ICF International's Federal Procurement and IT Modernization Outlooks Don't Match in 2025 Earnings Calls

Date of Call: Feb 26, 2026

Financials Results

• Revenue: $1.87B for FY2025, down 25.7% YOY from $2.02B in 2024; Q4 revenue $443.7M, down 10.6% YOY from $496.3M.
• EPS: GAAP EPS $4.95 for FY2025, down from $5.82 prior year; Q4 EPS $0.94 per diluted share, down from $1.30 prior year. Non-GAAP EPS $6.77 for FY2025, down from $7.45 prior year.
• Gross Margin: 37.2% for FY2025, up 60 basis points YOY from 36.6% in 2024; Q4 gross margin 35.7%, down from 36.1% a year ago.
• Operating Margin: Adjusted EBITDA margin 11.1% for FY2025, stable with 11.2% prior year; Q4 adjusted EBITDA margin 10.4%, down from 11.3% prior year.

Guidance:

• Revenue for FY2026 expected to be $1.89B to $1.96B, representing 3% growth at the midpoint.
• GAAP EPS for FY2026 expected to be $5.95 to $6.25.
• Non-GAAP EPS for FY2026 expected to be $6.95 to $7.25, representing 5% growth at the midpoint.
• Non-federal revenues expected to grow double-digits and account for over 60% of total revenues.
• Q1 2026 revenue guided to ~$450M, GAAP EPS ~$1.20, non-GAAP EPS ~$1.55.
• Expect double-digit revenue growth from commercial energy clients.
• Expect federal revenues to decline at a high single-digit rate in 2026, with sequential improvement expected from Q1 through Q3, returning to year-on-year growth by Q4.

Business Commentary:

Non-Federal Revenue Growth:

• ICF's revenues from nonfederal clients increased 14% to account for 57% of full year revenues in 2025, with commercial energy growing 24%.
• The growth was driven by strong demand for energy efficiency, electrification, and grid optimization services, particularly from utility clients.

Commercial Energy Performance:

• Commercial energy revenues reached just under $550 million, growing 23% in the fourth quarter and 24% for the year.
• The growth is attributed to sustained demand for ICF's market-leading programs in energy efficiency and grid optimization, resulting in expanded scopes of work and recompetes.

Federal Revenue Challenges and Outlook:

• ICF's federal government revenues declined 25% year-on-year in 2025 due to contract cancellations and the government shutdown.
• Despite the challenges, the federal business is expected to see a return to growth by the fourth quarter of 2026, driven by improved procurement activity and IT modernization opportunities.

Impact of AI on Productivity:

• ICF observed internal productivity improvements through AI use cases in areas like HR, recruiting, and business development.
• AI is also being leveraged for client work, particularly in IT modernization, leading to efficiency gains and potential profitability improvements.

International Revenue Growth:

• ICF's international government revenues increased 7.6% for the year, with significant contract wins in the European Commission and U.K. government.
• The growth is expected to continue in 2026 with the full ramp-up of these contracts, contributing to double-digit revenue growth.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed confidence in growth outlook: 'demonstrated notable resilience...anticipating a return to revenue growth in 2026'; 'book-to-bill ratio of 1.19, a firm backlog of $3.4 billion and a business development pipeline of $8.6 billion'; 'strong positioning in our federal markets'; 'AI as an accelerator and a net positive for ICF'; 'we have a firm backlog of federal given contracts, a significant pipeline and expect revenues from our IT modernization work to increase this year'; 'repurchased approximately 564,000 shares...underscoring our confidence in the strength and long-term outlook of the business'.

Q&A:

• Question from Timothy Mulrooney (William Blair): Could you just share how your commercial energy business grew in 2025? And what your expectations are for 2026?
  Response: Commercial energy grew 24% in 2025, with 15% organic growth. Expect at least 10% organic growth in 2026, driven by market leadership in utility programs and advisory services, with significant addressable market and share gains.

• Question from Timothy Mulrooney (William Blair): Do you expect that growth to come from the utility programs or the advisory business?
  Response: Both components expected to grow at least 10%. Advisory and engineering have faster long-term growth potential, while utility programs (larger portion) have strong market share gains.

• Question from Henry Roberts (Truist): Is the exit rate in the fourth quarter a good proxy for the >60% non-federal share projected for 2026? Can it increase further?
  Response: Yes, more non-federal business is expected in 2026, with non-federal revenue projected to be over 60% of total, continuing the growth trend.

• Question from Henry Roberts (Truist): Can you speak more to the federal procurement environment and variance between major agency customers?
  Response: Procurement environment is improving since the government shutdown, with no contract cancellations recently. IT modernization procurement has picked up; recompetes are occurring timely. Federal business expected to return to growth in 2027.

• Question from Jason Tilchen (Canaccord Genuity): Can you provide more detail on how AI is improving productivity and how much benefit is contemplated in guidance?
  Response: AI improves internal efficiency (HR, recruiting, contracts, BD) and client work (IT modernization, rapid prototyping). Historically driven 10-20 bps of profitability improvement, with potential upside from internal use.

• Question from Jason Tilchen (Canaccord Genuity): What's driving international growth momentum and the opportunity going forward?
  Response: Growth driven by activation of large contracts won with European Commission and U.K. government in 2024/2025, providing clear visibility for double-digit growth in 2026 and beyond.

• Question from Kevin Steinke (Barrington Research Associates): What is the relative size of the residential vs. commercial energy efficiency markets and how do share gains expand growth?
  Response: Total utility program market is $3B-$5B. Residential demand-side management is ~$2B; ICF has ~35% residential share and growing ~20% commercial/industrial share, with significant headroom and growth in newer areas like electrification.

• Question from Kevin Steinke (Barrington Research Associates): How are you thinking about adjusted EBITDA margin in 2026?
  Response: Expect 10-20 bps year-over-year improvement due to growth in higher-margin nonfederal business and economies of scale.

• Question from Marc Riddick (Sidoti): What are you seeing in state and local spending activity and particular services picking up?
  Response: Growth in environmental work for infrastructure and disaster recovery (mid-single-digit growth with strong backlog). States are stepping forward on climate and resilience, creating opportunities.

• Question from Marc Riddick (Sidoti): What are your expectations for pricing dynamics and contribution to the 2026 revenue guide?
  Response: Pricing is important but not the primary factor; focus is on value, quality, and innovation. Trend toward fixed-price outcome contracts is positive for margins.

• Question from Marc Riddick (Sidoti): How do you feel about the acquisition pipeline currently?
  Response: Actively looking at deals in energy and state/local disaster recovery, with capacity due to low leverage. More careful in federal technology given market uncertainty.

Contradiction Point 1

Federal Procurement Environment and Outlook

Contradiction on the current state and near-term recovery of federal programmatic work procurement.

Henry Roberts (Truist, on for Tobey Sommer) - Henry Roberts (Truist, on for Tobey Sommer)

20260227-2025 Q4: Federal procurement environment is improving. No contract cancellations in recent quarters... broader programmatic work is also seeing improvement and timely recompetes. - Barry Broadus(CFO) and John Wasson(CEO)

Is the >60% non-federal revenue share for 2026 achievable given the Q4 exit rate, considering the federal procurement environment and potential 2026 reconciliation bill, and what is the cadence? - Tobey Sommer (Truist)

20251031-2025 Q3: Federal business... half... programmatic (significantly impacted by shutdown, procurement slowdown). For 2026 growth... the programmatic half will not [return to growth] until 2027 due to tough comps. - John Wasson(CEO)

Contradiction Point 2

Financial Impact and Recovery from Government Shutdowns

Contradiction on whether shutdown-related revenue impacts are temporary and recoupable or move results to the low end of guidance.

Kevin Steinke (Barrington Research Associates) - Kevin Steinke (Barrington Research Associates)

20260227-2025 Q4: The original guidance range did not assume a government shutdown... The shutdown moves results toward the lower end of the range. Despite this, the company is proud of managing within the original framework and expects to stay within it, with federal revenue impacts being temporary and recoupable over contract lifecycles. - John Wasson(CEO)

Will the government shutdown impact the company's 2025 guidance? - Kevin Steinke (Barrington Research Associates)

20251031-2025 Q3: The change to the Blackwell GPU mask is complete without functional changes. Production is expected in Q4. - Jensen Huang(CEO)

Contradiction Point 3

Federal Procurement Environment Outlook

Contradictory assessments of federal procurement activity and recovery timeline.

Henry Roberts (Truist, on for Tobey Sommer) - Henry Roberts (Truist, on for Tobey Sommer)

20260227-2025 Q4: Federal procurement environment is improving. No contract cancellations in recent quarters... IT modernization procurement has picked up post-shutdown; broader programmatic work is also seeing improvement... - Barry Broadus(CFO) and John Wasson(CEO)

Is the >60% non-federal revenue share for 2026 achievable based on the Q4 exit rate, what is the cadence, how is the federal procurement environment currently, and what are your thoughts on a potential 2026 reconciliation bill? - Samuel Kusswurm (William Blair)

2025Q2: Yes, new procurement and contract modifications have slowed as agencies determine priorities. However, once contracts are activated, work proceeds normally... - Barry M. Broadus(CFO)

Contradiction Point 4

Acquisition Pipeline Strategy

Contradictory statements on the strategic focus and timing for potential acquisitions.

Marc Riddick (Sidoti): Could you provide your revenue growth expectations for the next quarter? - Marc Riddick (Sidoti)

20260227-2025 Q4: Focus areas: Energy (utility programs, advisory, engineering), state & local (disaster recovery, resilience), and federal technology (more cautious due to market uncertainty). - John Wasson(CEO) and Anne Choate(CFO)

How are state & local spending activity and pricing dynamics impacting your business, and what is the current status of the acquisition pipeline? - Marc Frye Riddick (Sidoti & Company)

2025Q2: The primary acquisition focus is on commercial energy firms... In the near term (this year or early next), acquisitions in federal or disaster recovery sectors are unlikely due to client budget uncertainty and market instability. - John M. Wasson(CEO)

Contradiction Point 5

IT Modernization Growth Trajectory

Contradiction on the expected performance and growth timing for the IT modernization business.

Henry Roberts (Truist, on for Tobey Sommer) - Henry Roberts (Truist, on for Tobey Sommer)

20260227-2025 Q4: IT modernization procurement has picked up post-shutdown; ... expected to return to growth in 2026. - Barry Broadus(CFO) and John Wasson(CEO)

Is the >60% non-federal revenue share for 2026 achievable given the Q4 exit rate, what is the cadence, and how is the federal procurement environment shaping up with potential implications from a 2026 reconciliation bill? - Timothy Mulrooney (William Blair & Company L.L.C.)

2025Q1: The IT modernization business is still expected to be down 5% to 10% for 2025, primarily due to delays in new awards. - John Wasson(CEO)