管理層發言
Welcome to the Second Quarter 2026 ICF Earnings Conference Call. My name is Lauren Cannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgen of Advisory Partners. Lynn, you may begin.
Thank you, Lauren. Good afternoon, everyone, and thank you for joining us to review ICF's second quarter 2026 performance. With us today from ICF are John Wasson, Chair and CEO; Anne Choate, President; and James C. Morgan, Chief Operating and Financial Officer. During this conference call, we will make forward-looking statements to assist you in understanding ICF management's expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially and I refer you to our August 6, 2026 press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that light. We may at some point elect to update the forward-looking statements made today but specifically disclaim any obligation to do so. I will now turn the call over to ICF's CEO, John Wasson, to discuss second quarter 2026 performance. John?
Thank you, Lynn, and thank you all for joining us this afternoon to review our second quarter results and discuss our business outlook. Second-quarter business trends in our markets were consistent with our expectations, allowing us to deliver revenues in line with last year's second quarter while we continued to carefully manage costs and directed our resources toward expanding our pipeline of new business opportunities. Key takeaways from our second quarter results included a 6% increase in revenues from commercial clients, led by commercial energy efficiency and related utility program revenues that increased 6.7% year-over-year. A sequential increase in revenues from federal government clients as we had anticipated, reflecting growth in our technology modernization work; a 35% increase in revenues from international government clients as we ramped up work on the large contract awards secured in 2025 and earlier this year. We maintained our strong margins with adjusted EBITDA margin of 11.2%, up 10 basis points from last year's second quarter. Non-GAAP EPS increased 12% driven by the profitability I just noted and year-over-year tax, interest, and share count benefits. Our trailing 12-month book-to-bill ratio was a healthy 1.09x. And, since the end of the second quarter, we have been awarded contracts in excess of $200 million. We ended the second quarter with a robust pipeline valued at $9.3 billion, a 9% sequential increase over the $8.5 billion reported at the end of this year's first quarter. In short, this was another quarter in which our diversified integrated business model made a positive difference in ICF's results, positioning us to achieve our guidance expectations for the full year. Revenues from our commercial, state and local, and international clients accounted for 61% of our second-quarter revenues, in keeping with our expectation that these client categories will represent over 60% of our 2026 revenues, up from 57% in 2025. The diversification within our client set provides us with both resilience and the ability to shift our resources to capture growth opportunities as markets evolve. Approximately 75% of our second-quarter contract wins were in these non-federal client categories, as delays in procurement decisions constrained federal government awards. We continue to invest in these non-federal client categories, while at the same time pivoting to expand our presence in federal agencies that are benefiting from increased funding. Additionally, we are seeing greater opportunities to bring insights and capabilities from across client categories and domain expertise to help clients address complex challenges. For example, many of the issues facing today's energy market — including low growth, grid reliability, transmission development, resilience, affordability, and energy security — are being addressed simultaneously by commercial clients, regulators, and other government agencies. The fact that we work with all these market participants gives us a broader perspective on emerging challenges and potential solutions, providing significant competitive advantage to ICF. Also, our work with state regulators and industry associations helps us to develop innovative approaches to transmission investment and grid planning. It provides us with insights that we can directly apply to our energy advisory clients. Our work related to data centers leverages capabilities across planning, policy, financial, and engineering disciplines as well as across our client categories. We provide assistance to states, counties, and other local governments as they evaluate the economic, energy infrastructure, and community impacts of data center development, which gives us valuable perspective on stakeholder concerns and public issues that we are able to bring to our hyperscaler developer and utility clients as they plan for and develop new projects. Our deep energy expertise, including decades of support to the federal government and to commercial oil and gas companies regarding critical reserves and potential disruptions, positioned us to support the state of California with real-time monitoring of refinery production, energy imports, and stocks so the state can better take actions to address price variability. Finally, we are adapting AI-enabled analytics and technical assistance solutions that we originally developed for federal government clients to support commercial and state and local government clients. As I mentioned earlier, we ended the second quarter with a business development pipeline of $9.3 billion. Opportunities in the key long-term growth markets we have identified — namely commercial energy, technology modernization, and disaster management and related state and local government work — accounted for approximately $5.5 billion, or 60% of that pipeline, supporting our expectation for continued growth in these markets. Summing up the quarter, we were pleased that our revenues were similar to last year's second quarter results, in advance of our return to year-over-year growth for 2026 and to positive quarterly revenue comparisons beginning next quarter. We are also pleased with the way we have managed our cost structure to maintain strong margin performance while growing our substantial business development pipeline. Our year-to-date repurchases of over 435 thousand shares represent a first-half record for ICF and a strong indication of the confidence that management and the board have in our company's long-term prospects. We continue to review acquisition opportunities, particularly in the commercial energy space, but we remain very disciplined. Our focus is primarily on tuck-in transactions that provide capabilities with the potential to drive meaningful revenue synergies and will be accretive soon after completion. Now I will turn the call over to our President, Anne Choate, to discuss our business performance. Anne?
Good afternoon, everyone. I am pleased to present a business review of ICF's second quarter results, which, as John mentioned, set the stage for our return to year-over-year growth in the second half of this year starting in Q3. I am also happy to discuss how ICF's diversified integrated business model continues to differentiate us and provide us with a unique multidisciplinary viewpoint in solving complex problems for clients. In my remarks, I will walk through some specific examples of work in each of our client categories, starting with commercial energy. We continue to experience strong demand for ICF's utility programs, which include energy efficiency, flexible load management, electrification, and battery storage programs. Revenues from this part of the business increased 6.7% in the second quarter and represented approximately 82% of second-quarter commercial energy revenues. Our results in this area were driven by the continued success of our performance-based programs, the expansion of existing engagements, and the startup of new projects. The addressable market for these services is large, and ICF is a recognized market leader with our share gains coming from excellent results we are delivering to clients, the introduction of new services, and winning work away from competitors. Energy advisory work for commercial clients increased 2.5% in the quarter, reflecting the timing of client transaction activity, and increased 8.6% for the first half, accounting for about 13% of first-half commercial energy revenues. Contributions from this part of our business tend to vary due to the timing of assignments and client transactions. As we look to Q3, we are expecting more robust M&A activity, which should drive our valuation and due diligence services. Additionally, we are seeing increased demand for our supply-strategy and market-access assessments for natural gas, as well as greater developer demand for data centers and other large loads in need of assistance in siting decisions. These decisions reflect a complex suite, including grid capacity, interconnection and queue position, and proximity to future load growth — all areas where ICF's integrated advisory capabilities are particularly well positioned. In addition, our energy advisory team is fielding requests from state and local governments as they also address siting challenges, affordability concerns, economic development priorities, reliability, and growing energy demand. The remaining less than 5% of our commercial energy revenues represent environmental and planning work that we do for utility and other commercial clients. Lower quarterly revenue comparisons in this part of our business were due to the wind down of several wind energy projects that ended in last year's third quarter. We expect improvement in this area of our business in the second half of this year given recent utility transmission line-related awards and our increasing support for power developers who are colocating data centers with renewable generation assets. To sum up commercial energy, the drivers underlying demand for this part of our business remain very strong. The combination of accelerating electricity demand and the need to modernize aging infrastructure is expanding the addressable market across nearly all of our energy offerings. As these infrastructure investments are unlikely to satisfy the scale and timing of emerging grid needs, demand for cost-effective community-centric programmatic solutions such as energy efficiency, demand response, distributed energy resources, and flexible load management programs continues to grow. These are areas where ICF has significant scale and expertise, and the economics of these solutions are becoming increasingly attractive as power and capacity costs rise. Commercial energy contract awards represented approximately 47% of ICF's second-quarter contract awards and commercial energy opportunities accounted for more than $1.5 billion of our pipeline at the end of the quarter — good indications of our future growth prospects. Next, I will move to our state and local portfolio. Second-quarter state and local government revenues were 1.9% below the comparable period last year, with disaster management and recovery services continuing to account for about 45% of this client category. ICF is a recognized leader in the development and implementation of disaster recovery and mitigation programs, and we currently support 75 active disaster recovery projects in 22 states and territories. Fewer major disasters and funding delays have constrained near-term activity in this arena. But ICF continues to execute on substantial rebuilding and mitigation projects, which includes utilizing our environmental and climate expertise to advise state and local clients on optimal mitigation solutions. We anticipate a direct opportunity for ICF as state and local governments look to increase their capability and capacity for both response and recovery, as well as preemptive disaster mitigation. In February, we announced the award of a comprehensive management services contract by the state of Florida. As expected, that contract is now serving as a platform for new opportunities including a $4 million funded contract to support the administration's approach to rural health transformation via state agencies. Also in Florida, we expect to see more opportunities for a state agricultural land preservation program we support that just earned appropriations of $425 million in funding for the 2026–2027 program budget year. Additionally, we leveraged our state and local expertise in the disaster management arena to win a contract to provide grants management and compliance services to a commercial client, a Northeast utility, where we will support hundreds of millions of dollars in FEMA funding across multiple hazard mitigation projects designed to improve the utility's grid infrastructure, resilience, and reliability. Energy, environmental, and disaster services have always comprised the majority of our state and local portfolio. As I mentioned, this year we are actively expanding the offerings we provide to our state and local clients to include health expertise and advanced technology solutions. State and local government opportunities represented approximately $1.3 billion of the total pipeline at the end of the second quarter, and we expect year-over-year revenue growth from this client category in the second half of the year. As we discussed on our last call, our international portfolio is showing growth. International government revenues increased 35% in the second quarter, reflecting the significant contracts that ICF has been awarded over the last 18 months by European Union and UK clients. It continues to be strong across our international portfolio, as we have been winning key recompetes and securing net-new contracts that support growth for the next few years. Lastly, I will talk about our work with U.S. federal clients. Our federal business has stabilized. Second-quarter revenues from federal government clients increased 1.4% sequentially, in line with our expectations after delivering 0.6% sequential growth in Q1. Moving forward, we are expecting Q3 to be another quarter of sequential revenue growth before returning to year-over-year growth in federal revenues in this year's fourth quarter. Procurement activity continues to improve, but award activity remains variable from agency to agency. Protests of large opportunities are also much more common. Accordingly, we have adapted our go-to-market approach to increasingly focus on prototyping and demonstration of capabilities, both on contract and to secure new contracts. Technology modernization represents about one-half of our $185 million in revenues from federal government clients and increased 4% sequentially in the second quarter. Over 80% of ICF's technology modernization work is performed under outcome-based fixed-price contracts, the preferred contract vehicles for government technology projects. Our federal agency clients remain focused on data, AI, speed, efficiency, and automation and continue to prioritize modernizing legacy systems and improving interoperability across the federal technology environment — areas that are closely aligned with ICF's expertise. While primarily serving federal agency clients, we have deployed our technology capabilities across the company's client categories. As such, technology modernization represents $2.6 billion of our pipeline at the end of the second quarter. With respect to our programmatic work for federal government clients, we continue to execute key contracts across our long-standing client agencies. At the same time, we are making progress repositioning our federal portfolio toward areas aligned with administration priorities. For example, we are seeing growing opportunity as agencies look to move away from traditional labor-intensive approaches and toward more data-driven, AI-enabled customer engagement models. We believe ICF's combination of technology, data, and mission expertise positions us well to support this shift. At both DHS and HHS, we are seeing increased engagement and pipeline activity related to these capabilities. On balance, we see significant opportunities for our integrated capabilities in the federal government arena. In summary, second-quarter business trends across all four of our client categories were aligned with our expectations. Our business unit leaders are collaborating across client categories with a winning mindset and a commitment to assist clients with speed and agility. Now I will turn the call over to Chief Operating and Financial Officer James C. Morgan.
Thank you, Anne, and good afternoon, everyone. I will provide additional details on our second quarter 2026 results. From an overall perspective, as you have heard from both John and Anne, second-quarter results were consistent with our expectations. Our non-federal revenues increased just under 7% year-over-year and our federal government revenues increased sequentially in line with the expectations we provided on our last call. Additionally, we continue to execute various cost management initiatives that we have discussed on past calls, including modernizing our infrastructure, specifically our contract management system and our vendor management system. These ERP system implementations remain on track and are expected to drive meaningful efficiency gains in our back-office operations over time. We have a disciplined programmatic initiative to implement AI tools across our internal processes to drive further efficiencies. While a portion of these efficiency gains will be seen in our margin expansion, we will continue to reinvest in growth initiatives to ensure ICF is well positioned to capitalize on the opportunities we see in front of us. With these efficiency improvements and a favorable business mix derived from the greater contribution of commercial revenues and a higher percentage of revenues tied to fixed-price and time-and-materials contracts, we remain well positioned to achieve our target of 10 to 20 basis points of adjusted EBITDA margin expansion for the full year, as well as over the longer term. We have committed to this level of margin expansion over the last decade, during which we have averaged more than 10 basis points per year, and we have the confidence that we will continue to be able to deliver on this commitment into the foreseeable future. Turning to second-quarter results: total revenue was $474.5 million, stable with the $476.2 million reported in the second quarter of 2025. Revenues from federal clients declined 9.5% year-over-year, given the difficult comparisons caused by the impact of contract cancellations that occurred in the first half of 2025. Non-federal revenues in the second quarter grew 6.6% year-over-year. On a sequential basis, total revenues increased 8.5% from the $437.5 million reported in the first quarter of fiscal year 2026. Revenues with commercial clients sequentially increased 13.6%, state and local grew 9.1%, international government revenues increased 24.2% sequentially, and federal revenues again improved sequentially consistent with our expectations. Subcontractor and other direct costs totaled $121.4 million and represented 25.6% of total revenues, up 23.6% from the prior-year quarter, reflecting higher pass-throughs on certain non-federal contracts. In spite of the 200-basis-point increase in subcontractor and other direct costs, our gross margin of 37.2% was similar to the 37.3% in the prior year, benefiting from the contribution of higher-margin commercial revenues as well as a healthy contract mix, with fixed-price and T&M contracts representing approximately 95% of revenues. Indirect and selling expenses totaled $123.3 million, representing 26% of total revenues, in line with the prior year. As I mentioned before, we are carefully managing our indirect spend while continuing to invest in our highest-priority growth areas. Second-quarter EBITDA was essentially flat year-over-year at $53.1 million. Adjusted EBITDA rose 0.9% to $53.4 million and adjusted EBITDA margin expanded year-over-year by 10 basis points to 11.2%. Net interest expense declined nearly 20% to $6.8 million, reflecting progress in reducing our average debt balance. The second-quarter tax rate was 17.8%, down from 21% in the second quarter of fiscal year 2025. This year's second quarter benefited from various strategic tax-planning actions which drove a tax benefit of $0.09 to EPS on a GAAP basis and $0.11 to non-GAAP EPS relative to the second quarter's 23% tax guidance we shared during our last earnings call in May. We are still expecting our full-year tax rate of approximately 20.5%, with the third quarter carrying the largest offsetting discretionary tax benefits. Net income in the second quarter was $20.9 million, or $1.49 per diluted share, above the $23.7 million, or $1.28 per diluted share, reported in the prior-year quarter. Non-GAAP EPS rose 12% year-over-year to $1.86 per share driven mainly by a lower tax rate, lower interest expense, a reduced share count, as well as improved EBITDA margins. Bottom-line results are tracking well and we continue to expect full-year EPS to be within the guidance range. Turning to the balance sheet and cash flows: operating cash flow in the second quarter was approximately $99.7 million, a substantial increase from the $52 million generated in the prior-year period. It is worth noting that the operating cash flow amounts include restricted cash that is mostly associated with energy efficiency programs for utilities. For those utility programs, the cash is passed through and tied to incentive payments to utility customers, the timing of which can be uneven. Excluding this item, our core cash generation remains strong at $56.7 million for the quarter, as compared to $50.4 million in the prior-year quarter. Excluding the potential impact of restricted cash, which is aligned with the basis for our initial guidance, we continue to expect full-year operating cash flow of $135 million to $150 million. Days sales outstanding were 72 days compared to 80 days in last year's second quarter, driven mainly by improved collections and increases in advanced payments. Capital expenditures totaled $5.7 million in the quarter, the same as the prior-year quarter. We ended the quarter with net debt of $403 million, down from $457 million at the end of last year's second quarter, with approximately 43% of the debt at a fixed rate. Our adjusted leverage ratio was 2.06x. Absent any acquisitions, we expect our year-end adjusted leverage ratio to be under 1.6x. On capital allocation, our priorities remain unchanged: organic investment to drive growth and operating efficiencies, ongoing quarterly dividends, returning capital through opportunistic share repurchases, and evaluating acquisitions in our key growth markets. On that note, we repurchased approximately 435 thousand shares in the first half of this year. As John discussed, we are actively evaluating acquisition opportunities with commercial energy as the primary focus. Today, we announced a quarterly dividend of $0.14 per share payable on October 9, 2026, to shareholders of record on September 4, 2026. We are pleased to again reaffirm the guidance we gave in February for 2026 revenue and EPS to return to growth. Full-year revenues are expected to range from $1.89 billion to $1.96 billion. As of today, more than 90% of the revenue required to achieve our guidance for full-year 2026 is already in backlog. For EPS, we continue to forecast GAAP EPS of $5.95 to $6.25 and non-GAAP EPS of $6.95 to $7.25. Now to help you with your financial models, please note the following for the full year 2026: with regard to the cadence of the remainder of the year, we would expect sequential revenue growth in each of the next two quarters accelerating at a faster pace in the fourth quarter than in the third. Depreciation and amortization of intangibles are expected to continue to be between $22 million and $24 million. Full-year interest expense is now expected to be between $26 million and $28 million compared to the prior guidance of $27 million to $29 million. We anticipate capital expenditures of $23 million to $25 million versus prior guidance of $24 million to $26 million. We continue to expect operating cash flow of $135 million to $150 million for the full year, exclusive of the impact of restricted cash. As I previously mentioned, we continue to expect the full-year tax rate of approximately 20.5%. Lastly, we have lowered our full-year weighted average share count guidance from 18.3 million shares to 18.2 million shares to reflect share repurchases in the first half. With that, I will turn the call back over to John for his closing remarks.
Thanks, James. We are pleased that 2026 is shaping up as we expected. We are looking ahead to a return to growth this year and an acceleration next year, bringing us back to mid- to high-single-digit growth in 2027. This could not be achieved without the ability and dedication shown by our professional staff and management teams who have effectively pivoted to capture revenue opportunities while maintaining our margin levels. In many ways, the disruptions of 2025 have made ICF a stronger company — more diversified, more collaborative, more efficient, and more agile. We are enthusiastic about the opportunities ahead. And with that, operator, I would please open the call to questions.
分析師問答
Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star-11 on your telephone and wait for your name to be announced. To withdraw your question, please press star-11 again. Our first question comes from the line of Timothy Mulrooney with William Blair. Your line is now open.
Yes. Good afternoon. Congrats on the solid execution here in the quarter. It sounds like the guidance is fully intact here. So I am going to ask some more targeted questions. The first one's on your commercial energy business. It grew, you know, 4% in the second quarter. I think that implies a growth rate of about 3% in the first half. I think you need to grow more in the mid-teens range in the second half of the year to achieve your full-year goal of at least 10% growth for the full year. My question is, am I right about that math? And can you walk us through the primary drivers that would help get you there?
Well, maybe I will start off, Timothy, and then I will let Anne and James weigh in. Generally your math is correct. We will have to grow mid-teens in the second half of the year to achieve that goal. I think, as you noted and as I think we indicated in our remarks, the way we will get there is, first of all, we did have strong awards in the second quarter, as announced in our release — you can see the list of projects there. Second, we do have a set of projects that we have been told we will be awarded but we are still in negotiations on those contracts, and we have a robust pipeline of opportunities on the commercial energy front. So I think those three things are giving us confidence that we can achieve the double-digit growth required in the second half of the year to get to our original guidance. I would also note that our performance awards and performance fees are typically back-half loaded and so we will certainly benefit from those awards coming in to help drive additional revenue growth for the year. So I think that is, at a high level, what we see getting us to that level of growth.
Maybe I will just mention that the energy advisory work, which is a smaller but important percentage of our commercial energy work, was a little bit slower in the second quarter. That reflected delayed timing of certain technical advisory and independent engineering services that we provide. The reason for that timing was the administration sunset date for some tax credits on July 4, which put several clients' focus on the immediate need to initiate construction to hit that tax credit deadline. Now that we are past that date, we have already seen signs that the planning and financing work we do will proceed as expected for the rest of the year. So that is one piece of it, but otherwise I agree with what John has said.
The pipeline is really strong. To make this year, and I would just reiterate the last two years, our energy business grew mid-teens for the year. We have not seen a shift in the market or the trends driving that business. So I think for us to return to mid-teens growth in our commercial energy business in the second half of the year is achievable and consistent with the performance we have had the last several years in that market.
Okay. Thank you. That is a good point, John, and I appreciate all the color there, Anne. I also heard you say in your prepared remarks to expect a pickup in M&A activity in the second half, maybe some other things too, so that is helpful color. Shifting gears really quickly to the backlog, which was $3.3 billion, down slightly sequentially from the first quarter. We have seen backlog flat to up the last couple of years as you move from the first quarter to the second quarter. Can you talk about some of the factors here that impacted that slight deceleration into the second quarter? Is it still somewhat sluggish on the U.S. federal side? Or is it primarily a timing thing? Just trying to understand your expectations for book-to-bill as we move through the third quarter here.
Yeah. I guess I can speak to that a little bit. For the quarter, our book-to-bill was 0.85, and the main impact below 1 was in the federal space where we have had a little bit of slower procurement cycles. We are seeing signs where that is picking up and has started to pick up even subsequent to the end of Q2. We are looking to have a healthier book-to-bill as we move into Q3, which will look to drive the backlog up as we move forward. From an overall perspective, the impact on backlog quarter-over-quarter was more pronounced in the federal areas, probably the biggest area of impact.
Understood. Thanks, James. Thank you, everybody.
Thank you. Our next question comes from the line of Jason Tilchen with Canaccord Genuity. Your line is now open.
Good afternoon, everyone. Thanks for taking my questions. Start — in your outlook commentary you referenced that same return to mid- to high-single-digit growth in 2027 that you mentioned last quarter. Hoping you could expand on your expectations for next year a bit more and help frame some of the key puts and takes that could drive either upside or downside relative to that range. Thanks.
Sure. As you know, we do expect to return to mid- to high-single-digit growth next year. The way we have discussed this in the past and continue to believe is that for the portion of the business that is non-federal, we would expect to deliver high-single-digit to low-double-digit growth. In the federal arena, we would expect to achieve low- to mid-single-digit growth. If you do the math on that split across our portfolio, I think it gets you to mid- to high-single-digit growth overall for 2027. That is how we are thinking about it.
Okay. Great. Thank you. And then just wanted to unpack that particularly strong international growth both from the quarter and really the award wins you have seen over the past 18 months or so. Just wondering if you could help dive into some of the underlying trends in those markets that are driving those wins and how confident you are that you will be able to continue going forward?
So, as I mentioned in my remarks, we have won several of those contracts over the last 18 months or so. It took some time, given elections and other timing factors in Europe, for those contracts to really hit their stride, but we now feel like they have hit their stride. We feel that the runway for those contracts and our positioning is really strong. In some cases, we are the single award holder; in other cases, we are one of two or at the top of a framework contract with a right of first refusal. As a result, you are seeing the results of that long-term business development effort materialize here. We continue to expand that footprint and have been using that as a launching-off point for winning work with additional agencies under the EU umbrella.
If you look forward, we are ramping those programs and the pipeline of opportunities that we have in front of us is healthier now than it has been in the past. There is a multitude of opportunities coming out, and we have the largest pipeline of opportunities for our international government business that we've had.
You have seen the results for the first half of the year in terms of growth in international business. I think we expect similar growth results for the second half of the year. Based on the pipeline and backlog comments from Anne and James, I am confident in double-digit revenue growth internationally when we look forward to 2027.
Very helpful. Thank you very much.
Thank you. Our next question comes from the line of Tobey Sommer with Truist. Your line is now open.
Thank you. Within your technology modernization business, what has the trend been like on contract size and in the procurement environment in case of protests and maybe, as part of your answer, touching on this particular market, describe your experience with customers purchasing licenses and other things that historically have been passed through directly from OEMs. Thanks.
I think you had several parts. We have seen procurements picking up in that area. We have a very significant amount — a high fraction of our submitted bids are pending award and relate to technology modernization business. That is an area where we have been pivoting in the federal space and using technology modernization services as a way to access new clients and new offices within client agencies; that has been pretty successful. In terms of deal size, I do not think we have seen a significant change in the average size of those deals. We have seen tremendous variability in the time between knowing about an opportunity, seeing an RFI or not, going to a limited or open competition, and then actually getting to award. For large awards, protests are common, and that lengthens the cycle. On the OEM license point, can you say a little bit more about that?
There has been news in the market about the government deciding to procure those sorts of things directly from OEMs rather than via an integrator. I am wondering if that is something you are having experience with or not at this juncture.
Not that I am aware of. We are working in close partnership with our customers, and in some cases, for instance, their access to certain providers may require us to work in their cloud environment. But I am not aware of a broader shift beyond that.
We have not seen a material shift. We work and have capabilities across low-code/no-code players and traditional platforms. We are still seeing opportunities to support the federal government and partner across Salesforce, ServiceNow, Appian, and others, and we also deliver IT modernization capabilities on open-source platforms. We do not think we have seen a fundamental shift in those markets or our relationships with those players to date on our IT modernization work.
I would also add that the majority of the work we do is labor-based services rather than passing through license costs and similar items.
Thank you. And, last question for me: on the capital deployment front, now that the business has stabilized and is starting to grow, what are your expectations as you look at the back half of the year and into 2027 for growing the business inorganically?
As we have discussed in the past, we remain in the market looking for potential acquisitions that are a good strategic and cultural fit and meet our financial criteria. We will be very disciplined. As I said in my remarks, we are primarily focused in the commercial energy area. We would expect us to lean more to tuck-in acquisitions for the rest of this year. We have a balanced approach to capital allocation: investing for organic growth, continuing share buybacks, and deploying capital for M&A when the right opportunity appears. The message is balance with discipline.
We have capacity in our credit facility and are not constrained, so we can balance investing organically, doing share buybacks, and pursuing acquisitions when the right opportunity arises. Identifying and finding those opportunities is a continued focus.
Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open.
Great. Thank you. In your prepared remarks, I believe you talked about on the federal programmatic side shifting your focus from more labor-intensive projects to more along the lines of helping clients with AI enablement and efficiencies. I am just wondering what that would do to your business model in terms of project size, staffing levels, or other metrics?
Thank you for asking. I hope that is not how it came across, but what I said is we are looking to help the federal government in places where agencies are trying to move away from traditional labor-intensive approaches — think grant management or data validation — toward more streamlined processes. We are helping them tie systems together and adopt data-driven, AI-enabled customer engagement models to fulfill missions more efficiently. That is where we have been successful, combining technology, data, and mission expertise. Where those streamlining efficiencies are achievable is a sweet spot for us.
Yes. Thank you for that color and clarification. So I think you also, when talking about commercial energy, mentioned one of the growth drivers is the introduction of new services. Is that recent or the program management-type services you discussed in the past contributing to growth?
A couple of years ago, and in the last year, we started talking about the importance of large loads and data centers. That has been an area where we have introduced new services and packages to address new needs. For hyperscalers, for example, we are helping clients evaluate speed-to-power strategies, alternative power and technologies, procurement, and funding approaches. We are advising on siting strategies, grid capacity, interconnection, and proximity to future load growth. We also support community impact initiatives when clients are balancing increased electricity needs with community concerns. That is one suite of examples where we provide a lot of value.
That is helpful. I just wanted to ask more about international government. You talked about these large contracts being a launching point to pursue work with other EU agencies. How much of a focus is international government right now for growth investments and expansion of services?
We are committed to the international business. The role I have been asked to play provides more connectivity across capabilities, so where we can augment skills in Europe and Asia with capabilities in North America, that connectivity is strong and becoming stronger. The business development engine there is tight and efficient, and our brand and reputation are strong in the UK and EU. We remain committed and supportive, but I do not see that we are increasing investment disproportionately; we are investing at levels similar to the past and seeing very nice results.
I agree. It is a good business doing terrific work. There are ways we can connect North American capabilities to Europe to find additional opportunity. We have a strong leader running that business and will continue to invest as we have in the past while seeing very nice results.
Okay. Great. Thank you.
Thank you. Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open.
Hey, good afternoon. I wanted to touch a little bit on disaster recovery and mitigation and maybe you could talk a bit about the commentary in your prepared remarks and press release around fewer disasters and funding delays. Maybe you can touch on some of the details around that and the sources of that, and then I have a quick follow-up.
I will start. We have been in the disaster business for quite some time and remain committed to it. We are a market leader. As Anne noted, there have been fewer very large disasters recently, which has limited the number of new opportunities. With a long-term view, this is a growth market and optionality exists; historically, ICF has materially grown in response to significant disasters. We remain committed and see opportunities in the state and local markets. We have also connected the dots with utility work and other areas. We expect the business to grow and view it as optionality for significant growth down the line.
The point about fewer disasters refers to those large events that lead to major disaster declarations and large-scale funding. There are plenty of natural disasters in the news, but the size and the declarations that lead to the large recovery programs have been fewer.
And then on the federal procurement side, you've said procurement decisions loosened up toward the end of the quarter. Is that tied to the federal fiscal year-end or is it more driven by current project needs? What might loosen up those opportunities?
It is very variable, even within agencies. Some contracting officers have deadlines and are incentivized to get contracts moving, while other places may not have enough contract staff and mod repeatedly to maintain continuity. Protests also cause delays. So it is variable by agency and by contracting office. We have seen pickups in some places where things are moving more quickly, but variability is the dominant characteristic.
And last thing: can you talk about catalysts on the technology modernization side that are driving agencies to act — whether AI-driven, cost-driven, or otherwise?
In the federal space, the drivers are the desire for streamlining, modernizing aging systems, improving efficiency, and utilizing AI for mission support and automation. At the state and local level, we often get involved because technology systems are getting in the way of mission-oriented work — whether disaster, energy, or environmental programs — and we help unstick those technology barriers to achieve mission outcomes. That is our sweet spot outside of federal work.
Well, it's been quite the journey to get to growth resumption over the last few quarters and encouraging to see the pacing. Congratulations on that. Appreciate the color.
This concludes the question-and-answer session. I would now like to turn it back to John Wasson for closing remarks.
Well, thanks, everyone, for participating in today's call. We look forward to seeing you at upcoming conferences and calls. Hope to see you all soon.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.