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Begin Time: 16:30 January 1, 0000 5:25 PM ET
ICF Worldwide, Inc. (NASDAQ:ICFI)Q2 2024 Earnings Convention CallAugust 01, 2024, 16:30 PM ET
Firm Individuals
John Wasson – Chair and CEOBarry Broadus – CFOJames Morgan – COODavid Gold – Advisory Companions
Convention Name Individuals
Joseph Vafi – Canaccord GenuityTim Mulrooney – William and BlairKevin Steinke – Barrington Analysis AssociatesMarc Riddick – SidotiTobey Sommer – Truist Securities
Operator
Welcome to the Second Quarter 2024 ICF Earnings Convention Name. My title is Steven, and I will likely be your operator for right this moment’s name. At the moment, all contributors are in listen-only mode. Afterwards, you’ll 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, chances are you’ll 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 right this 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’ll make forward-looking statements to help you in understanding ICF administration’s expectations about our future efficiency. These statements are topic to quite a lot of 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 based mostly on our views as of right this moment. We anticipate that future developments will trigger our views to alter. Please contemplate the data introduced in that gentle. We might, in some unspecified time in the future, elect to replace the forward-looking statements made right this moment, however particularly disclaim any obligation to take action.
I am going to 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 collaborating in right this moment’s name to evaluate our second quarter outcomes and talk about our enterprise outlook. As you have seen from our launch, this was one other wonderful quarter for ICF during which we executed properly on current contracts and proceed to put the inspiration for future development.
With respect to key takeaways from the quarter, first, our Power, Surroundings, Infrastructure and Catastrophe Restoration consumer market proceed to be a standout performer, reflecting an array of very sturdy secular development traits in these areas. Second, our profitability metrics elevated significantly once more this quarter, main us to extend our EPS and EBITDA steering for the total 12 months. Third, this was an excellent 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 consumer units.
Taking a better have a look at second quarter efficiency. Our work within the Power, Surroundings, Infrastructure and Catastrophe Restoration consumer 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 12 months’s second quarter. All areas of ICF’s industrial vitality work posted substantial income development in each the second quarter and first half of 2024, once more, reflecting constructive secular traits in our markets.
We proceed to see sturdy demand for our vitality effectivity packages, which stay essentially the most price efficient means for utilities to extend their capability. ICF has constructed a wonderful observe report on this enviornment, constantly reaching and exceeding confirmed objectives, and we proceed to win new purchasers. On the identical time, the scale and scope of our packages have elevated as our utility purchasers broaden their vitality effectivity, electrification and client advertising packages.
Additionally, we’re more than happy with the efficiency and income synergies related to final 12 months’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 providers to utility and developer purchasers. Moreover, there are essential 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 vitality advisory work continues to point out sturdy development, significantly within the space of energy and technical advisory, reflecting rising demand from builders of renewable vitality sources. And development in the environment and planning enterprise line is benefiting from rising resilience or for utilities’ undergrounding energy traces for wildfire restoration or for renewable builders in addition to offering ongoing licensing, allowing and compliance providers.
As you recognize, we carry out our local weather providers throughout all our consumer classes. This space continued to attain important development within the second quarter, reflecting the growth 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 consumer demand for ICF’s CO2Sight system, our proprietary strategic planning platform that helps utilities and authorities companies obtain their clear vitality and greenhouse fuel emission objectives.
Our catastrophe administration space additionally continues to do properly. The Authorities of Puerto Rico’s Public-Personal Partnership Authority lately awarded ICF an $84 million recompete contract to offer skilled grant administration providers over the subsequent three years, and we’re ready closing phrase on different alternatives within the territory. ICF is at the moment executing practically 50 catastrophe restoration packages in 16 states and two territories, and we’re supporting over 30 purchasers’ mitigation efforts in 10 states and one territory. As an entire, we see double digit development forward for our Power, Surroundings, Infrastructure and Catastrophe Restoration consumer market over the subsequent a number of years.
Rising bodily impacts, enhancing financial fundamentals, public commitments by companies and legislative and regulatory actions relating to clear vitality are driving coverage and funding help for decarbonization packages, together with vitality effectivity and versatile load administration electrification. The rising load development from new information 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 speedy tempo, and we proceed to see electrical utility purchasers improve spending to exchange getting older infrastructure to underground energy traces to enhance resilience and to broaden the ability grid, creating demand for ICF’s grid engineering, environmental and catastrophe administration groups.
In our judgment, there isn’t a firm higher positioned to profit from these traits than ICF. We now have long-standing relationships with utility, developer and authorities purchasers, multidisciplinary experience throughout vitality, local weather, transportation and well being, plus industry-leading analytical instruments that help our advisory providers 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 accredited infrastructure wants. Examples embody system grants to states, territories and tribes for vitality infrastructure and grid reliability upgrades and award of aggressive grants for clear vitality manufacturing infrastructure. ICF’s IIJA and IRA-related wins thus far have reached nearly 140 million and our energetic pipeline of IIJA, IRA alternatives is now at 275 million. These metrics characterize work primarily for presidency purchasers because it’s troublesome to tie industrial tasks to particular laws.
Transferring to our Well being and Social Applications consumer market. As anticipated, this market had decrease year-on-year gross income comparisons, primarily reflecting three components: the influence of final 12 months’s divestitures, anticipated falloff in small enterprise contracts that have been held by the acquisitions we made during the last 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 consumer market was roughly $7.5 million within the second quarter. We should always see improved gross income comparisons from federal authorities purchasers within the second half of the 12 months, however the improve is not going to be of the magnitude we had initially anticipated. We’re assured that the sturdy development in our Power, Surroundings, Infrastructure and Catastrophe Administration consumer 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 consumer base and stay properly 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 creating extra performance to incorporate hospital admission information and hospital discharge and switch information to the platform.
As chances are you’ll recall, BioSense was entrance and middle throughout the pandemic because it tracks information for greater than 75% of hospital emergency room visits nationwide, offering CDC and public well being officers with insights into components impacting the well being of People at each the nationwide and native degree and we gained our $237 million re-compete contract with the US Company for Worldwide Growth Bureau for International Well being to proceed to ship the Demographic and Well being Surveys Program.
ICF has long-standing relationships at six key companies inside the Division of Well being and Human Providers and we have now deep subject 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 essentially the most broadly used low-code, no code and open supply platforms within the federal authorities. The US federal IT providers market is rising at a CAGR of 8.5% and is predicted to achieve $95 billion by 2027. And ICS’ focused areas, consulting and software providers are rising at CAGRs of 14% and 9%, respectively.
We had two essential contract wins within the second quarter on the Facilities for Medicare and Medicaid Providers and are seeing elevated traction on alternatives the place we’ll have the ability to mix our know-how and area experience, significantly when the scope features a information or AI focus.
We lately accomplished work with a federal company consumer to leverage Gen AI options for regulatory growth help and public remark evaluation. This was a really thrilling challenge for our groups as inside three months from inception to supply, we proved the viability of utilizing Gen AI to provide sooner insights into quite a few regulatory feedback.
Additionally FEMA awarded us a brand new $17 million contract to construct a cloud-based information 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 by way of contract awards, which reached $810 million representing a book-to-bill ratio of 1.8 for the quarter. New enterprise wins accounted for about 55% of our first half awards, demonstrating how properly ICS’s capabilities are aligned with consumer spending priorities.
Moreover, an elevated share of the worth of our year-to-date awards represented contracts that had — that included an AI element, a great indication of our acknowledged experience on this high-demand space. In abstract, this can be a very sturdy quarter for ICF by way of execution, profitability and metrics that set us up for future development.
I am going to 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 offer you extra particulars on our 2024 second quarter monetary efficiency. Whole 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 12 months. Our second quarter income development mirrored most of the identical enterprise drivers as this 12 months’s first quarter and was led by income development of 24.8% from our industrial vitality purchasers and by a mixed 5.9% development in revenues from our state and native and worldwide authorities purchasers.
Gross revenues from our federal authorities purchasers have been flat within the second quarter. This was primarily as a result of 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 the 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 properly for future sustained development in our federal enterprise.
ICF had $625 million in contract wins on this consumer 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% improve for the reason that begin of 2024. Subcontractor and different direct prices declined within the second quarter to $132.8 million, representing 25.9% of complete revenues, down from 27.5% within the prior 12 months. Second quarter gross margin was 35.7% of complete revenues, up 80 foundation factors year-over-year. This enchancment was primarily pushed as a result of a positive income and direct price combine as we noticed sturdy income development from our higher-margin industrial advertising industrial vitality purchasers 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 share of complete income, oblique and promoting bills have been 24.8%, 50 foundation factors decrease than the 25.3% reported within the prior 12 months. 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 components 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 12 months. Curiosity expense of $7.7 million decreased $2.4 million from the identical interval final 12 months as a result of a decrease common debt steadiness.
Our tax charge was 26.3% in comparison with 4.4% within the prior 12 months interval. The decrease tax charge within the prior 12 months second quarter mirrored tax optimization methods we have been in a position to make use of at the moment. Our tax charge within the second quarter of 2024 was in keeping with our expectations, and we proceed to anticipate a full 12 months tax charge 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 12 months. Final 12 months’s second quarter web 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 circulation. Our working money circulation within the first half of this 12 months was 50.6 million greater than double the 19.9 million reported within the first half of 2023 reflecting increased web revenue and the execution of our money administration initiatives. Our days gross sales excellent have been 72 days in comparison with 73 days final 12 months.
12 months-to-date capital expenditures have been $10.4 million down from $13.1 million final 12 months as a result of timing and the divestiture of our industrial advertising enterprise. On the finish of June, our debt was $433.9 million in comparison with $601.8 million on the finish of June 2023 which displays 168 million of debt discount. Roughly 63% of our debt is at the moment set at a set charge. Our adjusted web leverage ratio was 2.01x at quarter finish in comparison with 3.11x on the finish of final 12 months’s second quarter, demonstrating the corporate’s capacity to make the most of our favorable money circulation from operations to rapidly ship.
As for our capital allocation priorities, our sturdy monetary place permits us to fund natural development initiatives, contemplate strategic acquisitions, paying down debt, repurchasing shares to keep away from dilution from our worker incentive plan and paying quarterly dividends. Right this 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 will help you along with your monetary fashions please notice the next:
We’re decreasing our steering for depreciation and amortization expense, curiosity expense and CapEx. Our depreciation and amortization steering has been diminished and is now anticipated to vary from 22 million to 24 million. Steerage for our curiosity expense has been lowered and we now anticipate to vary from 30 million to 32 million. Our capital expenditures are anticipated between 22 million and 25 million. We’re sustaining our steering for all different metrics.
As a reminder, amortization of intangible steering will stay at roughly 32 million to 33 million. Our full 12 months tax charge expectations stay at roughly 23.5%. We proceed to anticipate a totally diluted weighted common share rely of roughly 19 million shares and we proceed to anticipate the total 12 months working money circulation of 155 million. And with that, I am going to flip the decision again over to John for his closing remarks.
John Wasson
Thanks, Barry. Our first half outcomes have put us on observe to attain our full 12 months income steering for 2024 and have enabled us to considerably improve our EPS and EBITDA steering. We’re happy to extend our steering 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 steering 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 steering of 220 million to 230 million.
Additional, we’re additionally more than happy to notice that reaching the midpoint of our elevated EBITDA steering vary will lead to ICF reaching the 3-year EBITDA goal we offered in our 2022 Investor Day, adjusted for the 2023 divestitures. And we anticipate 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 capacity to proceed to develop at a excessive single-digit charge over the subsequent a number of years.
We’re experiencing sturdy demand from industrial purchasers for our vitality and surroundings experience and implementation expertise. We now have wonderful credentials to help state and native authorities purchasers to satisfy their planning, resilience and mitigation aims and have expanded our capabilities in areas within the federal authorities which have bipartisan help significantly IT modernization which stays an space of precedence spending. And we have now 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. At the moment we’ll 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 might simply perhaps simply drill down first and perhaps the federal enterprise. I do know in your commentary John you have been speaking about a few 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 12 months or so by way of what you are seeing by way of your bids submitted and stuff that is within the pipeline. After which for those who may examine and distinction that to perhaps a few of your different areas. I’d think about IT modernization is doing fairly properly. And so it might be helpful to get a taste of perhaps how they’re doing relative to a few of your different elements of the federal enterprise. After which I’ve a follow-up?
John Wasson
Positive. No. Nicely, thanks for the query, Joe. I am going to begin on the highest degree I believe for those who 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 12 months. Definitely, the federal element of that pipeline and people gross sales has been very sturdy. I believe Barry talked about a few of the specifics on the federal market. And so after we have a look at these outcomes, they offer us confidence that we’ll see sturdy development in federal over the subsequent 12 months and past. We proceed to see important proposal exercise and important alternatives within the federal enviornment. We proceed to see awards occurring. And so I would not say we have seen any change there. And clearly, as you recognize 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 believe within the quarter and I believe we talked about this final quarter, I believe we’re — our federal enterprise, I imply I am going to simply evaluate the numbers once more.
Our federal enterprise was primarily flat for the quarter. And I believe that — and as we stated I believe a giant a part of that was pass-throughs within the federal enviornment have been down materially year-on-year, 9.1 million. However for those who have a look at our income, for those who 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 finished by ICF. And so forth that metric, we’re at mid-single-digit development for Q2. And I believe for the primary quarter — and for the primary half of the 12 months, there’s a number of issues which can be particularly impacting our federal enterprise right here, actually within the first half of the 12 months. I believe it’s going to proceed into the second half of the 12 months. 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 all the time a few quarters after we make a transition with that contract the place pass-throughs and the work slows down a bit. So we’re seeing that.
We now have one other contract with USAID that ended on the finish of the 12 months the place we have been awaiting award on that. We thought we might have it within the first half of the 12 months. It appears like we’re not going to have a — may have a choice 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 steering and clarification after 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 believe as we have a look at the long run 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 believe we’re — actually the IT modernization, we proceed to see important alternative. As you recognize, that is been a bipartisan choice throughout — for a while. I believe that is still a bipartisan choice. 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 believe, 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 lately with DoD in IT modernization. I used to be questioning for those who may form of drill down into that slightly bit. And if there may be any form 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 believe we did only recently announce that we have gained a big DoD information functions and information providers modernization BPA, a $1.4 billion BPA in the event that they wish to form of award winners to help DoD on IT modernization, particularly with an HR and Gen AI analytics focus. And so actually, we have now important HR, human capital, capabilities that we’ll look to marry with our IT modernization capabilities. And so we’re enthusiastic about this. I believe there’s alternative for us down the highway. We anticipate that the duty orders will begin to circulation later this 12 months. And I believe there was — I believe was it 10 winners. 10 corporations gained a place on this BPA. And so I believe there will be alternative for us there. And I believe 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 believe this query might be for Barry. Are you able to simply give slightly extra element on the first components behind the EPS steering increase on a consolidated foundation? Is that this primarily as a result of a better profitability outlook? Or is it additionally associated to increased high line expectations relative to your prior expectations?
Barry Broadus
Hey, Tim, thanks for the query. Sure, for those who have a look at the steering improve on the EPS and adjusted EBITDA, that basically has to do with the combo that we have now. We talked about that throughout the remarks, particularly in our industrial vitality market and the combo, not simply from a standpoint of margins, that are important in that market sector. It is the fee combine as properly. So we’re extra reliant on our direct labor versus subcontractor and in order that’s boosting.
So we will preserve our revenues. The steering 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 improve the steering 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 few 10% improve in income on the highest line, extra of a combination. Okay. That is useful. The opposite query I had, perhaps for — properly, for anybody actually. I do know it is early, however I am getting this query quite a bit. I believe most buyers are curious the way you all take into consideration the Supreme Court docket’s current overturning of Chevron and the way which may or won’t have an effect on your corporation.
John Wasson
Sure. Nicely, thanks for the query, Tim. I believe — properly, I’d say the punchline for us is that total, given the Chevron choice and associated Supreme Court docket choices on the regulatory entrance, we do not actually see any important or materials influence to our enterprise from that call. And actually, if I believe, 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, once they do their rulemaking, so they’ll must do way more detailed and fact-intensive work. And as they do this, I believe they will want help with that. And so I believe our regulatory help apply is definitely — I believe there was a view that there may very well be extra work for us on that entrance.
I’d say, simply to place the context right here, solely about 1% to 2% of our complete revenues are what I’d contemplate regulatory-related work, both doing regulatory help or implementing serving to — implementing packages or doing implementation to adjust to rules. It is actually a small share of our work. We actually — and we solely do this work actually at EPA and FDA and I believe on — and DOT. And so it is about 1% to 2% of our income, however it’s — of that 1% to 2%, lower than half of it’s what I’d contemplate regulatory or regulatory evaluation or regulatory implementation. So it is not materials. And in the end, I believe it is — it’s going to — it has as a lot probability to create alternative for us as having an hostile influence, however any influence is not going to be materials to our enterprise and to our outcomes.
Tim Mulrooney
Okay. I respect 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 steering metrics, you talked there about favorable utilization metrics. And in response to one among Tim’s questions, you talked extra about extra use of your individual labor versus subcontractors on a few of the industrial vitality effectivity facet. Is that simply the only driver of the higher utilization metrics? Or is it form of extra throughout the board in 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 individual providers that we offer within the industrial vitality enterprise, that’s extra associated to our workers 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 purchasers, particularly like within the authorities purchasers. So that permits us to handle the 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 decreasing our curiosity expense steering in addition to our depreciation and amortization expense steering. And in order that’s additionally serving to enhance our EPS as we undergo the remainder of the 12 months.
John Wasson
Okay. I believe Barry did a pleasant job of summarizing. I imply I do — I imply traditionally and for a very long time, I imply, our vitality enterprise, our industrial vitality enterprise is simply — in the end, it is extra worthwhile than our authorities enterprise. So actually, that is rising extra quickly. After which as Barry stated, who is aware of, there’s not as many pass-throughs to different companies that these are each driving the margin up, Kevin.
Kevin Steinke
Okay. Nice. And clearly, industrial vitality has been a properly rising enterprise for the previous couple of years. However there all the time appears to be an acceleration occurring right here the final couple of quarters by way of the expansion. I do not know if there are any particular catalysts or traits within the utility market that’s driving sooner development that you simply wish to spotlight and what appears to be form of an acceleration in development occurring there.
John Wasson
Sure. I suppose what I would say, Kevin, is I imply I’d say that vitality markets in america 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 vitality as a result of know-how innovation. And in that enviornment, we’re seeing state-level regulatory actions round renewable portfolio requirements and local weather planning and mandating vitality 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 have been studying, I imply the speedy rise within the load from information facilities supporting AI, it is simply unprecedented. Then you will have the general public commitments on — from each residents and companies 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 whole lot of — that is creating a whole lot of demand given what is going on on with information facilities. And so I believe it is a distinctive time within the vitality {industry}. I believe the challenges round how we’ll meet electrical demand and we’ll tackle and make progress on clear vitality and decreasing carbon footprints, it is simply — there’s simply large alternative there. And I believe 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 are able to have a look at it from the vitality, from the environmental, from the well being, from the know-how, from the regulatory. So I imply, it is only a long-winded approach, I believe it is a distinctive time, and it’s accelerating. It’s accelerating. And I believe that is what’s giving us confidence that we’ll see sturdy double-digit development right here for a while when there’s simply large alternative.
Kevin Steinke
No, that is nice. That is actually useful shade. Lastly, I simply needed to ask about one of many feedback you made about an rising share of the worth of your year-to-date contract awards, together with an AI element and your experience there. Possibly for those who can form of elaborate on the AI element of the awards you are seeing and how one can apply your experience to these contracts?
JohnWasson
Sure. Positive. So I believe — I imply, I’d say, actually, in our federal enterprise, we’re seeing elevated curiosity and new enterprise alternatives on the AI entrance and from our federal purchasers. And I believe we’re properly positioned to profit that. And actually, I believe we’re discovering that our programmatic purchasers, who’re finishing up their missions are more and more fascinated with how they will leverage AI to attain their objectives and obtain their missions. And that — and as a part of that, I believe what we — on condition that we have now each area consultants working with these purchasers and people programmatic of us as they perform the work plus we have now 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 either side of the home. We have to have the area individuals and the know-how individuals working facet by facet with our purchasers on AI to actually maximize the profit and determine essentially the most modern resolution. And so a whole lot of these alternatives are coming from the federal companies and the programmatic individuals. So the vitality coverage individuals or the general public well being consultants, the epidemiologists, the toxicologists or the general public well being consultants, who’re speaking to our area individuals wish to determine the best way to leverage AI.
After which we will herald our know-how individuals to bear on it. And I believe that is one thing we will do significantly properly. And so we have now a tiger group of AI consultants in company that may work with our area individuals to benefit from these alternatives rapidly. And I believe there are a number of buckets that we’re the place we expect they’ve the potential. The use instances may 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 expect we’re significantly related however we’re seeing a whole lot 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 purchasers on that. And clearly, we’re utilizing it to enhance the productiveness of our technologists. We’re additionally discovering that we — AI might help us create content material for our advertising actions for purchasers. And so sure, quite a lot of fairly a unique and a big selection of issues we’re , as I stated, I believe form of each attempting to leverage our area experience and our know-how experience. And I believe it is also — we’re actually attempting to determine what are the use instances that may very well be most impactful for our purchasers and impactful for our enterprise.
Kevin Steinke
Okay, that is nice. I respect 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 needed to the touch slightly bit on the — one of many feedback within the ready remarks and the press launch talked in regards to the catastrophe restoration consumer market and the expansion that you simply’re anticipating within the second half of the 12 months. So I ponder for those who may speak slightly bit about perhaps — we have actually seen a few of the bulletins. However perhaps you possibly can speak slightly bit about what you have seen open up on the catastrophe restoration entrance and kind of what’s driving that.
John Wasson
Sure. I believe that on the catastrophe restoration entrance, I imply, clearly, as you recognize, we have talked about during the last a number of years, I imply, we’ll proceed to be fairly energetic in Puerto Rico. We now have — 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 have now a number of new contract alternatives within the pipeline we’re ready phrase on. And so I believe we’re nonetheless — they’re a big consumer. There’s materials alternative in entrance of us there. We’re nonetheless very busy in Texas supporting Texas catastrophe restoration significantly 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 up to now, we’re doing our first main wildfire catastrophe firm effort for the State of Oregon. That is going properly and that is an excellent qualification for us.
In my remarks, I famous the variety of catastrophe restoration purchasers we have now and the variety of mitigation consumer, I imply it is a powerful quantity, a powerful listing. However I’d say — after which we proceed to be busy in Louisiana. I believe that as you recognize, 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 4 to 7 main hurricanes, which is a big improve. 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 of eligible for catastrophe restoration funding. And properly, I do not know, I believe for those who stay wherever in america, you are experiencing some warmth occasions this summer season. So I believe that enterprise, we’re rising, we’re doing properly. And I believe there’s going to be important alternative there as we glance down the highway. And we actually are an {industry} chief in that enviornment.
Marc Riddick
Nice. After which the one different factor I needed to kind of contact on is — you actually coated quite a bit already. I used to be questioning for those who may contact — give us perhaps an replace on what your ideas are round potential acquisitions and perhaps what the acquisition pipeline appears like at the moment so far as what you suppose could also be obtainable on the market high quality and amount smart. 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. Nicely, I’d say that as apparently begin — to start with, I believe as Barry famous our steadiness sheet is in a powerful place. I imply our leverage ratio is down to 2. We’re producing important money. We’ll actually proceed to try this. We now have excessive confidence for that.
I believe, and as you recognize, acquisitions have been a key a part of our technique during the last a number of — 20 years. I believe there’s been three or 4 instances the place we have positioned a strategic guess whether or not in federal markets or IT modernization or digital engagement, levered up, acquired key strategic sources capabilities after which paid the debt down within the subsequent two or three years and levered up once more. I believe that, stays a key element of our technique, and I believe we have mentioned this earlier than. I believe actually within the vitality space, given all the chance and the breadth of that chance by way of the big selection of expertise and capabilities required to help it, we’re actually wanting fastidiously at alternatives in that market. And that may be of curiosity.
I believe we have continued to have a look at alternatives within the federal market extra round information and analytics and maybe smaller tuck-in know-how acquisitions, however I believe we’ll do it. After which catastrophe restoration, I believe if one thing got here alongside that gave us higher geographic attain or introduced instruments and programs that we thought have been complementary to our enterprise, we might have a look at these. And so I’d say the deal circulation is enhancing. We’re seeing extra potential alternatives. I believe the valuations are enhancing a bit. And I believe there’s quite a bit to give attention to. And to your notice, I believe rates of interest, maybe, these will come down. And so I imply we’re out there. We’re wanting. I believe we’re — as you recognize, we’re fairly disciplined. We now have a really clear set of standards, and we’ll persist with that. However I imply it stays a part of our technique, and we’re actually out out there, having a look at potential alternatives. I do not suppose — if we have been to do something earlier than the top of the 12 months, I believe it might 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 for those who may discuss your billable worker headcount development and perhaps remark about what attrition has been like year-to-date. In a whole lot of the businesses which have reported earlier than you will 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 charge has actually improved, actually year-over-year and quarter-over-quarter. We’re in slightly bit lower than the 12% from a turnover perspective. So we’re comfortable about that. We’re seeing slightly 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 got the — in a position to get the expertise to execute on the packages that we have now and retain the expertise.
James Morgan
Sure. I imply to provide you slightly 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 mainly is and positively, as Barry talked about, retention is considerably down, slightly bit underneath 12% as from an attrition perspective, which is lowest it has been in years.
Tobey Sommer
I respect that. From a contract award and pipeline perspective, are there any discernible traits that you may name out by way of the margin of the bids that you simply’re submitting or plan to in successful and or any kind of combine shift that could be implied by the composition of these bids in the direction of — and I am pondering primarily of like several form of a change in agency mounted worth, etcetera.
John Wasson
I believe from a pricing perspective, I do not throughout the important thing markets, I do not suppose we have — I believe the pricing has been fairly steady. And I do not suppose — we’re not underneath important stress to decrease our margins. Or I believe the margins have been fairly steady. I do suppose that we proceed to see, I’d say, mounted worth contracts. I’d you say that, our share.
Barry Broadus
Sure, for those who have a look at our mounted worth contract share 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’d 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 massive shifts in any of that.
John Wasson
I would say the opposite factor is the scale of our offers has been going up, I imply, our proposals and given the alternatives and focus in IT modernization. And actually, within the vitality space, significantly the vitality implementation facet with vitality effectivity and a few of the packages there, which are typically mounted worth and really useful to us. So the scale of the offers that we’re bidding is actually on the uptick.
Tobey Sommer
Thanks very a lot.
Operator
All proper. Thanks. I’m displaying no additional questions right now. I’d now like to show it again to John Wasson for closing remarks.
John Wasson
Okay. Nicely, thanks for collaborating in right this moment’s name. We stay up for connecting at upcoming conferences and occasions. Have a great remainder of the summer season.
Operator
All proper. Thanks in your participation in right this moment’s convention. This does conclude this system. You might now disconnect.
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