cutting capabilities to help our clients implement the advice, and that gets at technology services, complex program management, change management.
We do both of those for clients. One of the things we can do, given we do both the advisory and the implementation, is connect that white space between them for clients, which I think allows us to do those types of activities very efficiently. We also have a very multidisciplinary staff. We're really known for the breadth of capability and our ability to bring together these interdisciplinary teams to solve very complex problems, very collaborative. The other thing about us is we work across multiple markets. We work on the commercial side, and we work on the government side, and we're able to bring commercial and government perspectives to those clients, which they really value. I think those are the key differentiators. I would also say in this environment, we deliver measurable outcomes for our clients.
So our contracts now are increasingly either fixed-price or outcome based, both for commercial clients or government clients. We deliver on that, and that's how we get paid and make our fees, and I think that we've really leaned in hard on that.
Yeah. Great. You mentioned the federal business, which obviously had disruptions over the changing administration in the last couple of years. That's a lot in the rear view mirror, and you've emphasized some of the changes and how those made you stronger over the last 18 months. Can you elaborate on that?
Well, sure. I think about 40% of our business today is in the government sector. We did see a lot of disruption and change in 2025 from that. I think the way we managed that is because of our diverse portfolio, the other 60% is in commercial, state and local, and international. We shifted a lot of the staff capabilities out of the federal market, given this disruption, into the commercial and state and local, and international markets, which grew quite nicely-
Right
-on the last several years. Part of it was just re-pointing that staff into markets where we saw growth and opportunity, and that's the beauty of having a diversified portfolio. We're a little different from many of our peer companies in that we are diversified across both commercial and government, and that helped us a lot. With that, the other shift we had to make is, how you go about winning commercial business and state and local business, it's different procurement, it's different velocity, it's different speed than the federal government business. With that, we had to pivot and speed up and adjust our internal processes to win that business. I think we did a very good job of that. We've really leveraged AI to help us improve cost efficiency and improve innovation within the company.
I think those are three areas where we really did a nice job in terms of pivoting the business in the last year.
That's great. David, maybe I'll jump off that last point on AI and technology modernization. Maybe if you would give us a quick overview of the business that you lead within ICF-
Sure
-because I think it's going to weave its way into many of our next questions.
Sure. Absolutely. Our modernization business makes up about half of our federal business, a little more than half our federal business. It is a lot of what it sounds like, and sometimes it's not very exciting, but it is modernizing what we would consider core government systems. So things that are required statutorily by law, so you think of this like grant systems, payment systems, fraud, waste, and abuse, Medicaid and Medicare payment systems.
We've recently just completed a project on modernizing a commercial driver licensing program. So, these are systems that are required by law, by Congress. That's why they came through the cuts in 2025. That business, we've built it out over the last six, seven years. It's growing quite nicely with the introduction of AI and now working in the AI fabric layer and the data layer.
Because we have been working in modernizing these core systems, bringing them into the cloud infrastructure, we are now being turned to by our clients to build out both the cloud and the data side, and then that AI fabric on top. So, that's a quick overview.
Yep.
John just referenced the use of AI. We basically integrate it into everything we do, whether it's how we approach our work, how we deliver for our clients, how we measure our outcomes.
Perfect. That diversified portfolio that you have, John, do you have a view on what optimal mix should be, or do you manage the business differently than that?
Well, as I said, I think we do have a diversified portfolio. We've always had that as a company since our founding. Today we're about 60% non-federal, 40% federal. We're seeing a disproportionate amount of the growth opportunities in our non-federal business, commercial energy, disaster recovery, and state and local. We'll follow the market, I would expect for the next three-five years. Following the market will perhaps take us to 70% non-federal and 30% federal. That doesn't mean we won't grow in federal. We will, but we'll grow more quickly outside of federal. So we'll follow the market, and our investments will follow the market. Right now I would say there's no optimal mix. We're going to follow the market, and-
Yeah
-that's the beauty of having a diversified portfolio.
Yeah. No, that's right. Let's sit on the commercial energy market, which is one of those growth areas that you've seen over the last couple of years and certainly will continue to grow going forward. How do you think about the trends in that business among utility modernization and technology bringing in?
Yeah. We have three growth areas right now in the business that we're focused on. Commercial energy, the IT modernization business and federal, and disaster recovery, which is primarily state and local. I would say commercial energy is about 30% of our total business. It's the first among equals in terms of growth markets. We're seeing tremendous opportunity there, once-in-a-generation increase in electricity demand, the amount of investments that it's going to require to meet that with generation and transmission-related assets, the rise of electric vehicles.
There's just a whole set of things that are just causing unprecedented demand. We have a significant business at scale there. We have marquee clients. We're seeing tremendous opportunity. I think in the long run, we should be growing double digit in that portion of the business. We feel very good about that. Dave mentioned the IT modernization business.
It's about 20% of our total business. I just would say there, the federal government is in the third or fourth inning of modernizing their backbone systems. They still are using COBOL and Fortran. There's a lot of work to do there. It's been probably two or three administrations now. The Trump administration actually supports IT modernization. They just want to push hard on AI. We're good with that because we're pushing hard on AI. They want it outcome-based, fixed-price. That's how we do all of our work. I think we're highly aligned there. The last thing I just mentioned is disaster recovery. We're a market leader in implementing disaster recovery programs for state and local governments. It tends to be more of a There's an optionality there. It really depends on when there's significant disasters, typically hurricanes.
I think the data shows that if you take a long-term trend, the frequency and severity of these types of events is increasing. When they occur, these are contracts that can really move the needle. There's been three or four times in the history of ICF where we've won these contracts and they've added $200 million, $300 million, $400 million of revenue a year for some period. Those are the three growth drivers. As I say, energy is certainly the first among equal.
Yeah. Maybe a note on the disaster piece, right? Because you say over decades, it's been episodic-
Right
-but it's a recurring non-recurring, if you will-
Right
-that seems to be more prevalent, or at least the risk is more prevalent.
Yeah, I think that the trend is clear that the frequency and severity of disasters, whether it's hurricanes, wildfires, floods, they're increasing, they'll continue to increase. And it is episodic when those large events happen. I will say the government, in the last decade, has also been spending more to prepare for these events, to make assets more resilient, to mitigate the impact in advance. And so that's helped flatten it out a bit. So we have a very good business right now. It's just the real optionality is down the road when these storms occur.
Right.
Yeah.
Yep. And David, so your business is federal focused, but that technology pushes throughout the organization. How do you think about bringing that technology modernization into the non-federal pieces of the business?
Yeah, as John said, we do pay very close attention to the market trends. While the business was built as a federal-first business, we want to think about it that way, we've, in the last two years, made huge strides into state and local, working in regulated markets like utilities. The big thing that we look for is a replication of what we consider our special sauce on the IT side. The way I like to think about this is, in theory, almost anyone could modernize an IT system.
The question is what it has to do and whether or not it's got a mission component piece that's going to interact with, whether it be citizenry or customers, in a way that that interaction is just absolutely critical, that the system has to work the first time and every time, no matter who's accessing it and how it's being deployed. We look for those type of similarities.
We've actually gotten a great foothold in several states where we're taking what we've done at the federal level and bringing that expertise down to the state level. We partner with our utility colleagues in the energy market, and those types of offshoots have been great. We're early in this, I'll call it a pivot or adjustment, but the returns so far are great. We're seeing double-digit growth in both of those spaces. Yeah.
Great. Maybe I'll touch on international really quick as well as part of that pivot. It seems like that piece of your business was growing nicely in the latest quarter.
No, absolutely. It's about 7% of our business is in international, primarily working for the European Commission and the U.K. government, on the types of issues we work here in North America on, from energy to environment, to public health, to human services. We have won a couple of very large contracts in the last 6 - 12 months, both in the European Commission and in the U.K. So that business is growing north of 20% this year. I expect it will grow north of 20% next year, and the trends are very positive there. It's the smallest part of our business, but it's also very highly, rapidly growing, and the work we do, these are global issues we're working on, and so we're seeing global opportunities.
Yeah. So we touched briefly on technology that you're bringing. The government customer is also changing the way they buy technology, right? Buying more software as opposed to systems integration. How do you think about shifting the ICF business to take advantage of those trends?
Yeah. So those are actually things we're quite excited about. So we, unlike a lot of our peers, we're not locked into any particular platform or SaaS provider or type of cloud provider. We maintain a pretty large partner ecosystem, so often we're brought in to solve some type of challenge or issue that has arisen. We're going to kind of leverage across what an agency's portfolio has. They've already bought certain licenses.
They need to use these types of seats, or think of it as sort of an optimization across the entire tech stack of how to get them to the best possible outcome. From that perspective, the way in which those buying behaviors have changed have kind of actually lend to our strengths, right? Because we're not a reseller. We're not trying to push certain aspects in that regard.
The other thing that is the big switch impact from that change is, that John Wasson was alluding to this idea of outcomes, is when you shift to that type of buying behavior, you're not paying for labor, you're not paying for hours, you're not seeing these time and material contracts. They're fixed-price contracts. 80% of my business is outcome fixed-price contracts. So we're already built for that business model. We're built to essentially get in, build out the system, implement it, and move on to the next thing. That's what the government-
Yeah
-is buying right now.
Yeah, which is probably a good transition to ICF Fathom, right?
Sure.
Which is your way of doing that, just more rapidly.
Yeah. ICF Fathom is a suite of services we launched last August. Best way to think about it, and I'm sure our marketing team will not be happy, but our simplest way of thinking about it's a suite of AI agents that can operate in pretty much any environment, in any type of technology stack. Again, staying with that theme of being agnostic to the technology, it is something we can deploy inside government secured environments.
It's something we can host ourselves and access back and forth. But it allows us to essentially start at the 40-yard line every time. Right? So we've got a set of preset agents that are ready to be customized, that we can deploy. It allows us to not only help clients sort of speed along their AI journey, but most importantly, it allows us to do rapid prototypes.
We don't talk to clients without something they can touch, feel, play with, see if it's along the lines of what they're looking for to solve their problem. We have an internal standard of, we can produce any prototype to answer a customer's question within 24 - 48 hours. As we like to joke, weekends included.
Many times we'll go and see a client on Wednesday, have a working prototype for them by Friday. That allows us to have a much more tangible conversation than just, sure, we've done this before. Here's past performance, here's our quals.
Yeah.
Yeah, I just would emphasize that rapid prototyping is a major shift-
Yep
-in how we sell and how we engage with clients, in terms of getting new work and then scaling that new work. It used to be the clients would write a detailed scope of work, and you'd write a proposal, and 6 months later you might win it. Now with AI, if you can go in, understand their problem, and demonstrate value in 24 - 48 hours, and you have the contract vehicles that allow them to reach you can really accelerate-
Yep
-and really win business in a much more agile and quick way. This administration, they are AI led, and so we have really, I think, done a nice job of aligning ourselves with that future and are seeing the fruits of that. The other thing I would just say is, I get asked the question a lot, "Oh, well, is AI going to undermine the business? Are your fees going to reduce?
Are your projects going to be half of what they used to be?" I will say that, first of all, AI is improving efficiency, and we can do the work more quickly. What used to take, we can probably do 25% or 30% more quickly. So we are seeing the average project size come down. The fees are not coming down. If you deliver the value, you can maintain the fees.
But with the projects coming down, there is a 10 or 15-year backlog. There is a huge backlog of systems that need to be modernized. So if we can work through that backlog more quickly, the government will just give us the next assignment. I used to think it would take 10 or 20 years to work through this backlog, so maybe we will do it in 7 - 15 years. But the fact that the projects are not as large doesn't mean there's not a lot of work to do.
So I am generally, I think we are generally very bullish. If I looked out over the next 10 years, there's going to be plenty of work here to do, and it's not like the IT modernization business, at least given how we are positioned, is going to just dwindle or disappear.
In the short run. I will say, it's interesting, our clients, the federal government clients we work for, and we work for the energy industry, which is a pretty risk-averse industry. So they are also not leaning in as hard as other entities, other commercial entities. So that's a long-winded way of saying I am quite confident of the growth opportunities in the, certainly in the federal arena over the next 5 - 10 years.
Yep. In that competitive landscape where you are bringing quick solutions, rapid prototyping solutions, how do you think about that competitive set? There are larger systems integrators.
Sure.
There's sometimes the government itself, there's pure IT services firms. What really differentiates you-
Yeah
-in that competitive set?
Thanks for pulling up my worst nightmares over and over again.
Right.
I think the way we tend to think about it is we kind of have three core competitors in this space. Your traditional SIs, your big large firms who've been doing this since the early 2000s. With them, it's what you just talked about. It's that speed, it's the ability. We take a lot of contracts away from those SIs by going in and saying, "We understand this is how it's being done right now. Let us show you a way that's 30% faster and cheaper." It's not just a pitch. We can show you exactly how we'll attack that system. Being able to do it on a fixed-price basis is something that is a huge differentiation against that peer group. That's just how we're built and how we build those teams.
On a pure technology firm, they may have us outclassed on the exact element of that IT system, but what they typically lack is the mission expertise of what that system has to do. If it's a Medicare system, how are we going to ensure we're going to prevent fraud before payment goes out, as well as being able to claw back if we find fraud in the system during other tests? If it's a grant system, how are we going to be able to track funds from disbursement all the way through? That mission aspect, and John talked about being first and foremost a domain company, that's how we deploy. We don't do any technology project with just technologists.
Almost every one of our deployments has two or three subject matter experts or technical experts in either the agency or the domain field we're operating in to give that aspect so that we're not pulling, particularly right now, on government resources where they've been severely impacted by this administration. That third aspect of the more rapid deployment, think of sort of our large language competitors who are moving into this space.
With them it is an aspect of collaboration, but also competition that for them, they want to own and control all that data. That does not work very well in the federal market. Offering that buffer, being able to partner with them to provide closed loop systems in ways in which we can protect government data, but also allow the benefits for those systems, that's the narrow line we walk there.
Great. Maybe I'll shift gears a little bit here because we've spent a lot of time focused on growth, which is exciting, I think, across multiple end markets. Maybe on the execution side, you've had a long track record of growing EBITDA margins. Maybe give us a sense for where you are and where you're headed from that.
Well, as you said, we've been guiding for the last decade for 10-20 basis points of margin improvement per year. We measure that as adjusted EBITDA to revenue. If you look over that 10-year period, I think the average for that period is 14 basis points a year. I think we've pretty consistently done that. That occurs based on several factors. One is the mix of business, and by that I mean what portions of the business are growing and how profitable are they? Certainly our commercial energy business is our most profitable business. It's growing most rapidly, so that's helping with the margins. Dave's business, IT modernizations, primarily fixed-price, outcome-based. For our government business, his portion is at the high end of the margin arena. Disaster recovery work tends to be fixed-price.
The key growth areas are, I think, the higher margin businesses that is helping us. As we scale, we shouldn't have to add as much corporate costs as we scale the revenues, so there is benefit there. We are obviously looking at ways to use AI internally in the company. We have made great progress actually on the marketing and proposal front and in some of the finance areas. I think we are quite confident we can deliver 10 - 20 basis points. We could probably actually go higher, but we also want to be reinvesting some of those savings into the business. Net net, I think we are quite confident we can continue to expand the margins.
Yep. Good. On capital allocation, M&A has been a part of your story. You have also repurchased shares and generated a good amount of cash. How do you think about capital allocation from here?
I think for us it is a balanced approach. I think we pride ourselves on being a growth company. I mentioned we are coming up on our 20th anniversary as a public company. If you run a CAGR on ICF on revenues for those 20 years, I think it is 13% or 14% revenue growth with more leverage on the earning side. About half of it has been organic, half of it has been inorganic.
We certainly look to invest for the organic growth and the inorganic growth. We have done, I think, 35 acquisitions in the 15 years, 20 years we have been public. So that is an area of focus, but we also have been buying back stock. We bought back, I think it was 435,000 shares the last couple of quarters, which is a record for us. I think we will continue to look at that too.
Particularly, we think ICF is a compelling investment, so we have been buying back. It is a balance. I think on the M&A front, we are primarily focused in the three growth drivers we talked about. I think with commercial energy being kind of the most likely place that we would do something on the M&A side. More of a tuck-in, I think, than a-
-a large transformational deal in this market. But it's a balance on the capital allocation. We're trying to be balanced, but be very smart about it.
Yeah. What are some of those internal organic investments that you're making to position for that?
In our business, it's about people, and it's about technology. People, we need to have the skills and capabilities, and honestly, we compete based on the quality of the gray matter between our people's two ears. So we invest a lot there. We're investing a lot on the energy, the technology fronts, and then we're investing CapEx in developing new technology tools and models and data and analytics capabilities. So primarily, I would say people and technology are the organic investments, for sure.
Yeah. Great. I have a couple more questions, but I certainly welcome questions from the audience as well. Does anyone have questions they want to contribute? While you think about it, I'll ask one more. Thinking about the federal government, it's obviously been a dynamic 24 months in the federal government landscape. What's your outlook for the next 24 months in the federal environment?
I would say that, I think for the next 24 months, what we've generally guided for our federal business for the next several years, from 2027 on, we think we can deliver low to mid-single digit growth in our federal business. We think in the non-federal piece, we can deliver high single digit to low double digit growth. Net net, the company from 2027 on should be delivering mid to high single digit organic growth. Obviously, if we do acquisitions, that could take us higher. My view on the federal business is I think the cuts and the shift in programmatic focus and all the change that all played out in 2025. I think we haven't seen any contract cancellations or significant shifts in our federal business since that all ended in June of 2025.
I think we think we're on a road to growth, low to mid-single digit growth. The work we have now is all statutorily required, so it's based on laws passed by Congress. Congress has been funding these programs for the last year. The latest budgets will fund them for next year. That's, I think, how we're thinking about the federal business. Obviously, now with 60% of our business on federal, and as I said, if you take out five, if you're perhaps going to 70%, that's where we think we'll see the higher growth-
Yeah
-and really focus from an investment standpoint.
Excellent. Please.
Yes. Maybe you can just talk about kind of returning to that double digit growth CAGR you experienced over 20 years, because we've been quite a bit below that over the last three to four years. I understand some of it's government, but you understand the playing field now. How do we get back, and is that a goal of the company to get back to double digit top line, mid to high teens bottom line? Thanks.
Yeah, I think that's the long-term goal for the company. I would say, in the period 2020 - 2024, we generally achieved mid to high single digit organic growth. Then we would leverage the balance sheet, and that would get us into the low double digit organic growth. If you improve your profitability 10 - 20 basis points a year, it's going to get you leverage towards mid-teens earnings growth. I think that is the intent and that is the strategy. I think we obviously had a transition here in 2025, 2026. I think we're executing, and I think we're on a run rate that will get us back to that from to the mid to high single in 2027.
Then 2028, 2029, I think the intent is to get to high single digit organic growth, and then with the balance sheet, we could get to the double digit. That is the long-term plan, and I do think the growth opportunities in energy and in IT modernization and in disaster recovery certainly provide a compelling and, I think, clear path to get there. Absolutely, that is what we're striving to get to.
Yeah. Maybe a closing question for each of you, staying on that longer term theme. If we look out three to five years, how do you think about defining success both for your technology modernization business, what does it look like, and then John, you for the enterprise?
I can take tech first.
Okay.
I think for us, the goal is actually really clear. We want to be exactly in the AI infrastructure and data weave that exists inside federal agencies. That means building out that cloud infrastructure, structuring that data for computational power of AI, and continuing to advise our clients on where humans need to be in the loop, and then where, to be honest, things can be automated or can be running in parallel with audit proof trails, and so on and so forth. That balancing act of how fast can we go and how reliably and safe can we move, that is our core business, and that is where we're seeing tremendous growth in our space.
To be honest, it's the thing that transfers the best from the federal environment down to state and local and even into our commercial clients, because if we can prove that we've done it behind a secured wall in the federal government, that gives us a lot of cachet in the other markets. For us, John's kind of tired of hearing it's all about the data. It's all about that cloud infrastructure and continuing to build that out for our clients.
I think I've said what I would hope, and I thought the question from the audience was-
Perfect
-exactly right. I think in the three-five year period, I think the intent is to get our organic growth back into the high single digit range, continue to leverage our balance sheet for strategic acquisitions that get us into the double digit revenue range with a focus on that 10-20 basis points a year over the next five year. I would say past is prologue as I look to the future, and I think we're generally confident we can get there as we look down the road.
Perfect. Any others from the audience that we want to? We've got a couple minutes left if you'd like. Otherwise, I think we'll just go ahead and close on that long-term vision. John-
Okay. Well, great. Thank you.
Dave, thank you. John-
Yeah, thank you so much.
Thank you for coming and sharing.
Thanks for coming.