Begin Time: 16:30 January 1, 0000 5:25 PM ET
ICF Worldwide, Inc. (NASDAQ:ICFI)
Q2 2024 Earnings Convention Name
August 01, 2024, 16:30 PM ET
Firm Contributors
John Wasson – Chair and CEO
Barry Broadus – CFO
James Morgan – COO
David Gold – Advisory Companions
Convention Name Contributors
Joseph Vafi – Canaccord Genuity
Tim Mulrooney – William and Blair
Kevin Steinke – Barrington Analysis Associates
Marc Riddick – Sidoti
Tobey Sommer – Truist Securities
Operator
Welcome to the Second Quarter 2024 ICF Earnings Convention Name. My identify is Steven, and I shall be your operator for at the moment’s name. Presently, all contributors are in listen-only mode. Afterwards, you may be invited to take part within the question-and-answer session. [Operator Instructions].
I’ll now flip the decision over to David Gold of Advisory Companions. David, you might start.
David Gold
Thanks, Steven. Good afternoon everybody and thanks for becoming a member of us to evaluate ICF’s second quarter 2024 efficiency. With us at the moment from ICF are John Wasson, Chair and CEO; Barry Broadus, CFO. Becoming a member of them is James Morgan, Chief Working Officer.
Throughout this convention name, we are going to make forward-looking statements to help you in understanding ICF administration’s expectations about our future efficiency. These statements are topic to quite a few dangers that would trigger precise occasions and outcomes to vary materially, and I refer you to our August 1, 2024 press launch and our SEC filings for discussions of these dangers. As well as, our statements throughout this name are primarily based on our views as of at the moment. We anticipate that future developments will trigger our views to vary. Please think about the data offered in that gentle. We might, sooner or later, elect to replace the forward-looking statements made at the moment, however particularly disclaim any obligation to take action.
I will now flip the decision over to ICF’s CEO, John Wasson, to debate second quarter 2024 efficiency. John?
John Wasson
Thanks, David, and thanks all for taking part in at the moment’s name to evaluate our second quarter outcomes and focus on our enterprise outlook. As you’ve got seen from our launch, this was one other wonderful quarter for ICF through which we executed nicely on present contracts and proceed to put the inspiration for future development.
With respect to key takeaways from the quarter, first, our Vitality, Surroundings, Infrastructure and Catastrophe Restoration shopper market proceed to be a standout performer, reflecting an array of very sturdy secular development tendencies in these areas. Second, our profitability metrics elevated significantly once more this quarter, main us to extend our EPS and EBITDA steerage for the complete yr. Third, this was an impressive quarter for brand new contract wins, bringing our trailing 12-month book-to-bill ratio to 1.4. And lastly, our new enterprise growth pipeline elevated sequentially by 8.3% to a report 10.5 billion even after report Q2 gross sales, offering us with substantial development alternatives throughout our authorities and industrial shopper units.
Taking a more in-depth have a look at second quarter efficiency. Our work within the Vitality, Surroundings, Infrastructure and Catastrophe Restoration shopper market continued to extend considerably with income rising by 14% to account for 45% of our complete second quarter revenues, up from 41% in final yr’s second quarter. All areas of ICF’s industrial power work posted substantial income development in each the second quarter and first half of 2024, once more, reflecting constructive secular tendencies in our markets.
We proceed to see sturdy demand for our power effectivity packages, which stay probably the most price efficient means for utilities to extend their capability. ICF has constructed a wonderful monitor report on this area, constantly reaching and exceeding confirmed targets, and we proceed to win new shoppers. On the identical time, the dimensions and scope of our packages have elevated as our utility shoppers increase their power effectivity, electrification and shopper advertising packages.
Additionally, we’re very happy with the efficiency and income synergies related to final yr’s CMY acquisition. Their grid engineering and analytics capabilities are a pure extension of ICF’s work in electrification, utility planning and renewables, enabling us to offer a broader set of companies to utility and developer shoppers. Moreover, there are vital synergies with our local weather and resilience advisory work as we construct in additional detailed local weather analytics into our grid engineering research.
Equally, our power advisory work continues to point out sturdy development, notably within the space of energy and technical advisory, reflecting rising demand from builders of renewable power assets. And development in our surroundings and planning enterprise line is benefiting from rising resilience or for utilities’ undergrounding energy strains for wildfire restoration or for renewable builders in addition to offering ongoing licensing, allowing and compliance companies.
As you realize, we carry out our local weather companies throughout all our shopper classes. This space continued to attain vital development within the second quarter, reflecting the enlargement of local weather packages at DOE and EPA in addition to an rising variety of utilities, state companies and extra federal entities. We’re additionally seeing an uptick in RFPs for state and native local weather planning to be funded independently of the IIJA and IRA, and we’re benefiting from shopper demand for ICF’s CO2Sight system, our proprietary strategic planning platform that helps utilities and authorities companies obtain their clear power and greenhouse gasoline emission targets.
Our catastrophe administration space additionally continues to do nicely. The Authorities of Puerto Rico’s Public-Non-public Partnership Authority just lately awarded ICF an $84 million recompete contract to offer skilled grant administration companies over the subsequent three years, and we’re ready last phrase on different alternatives within the territory. ICF is presently executing almost 50 catastrophe restoration packages in 16 states and two territories, and we’re supporting over 30 shoppers’ mitigation efforts in 10 states and one territory. As an entire, we see double digit development forward for our Vitality, Surroundings, Infrastructure and Catastrophe Restoration shopper market over the subsequent a number of years.
Rising bodily impacts, enhancing financial fundamentals, public commitments by firms and legislative and regulatory actions relating to clear power are driving coverage and funding help for decarbonization packages, together with power effectivity and versatile load administration electrification. The rising load development from new knowledge facilities and transportation electrification is forcing utilities and regulators to rapidly assess and deploy additions to the utility useful resource combine, together with provide, demand administration and resilience choices.
Renewable growth is continuing at a fast tempo, and we proceed to see electrical utility shoppers enhance spending to switch growing old infrastructure to underground energy strains to enhance resilience and to increase the facility grid, creating demand for ICF’s grid engineering, environmental and catastrophe administration groups.
In our judgment, there isn’t a firm higher positioned to learn from these tendencies than ICF. We’ve got long-standing relationships with utility, developer and authorities shoppers, multidisciplinary experience throughout power, local weather, transportation and well being, plus industry-leading analytical instruments that help our advisory companies in addition to know-how platform options that underpin our implementation work.
And we proceed to see IIJA and IRA grant funding being launched to candidates for a wide range of authorized infrastructure wants. Examples embody components grants to states, territories and tribes for power infrastructure and grid reliability upgrades and award of aggressive grants for clear power manufacturing infrastructure. ICF’s IIJA and IRA-related wins to this point have reached virtually 140 million and our lively pipeline of IIJA, IRA alternatives is now at 275 million. These metrics characterize work primarily for presidency shoppers because it’s tough to tie industrial tasks to particular laws.
Shifting to our Well being and Social Applications shopper market. As anticipated, this market had decrease year-on-year gross income comparisons, primarily reflecting three elements: the influence of final yr’s divestitures, anticipated falloff in small enterprise contracts that have been held by the acquisitions we made over the past couple of years in IT modernization and decrease pass-through revenues primarily in public well being.
The discount in pass-through revenues alone on this shopper market was roughly $7.5 million within the second quarter. We must always see improved gross income comparisons from federal authorities shoppers within the second half of the yr, however the enhance won’t be of the magnitude we had initially anticipated. We’re assured that the sturdy development in our Vitality, Surroundings, Infrastructure and Catastrophe Administration shopper market will proceed to greater than offset the influence of lower-than-expected income development in Well being and Social Applications.
We proceed to execute successfully throughout our federal authorities shopper base and stay nicely positioned and have a wholesome pipeline of alternatives in our 2 key areas: public well being and IT modernization. In public well being, we expanded our help for CDC’s BioSense program within the second quarter, and we’ll start growing further performance to incorporate hospital admission knowledge and hospital discharge and switch knowledge to the platform.
As you might recall, BioSense was entrance and heart in the course of the pandemic because it tracks knowledge for greater than 75% of hospital emergency room visits nationwide, offering CDC and public well being officers with insights into elements impacting the well being of People at each the nationwide and native stage and we gained our $237 million re-compete contract with the US Company for Worldwide Growth Bureau for World Well being to proceed to ship the Demographic and Well being Surveys Program.
ICF has long-standing relationships at six key companies throughout the Division of Well being and Human Companies and we now have deep material experience in areas which have bipartisan help, together with most cancers analysis, psychological well being, diabetes prevention, overdose prevention and schooling on the influence of prescription opioids.
IT modernization additionally stays a bipartisan precedence, and ICF is now a acknowledged chief in probably the most extensively used low-code, no code and open supply platforms within the federal authorities. The US federal IT companies market is rising at a CAGR of 8.5% and is anticipated to succeed in $95 billion by 2027. And ICS’ focused areas, consulting and software companies are rising at CAGRs of 14% and 9%, respectively.
We had two vital contract wins within the second quarter on the Facilities for Medicare and Medicaid Companies and are seeing elevated traction on alternatives the place we’ll be capable to mix our know-how and area experience, notably when the scope features a knowledge or AI focus.
We just lately accomplished work with a federal company shopper to leverage Gen AI options for regulatory growth help and public remark evaluation. This was a really thrilling venture for our groups as inside three months from inception to supply, we proved the viability of utilizing Gen AI to supply sooner insights into quite a few regulatory feedback.
Additionally FEMA awarded us a brand new $17 million contract to construct a cloud-based knowledge trade platform to enhance the effectivity and cost-effectiveness of their catastrophe restoration and response efforts. We’ll leverage our main catastrophe administration experience, together with cloud computing, generative AI and different types of AI and superior analytic capabilities in a wonderful instance of how ICF’s multi-disciplinary strategy is successful new enterprise.
On the subject of latest enterprise, as I discussed earlier, this was a report second quarter for us when it comes to contract awards, which reached $810 million representing a book-to-bill ratio of 1.Eight for the quarter. New enterprise wins accounted for roughly 55% of our first half awards, demonstrating how nicely ICS’s capabilities are aligned with shopper spending priorities.
Moreover, an elevated proportion of the worth of our year-to-date awards represented contracts that had — that included an AI part, a superb indication of our acknowledged experience on this high-demand space. In abstract, it is a very sturdy quarter for ICF when it comes to execution, profitability and metrics that set us up for future development.
I will now flip over the decision to our CFO, Barry Broadus, for our monetary evaluate. Barry?
Barry Broadus
Thanks, John, and good afternoon, everybody. I am happy to give you further particulars on our 2024 second quarter monetary efficiency. Complete revenues elevated 2.4% to $512 million or 6.2% in comparison with the second quarter of 2023 after adjusting for the divestiture of our industrial advertising enterprise final yr. Our second quarter income development mirrored most of the identical enterprise drivers as this yr’s first quarter and was led by income development of 24.8% from our industrial power shoppers and by a mixed 5.9% development in revenues from our state and native and worldwide authorities shoppers.
Gross revenues from our federal authorities shoppers have been flat within the second quarter. This was primarily resulting from a discount in pass-through revenues of roughly $9 million, which unfavorably impacted our year-on-year income development by roughly 450 foundation factors. As we glance in direction of the way forward for our federal authorities enterprise, the will increase in our federal contract awards, together with an increasing new enterprise pipeline bodes nicely for future sustained development in our federal enterprise.
ICF had $625 million in contract wins on this shopper class year-to-date, far outpacing our 2023 and 2022 first half awards, which averaged about $350 million. As well as, our federal new enterprise pipeline has grown to over $7.5 billion, which is a 13% enhance because the begin of 2024. Subcontractor and different direct prices declined within the second quarter to $132.Eight million, representing 25.9% of complete revenues, down from 27.5% within the prior yr. Second quarter gross margin was 35.7% of complete revenues, up 80 foundation factors year-over-year. This enchancment was primarily pushed resulting from a positive income and direct price combine as we noticed sturdy income development from our higher-margin industrial advertising industrial power shoppers and fewer subcontractor revenues.
Oblique and promoting bills elevated 0.4% year-over-year to $127.1 million, significantly lower than our year-over-year income development. As a proportion of complete income, oblique and promoting bills have been 24.8%, 50 foundation factors decrease than the 25.3% reported within the prior yr. We stay centered on driving efficiencies all through the group and proceed to comprehend advantages from increased utilization, managing our oblique prices and our elevated scale.
The favorable income combine I discussed earlier, mixed with these elements drove EBITDA development of 17.2% year-over-year to $55.6 million. Adjusted EBITDA grew 9.9% to $56 million, considerably outpacing our income development. Moreover, our adjusted EBITDA margins stands at 10.9% of complete income, a rise of 80 foundation factors as in comparison with the second quarter of final yr. Curiosity expense of $7.7 million decreased $2.Four million from the identical interval final yr resulting from a decrease common debt steadiness.
Our tax fee was 26.3% in comparison with 4.4% within the prior yr interval. The decrease tax fee within the prior yr second quarter mirrored tax optimization methods we have been in a position to make use of at the moment. Our tax fee within the second quarter of 2024 was consistent with our expectations, and we proceed to count on a full yr tax fee of 23.5%.
Internet revenue was 25.6 million and diluted EPS of $1.36 per diluted share elevated 26.1% and 27.1% respectively versus the comparable interval final yr. Final yr’s second quarter internet revenue included $3.5 million or $0.13 per share of tax-effected particular fees.
Our non-GAAP EPS grew 7.6% year-over-year to $1.69 per share. Now turning to our money movement. Our working money movement within the first half of this yr was 50.6 million greater than double the 19.9 million reported within the first half of 2023 reflecting increased internet revenue and the execution of our money administration initiatives. Our days gross sales excellent have been 72 days in comparison with 73 days final yr.
Yr-to-date capital expenditures have been $10.Four million down from $13.1 million final yr resulting from timing and the divestiture of our industrial advertising enterprise. On the finish of June, our debt was $433.9 million in comparison with $601.Eight million on the finish of June 2023 which displays 168 million of debt discount. Roughly 63% of our debt is presently set at a set fee. Our adjusted internet leverage ratio was 2.01x at quarter finish in comparison with 3.11x on the finish of final yr’s second quarter, demonstrating the corporate’s means to make the most of our favorable money movement from operations to rapidly ship.
As for our capital allocation priorities, our sturdy monetary place allows us to fund natural development initiatives, think about strategic acquisitions, paying down debt, repurchasing shares to keep away from dilution from our worker incentive plan and paying quarterly dividends. At the moment, we introduced a quarterly money dividend of $0.14 per share payable on October 11, 2024, to shareholders of report on September 6, 2024. Now that can assist you along with your monetary fashions please be aware the next:
We’re decreasing our steerage for depreciation and amortization expense, curiosity expense and CapEx. Our depreciation and amortization steerage has been decreased and is now anticipated to vary from 22 million to 24 million. Steering for our curiosity expense has been lowered and we now count on to vary from 30 million to 32 million. Our capital expenditures are anticipated between 22 million and 25 million. We’re sustaining our steerage for all different metrics.
As a reminder, amortization of intangible steerage will stay at roughly 32 million to 33 million. Our full yr tax fee expectations stay at roughly 23.5%. We proceed to count on a completely diluted weighted common share rely of roughly 19 million shares and we proceed to count on the complete yr working money movement of 155 million. And with that, I will flip the decision again over to John for his closing remarks.
John Wasson
Thanks, Barry. Our first half outcomes have put us on monitor to attain our full yr income steerage for 2024 and have enabled us to considerably enhance our EPS and EBITDA steerage. We’re happy to extend our steerage for GAAP EPS to $5.60 to $5.90 and for non-GAAP EPS to $6.95 to $7.25, up $0.35 from prior steerage and representing year-on-year development of 32.2% and 9.2%, respectively, on the midpoint. Adjusted EBITDA is now anticipated to vary between 225 million and 235 million up from our prior steerage of 220 million to 230 million.
Additional, we’re additionally very happy to notice that reaching the midpoint of our elevated EBITDA steerage vary will end in ICF reaching the 3-year EBITDA goal we offered in our 2022 Investor Day, adjusted for the 2023 divestitures. And we count on to perform this with considerably fewer acquisitions than initially contemplated. A rising multiyear backlog and our report enterprise growth pipeline of $10.5 billion on the finish of the second quarter help our expectations for continued sturdy development in 2024 and provides us confidence in ICF’s means to proceed to develop at a excessive single-digit fee over the subsequent a number of years.
We’re experiencing sturdy demand from industrial shoppers for our power and setting experience and implementation abilities. We’ve got wonderful credentials to help state and native authorities shoppers to fulfill their planning, resilience and mitigation targets and have expanded our capabilities in areas within the federal authorities which have bipartisan help notably IT modernization which stays an space of precedence spending. And we now have the key sauce the eagerness and dedication of our individuals which helps our confidence in ICF’s future success. With that, operator, I wish to open the decision for questions.
Query-and-Reply Session
Operator
Thanks. Presently we are going to conduct the question-and-answer session. [Operator Instructions]. Our first query comes from the road of Joseph Vafi of Canaccord Genuity. Your line is now open.
.
Joseph Vafi
Hello, guys. Good afternoon and good to see the EPS revision increased. So congrats on that. I simply thought we would simply perhaps simply drill down first and perhaps the federal enterprise. I do know in your commentary John you have been speaking about a number of the well being sector being a bit weaker and for proper now. Simply questioning the way you’re anticipating to see perhaps a few of these — a few of that well being enterprise over the subsequent yr or so when it comes to what you are seeing when it comes to your bids submitted and stuff that is within the pipeline. After which in the event you might examine and distinction that to perhaps a few of your different areas. I might think about IT modernization is doing fairly nicely. And so it would be helpful to get a taste of perhaps how they’re doing relative to a few of your different components of the federal enterprise. After which I’ve a follow-up?
John Wasson
Positive. No. Properly, thanks for the query, Joe. I will begin on the highest stage I feel in the event you have a look at the forward-focus metrics our gross sales are trailing 12-month book-to-bill ratio, the pipeline, these have been clearly very sturdy within the quarter and have been very sturdy for this yr. Definitely, the federal part of that pipeline and people gross sales has been very sturdy. I feel Barry talked about a number of the specifics on the federal market. And so once we have a look at these outcomes, they offer us confidence that we’ll see sturdy development in federal over the subsequent yr and past. We proceed to see vital proposal exercise and vital alternatives within the federal area. We proceed to see awards occurring. And so I would not say we have seen any change there. And clearly, as you realize the 2 key development drivers there are public well being and IT modernization and the proposal, the wins and the book-to-bill are sturdy and we have been clearly sturdy within the quarter. With that stated, I feel within the quarter and I feel we talked about this final quarter, I feel we’re — our federal enterprise, I imply I will simply evaluate the numbers once more.
Our federal enterprise was primarily flat for the quarter. And I feel that — and as we stated I feel a giant a part of that was pass-throughs within the federal area have been down materially year-on-year, 9.1 million. However in the event you have a look at our income, in the event you have a look at our complete income much less the pass-throughs, the expansion was about 5%. And so complete income, much less pass-throughs, that is subcontractors and direct prices, is the work completed by ICF. And so forth that metric, we’re at mid-single-digit development for Q2. And I feel for the primary quarter — and for the primary half of the yr, there’s a number of issues which might be particularly impacting our federal enterprise right here, actually within the first half of the yr. I feel it should proceed into the second half of the yr. However I do not suppose they’re long-term points. These are contract-specific points. We have been — the ramp-up of labor underneath a recompete contract we gained this quarter, one of many largest contracts, our massive USAID Demographic well being survey, we’re rolling off our — the prior contract. We have gained the recompete for the brand new contract. There’s at all times a few quarters once we make a transition with that contract the place pass-throughs and the work slows down a bit. So we’re seeing that.
We’ve got one other contract with USAID that ended on the finish of the yr the place we have been awaiting award on that. We thought we would have it within the first half of the yr. It appears to be like like we’re not going to have a — may have a call on it till Q3. In order that’s impacting us. After which we even have talked about we’re rolling off some small enterprise contracts from our acquisitions on the IT modernization entrance in 2022, once more, which we anticipated it and have been a part of our steerage and rationalization once we did these offers. And so these three points are actually what’s impacting our federal enterprise right here for a number of quarters. I feel as we have a look at the long term and look down the highway, given the chance, given the wins, given the book-to-bill, given the gross sales, we really feel — I am fairly assured. And to your level, I feel we’re — actually the IT modernization, we proceed to see vital alternative. As you realize, that is been a bipartisan resolution throughout — for a while. I feel that continues to be a bipartisan resolution. It is one of many few issues that the Trump administration put an actual emphasis on, and the Biden administration has continued it. And so I feel, actually, that may proceed to be a big supply of development for us as we glance ahead.
Joseph Vafi
Nice. Thanks for all that further shade, John. That is useful. After which I suppose, simply on that IT modernization entrance, once more, I simply — I did see you win a fairly large contract just lately with DoD in IT modernization. I used to be questioning in the event you might type of drill down into that just a little bit. And if there’s any type of urge for food to proceed to attempt to develop the DoD enterprise and IT modernization given the huge dimension of the budgets that there are over there. Thanks quite a bit guys.
John Wasson
Positive. No. So I feel we did only recently announce that we have gained a big DoD knowledge functions and knowledge companies modernization BPA, a $1.Four billion BPA in the event that they wish to type of award winners to help DoD on IT modernization, particularly with an HR and Gen AI analytics focus. And so actually, we now have vital HR, human capital, capabilities that we’ll look to marry with our IT modernization capabilities. And so we’re enthusiastic about this. I feel there’s alternative for us down the highway. We count on that the duty orders will begin to movement later this yr. And I feel there was — I feel was it 10 winners. 10 firms gained a place on this BPA. And so I feel there will be alternative for us there. And I feel it is actually proper and we’ll look to develop the enterprise as we glance ahead.
Joseph Vafi
Nice. All proper. Thanks very a lot, john
Operator
Our subsequent query comes from the road of Tim Mulrooney of William and Blair. Please go forward.
Tim Mulrooney
Sure Good afternoon. Good quarter, guys.
John Wasson
Thanks.
Tim Mulrooney
I feel this query might be for Barry. Are you able to simply give just a little extra element on the first elements behind the EPS steerage elevate on a consolidated foundation? Is that this primarily resulting from a better profitability outlook? Or is it additionally associated to increased prime line expectations relative to your prior expectations?
Barry Broadus
Hey, Tim, thanks for the query. Sure, in the event you have a look at the steerage enhance on the EPS and adjusted EBITDA, that basically has to do with the combo that we now have. We talked about that in the course of the remarks, particularly in our industrial power market and the combo, not simply from a standpoint of margins, that are vital in that market sector. It is the associated fee combine as nicely. So we’re extra reliant on our direct labor versus subcontractor and in order that’s boosting.
So we will maintain our revenues. The steerage on that hasn’t modified. However due to the upper margin profile of that enterprise and the throughput of that, we’re in a position to enhance the steerage for EPS and — each on a GAAP and non-GAAP foundation and our adjusted EBITDA.
Tim Mulrooney
Okay. That is useful. So no change there. Nonetheless a couple of 10% enhance in income on the highest line, extra of a combination. Okay. That is useful. The opposite query I had, perhaps for — nicely, for anybody actually. I do know it is early, however I am getting this query quite a bit. I feel most buyers are curious the way you all take into consideration the Supreme Courtroom’s current overturning of Chevron and the way which may or may not have an effect on your enterprise.
John Wasson
Sure. Properly, thanks for the query, Tim. I feel — nicely, I might say the punchline for us is that total, given the Chevron resolution and associated Supreme Courtroom selections on the regulatory entrance, we do not actually see any vital or materials influence to our enterprise from that call. And truthfully, if I feel, if something, it has the potential to create new alternative, a brand new enterprise potential for us simply because given that call, the regulatory companies, after they do their rulemaking, so they will need to do rather more detailed and fact-intensive work. And as they do this, I feel they’re going to want help with that. And so I feel our regulatory help follow is definitely — I feel there was a view that there could possibly be extra work for us on that entrance.
I might say, simply to place the context right here, solely about 1% to 2% of our complete revenues are what I might think about regulatory-related work, both doing regulatory help or implementing serving to — implementing packages or doing implementation to adjust to laws. It is actually a small proportion of our work. We actually — and we solely do this work actually at EPA and FDA and I feel on — and DOT. And so it is about 1% to 2% of our income, but it surely’s — of that 1% to 2%, lower than half of it’s what I might think about regulatory or regulatory evaluation or regulatory implementation. So it is not materials. And finally, I feel it is — it should — it has as a lot probability to create alternative for us as having an opposed influence, however any influence won’t be materials to our enterprise and to our outcomes.
Tim Mulrooney
Okay. I recognize you framing that for me, John. Once more, congrats on a pleasant quarter, and we’ll speak to you all quickly.
John Wasson
Okay, take care. Thanks, Tim.
Operator
Thanks. Our subsequent query comes from the road of Kevin Steinke of Barrington Analysis Associates. Your line is now open.
Kevin Steinke
Sure. Good afternoon. Thanks. So, in circling again there on the rise to the profitability steerage metrics, you talked there about favorable utilization metrics. And in response to one in all Tim’s questions, you talked extra about extra use of your individual labor versus subcontractors on a number of the industrial power effectivity facet. Is that simply the only driver of the higher utilization metrics? Or is it type of extra throughout the board to your total firm, simply higher utilization of consultants, I suppose?
John Wasson
Barry? Go forward.
Barry Broadus
Sure, thanks for the query, Kevin. Sure. So with that exact companies that we offer within the industrial power enterprise, that’s extra associated to our employees in addition to the contract. Not simply the combo of price, but in addition it is extra fixed-price work than a few of our different shoppers, particularly like within the authorities shoppers. So that permits us to handle the associated fee and enhance margins. So not solely is the kind of work that we’re doing extra conducive to having extra direct labor, much less contracts — subcontractors, but in addition the kind of contracts that we deploy additionally assist with having the ability to handle the upper margins. As well as, on the revenue will increase, one factor I wish to point out is that, as I famous in my remarks, we’re reducing our curiosity expense steerage in addition to our depreciation and amortization expense steerage. And in order that’s additionally serving to increase our EPS as we undergo the remainder of the yr.
John Wasson
Okay. I feel Barry did a pleasant job of summarizing. I imply I do — I imply traditionally and for a very long time, I imply, our power enterprise, our industrial power enterprise is simply — finally, it is extra worthwhile than our authorities enterprise. So in actual fact, that is rising extra quickly. After which as Barry stated, who is aware of, there’s not as many pass-throughs to different corporations that these are each driving the margin up, Kevin.
Kevin Steinke
Okay. Nice. And clearly, industrial power has been a properly rising enterprise for the previous few years. However there at all times appears to be an acceleration happening right here the final couple of quarters when it comes to the expansion. I do not know if there are any particular catalysts or tendencies within the utility market that’s driving sooner development that you just wish to spotlight and what appears to be type of an acceleration in development happening there.
John Wasson
Sure. I suppose what I might say, Kevin, is I imply I might say that power markets in the USA proper now are present process a once-in-a-century transformation proper now. I imply simply we’re seeing — and it is multipronged. I imply we’re seeing a big discount in the price of carbon-free power resulting from know-how innovation. And in that area, we’re seeing state-level regulatory actions round renewable portfolio requirements and local weather planning and mandating power effectivity packages that is serving to to drive this. We’re seeing the electrification of transportation with EVs and buildings driving change. We’re seeing — I imply, I am certain you’ve got been studying, I imply the fast rise within the load from knowledge facilities supporting AI, it is simply unprecedented. Then you may have the general public commitments on — from each residents and firms round carbon neutrality, together with the hyperscalers, the Googles and the Metas and the Amazons. And so there’s simply — that is going to create a number of — that is creating a number of demand given what is going on on with knowledge facilities. And so I feel it is a distinctive time within the power {industry}. I feel the challenges round how we will meet electrical demand and we will tackle and make progress on clear power and decreasing carbon footprints, it is simply — there’s simply super alternative there. And I feel as I stated in my remarks, we have been in these companies for 30 or 40 years, and we will have a look at it from each angle. We will have a look at it from the power, from the environmental, from the well being, from the know-how, from the regulatory. So I imply, it is only a long-winded manner, I feel it is a distinctive time, and it’s accelerating. It’s accelerating. And I feel that is what’s giving us confidence that we will see sturdy double-digit development right here for a while when there’s simply super alternative.
Kevin Steinke
No, that is nice. That is actually useful shade. Lastly, I simply wished to ask about one of many feedback you made about an rising proportion of the worth of your year-to-date contract awards, together with an AI part and your experience there. Perhaps in the event you can type of elaborate on the AI part of the awards you are seeing and how one can apply your experience to these contracts?
JohnWasson
Sure. Positive. So I feel — I imply, I might say, actually, in our federal enterprise, we’re seeing elevated curiosity and new enterprise alternatives on the AI entrance and from our federal shoppers. And I feel we’re nicely positioned to learn that. And truthfully, I feel we’re discovering that our programmatic shoppers, who’re finishing up their missions are more and more concerned with how they’ll leverage AI to attain their targets and obtain their missions. And that — and as a part of that, I feel what we — on condition that we now have each area specialists working with these shoppers and people programmatic of us as they perform the work plus we now have a deep know-how bench who can convey the know-how functionality round AI, we’re discovering that with many of those alternatives, we have to have each side of the home. We have to have the area individuals and the know-how individuals working facet by facet with our shoppers on AI to actually maximize the profit and determine probably the most modern resolution. And so a number of these alternatives are coming from the federal companies and the programmatic individuals. So the power coverage individuals or the general public well being specialists, the epidemiologists, the toxicologists or the general public well being specialists, who’re speaking to our area individuals wish to determine leverage AI.
After which we will usher in our know-how individuals to bear on it. And I feel that is one thing we will do notably nicely. And so we now have a tiger crew of AI specialists in company that may work with our area individuals to benefit from these alternatives rapidly. And I feel there are a number of buckets that we’re the place we predict they’ve the potential. The use instances might doubtlessly be materials to our enterprise, I imply, grants administration and coaching and technical help, analysis and analysis on the industrial facet maybe rebate processing. Anyway, we’re a set of use instances that we predict we’re notably related however we’re seeing a number of curiosity. Clearly, we even have 1,800 people who find themselves doing IT modernization work and the important thing platforms we’re working with, ServiceNow, Salesforce, Appian are all constructing AI capabilities into their platforms. And so our technologists are supporting shoppers on that. And clearly, we’re utilizing it to enhance the productiveness of our technologists. We’re additionally discovering that we — AI may help us create content material for our advertising actions for shoppers. And so sure, quite a few fairly a distinct and a big selection of issues we’re , as I stated, I feel type of each making an attempt to leverage our area experience and our know-how experience. And I feel it is also — we’re actually making an attempt to determine what are the use instances that could possibly be most impactful for our shoppers and impactful for our enterprise.
Kevin Steinke
Okay, that is nice. I recognize all of the perception. I’ll flip it again over. Thanks.
Operator
Thanks. Our subsequent query comes from the road of Marc Riddick of Sidoti. Your line is now open.
Marc Riddick
Good afternoon. So I wished to the touch just a little bit on the — one of many feedback within the ready remarks and the press launch talked concerning the catastrophe restoration shopper market and the expansion that you just’re anticipating within the second half of the yr. So I ponder in the event you might speak just a little bit about perhaps — we have actually seen a number of the bulletins. However perhaps you’ll be able to speak just a little bit about what you’ve got seen open up on the catastrophe restoration entrance and kind of what’s driving that.
John Wasson
Sure. I feel that on the catastrophe restoration entrance, I imply, clearly, as you realize, we have talked about over the past a number of years, I imply, we’ll proceed to be fairly lively in Puerto Rico. We’ve got — we simply introduced a recompete contract there to help FEMA-related catastrophe restoration. We are also nonetheless fairly engaged and fairly busy on the housing facet in Puerto Rico proceed to win follow-on work. And we now have a number of new contract alternatives within the pipeline we’re ready phrase on. And so I feel we’re nonetheless — they’re a big shopper. There’s materials alternative in entrance of us there. We’re nonetheless very busy in Texas supporting Texas catastrophe restoration notably round mitigation-related work. And there continues to be a big long-term alternative for us in Texas. Together with doubtlessly in each Puerto Rico and Texas the potential for us to introduce and now play a bigger position on the know-how facet round catastrophe restoration, which we’re enthusiastic about. I do know we have mentioned prior to now, we’re doing our first main wildfire catastrophe firm effort for the State of Oregon. That is going nicely and that is a terrific qualification for us.
In my remarks, I famous the variety of catastrophe restoration shoppers we now have and the variety of mitigation shopper, I imply it is a formidable quantity, a formidable record. However I might say — after which we proceed to be busy in Louisiana. I feel that as you realize, additionally, Marc, it is — the frequency and severity of those occasions is just is actually rising. I am certain you noticed the story. NOAA put out their 2024 Atlantic hurricane prediction. They have been saying 17 to 25 tropical storms, together with Four to 7 main hurricanes, which is a big enhance. After which we’re seeing extra wildfires. And we’re additionally seeing the potential that warmth occasions are going to grow to be — be thought-about eligible for catastrophe restoration funding. And nicely, I do not know, I feel in the event you stay wherever in the USA, you are experiencing some warmth occasions this summer time. So I feel that enterprise, we’re rising, we’re doing nicely. And I feel there’s going to be vital alternative there as we glance down the highway. And we actually are an {industry} chief in that area.
Marc Riddick
Nice. After which the one different factor I wished to kind of contact on is — you actually coated quite a bit already. I used to be questioning in the event you might contact — give us perhaps an replace on what your ideas are round potential acquisitions and perhaps what the acquisition pipeline appears to be like like presently so far as what you suppose could also be out there on the market high quality and amount sensible. And perhaps ideas on valuation after which perhaps the possibilities of a few of these issues perhaps shaking you lose ought to we get some rate of interest cuts. Thanks.
John Wasson
Sure. No, good query. Properly, I might say that as apparently begin — to begin with, I feel as Barry famous our steadiness sheet is in a robust place. I imply our leverage ratio is down to 2. We’re producing vital money. We’ll actually proceed to try this. We’ve got excessive confidence for that.
I feel, and as you realize, acquisitions have been a key a part of our technique over the past a number of — twenty years. I feel there’s been three or 4 instances the place we have positioned a strategic wager whether or not in federal markets or IT modernization or digital engagement, levered up, acquired key strategic assets capabilities after which paid the debt down within the subsequent two or three years and levered up once more. I feel that, stays a key part of our technique, and I feel we have mentioned this earlier than. I feel actually within the power space, given all the chance and the breadth of that chance when it comes to the big range of abilities and capabilities required to help it, we’re actually wanting rigorously at alternatives in that market. And that may be of curiosity.
I feel we have continued to take a look at alternatives within the federal market extra round knowledge and analytics and maybe smaller tuck-in know-how acquisitions, however I feel we will do it. After which catastrophe restoration, I feel if one thing got here alongside that gave us better geographic attain or introduced instruments and techniques that we thought have been complementary to our enterprise, we would have a look at these. And so I might say the deal movement is enhancing. We’re seeing extra potential alternatives. I feel the valuations are enhancing a bit. And I feel there’s quite a bit to deal with. And to your be aware, I feel rates of interest, maybe, these will come down. And so I imply we’re out there. We’re wanting. I feel we’re — as you realize, we’re fairly disciplined. We’ve got a really clear set of standards, and we’ll keep on with that. However I imply it stays a part of our technique, and we’re actually out out there, looking at potential alternatives. I do not suppose — if we have been to do something earlier than the top of the yr, I feel it would be extra on the small tuck-in selection although.
Operator
Our subsequent query comes from the road of Tobey Sommer with Truist Securities. Your line is now open.
Tobey Sommer
I used to be questioning in the event you might speak about your billable worker headcount development and perhaps remark about what attrition has been like year-to-date. In a number of the businesses which have reported earlier than you may have talked about that rebounding to pre-pandemic or perhaps even higher than that ranges. Do you see continued alternative for even higher retention?
BarryBroadus
Sure. Thanks for the query. Our retention fee has actually improved, actually year-over-year and quarter-over-quarter. We’re in just a little bit lower than the 12% from a turnover perspective. So we’re joyful about that. We’re seeing just a little bit ease from a expertise perspective. And our headcount, from a year-over-year perspective, has been rising and we really feel good that we have the — in a position to get the expertise to execute on the packages that we now have and retain the expertise.
James Morgan
Sure. I imply to present you just a little bit extra shade on that, Tobey, that is James Morgan. The — from a billable headcount perspective, year-over-year, we’re up like mid-single-digit ranges. That is the place it principally is and positively, as Barry talked about, retention is considerably down, just a little bit underneath 12% as from an attrition perspective, which is lowest it has been in years.
Tobey Sommer
I recognize that. From a contract award and pipeline perspective, are there any discernible tendencies that you possibly can name out when it comes to the margin of the bids that you just’re submitting or plan to in successful and or any kind of combine shift which may be implied by the composition of these bids in direction of — and I am pondering primarily of like all type of a change in agency fastened worth, etcetera.
John Wasson
I feel from a pricing perspective, I do not throughout the important thing markets, I do not suppose we have — I feel the pricing has been fairly steady. And I do not suppose — we’re not underneath vital stress to decrease our margins. Or I feel the margins have been fairly steady. I do suppose that we proceed to see, I might say, fastened worth contracts. I might you say that, our proportion.
Barry Broadus
Sure, in the event you have a look at our fastened worth contract proportion of all of our contracts, it is going up considerably. And that is changing our price reimbursable contracts, which is actually serving to with the margins. In order that’s good. I might say that so far as the combo of our direct labor versus subcontract associated, that basically hasn’t modified considerably and we have not seen huge shifts in any of that.
John Wasson
I might say the opposite factor is the dimensions of our offers has been going up, I imply, our proposals and given the alternatives and focus in IT modernization. And truthfully, within the power space, notably the power implementation facet with power effectivity and a number of the packages there, which are usually fastened worth and really useful to us. So the dimensions of the offers that we’re bidding is actually on the uptick.
Tobey Sommer
Thanks very a lot.
Operator
All proper. Thanks. I’m exhibiting no additional questions at the moment. I might now like to show it again to John Wasson for closing remarks.
John Wasson
Okay. Properly, thanks for taking part in at the moment’s name. We stay up for connecting at upcoming conferences and occasions. Have a superb remainder of the summer time.
Operator
All proper. Thanks to your participation in at the moment’s convention. This does conclude this system. Chances are you’ll now disconnect.
