ICF International, Inc.: Form 10-Q for the period ended Jun 30, 2025

FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” “would,” or similar words. You should read statements that contain these words carefully. The risk factors described in our filings with the Securities and Exchange Commission (the “SEC”), as well as any cautionary language in this Quarterly Report, provide examples of risks, uncertainties, and events that may cause actual results to differ materially from the expectations described in the forward-looking statements, including, but not limited to:

• Failure by Congress or other governmental bodies to approve budgets and debt ceiling increases in a timely fashion and related reductions in government spending;
• Uncertainties relating to the Trump Administration’s (the “Administration”) policy changes and failure of the Administration to spend Congressionally mandated appropriations;
• Failure of the Administration and Congress to agree on spending priorities, which may result in temporary shutdowns of non-essential federal functions, including our work to support such functions;
• Changes in federal government budgeting and spending priorities;
• Results of routine and non-routine government audits and investigations, including the unpredictability of the Administration’s executive orders and actions of the Department of Government Efficiency (“DOGE”);
• Risks resulting from expanding our service offerings and client base;
• Our dependence on contracts with United States (“U.S.”) federal, state and local, and international governments, agencies, and departments for the majority of our revenue;
• Risks inherent in being engaged in significant and complex disaster relief efforts and grant management programs involving multiple tiers of government in very stressful environments;
• Failure to realize the full amount of our backlog;
• Dependence of our commercial work on certain sectors of the global economy that are highly cyclical;
• Difficulties in identifying attractive acquisitions available at acceptable prices;
• Acquisitions we undertake presenting integration challenges, failing to perform as expected, increasing our liabilities, and/or reducing our earnings; and
• Additional risks as a result of having international operations, including foreign currency fluctuations.

Our forward-looking statements are based on the beliefs and assumptions of our management and the information available to our management at the time these disclosures were prepared. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. We undertake no obligation to update these forward-looking statements, even if our situation changes in the future.

The terms “we,” “our,” “us,” and “the Company,” as used throughout this Quarterly Report, refer to ICF International, Inc. and its subsidiaries, unless otherwise indicated. The terms “federal” or “federal government” refer to the U.S. federal government, and “state and local” or “state and local government” refer to U.S. state and local governments and the governments of U.S. territories. The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 28, 2025 (our “Annual Report”).

OVERVIEW AND OUTLOOK

We provide professional services and technology-based solutions, including management, technology, and policy consulting and implementation services. We help our clients conceive, develop, implement, and improve solutions that address complex business, natural resource, social, technological, and public safety issues. Our services primarily support clients that operate in three key markets:

• Energy, Environment, Infrastructure, and Disaster Recovery;
• Health and Social Programs; and
• Security and Other Civilian & Commercial.

We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative. Our primary services include:

• Advisory Services;
• Program Implementation Services;
• Analytics Services;
• Digital Services; and
• Engagement Services.

We believe that, in the long-term, demand for our services will continue to grow as government, industry, and other stakeholders seek to address critical long-term societal and natural resource issues due to heightened concerns about the environment and use of clean energy and energy efficiency; health promotion, treatment, and cost control; the means by which healthcare can be delivered effectively on a cross-jurisdiction basis; natural disaster relief and rebuild efforts; and ongoing homeland security threats. In the wake of the major hurricanes that devastated communities in Texas, Florida, North Carolina, Louisiana, the U.S. Virgin Islands, and Puerto Rico, and the impact of wildfires in Hawaii, Oregon, and southern California, the affected areas remain in various stages of evacuation, relief, and recovery efforts. We believe our prior and current experience with disaster relief and rebuild efforts, including after hurricanes Katrina and Rita and Superstorm Sandy, and the wildfires in Oregon, put us in a favorable position to continue to provide recovery and housing assistance, and environmental and infrastructure solutions, including disaster mitigation, on behalf of federal departments and agencies, state, territorial, and local jurisdictions, and regional agencies.

As the federal government sharpens its focus on efficiency, transparency, consolidation, and accountability, we see growth opportunities for ICF’s fit-for-purpose technology solutions. Our offerings are innovative, agile, scalable, and aligned with commercial best practices, delivering clear and measurable outcomes. By combining deep institutional knowledge of our clients’ markets and data with our proven expertise in AI, open source, cloud-native, and commercially off the shelf low-code and no-code platforms, we are able to deliver highly functional, cost-effective solutions that meet the evolving demands of our customers while driving greater value and impact for taxpayers.

Our future results will depend on the success of our strategy to enhance our client relationships and seek larger engagements that span the entire program life cycle, and to complete and successfully integrate additional strategic acquisitions. We will continue to focus on building scale in our vertical and horizontal domain expertise, developing business with our existing clients as well as new customers, and replicating our business model in selective geographies. In doing so, we will continue to evaluate strategic acquisition opportunities that enhance our subject matter knowledge, broaden our service offerings, gain access to or expand customer relationships, and/or provide scale in specific geographies.

Although we continue to see favorable long-term market opportunities, there are certain business challenges facing all government service providers. The very nature of opportunities arising out of disaster recovery means they can involve unusual challenges. Factors such as the overall stress on communities and people affected by disaster recovery situations, political complexities, challenges among involved government agencies, and a higher-than-normal risk of audits and investigations may result in a reduction to our revenue and profit and adversely affect cash flow; however, we believe we are well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the federal government, as well as to state and local and international governments and commercial clients.

As discussed in Part II, Item 7 of our Annual Report, during the six months ended June 30, 2025, we received notices for termination-for-convenience pursuant to the recent executive orders issued by the Administration or actions by DOGE which resulted in a reduction of $418.2 million of our backlog. The revenue recognized in fiscal year 2024 from the contracts subject to these terminations represented approximately 6.4% of the total 2024 fiscal year revenue.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

The table below sets forth select line items of our unaudited consolidated statements of comprehensive income, the percentage of revenue for these select items, and the period-over-period rate of change and percentage of revenue for the periods indicated.

(dollars in thousands)

nm - not meaningful

Revenue. The decrease in revenue was driven by a reduction of $68.8 million from our U.S. federal government clients primarily as a result of terminated contracts during 2025 due to the Administration’s changing priorities and the actions recommended by DOGE, as well as the disruption of the typical U.S. federal government procurement cycle. This decline was offset by increases of $31.5 million, $0.9 million, and $0.6 million from our commercial, U.S. state and local government, and international government clients, respectively. The following were changes in revenue from our various client markets:

• Energy, Environment, Infrastructure, and Disaster Recovery client market revenues increased $15.2 million, or 6.5%, driven by increases of $29.6 million, $1.1 million, and $0.4 million from our commercial, U.S. state and local government, and international government clients, respectively, offset by a decrease of $15.8 million from our U.S. federal government clients.
• Health and Social Programs client market revenues decreased $37.1 million, or 18.9%, driven by decreases of $36.9 million, $0.7 million, and $0.1 million from our U.S. federal government, U.S. state and local government, and international government clients, respectively, offset by an increase of $0.7 million from our commercial clients.
• Security and Other Civilian & Commercial client market revenues decreased by $14.0 million, or 16.9%, driven by a decrease of $16.1 million from our U.S. federal government clients, offset by increases of $1.2 million, $0.5 million, and $0.3 million from our commercial, U.S. state and local government, and international government clients, respectively.

Revenue for the three months ended June 30, 2025 includes subcontractor and other direct costs, which decreased $20.5 million, or 15.5%, from the second quarter of 2024 and totaled $112.3 million and $132.8 million for the three months ended June 30, 2025 and 2024, respectively, and the margin on such costs.

Direct Costs. The decrease of $30.9 million in direct costs was primarily a result of terminated U.S. federal government contracts during 2025. For the three months ended June 30, 2025 and 2024, direct labor and related fringe benefit costs as a percentage of direct costs were 62.4% and 59.7%, respectively, and subcontractor and other direct costs as a percentage of direct costs were 37.6% and 40.3%, respectively. As a percentage of revenue, direct labor and related fringe benefit costs were 39.1% and 38.4%, respectively, and subcontractor and other direct costs were 23.6% and 25.9%, respectively, for the three months ended June 30, 2025 and 2024. Total direct costs as a percentage of revenue were 62.7% for the three months ended June 30, 2025, compared to 64.3% for the three months ended June 30, 2024.

Indirect and selling expenses. For the three months ended June 30, 2025, our indirect and selling expenses decreased by $4.1 million, or 3.2%, compared to the prior year, primarily as a result of a decrease of $4.6 million in general and administrative costs. The decrease in general and administrative costs was due, in part, to lower facilities expense as a result of facility consolidations in the fourth quarter of 2024. Our indirect and selling expenses as a percentage of revenue were 25.8% for the three months ended June 30, 2025, compared to 24.8% for the three months ended June 30, 2024.

Depreciation and amortization. Our depreciation and amortization for the three months ended June 30, 2025 was $5.5 million compared to $4.9 million for the three months ended June 30, 2024.

The increase in amortization of intangible assets acquired in business combinations was primarily due to the amortization of intangible assets acquired in our acquisition of Applied Energy Group (“AEG”) in the fourth quarter of 2024.

Interest, net. The increase of $0.7 million in interest, net, was primarily due to higher average debt balance of $542.2 million for the three months ended June 30, 2025 compared to $493.8 million for the same period in 2024. Use of floating-to-fixed interest rate swap agreements to hedge the variable interest portion of our debt reduced our interest expense by $0.2 million for the three months ended June 30, 2025 compared to a reduction of $1.7 million for the same period in 2024. Inclusive of the impact of the swap agreements, our interest rate was 5.6% for the three months ended June 30, 2025 compared to 5.3% for 2024.

Other (expense) income. Other (expense) income increased $1.7 million primarily due to an increase in unrealized foreign currency loss, resulting from depreciation of the U.S. dollar against the Euro and British pound, the principal currencies in which we transact. If the U.S. dollar experiences additional depreciation in 2025, we may incur additional foreign currency losses.

Provision for Income Taxes. Our effective income tax rate for the three months ended June 30, 2025 and 2024 was 21.0% and 26.3%, respectively. The difference was primarily due to the increased research and experimentation tax credit in the second quarter of 2025 and the impact of foreign withholding taxes imposed upon a dividend distribution from our Canadian subsidiaries made during the second quarter of 2024.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

The table below sets forth select line items of our unaudited consolidated statements of comprehensive income, the percentage of revenue for these select items, and the period-over-period rate of change and percentage of revenue for the periods indicated.

(dollars in thousands)

Revenue. The decrease in revenue of $42.7 million was driven by a reduction of $103.4 million from our U.S. federal government clients primarily as a result of terminated contracts in the first six months of 2025 due to the Administration’s changing priorities and the actions recommended by DOGE, as well as the disruption of the typical U.S. federal government procurement cycle. This decline was offset by increases of $57.5 million, $2.4 million, and $0.8 million from our commercial, international government, and U.S. state and local government clients, respectively. The following were changes in revenue from our various client markets:

• Energy, Environment, Infrastructure, and Disaster Recovery client market revenues increased $29.1 million, or 6.4%, driven by increases of $51.5 million and $1.3 million from our commercial and international government clients, respectively, offset by decreases of $22.6 million and $1.0 million from our U.S. federal government and U.S. state and local government clients, respectively.
• Health and Social Programs client market revenues decreased $59.0 million, or 15.2%, driven by a decrease of $61.5 million from our U.S. federal government clients, offset by increases of $1.5 million and $1.0 million from our commercial and U.S. state and local government clients, respectively.
• Security and Other Civilian & Commercial client market revenues decreased by $12.8 million, or 7.9%, driven by a decrease of $19.3 million from our U.S. federal government clients, offset by increases of $4.5 million, $1.1 million, and $0.8 million from our commercial, international government, and U.S. state and local government clients, respectively.

Revenue for the six months ended June 30, 2025 includes subcontractor and other direct costs, which decreased $30.4 million, or 12.0%, and totaled $222.9 million and $253.3 million for the six months ended June 30, 2025 and 2024, respectively, and the margin on such costs.

Direct Costs. The decrease of $38.9 million in direct costs was primarily a result of terminated U.S. federal government contracts during the first six months of 2025. For the six months ended June 30, 2025 and 2024, direct labor and related fringe benefit costs as a percentage of direct costs were 62.9% and 60.4%, respectively, and subcontractor and other direct costs as a percentage of direct costs were 37.1% and 39.6%, respectively. As a percentage of revenue, direct labor and related fringe benefit costs were 39.2% and 38.4%, respectively, and subcontractor and other direct costs were 23.1% and 25.2%, respectively, for the six months ended June 30, 2025 and 2024. Total direct costs as a percentage of revenue were 62.4% for the six months ended June 30, 2025, compared to 63.6% for the six months ended June 30, 2024.

Indirect and selling expenses. For the six months ended June 30, 2025, our indirect and selling expenses decreased by $1.3 million, or 0.5%, compared to the prior year, as a result of a decrease of $4.5 million in general and administrative costs, offset by an increase of $3.2 million in indirect labor and related fringe benefit costs. The decrease in general and administrative costs was due, in part, to lower facilities expense as a result of facility consolidations in the fourth quarter of 2024. The increase in indirect labor and related fringe benefit costs was due in part to the impact of severance in the current period. Our indirect and selling expenses as a percentage of revenue were 26.4% for the six months ended June 30, 2025, compared to 25.5% for the six months ended June 30, 2024.

Depreciation and amortization. Our depreciation and amortization for the six months ended June 30, 2025 was $10.8 million which is comparable to depreciation and amortization of $10.5 million for the six months ended June 30, 2024.

The increase in amortization of intangible assets acquired in business combinations was primarily due to the amortization of intangible assets acquired in our acquisition of AEG in the fourth quarter of 2024.

Interest, net. Our interest, net, for the six months ended June 30, 2025 was $15.8 million which is comparable to interest, net, of $15.9 million for the six months ended June 30, 2024. Use of floating-to-fixed interest rate swap agreements to hedge the variable interest portion of our debt decreased our interest expense by $0.9 million for the six months ended June 30, 2025 compared to a reduction of $3.3 million for the same period in 2024. Inclusive of the impact of the swap agreements, our interest rate was 5.4% for the six months ended June 30, 2025 compared to 5.5% for 2024.

Other (expense) income. Other (expense) income increased $4.4 million year-over-year primarily due to $2.8 million in unrealized foreign currency loss, resulting from depreciation of the U.S. dollar against the Euro and British pound, the principal currencies in which we transact, and $1.7 million gain from divestiture of our commercial marketing business during 2024. If the U.S. dollar experiences additional depreciation in 2025, we may incur additional foreign currency losses.

Provision for Income Taxes. Our effective income tax rate for the six months ended June 30, 2025 and 2024 was 15.7% and 23.4%, respectively. The difference was primarily due to an income tax benefit of $4.5 million recognized in the first quarter of 2025 from tax planning implemented in connection with the “transitional rules” governing unrealized foreign exchange gains and losses derived from translation of operations, assets, and liabilities of non-U.S. qualified subsidiaries provided by recently finalized U.S. federal tax regulations under IRC 987.

NON-GAAP MEASURES

The following tables provide reconciliations of financial measures that are not calculated in accordance with generally accepted accounting principles in the U.S. (“non-GAAP”) to their most comparable U.S. GAAP measures. While we believe that these non-GAAP financial measures provide additional information to investors and may be useful in evaluating our financial information and assessing ongoing trends to better understand our operations, they should be considered supplemental in nature and not as a substitute for financial information prepared in accordance with U.S. GAAP. Other companies may define similarly titled non-GAAP measures differently, thus limiting their use for comparability.

EBITDA and Adjusted EBITDA

Earnings before interest, tax, and depreciation and amortization (“EBITDA”) is a measure we use to evaluate operating performance. Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of the performance of our ongoing operations (“Adjusted EBITDA”). We evaluate these adjustments on an individual basis based on both the quantitative and qualitative aspects of the item, including their size and nature, as well as whether we expect them to recur as part of our normal business on a regular basis.

EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow as these measures do not include certain cash requirements such as interest payments, tax payments, capital expenditures, and debt service.

The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated.

(in thousands)

(1) These are primarily third-party costs related to acquisitions and integration of acquisitions.

(2) These costs are due to involuntary employee termination benefits for (i) our officers and (ii) group of employees who have been notified that they will be terminated as part of a business reorganization or exit.

(3) These charges and adjustments are related to a previously exited leased facility which we will continue to pay until the contractual obligations are satisfied but with no economic benefit to us, and the closure of certain international offices.

(4) Pre-tax gain related to the 2023 divestiture of our U.S. commercial marketing business which includes contingent gains realized in the first quarter of 2024.

Non-GAAP Diluted Earnings per Share

Non-GAAP diluted earnings per share (“Non-GAAP Diluted EPS”) represents diluted U.S. GAAP earnings per share (“U.S. GAAP Diluted EPS”) excluding the impact of certain items noted above, amortization of acquired intangible assets, and the related income tax effects. While these adjustments may be recurring and not infrequent or unusual, we do not consider these adjustments to be indicative of the performance of our ongoing operations. We believe that the supplemental adjustments provide additional useful information to investors.

The following table presents a reconciliation of U.S. GAAP Diluted EPS to Non-GAAP Diluted EPS for the periods indicated.

(1) These are office closure charges and adjustments previously included in Adjusted EBITDA and accelerated depreciation related to fixed assets for planned office closures.

(2) The amortization of intangible assets acquired from business combinations totaled $9.2 million and $8.3 million for the three months ended June 30, 2025 and 2024, respectively, and $18.7 million and $16.6 million for the six months ended June 30, 2025 and 2024, respectively.

(3) Income tax effects were calculated using the effective tax rate, adjusted for certain discrete items, if any, of 21.0% and 26.3% for the three months ended June 30, 2025 and 2024, respectively, and 23.1% and 23.4% for the six months ended June 30, 2025 and 2024, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Borrowing Capacity. In addition to cash and cash equivalents on hand and cash generated from operations, our primary source of liquidity is from our Credit Facility with a syndicate of multiple commercial banks, as described in “Note 5 – Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. The Credit Facility requires that we remain in compliance with certain financial and non-financial covenants (as defined by the Credit Agreement, see “Note 10 – Long-Term Debt” in the “Notes to Consolidated Financial Statements” in our Annual Report for additional details). As of June 30, 2025, we were in compliance with these covenants, and we had $488.3 million available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program.

We have entered into floating-to-fixed interest rate swap agreements for a total notional value of $175.0 million to hedge a portion of our floating-rate Credit Facility, of which $150.0 million in swaps will expire in 2028 and the remaining $25.0 million will expire in 2030. We may consider entering into additional swap agreements before these existing hedges expire. As of June 30, 2025, the percentage of our fixed-rate debt to floating-rate debt was 38%.

There are other conditions, such as the ongoing wars in Ukraine and the Middle East and volatility in global trade (including the imposition of tariffs), that create uncertainty in the global economy, which in turn may impact, among other things, our ability to generate positive cash flows from operations and our ability to successfully execute and fund key initiatives. However, our current belief is that the combination of internally generated funds, available bank borrowing capacity, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund ongoing operations, customary capital expenditures, quarterly cash dividends, share repurchases, and organic growth. Additionally, we continuously analyze our capital structure to ensure we have capital to fund future strategic acquisitions.

We continuously monitor the state of the financial markets to assess the availability of borrowing capacity under the Credit Facility and the cost of additional capital from both debt and equity markets. At present, we believe we will be able to continue to access these markets on commercially reasonable terms and conditions if we need additional capital in the near term.

Dividends. We have historically paid quarterly cash dividends to our stockholders of record at $0.14 per share. Total dividend payments during the six months ended June 30, 2025 were $5.2 million.

Cash dividends declared thus far in 2025 are as follows:

Cash Flow. The following table sets forth our sources and uses of cash for the six months ended June 30, 2025 and 2024:

(in thousands)

Cash provided by operating activities was impacted by the timing of invoicing our customers, subsequent collection of cash, paying our vendors, and by the profitability of our contracts.

The change in cash used in financing activities of $43.0 million was primarily due to increased net borrowings from our Credit Facility and short-term financing, partially offset by an increase in share repurchases during the six months ended June 30, 2025.

There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.

Disclosure Controls and Procedures and Internal Controls Over Financial Reporting. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934, as amended) and have concluded that as of June 30, 2025, our disclosure controls and procedures were effective. There have been no significant changes in our internal controls over financial reporting during the quarterly period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in the risk factors discussed in the section entitled “Risk Factors” disclosed in Part I, Item 1A of our Annual Report.