ICF International's Q3 2025 Earnings Call: Contradictions Emerge on Federal Shutdown Impacts, Commercial Energy Growth, and Non-Federal Confidence

Date of Call: October 30, 2025

Financials Results

• Revenue: $465.4M, down ~10% YOY (vs $517.0M in Q3 2024); roughly flat vs $476.2M in Q2 2025
• EPS: Non-GAAP EPS $1.67, down ~21.5% YOY (vs $2.13 in Q3 2024); GAAP diluted EPS $1.28, down ~26.0% YOY (vs $1.73)
• Gross Margin: 37.6%, expanded 50 bps YOY (vs ~37.1% in Q3 2024)

Guidance:

• Q4 revenue and non‑GAAP EPS expected to decline similar to Q3 assuming the government shutdown impact persists.
• Company estimates ~$8M revenue impact per month from the shutdown (~$25M for Q4) and ~$2.5M gross profit impact per month (~$7.5M Q4).
• Revised full‑year cash flow guidance to $125M–$150M (down from ~ $150M).
• Depreciation & amortization $20M–$22M; intangible amortization $35M–$37M; interest expense $30M–$32M; CapEx $23M–$25M.
• Full‑year tax rate ~18.5%; fully diluted share count ~18.6M; quarterly dividend $0.14 per share.

Business Commentary:

* Impact of Federal Government Shutdown: - ICF's federal government revenues declined 3% sequentially in Q3, representing a 29.8% decline from the previous year's Q3. - The revenue decline was largely due to a slowdown in federal procurement activities and project delays leading up to the government shutdown.

• Commercial Energy Business Growth:
• Revenues from commercial energy clients increased by 24% in Q3, contributing significantly to ICF's overall revenue.

• This growth was driven by strong demand for energy efficiency programs and services, aligned with increased electricity demand from utilities.

• Contraction and Recession:

• ICF's total revenues for Q3 were $465.4 million, relatively stable compared to Q2 but down from $517 million in Q3 2024.

• The decline was attributed to ongoing challenges in federal government business, despite robust growth in commercial, state, and local sectors.

• Backlog and Pipeline Strength:

• ICF's backlog stood at $3.5 billion at quarter-end, reflecting a 1.53 book-to-bill ratio, with 52% of the backlog funded.

• This strength is attributed to successful contract awards and the diversity of ICF's client base, especially in the commercial energy sector.

• Leadership Transition and Future Growth:

• ICF announced Barry Broadus's retirement and the promotion of James Morgan to COO and CFO, and Anne Choate to President of ICF.
• These changes are expected to support organic growth and acquisition activities, with a focus on energy, infrastructure, and IT sectors.

Sentiment Analysis:

Overall Tone: Neutral

• Management described the shutdown impact as "painful, but manageable," highlighted resilient nonfederal growth (commercial/state/international up 13.8% YOY) and a 1.53 book‑to‑bill, and expressed confidence in returning to revenue and earnings growth in 2026 while retaining staff to resume work quickly.

Q&A:

• Question from Timothy Mulrooney (William Blair & Company L.L.C.): Did you give an indication for how much you expect your federal business to be down in the fourth quarter?
  Response: No precise Q4 federal estimate; management said federal revenues would likely be down more than Q3 absent the shutdown and that including the shutdown the impact is substantially larger; they estimate ~$8M/month (~$25M Q4) revenue hit and ~$7.5M gross profit impact for the quarter.

• Question from Timothy Mulrooney (William Blair & Company L.L.C.): Does the shutdown push expected 2026 work out and cause knock‑on effects into future awards or ramp timing?
  Response: Most impacted work is expected to be a timing 'push to the right' and largely recoupable over contract lives, though delays in awards/modifications could affect early‑2026 activity for some clients.

• Question from Tobey Sommer (Truist Securities, Inc.): How are the quarter's new federal wins ramping and is the shutdown delaying ramp, especially for new/takeaway work vs. recompetes?
  Response: IT modernization work (about half of federal) is continuing and should ramp; programmatic Health & Human Services work is most affected and will take longer to rebound, so IT modernization should return faster while programmatic recovery may extend into 2027.

• Question from Tobey Sommer (Truist Securities, Inc.): Which service lines within commercial energy show the best demand and which areas are lagging?
  Response: Utility program implementation (energy efficiency, electrification, load management) and energy advisory (grid engineering, renewables/transmission, transactions) show strongest demand; federal‑land renewables work is weaker but small (~$10M annualized) and largely de‑minimis to total energy growth.

• Question from Marc Riddick (Sidoti & Company, LLC): Given rapid growth in non‑federal markets, do you have bandwidth and are you investing to capture opportunities; what are you seeing on the M&A pipeline and valuations?
  Response: ICF is materially investing in talent, technology and AI to capture growth and believes it can recruit/scale; M&A focus is on energy and infrastructure to add scale/geography/capabilities, though valuations are fulsome; balance‑sheet deleveraging to below ~2x is a priority to preserve acquisition capacity.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): Can you frame the size of the commercial energy market opportunity and your current share; and relatedly, does the shutdown push you toward the low end of your guidance framework?
  Response: Commercial energy market is north of $2B with ICF market share roughly 10–15%, leaving substantial room to grow; the shutdown shifts outcomes toward the lower end of the previously stated guidance range, but management expects to remain within that range.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): With James taking on CFO responsibilities in addition to COO, is that permanent and how should we view the structure?
  Response: James has prior CFO experience and will be Chief Operating and Financial Officer; management views the dual role as appropriate given his background and the team's strength, though future adjustments are possible.

Contradiction Point 1

Impact of Federal Government Shutdown on Revenue and Recovery

It involves differing perspectives on the immediate and long-term impacts of a federal government shutdown on the company's revenue and the subsequent recovery, which affects financial projections and investor confidence.

Did you indicate how much you expect your federal business will decrease in the fourth quarter? - Timothy Mulrooney(William Blair & Company L.L.C.)

2025Q3: With the government shutdown, we expect a more significant decline in federal revenues compared to Q3. We estimate a monthly revenue impact of $8 million and a gross profit impact of $2.5 million for October related to the shutdown. - John Wasson(CEO)

Can you discuss the federal backlog's composition and any significant recent contract wins? Are you experiencing delays in converting funded federal contracts into task orders? - Samuel Kusswurm(William Blair)

2025Q2: We are not seeing a significant drop-off once contracts are activated, indicating that the slowdown may be due to agencies determining priorities rather than a capacity issue. - Barry M. Broadus(CFO)

Contradiction Point 2

Growth and Demand in Commercial Energy Business

It reflects differing views on the growth and demand trends within the commercial energy business, which is a key focus area for the company's strategic expansion.

Which commercial energy service lines are seeing the strongest demand and growth? - Tobey Sommer(Truist Securities, Inc.)

2025Q3: Our commercial energy business grows through utility program implementation and market share expansion. Energy advisory and grid modernization are robust, but renewables face challenges due to this administration's stance. Double-digit growth is expected in energy advisory, and despite challenges, we expect strong overall growth. - John Wasson(CEO)

Can you update on your acquisition pipeline and any changes in acquisition opportunities or valuations year-to-date, given your focus on commercial energy and federal government sectors? - Marc Frye Riddick(Sidoti)

2025Q2: We continue to see strong growth in energy efficiency and grid modernization, which comprises a significant portion of our commercial energy work. We believe this work, in part, reflects the industry's ongoing focus on decarbonization. - John Wasson(CEO)

Contradiction Point 3

Impact of Federal Shutdown on Revenue Recovery

It involves the expected impact of the federal government shutdown on the company's revenues and the potential for revenue recovery, which is crucial for financial forecasting and investor expectations.

Does the shutdown affect your early 2026 expectations? - Timothy Mulrooney (William Blair & Company L.L.C.)

2025Q3: The impacts from the shutdown would typically shift work to future periods, with the revenue recovery expected over the remaining life of the contracts. Historical trends suggest we would recoup this revenue over future periods. - John Wasson(CEO)

What is the maximum downside risk from federal revenue reductions, and could federal initiatives have ripple effects on utilities? - Joseph Vafi (Canaccord Genuity)

2024Q4: ICF provided a range of results for 2025, from flat to a 10% revenue reduction due to federal changes. - John Wasson(CEO)

Contradiction Point 4

Confidence in Non-Federal Growth

It reflects differing levels of confidence in the growth potential of non-federal business segments, which is crucial for strategic planning and investor expectations.

How do you view your bandwidth in growing areas, especially non-federal business? - Marc Riddick (Sidoti & Company, LLC)

2025Q3: We are investing materially in growth markets through recruiting, technology, and software, including AI. We expect double-digit growth across non-federal businesses, with particular strength in commercial energy and international operations. - John Wasson(CEO)

What drives confidence in at least 15% non-federal business growth in 2025? - Samuel Kusswurm (William Blair)

2024Q4: Confidence in growth is driven by secular growth drivers in commercial energy, international contract wins, and the acquisition of AEG, which is expected to contribute $35 million in revenue. - John Wasson(CEO)