Lynn Morgen - IR, MBS Value Partners Sudhakar Kesavan - Chairman & CEO John Wasson - President & COO James Morgan - CFO.

Tobey Sommer - SunTrust Joseph Vafi - Loop Capital Justin Donati - Wells Fargo Tim McHugh - William Blair & Company Marc Riddick - Sidoti & Company Kevin Steinke - Barrington Research Ben Klieve - Noble Capital Market.

Welcome to the Second Quarter 2017 ICF Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards you'll be invited to participate in a question-and-answer session.

[Operator Instructions] As a reminder, this conference is being recorded on Wednesday, August 02, 2017, and cannot be reproduced or rebroadcast without permission from the company. And I would now turn the program over to Lynn Morgen of MBS ValuePartners. Please go ahead..

Thank you, Vanessa. Good afternoon, everyone, and thank you for joining us to review ICF's second quarter 2017 performance. With us today from ICF are Sudhakar Kesavan, Chairman and CEO; John Wasson, President and COO; and James Morgan, CFO.

During this conference call, we will make forward-looking statements to assist you in understanding ICF's management's expectations about our future performance.

These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our August 02, 2017 press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today.

We anticipate that future developments will cause our views to change. Please consider the information presented in that light. We may, at some point, elect to update the forward-looking statements made today, but specifically disclaim any obligation to do so.

I will now turn the call over to ICF's CEO, Sudhakar Kesavan, to discuss second quarter 2017 performance.

Sudhakar?.

Thank you, Lynn, and thank you all for participating in today's call. Second quarter results were consistent with our expectations and once again reflected the benefits of ICF diversified revenue sources.

Our government services business was stable and we benefited from the profitability upside associated with a growing commercial business as well as our ongoing efforts reduce into that cost. Total revenue this quarter was slightly above last year's second quarter and service revenue increased at a low single digit rate.

With the fiscal 2017 budget in place since May, our federal, civil and agency clients, have operating budgets, our spending on existing contracts and are releasing RFPs. This was a good quarter for us in terms of contract wins.

Wait in proposal activity is moving ahead at an active pace and the dollar amount of the proposal we submitted in the first half of this year is about equal to the same period in 2016.

That being said, the administration is yet to fill many key agency political positions, which has resulted in a certain reluctance of some agencies to begin new policy and problematic activities with the result that not all funds have been obligated into contracts.

Our commercial business continues to be a strong performer in the second quarter with revenues increasing at a mid-single-digit rate and business for domestic clients growing even faster at 9.7%. Energy markets was a key driver, primarily reflecting the ramp up of energy efficiency projects that we won in last year's second half.

We were pleased to see that our marketing services businesses for domestic clients primarily reflecting ICF Olson work, increased both year-over-year and sequentially and that sales wins were strong in the quarter. A key takeaway from ICF second quarter is the substantial progress we made in increasing profitability levels.

Adjusted EBITDA as a percentage of total revenue increased to 9.7%. Given that commercial revenues are becoming increasingly important part of our total business and even more relevant metric is adjusted EBITDA as a percentage of service revenue, which reached 13.3% for the quarter.

The strong performance is a result of higher utilization rates and higher margin this quarter as well as actions that we've taken to reduce our cost structure. These actions included consolidation of facilities and realigning personnel resources to reflect the nature of the work going forward.

In summary, our year-to-date results have put us on track to achieve our 2017 full-year guidance and we're looking ahead to continue positive performance in the second half of this year.

Now I'll turn the call over to John Wasson, our President and Chief Operating Officer to discuss the operating trends across our client sets that underlies our confidence.

John?.

Thanks, Sudhakar and good afternoon, everyone. The second quarter was a period of solid execution across ICF, resulting in improved utilization and increased efficiencies. We continue to grow service revenue and take steps to lay the foundation for additional future growth.

The federal government business environment continue to improve in the second quarter compared to the first, with a sense of stability amongst our civilian agency clients. Total revenue for this client category was down mid-single digits, primarily due to a fall-off in pass through revenues on a federal contract on which work was pushed to the right.

For the first half of this year, excluding this reduction in pass-throughs, revenues from federal clients were flat with a similar period last year and accounted for 46% of total revenue. As expected, federal contact wins also picked up in the second quarter.

At our largest client, Department of Health and Human Services, ICF's public health expertise is well aligned with bipartisan priorities.

We continue to execute well on several large contracts from the National Institute of Health, the Centers for Disease Control and Prevention and the Substance Abuse and Mental Health Services Administration that are designed to combat major public health issues.

In May, we announced that we had won a five-year multiple award IDIQ issued by Samsung, which gave ICF the ability to compete for up to $1.2 billion in new contracts over the next five years. Based on input from our clients, our view is that the fiscal 2017 budget will be followed by a continuing resolution between October 1 and the end of the year.

We continue to expect civilian budgets to be of similar order of magnitude to those of the fiscal 2017 budget. For example, while it is early in the process, the latest house appropriations bills show HHS with funding that is almost identical to 2017.

In addition, we expect to see significant funding committed to dealing with pressing public health issues such as opioid abuse and suicide prevention included in fiscal 2018 budget proposals. Revenue from state and local government clients increased 4.7% in the second quarter and for the first half of the year.

For the first half, state and local represented 11% of total revenue and most of our work continue to be around infrastructure projects. California voters approved tax increases of both the state and local levels that will add substantial new funding for transportation and infrastructure spending effective later this year.

We believe that ICF is well-positioned to benefit from this increased funding beginning in 2018 as we serve agencies that will be responsible for spending these dollars. Our international government business had another quarter of positive year-on-year comparisons growing revenues by 0.9% and growing 3.7% for the first half of 2017.

We are benefiting from a large number of contacts we won last year that are now being activated. International government accounted for 7% of our total revenue for the first half of this year and we are now expecting to starting to show mid-single-digit growth in 2017. For the first half of 2017, our total government business revenue including U.S.

federal, U.S. state and local and international was basically flat on a year-over-year basis. The performance of our commercial business was also in line with our expectations with revenue up 6.1% in the second quarter and 7.7% for the first six months of the year.

We are currently executing on over 150 energy efficiency programs in more than 30 states. Our energy efficiency work is driven by state policy and legislation and is largely unaffected by changes in federal government policies.

In the second quarter, we announced a significant new win with consolidated Edison and re-compete wins with energy efficiency Alberta, Mexico and Consortium of Northeast Utilities and the pipeline of qualified opportunities remains robust even after these wins in more than 525 million of energy market contracts we've won over the last 12 months.

Also, our commercial marketing services business comprised primarily of ICF Olson saw an uptick in its performance with U.S. clients and recent development actively picked up considerably in the second quarter.

We bought on a major hospitality company as a new loyalty program client and overall, we've been able to increase the average dollar value of our new account wins.

Clients are looking for integrated marketing campaigns and help in leveraging technology to meet their objectives and we're well-positioned to take advantage of the larger opportunities associated with this trend.

Also, just the increased collaboration across ICF, examples include a recent airline assignment for ICF's deep expertise in aviation was a major differentiator or for an online education services client that include collaboration with ICF's education experts and the contact with the European organization where we are providing communications work.

We are pleased with this quarter's progress and by the substantial recognition that ICF Olson received this quarter and we received the words at the Cannes Lions International Festival of Creativity and the North American SABRE Awards. To sum up our year-to-date results are consistent with the expectations we set at the beginning of this year.

This speaks to the visibility inherent in our business model as well as the complementarity of our domain advisory expertise and services around program implementation, engagement and IT and Research have resulted in high win rates for ICF. Based on our guidance, we expect our second half results to be higher for the first half.

Within this context, Q3 and Q4 look to be similar given the slow start to the year due to the Presidential transition and pent up demand on certain contracts in Q4.

Our business development pipeline stood at $4.6 billion after the quarter's strong contract awards and included 29 opportunities greater than $25 million and 88 opportunities between $10 million and $25 million. Our annualized personal turnover rate was 14.1%.

Now I'll turn the call over to our CFO, James Morgan for a detailed financial review, James?.

Thanks John. Good afternoon, everyone. ICF's second-quarter results represented solid execution across our key business areas result in higher profitability and a healthy backlog heading into the second half of 2017.

Second quarter total revenue was up 0.3% year-over-year to $306.4 million and service revenue, which reflects the client work performed by ICF staff members increased 1.2% to $224.9 million.

Key contributor to the topline growth in the quarter was a 6.1% increase in revenue from commercial clients, which was previous mentioned was driven by our energy efficiency work. Gross profit dollars increased 3.8% to $115.5 million from $111.2 million in the second quarter of 2016 and gross margin expanded to 37.7% from 36.4%.

Similar to this year's first quarter, approximate 80 basis points of the 130-basis point expansion, gross margin reflected our change in our labor cost methodology, which reduced direct expenses and increased and selling expenses. So, there is no impact on operating income due to this change.

Indirect and selling expenses for the second quarter were $86.2 million a year-on-year increase of $1.6 million or 1.9%. This year-on-year comparison includes a previously mentioned change in our labor cost methodology, which increased our indirect and selling expenses by approximately $2.5 million.

Excluding this impact, indirect and selling expenses would have declined nearly $1 million year-on-year, reflecting our ongoing actions to reduce indirect cost. Operating income was $22.2 million in the second quarter up 14.7% year-on-year.

EBITDA was $29.3 million for the quarter, inclusive of $600,000 in special charges for severance and facility consolidation an increase of 10% over the $26.6 million reported for the same period of last year, which included $1.1 million in special charges.

Adjusted for special charges, our adjusted EBITDA margin in the second quarter was 9.7% on total revenue and 13.3% on service revenue. As Sudhakar mentioned, we are increasingly looking at our profitability metrics as a percentage of service revenue as our business becomes more balanced between government and commercial clients.

Additionally, by using service revenue as the denominator instead of total revenue, we eliminate the quarterly volatility associate with the timing of pass through revenues. Depreciation and amortization expense was $4.3 million, $200,000 higher than last year.

The amortization of intangibles decreased to $2.7 million compared to $3.1 million in the same period of 2016. The effective tax rate was 40% for the quarter compared to 37.2% in the second quarter of 2016. The increase in the tax rate was primarily due to the timing of discrete tax benefits.

For the first half of 2017, the effective tax rate was 36.3%, similar to the 36.7% for the first half of 2016. We currently expect our effective tax rate for the full year to be no more than 38%. Net income was $11.9 million, 12.8% above the 10.6% -- $10.6 million in the second quarter of 2016.

Diluted earnings per share was $0.63, a 14.5% increase over the $0.55 earned in the last year's second quarter.

Non-GAAP EPS, which excludes amortization of intangible, special charges and the related income tax effects of the amortization and special charges was $0.73 per diluted share, an increase of 5.8% over the $0.69 per diluted share in last year's second quarter.

Looking at first half of 2017 results, both the total revenue and service revenue increased 2.3% to $602.7 million and $444.7 million respectively and as a result, we continue to be on track to deliver total revenues for the full year that are within our original guidance range of $1.2 billion to $1.24 billion.

Diluted EPS was $1.15 for the first half of 2017 up 8.5% year-on-year. Included in the year-to-date EPS of $1.15 is $0.08 and tax effected special charges related to facility consolidation and severance.

We expect to partially offset the impact of the special charges by $0.04 per share due to the lower tax rate and share count that we initially anticipated for the full year. Cash provided by operating activities for the first half totaled $17.2 million up 9.6% year-on-year but is on track to meet our guidance for the year.

This was achieved despite the timing of payrolls, which negatively impacted our year-to-date operating cash flow by approximately $50 million. Day sales outstanding the second quarter were 77 days and within our anticipated year-end DSO target range of 72 to 77 days, including the impact of deferred revenues.

Capital expenditures for the first half of 2017 were $8.4 million. We confirm the following guidance for the full year of 2017. Depreciation-amortization expense is expected to be in the range of $17.7 to $18.7 million for the year and amortization of intangibles is estimated to be approximately $10.8 million for the year.

Interest expense is expected to be in the range of $7 million to $8 million for the year. Capital expenditures are expected to be within the range of $20 million to $22 million.

Cash flow from operations is expected to be in the range of $90 million to $100 million and as I previously mentioned, we now expect the full year tax rate to be no more than 38%.

Also for modeling purposes, note that the midpoint of our diluted EPS guidance range does not take into account the $0.04 net effect of special charges incurred in the first half and the lower-than-expected effective tax rate and share count for the full year. Lastly, I'd like to mention two additional items.

First in the second quarter, we signed an amendment to our credit facility that provides additional financing capacity, improvements to the pricing grid and greater covenant flexibility that will enhance ICF's ability to do acquisitions, share repurchases and other strategic investments in line with our capital allocation priorities.

The five-year credit facility permits borrowings up to $600 million and has an accordion future that would allow for the facility to be expanded by an additional $300 million.

Second, during the second quarter, we repurchased 150,672 shares and for the first half, we repurchased 515,235 shares for a total expenditure of $23.1 million under our share repurchase program.

As a result of these year-to-date share repurchases, we anticipate a weighted average diluted share count of approximately $19.2 million for the year or roughly 200,000 shares less than in 2016. As of the start of the third quarter of 2017 there is $33.3 million of authorize share repurchases remaining under our current share repurchase program.

With that, I'll turn the call back to Sudhakar..

Thank you, James. ICF is entering the second half of 2017 with a strong government backlog, representing look across a diversified roster of federal, state and local and international agency clients, a growing commercial client base of about experts in energy, infrastructure and customer engagement and a robust new business pipeline.

Based on our current visibility, we reaffirm our expectations of full year 2017 total revenue in the range of $1.2 million to $1.24 million. We maintain our guidance range for diluted earnings per share at $2.50 to $2.75 and from a non-GAAP EPS of $2.84 to $3.09. To sum up, we're pleased with our performance in the first half of this year.

We're taking advantage of opportunities to drive organic growth. We remain interested in acquisitions that add to our domain expertise and our capabilities. ICF has a solid track record of revenue and earnings growth, achieving our guidance for 2017 will add another year to our growth pattern. Operator, we would now like to open the call to questions..

Thank you. We'll now being our question-and-answer session. [Operator instructions] And we have our first question from Tobey Sommer with SunTrust..

Thank you very much. I was curious about Olson and the rebound in the quarter.

The growth year-over-year and sequentially in the new contract wins which appear to be up several fold either year-over-year or sequential, is that a reflection of the market or is this -- is the momentum internal factors reflecting the work you've done to review growth in the business?.

I think there are certain things which we have at Olson which are quite unique in terms of intellectual property. We also have a pretty forward-looking mix of skills, which we can bring to bear for our client.

So, I think that not only the effort we've taken, but also the IP and the kinds of people we have I think certainly help -- have helped us grow our domestic commercial business quite -- the business -- marketing services business quite nicely.

The sequential growth has been quite good and I think that we won a large loyalty program with a large hospitality company of $36 million which is the largest single win they've had. We have done a lot of work across ICF. John give some examples of the work with aviation, the work with some European clients, the work with utility companies.

So, I think generally we've made sure that we've done as much cross-sell as we can and I think and making sure that, that continually happens and I think that has helped us. So, I think it's both -- I don't know whether it's the market, but it's certainly our efforts and the uniqueness in what we provide in certain areas which has helped us..

I just would add Tobey, I think I said in last quarter's call that we thought that we were gaining momentum in Olson and we've talked about it is a momentum business and I think we've continued to see improved momentum in Olson in the last quarter and we think that's and -- the talent we brought in and getting the leverage out of the ICF verticals as Sudhakar mentioned we just cross-sold over $90 million of opportunity since the acquisition.

I think that's all paying off and so I think we really do are seeing that momentum and it's making a difference..

Okay.

What are you seeing in the spending levels on existing contracts and new business from agencies that have been in there for customers that have been targeted for budget cuts by the administration although it hasn't necessarily translated into the budget that was passed?.

Right, yeah, I would say that in general in the federal market, we've really seen no change in the environment or our outlook certainly over the last quarter. We continue to see stable civilian markets as we've talked about in prior calls and I mentioned in my remarks, the budgets that are in place for 2017 are flat to up slightly.

We do expect a continuing resolution at the end of the year.

We continue to see pockets of upside Tobey and Public Health Digital IT monetization in cyber and so our outlook remains overall flat for total gross revenues and low single-digit growth on service revenue in the federal space and we really haven't seen any shift in the environment over the last quarter.

It's been consistent with what we've discussed all of this year..

Okay. You did mention in your prepared remarks some agencies that were slow to obligate funds in the absence of having people occupy leadership positions.

Is that broad or could you give us little more color as to where you see that and where you don't?.

I think you see that in the obvious places where people -- you can see which agencies have and which don't. I think as John mentioned, the budget situation is quite stable, it's just that I think you've got new programs to be launched. You do need some political heft to launch them.

So, I think that is why I think things haven't quite moved as quickly as they could have and usually they don't in a Presidential transition year. So, I think that every agency has people missing. In certain cases, it impacts us more than other cases because in certain cases they have a direct impact on the work we do.

So, I think the good news is that in areas where we have a lot of work like in HHS etcetera there are folks like CDC has political -- has more political appointees than other agencies NIH has some I think State Department obviously there is a slowness there.

So, I think broadly speaking I think only 20% of the political positions have been filled and we're hoping that they will be filled quickly in the next few months because that will certainly have an impact on how the fed spend money going forward..

I just would add I think given the number of political appointees in place in the current situation, I think we're comfortable with the midpoint of our guidance. I think this is an issue of if we saw an increase in number of political appointees and new programs were launched and that would provide us political towards the higher end of the range.

But I think we're very comfortable with given the state of Trump political appointees that the mid part of the guidance is we're very comfortable with that..

Okay.

Just your guidance assume that you recoup the pass-through revenue and then did I also hear that ex pass-truths your federal revenue you said might be flat, is that accurate?.

Well, I think what I said is we expect our gross revenues, which include the pass-through revenues to be flat this year. I think when you look at our service revenue which is our revenue that ICF does, we expect low single-digit growth for our ICF service revenue.

And so really the revenue impact is around pass-through and maybe I can say a few words on that. We do have a contract with the Department of State that we've discussed in the past where we do health surveys in developing countries.

A big part of that is going out on the field and interviewing folks and collecting samples to determine disease rates and broader developing countries. Historically we've done that work working with the federal clients here in Washington DC.

Those clients also have local missions in many of these countries and this year they're requesting that we coordinate more closely with the local mission as we begin that work and so that coordination is taking more time and has pushed the work in the beginning of new surveys to the right.

We've also had a handful of countries where there has been either security or political issues that have slowed the work and so -- but it's really impacting our pass-throughs on that contract and it will be pushed to the right. I think we expect we'll eventually get it -- we'll get all the revenue, but some of it will be pushed in the 2018..

Okay. And last question for me was just a couple of points where you're talking about the outlook. You seem to be suggesting there were a couple of items that weren’t included that might've made it look a little bit conservative.

Could you just expand upon that if I interpret it correctly, thanks?.

I think that John said that if I think we're comfortable with the midpoint of the guidance if the numbers move -- if the feds move more quickly in filling their political positions I think we'd be more comfortable moving up, but at the moment, given the current state and given our expectations, I think we are comfortable with where we are on the guidance at the midpoint..

At the bottom line didn't you talk about the share count and tax rate or something like that?.

Yeah, what we're referring to is that when we gave our guidance at the beginning of the year Tobey, we talked about having a tax rate of no more than 38.5% and a share count of 19.4%. Our latest guidance is to have the share count at 19.2% and a tax rate of no more than 38%.

So, if you take those two changes into account, those effectively have of course on the full year they have about a $0.04 benefit to EPS, but keep in mind if you look at GAAP EPS, you have also take into account that we've had special charges on a tax effective basis of $0.08.

So, net-net if you look at the midpoint of the GAAP EPS it would be down $0.04. If you looked at the midpoint of non-GAAP EPS it would be up $0.04..

Perfect, that helps me. Thank you very much..

Thank you. Our next question comes from Joseph Vafi with Loop Capital..

Hey guys. Good afternoon.

I was wondering going back to the second and third level appointments and maybe some slowness in appropriations, do you see the spending bill appropriations have to be appropriated exiting the fiscal year with or without those points in place or could that appropriations be pushed until employees are actually in their positions?.

I think the appropriations, as John said, the appropriations build we don't believe are likely to pass in time. We believe that they're continuing resolution for the balance part of the year starting October 1 and we don't think that that's much of a relationship between the budget passage or the CR and the appointment and the political appointees.

I think we see a relationship between the two when they have the monies and the rate of spending the money, if you see what I am saying. So, I think that the budget process is not related to the appointees, but I think spending the money is related to the pace of the appointments..

Yeah, I think I've got that piece.

I was just wondering in this fiscal year, which ends September 30, we still -- we have appropriations in place which it sounds like have not been appropriate because we don't have those that deep level of appointees and so I'm kind of more focused on the budget in place through September 30 and how that gets appropriate without the appointees in place..

Yeah, I think Joe you have a good point. I think usually what will happen is that the monies will just get move on to the next fiscal year depending on how they work the monies. So, it's hard to tell..

Okay.

And then just and maintaining the guidance, one of you could go in I think James may have mentioned that you're evening out Q3 and Q4, it sounds like perhaps that's timing on appropriations and I was wondering if there's anything specific else going on there? And then also if commercial you think halfway through the year is trending higher and energy efficiencies trending higher than your initial forecasts for the year, thanks..

Yeah, I would say with regard to the question about the flattening of the performance between Q3 and Q4, I think this year what we have is there's more of the continued ramp up of the energy efficiency business between Q3 and Q4, which wall help to benefit Q4.

Also, if you look at the work that we’re doing with our European Commission type work, were the most for acquisition. We see more that work happening in Q4 of this year versus what you typically see in Q3.

And then the other part too, we talked about this recent Tally win with a hospitality provider, I mean that's a contract that will ramp up more in Q4 to Q3. So, those are some of the things that probably calls more of the flattening of Q3 to Q4..

Is the energy efficiency on tract versus original budget or is it second?.

It’s on track from what we anticipate. I mean overall, we still see - we’re on track to hit the guidance that we originally anticipated and felt very comfortable the midpoint of the guidance..

Thanks very much..

Thank you. Our next question comes from Edward Caso, Wells Fargo..

This is Justin Donati on for Ed. So, wanted to congratulate you guys on the contract announcement yesterday with Army.

Just wondering there if that kind of signals any change in end market mix philosophy for you guys, if you are going to be targeting more DOD work versus commercial?.

Well, I think that we basically we have certain qualifications and experience and that was a recomplete of our existing contract. It just turned out to be much larger. We certainly have our developing a certain competence in that arena, which is quite a special part of the cyber business and we will go wherever the market takes us.

As we’ve always done, I think we have to be a little care when compete in the cyber arena because you have to have a distinct expertise which we think we have and we are not developing in a significant way. And I think that you know we think that there is significant the opportunity for us there.

So, given that competency and given what we know about the market, we certainly expect that business is going to grow going forward, that aspect of the cyber business. We don’t complain to be broad brush cyber type of folks, but I think in certain areas we think we have great skills and you know we certainly look forward to doing more there.

In fact, let me plug, we have a cyber site conference in the fall, where we have the rates because we had Michael Hayden last year, John Hayden last year and we have Mr. Clapper this year have from D&I. So, we certainly will discuss the specifics off the kind of what we do there. So, we certainly expect to do more in that specific arena fiber..

And then one other trend noticed that, fixed-price work as become a bigger portion of your overall mix.

Do you see that you know continuing to go higher and if so it is there kind of a percentage that you're targeting?.

I don’t think we have a specific target on that, I mean I think it really depends on what the client will contract type they want to use. I do think it's really a winning, larger energy efficiency limitation, contract they tend to be fixed-price. So that certainly has been driving out of over time.

And frankly from our perspective, that's a good time for us we do quite well on fixed price contracts and so we can manage those trip, contract very effectively. So, I would expect it to go up or continue to go up over time..

And then just one housekeeping question.

Can you repeat on the number of opportunities you have in your pipeline right now?.

Sure. So, the pipeline is at $4.6 billion, I just broke it down in terms some of the size of the contract. So, we have 29 opportunities greater than $25 million, 88 opportunities between $10 million and $25 million..

All right. Thank you..

Just to confirm is that all Edward..

Yes..

Our next question comes from Tim McHugh with William Blair & Company..

Thanks. First thing is just following up on often, I just want to make sure, it grew sequentially. But I guess my math was it grow year-over-year this quarter. And I think you're trying to make a distinction, thought I heard between the U.S. part of it and international.

I don’t think of it as being big international, but maybe could you elaborate on that?.

I think that I was focused on the - let me just step back a bit deep. We have a commercial marketing services business most of it is ICF Olson. And the ICF Olson portion is focused on the domestic market, which the U.S. market. We do have some work obviously in Canada.

We also have work in Europe, which a little bit of commercial work, which we've had which also can be classified as commercial marketing services. So that’s why I made the diction of domestic., so that you could focus in on Olson word, which is what I think you are - most of you folks are interested in.

So, I think if you look at the - last year to this year, I think it is about 1% growth in commercial year-on-year. So, there is some growth there. We obviously expect to be greater going forward and obviously sequentially it grew by about mid-single-digit. So, we can give some moment. We certainly hope that it will continue that way..

And can I ask a little bit, I think it was John who mentioned the I guess stable Q3 and Q4. Are you referring to kind of revenue there? And what’s embedded then. I think it was federal government piece is the weakest kind of in the year ago.

So, my math was, that was kind of implying like a mid-single digital type of growth for several and Q4, probably.

Is that in the right ballpark of what you’re kind of expecting?.

I guess I will answer the first question. This is James. With regard to when we talk about sort flatness between Q3 and Q4. We’re referring both to the top line and bottom-line Tim. So, from a revenue and from a earnings per share perspective. We’re looking at that especially from a service revenue perspective being roughly flat quarter-to quarter..

And in the expectation for the - I am sorry for the federal government piece. Am I in the right ballpark. .

Federal government piece, as I said I think for the year, we are expecting it to be flat on a gross revenue basis and low single-digit growth in the service revenue basis. I don't have a breakdown Q3 versus Q4 front of me and I don’t think we’ve given guidance on that, Tim.

For the year, you have the results of the first two quarters now and for the year we expect it to be flat and slightly up on service revenue..

And then just the credit facility, obviously, I get that you lowered the rates, but this size of the increase can you are we wrong to look at that as a signal of the interested in or are the opportunity set for acquisitions?.

I mean drivers of this was looking to reduce our cost of interest and that was a big driver and made financial sets. But when you consider the capacity, it’s - the cost of money, the cost of debt is pretty cheap.

So, we have the opportunity to expand the credit facility to give us flexibility going forward and certainly it’s something that that we can have the flexibility. So, we went from 500 million to 600 million.

It’s not a huge increase, but certainly gives us a little bit more capacity if we see an opportunity that make strategic sense then we can get it at the right product..

I would just say Tim I know that it sounded great, 600 plus 300 and all that sort of stuff. But we already had 500. It is 500 plus 100. We went to 600 plus 300. So, I wouldn’t take that as a dramatic change in our posture. As you know we’ve been acquisitive for the last 10 or 11 years and sometimes we have more in certain years and less in others.

And so, we are always looking to see if there something which trips, which will help us keep going and you know and I think positive change anyway. I think we certainly given that we have our leverage is going down and that we have a slightly larger line makes it easier for us to do more flexibly and also has brought down cost.

So, that’s the way I look at it..

Our next question comes from Marc Riddick with Sidoti & Company..

Hi, good evening. I wanted to touch on, I think you really kind of covered a lot of the federal and commercial. I wanted to touch a little bit on the state activity was up nearly 5% year-over-year. Wanted to get a sense of we can sort of drill down a little bit to see, sort of where those buckets are that are working for you currently.

And then maybe more importantly if you getting a sense from the -- as the states budgets come up to either June or October deadline have you. Want to get sense of if there is any type of read through that you are getting that you'd like to share for 2018 on the state level? Thank you..

As I said in my remarks Marc, state and local for us is largely by the front environmental work we do around infrastructure projects. So, lot of that business is in California on the West Coast and sp. we’re talking about doing front end analysis around male projects, pipelines, electric utility lines, Bridges Road.

We have seen an uptick in those kind of opportunities in California this year. I mentioned the new taxes coming online in 2018 which I think will drive more opportunity for us in California next year. We also did see part of growth this year, also we actually got in the plus up on Sandy work in New Jersey Superstorm Sandy.

One of our new energy efficiency contract is actually done to the state agency. But I really do think the infrastructure is driving that I think were actually want to optimistic about some of opportunities in that number going forward. We've generally thinking that’s going to be a mid-single-digit growth market this year.

And I think the trends are really positive as we look out into next year, given what’s going on in California..

Okay. Great. And then one is, the next one is kind of more housekeeping than anything else.

I want to get a sense of whether or not though we should be looking at on a depreciation and amortization as well as interest expense going forward of 2Q is a good indication for future run rate?.

I would just say, as I mentioned earlier in my remarks for the full year, you should expect that depreciation and amortization expense is $17.7 million to $18.7 million for the full-year. So obviously you can look at what we’ve incurred to date and two, the run rate is going forward.

And from an amortization of intangibles perspective, we’re expecting roughly $10.8 million for the full-year..

Okay. Great and my last one is, I know you mentioned with the on the commercial size of award won or in contract, I wasn’t familiar at the top of my head and I couldn’t remember if Olson had ever won one of those awards before, if I remember correctly, those are kind of prestigious.

So curious if this is the first time they've won one of those? Thanks..

I think Olson is one of the awards that I talked about in the past. I think repeated. So, it’s always good to win them, but this is not the first. I think they have a history of history of winning these awards and doing top notch creative and digital and loyalty work..

Okay. Excellent, thank you very much..

Our next question comes from Kevin Steinke with Barrington Research..

On the large royalty program went for ICF Olson. I think in the past, you’ve talked about upfront implementation cost for those contract.

So, just wondering if we should be factoring in any implementation cost in the second half of ’17, as that contract ramps up?.

I think that, I mean obviously with all of these programs, there are implementation cost. I do think that with this program. This particular client and how the job was priced, I think that there probably won’t as much of a bottom line P&L impact is what we’ve seen in the past.

But I think it was priced in a way where we're recouping our cost associated with the implementation..

I would say, I mean this will be second or major implementation that we’ve taken on in the last couple of years on this loyalty platform. We are a learning organization. I think we learned a lot around how to manage this and how to price it. We will certainly I think benefit from that learning.

As James said, I don’t think you will see the types of impacts that we saw last year..

I would just add that, when John said second or third, large hospitality company focused implementation. So, I think that they have number of other. I think a lot, this is obviously one of the largest, the largest. So, I think we learned from earlier largest one. So, we did a better job this time..

In the international business, you mentioned contracts that you had won before, starting to move forward. Just wondering what got those moving and I believe you increased your growth outlook for international for 2017. So, is that just a matter of these contracts moving forward. Or there is some new contracts also coming on..

I think it’s largely, as we discussed in, several prior calls, we had one -- one several many large contracts in Europe over the last three or four third quarters. The issue was, the clients were not activating the work and starting the work. As we discussed, due to the variety of distractions in Europe around the migration crisis and Brexit.

I think we’re really seeing that damn start to break and cost getting back to what they are historically focused on and we’re seeing work beginning. So, it’s really, I think largely works starting up under contract we’ve won in the two or three third quarters.

We do continue to win additional contract, I think this is really being driven by a broader activation across the contracts we’ve won in the last year. As you said, we are thinking out at the international revenues will grow 5%, mid-single-digit this year..

Okay. That’s good to hear.

And then just lastly, do you have growth rate for the energy efficiency business in the third quarter?.

We don’t report a growth rate. I think there is obviously robust growth and I think we’ve talked about robust double-digit growth there. There's robust growth there. And as we look out, I mean given - as we talked about on previous calls, the opportunities in California that will be coming out later in 2018.

We think that will remain a growth market as we look out..

Okay. Fair enough. Thanks for taking my questions..

Thank you. [Operator Instructions] Our next question comes from Ben Klieve with Noble Capital Market..

Just a couple of quick questions here.

I am wondering to what degree the pipeline is tied to new program that are going to rely on their initial funding through next year’s federal budget?.

I don’t know if I can, I mean we certainly have part of our pipeline is opportunities that will be awarded government fiscal 2019. So, October 1 or later, this year, but I don’t have a percentage of - what percentage will be awarded. This fiscal year what percentage would be awarded next year. I don’t think there any unusual shifts or changes there.

I mean the pipeline is very robust and there has been shifts and timing awards in any unusual ways in the last six months or year..

And then just one last quick question, with regards to the credit facility and kind of your M&A plus.

I am wondering, to what degree of leverage you are generally comfortable going to as you look for acquisitions and that are either tuck-in acquisitions or more substantial ones?.

First from a credit facility perspective, our credit facility allows us to lever up to 3.75 and actually we have 12-month holiday and go up to for a leverage of debt to equity. As far as what we are comfortable with/ I mean certainly we are looking at by the end of this year being somewhere closer to 2 leverage maybe a little bit under.

Where we are comfortable, we’re certainly timing at that level and as you know from a track record, when we did acquisition of Olson, we leveraged up two or 3.1 and certainly if we found the right opportunity and the right strategic fit, the right price, we would levere up again to that range.

But that’s I don’t think we want to go much harder than that unless it was something extremely special..

Thank you so much for taking my questions. I will jump back in queue..

Thank you. I see we have no further questions at this time. I will now turn the call over to management for closing remarks..

Thanks very much for participating in today's call. We look forward to seeing you at upcoming conferences and meetings. Thanks again..

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect..