Government Contracts in Flux: Contradictions in Federal Activity and Backlog Highlight Uncertainty

Commercial Energy Performance:
- ICF's revenue from commercial energy clients increased by 27% year-on-year in Q2, contributing significantly to the overall revenue growth.
- The increase was driven by strong demand from utility clients for energy efficiency programs and ICF's expertise in flexible load management, electrification, and grid resilience.

State and Local Government Revenue Stability:
- Revenue from state and local government clients increased by 1% in Q2, maintaining stability despite challenging market conditions.
- This stability was supported by the continued demand for disaster management services and new opportunities in environmental business arising from changing federal priorities.

International Government Revenue Recovery:
- ICF's international government revenues increased by 2% in Q2, representing a slow ramp-up from recent contract wins.
- This growth was linked to the issuance of new task orders under contract vehicles, expected to benefit revenues in the coming quarters.

Federal Government Revenue Challenges:
- Federal government revenues declined by 9.8% sequentially in Q2, primarily due to contract funding curtailments and delays in program and procurement activities.
- However, there was an uptick in federal procurement activity, giving optimism about future revenue recovery.

Cost Management and Margin Expansion:
- ICF's adjusted EBITDA margin expanded by approximately 20 basis points year-on-year, reflecting favorable business mix and cost management initiatives.
- Direct labor as a percentage of total direct billable costs increased by 270 basis points, contributing to higher margins.