ICF International's Q3 2025 Earnings Call: Contradictions Emerge on Government Shutdown Impact, Commercial Energy Growth, and M&A Strategy

Date of Call: October 30, 2025

Financials Results

• Revenue: $465.4M in Q3 2025, compared to $517.0M in Q3 2024 (≈ down 10% YOY)
• EPS: Non-GAAP EPS $1.67, compared to $2.13 in Q3 2024; GAAP EPS $1.28 per diluted share, compared to $1.73 in Q3 2024
• Gross Margin: 37.6%, up 50 basis points year-over-year

Guidance:

• Q4 revenue and non-GAAP EPS expected to show a year-over-year decline similar to Q3, assuming shutdown impact persists
• Estimate shutdown reduces revenue by ~$8M per month (~$25M Q) and gross profit by ~$2.5M/month
• Revised full-year operating cash flow guidance $125M–$150M
• Depreciation & amortization $20M–$22M; amortization of intangibles $35M–$37M
• Interest expense $30M–$32M; CapEx $23M–$25M
• Full-year tax rate ~18.5%; diluted share count ~18.6M; quarterly dividend $0.14 payable Jan 9, 2026

Business Commentary:

* Revenue Performance and Shift in Business Mix: - ICF International's third-quarter revenues were $465.4 million, down from $517 million in the previous year's third quarter. - The decline was due to headwinds in federal government business, but was partially offset by a 13.8% increase in revenues from commercial, state and local, and international clients.

• Commercial Energy Business Growth:
• Revenue from the commercial energy sector increased by 24.3% year-on-year in Q3, contributing to a 28% share of total year-to-date revenues.

• This growth was driven by strong demand for utility client programs in energy efficiency, electrification, and grid resilience, aligned with increased electricity demand.

• Federal Government Revenue Impact:

• Federal government revenues declined 3% sequentially and 29.8% year-on-year in Q3.

• The decline was attributed to reduced contract funding, procurement delays, and a government shutdown, which impacted program and procurement activity.

• International Client Revenue:

• Revenues from international clients increased by 8% year-on-year in Q3.
• Growth was supported by recent contract awards and a strong pipeline, despite slower-than-expected ramp-up of new international contracts.

Sentiment Analysis:

Overall Tone: Neutral

• Management described "another quarter of resilient performance," cited a 10 bps improvement in adjusted EBITDA margin and a 1.53 book-to-bill, while warning the government shutdown will reduce October revenue by ~$8M and headwinds in programmatic federal work; reiterated confidence in return to growth in 2026 supported by non-federal momentum and a $8.4B pipeline.

Q&A:

• Question from Tim Mulroney (William Blair): Do you have a Q4 estimate for how much federal business will be down? You cited an $8M/month shutdown impact — can you explain that dynamic and whether shutdown-related delays will push expected 2026 work out?
  Response: No precise Q4 federal estimate; management reiterates $8M/month (~$25M Q) shutdown impact (≈$7.5M gross profit), says IT modernization work largely continues while programmatic public health/human services are most affected, and expects most foregone revenue to be pushed right and recouped over contract lives.

• Question from Tobey Sommer (Truist Securities): How are the quarter's new wins ramping and is the shutdown delaying ramps (especially for new vs. recompete wins)? Also, within commercial energy, which service lines are strongest and are any lagging?
  Response: IT modernization wins are ramping and less impacted by the shutdown and expected to return to growth in 2026; programmatic health/human services will take longer to rebound (into 2027); commercial energy implementation and advisory are very strong, while some federal renewables work is modestly pressured.

• Question from Mark Riddick (Sidoti & Company): With strong non-federal growth, do you have bandwidth and are you investing to capture it? Also, what is the M&A pipeline and valuation environment?
  Response: ICF is actively investing in recruiting, technology and AI to scale capacity and convert wins; M&A focus is on energy and disaster/infrastructure targets though valuations are fulsome; company is prioritizing debt paydown to sub-2.0x leverage to preserve acquisition firepower.

• Question from Kevin Steinke (Barrington Research): How large is the commercial energy market opportunity and ICF's share? Given fewer recent federal cancellations, will you be at the low end of your guidance range? Finally, is James permanently combining COO/CFO roles?
  Response: Commercial energy market is north of $2B with ICF share roughly 10%–15% and significant upside; company expects to remain within prior guidance but toward the lower end given the shutdown; James will serve as combined Chief Operating and Financial Officer (role to be reviewed over time).

Contradiction Point 1

Government Shutdown Impact

It involves the impact of the government shutdown on revenue and procurement, which are critical factors affecting the company's financial outlook and strategic planning.

Did you expect the decline in your federal business for the fourth quarter? - Tim Mulroney(William Blair)

2025Q3: Absent the government shutdown, we expect that our fourth quarter federal revenues will be down more than what we had in the third quarter. If you include the government shutdown, it would be substantially more than the third quarter decline. - John Wasson(CEO)

Have you noticed any delays in the federal government converting awarded contracts to task orders? - Samuel Kusswurm(William Blair)

2025Q2: While new procurement has slowed, contract modifications and funding are normalizing. We haven't seen a significant drop-off once contracts are activated. - Barry M. Broadus(CFO)

Contradiction Point 2

Commercial Energy Growth and Demand

It highlights differing perspectives on the growth and demand within the commercial energy sector, which is crucial for the company's revenue projections and strategic focus.

Which of your service lines and offerings are seeing the strongest demand and fastest growth? Which areas are lagging? - Tobey Sommer(Truist Securities)

2025Q3: Our commercial energy business, especially designing and implementing utility programs, is seeing tremendous growth. Energy advisory services, particularly demand forecasting and grid modernization, are also robust. - John Wasson(CEO)

How much of the commercial energy growth is driven by data centers, and what are the forecasts for utility growth plans? - Unidentified Analyst(Truist)

2025Q2: While political uncertainty dampened growth in renewables, demand for other generation and transmission solutions and services remained strong. - John M. Wasson(CEO)

Contradiction Point 3

Impact of Government Shutdown on Federal Business

It highlights differing perspectives on the impact of a government shutdown on federal business, which is crucial for understanding the company's financial outlook.

Did you indicate how much your federal business will decline in the fourth quarter? - Tim Mulroney(William Blair)

2025Q3: We did not give a Q4 estimate for what the government business would be down. Absent the government shutdown, we expect that our fourth quarter federal revenues will be down more than what we had in the third quarter. If you include the government shutdown, it would be substantially more than the third quarter decline. - John Wasson(CEO)

Has the IT modernization business been affected by DOGE's IT contract review? - Tobey Sommer(Truist Securities)

2025Q1: We expect IT modernization to be down 5% to 10% for the year, primarily due to delays in new awards due to DOGE reviews. We haven't seen material cuts in our contracts. - John Wasson(CEO)

Contradiction Point 4

Commercial Energy Business Growth and Market Share

It reveals differing views on the growth and market share of the commercial energy business, which is a significant revenue driver for the company.

Can you describe the scale of the commercial energy business opportunity? - Kevin Steinke(Barrington Research)

2025Q3: The market is north of $2 billion, and we're strong in residential and commercial energy efficiency, possibly with a 10% to 15% market share. There’s material opportunity for both new business and takeaways. - John Wasson(CEO)

Does the annual guidance imply similar commercial energy metrics to this quarter? - Joseph Vafi(Canaccord Genuity)

2025Q1: Yes, it assumes commercial energy will continue to be the outstanding performer on the energy side. - John Wasson(CEO)

Contradiction Point 5

M&A Strategy and Valuations

It demonstrates differing perspectives on the M&A strategy and valuation expectations, which are critical for growth and financial planning.

What are you seeing in the acquisition pipeline volume potential? - Mark Riddick(Sidoti & Company)

2025Q3: M&A remains an important component. We're looking for opportunities in the energy arena for scale, geography, or capabilities. We're also looking at opportunities around disaster recovery and infrastructure. Valuations are fulsome in energy, and we're looking at federal IT modernization. - John Wasson(CEO)

Have acquisition multiples changed, especially for federal market targets? - Marc Riddick(Sidoti)

2025Q1: Federal market activity has slowed, but valuations in energy and other areas remain similar. We look at capabilities and cultural fit for potential acquisitions. - Barry Broadus(CFO)