ICF International Inc (ICFI) 2009 Q1 法說會逐字稿

Welcome to the ICF International First Quarter 2009 Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in the question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded on Wednesday, May 6th 2009 and cannot be reproduced or rebroadcast without permission from the Company. And now I would like to turn the program over to Douglas Beck, Senior Vice-President Corporate Development. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us to review ICF's first quarter 2009 performance. With us today from ICF International are Sudhakar Kesavan, Chairman and CEO, John Wasson, COO, and Alan Stewart, CFO.

During this conference call we will make forward-looking statements to assist you in understanding ICF management's expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially and I refer you to our May 5th 2009 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 our CEO, Sudhakar Kesavan to discuss first quarter 2009 highlights. Sudhakar?

Thank you, Doug. Good morning and thank you for joining us today and to discuss our expectations for the year. As you saw from our earnings release, this was another quarter of strong performance for ICF, with quarter one EPS exceeding our guidance coming at $0.40 per share before acquisition costs and the one-time tax benefit. With all costs included, EPS was $0.38.

Core revenues, which include everything but the Road Home contract were up 22% year-over-year to $112.3 million and were slightly up on a sequential basis as well. Organic growth was 14% on a quarter-over-quarter basis. Federal, state and local government clients accounted for 74% of our core revenues this quarter and we continue to see strong demand for our advisory and implementation services across our key federal agency clients, including the Environmental Protection Agency, the Department of Health of Human Services, the Department of Energy and the Department of Homeland Security as well as state and local agencies.

Commercial business accounted for 20% of this quarter's revenues. Energy efficiency work was a major growth driver, more than offsetting the softness that we have seen over the last couple of quarters in our commercial transportation business.

A major event in the first quarter was an acquisition of Macro International, a $150 million research-based professional services firm working primarily for federal government agencies in the health arena. This acquisition provides an excellent growth opportunity for ICF, significantly adding to our ability to capture large implementation contracts particularly in health IT and health communications at the Centers for Disease Control, the National Institutes of Health and the Substance Abuse and Mental Health Services Administration; all agencies within the Department of Health and Human Services.

We see additional opportunities for program evaluation projects, especially with the emphasis in Washington on transparency and accountability. Also, Macro's world-class survey expertise provides a number of cross-selling opportunities across all of our targeted markets.

Let me point out now important characteristics of the mix of our revenues after the Macro acquisition. On a pro forma basis, using our respective 2008 revenues, approximately 47% of our revenues will come from health, human services and social programs area. The energy, environment and infrastructure markets combined will account for about 42% of ICF's revenues. This puts almost 90% of our business fully aligned with the two major pillars of the current administration's agenda.

The EPA's recent ruling on carbon admissions, sets the stage for regulation of greenhouse gases under federal clean air laws. While the EPA moves ahead with regulation, our Congress takes action. ICF stands ready to assist the federal government in analysis and implementation of these regulations. We are in a good position to do so because we have over 20 prime contracts at EPA which include the major contracts focused on climate change issues.

I would add, that we're also well positioned in the infrastructure market across federal, state and local levels. On shovel-ready projects, ICF does the required environmental monitoring work and on pre-shovel ready projects, we do the environmental impact studies.

As you saw from our news release, our total business backlog was a record $1.2 billion. Our new business pipeline is also strong at $1.8 billion, another record for us. We were recently notified that we were the successful bidder on three commercial energy efficiency contracts, which together represent nearly $40 million in revenues over three years.

Before I turn the call over to John Wasson, however, I'd like to make sure that we balance all the enthusiasm over growth opportunities in our markets with a realistic look at the likely timing for this potential to generate revenue. Many of you have asked if RFP activity from the federal stimulus package is increasing and the answer is that we have seen some activity, but this activity at this time is not commensurate with what would be expected given the likely expenditures. Of course, we have existing contract vehicles at a number of the agencies that should benefit from stimulus initiatives in a shorter time frame, but we continue to expect the most significant opportunities to become evident much later this year and then in 2010.

In summary, we are confident of our positioning, but the timing and magnitude of the opportunities are still uncertain. At this point, I'd like John to give you additional insights into contract and business trends. John?

Thank you, Sudhakar, and good morning, everyone. As Sudhakar noted, the first quarter of ICF was another strong one. Normally, the first quarter is our lowest sales volume quarter of the year. This year, we had anticipated that because of the change in administration and the weaker economy it would be lower than last year's first quarter. We are therefore pleased with our sales of $84 million, which are right in line with the sales in the first quarter of last year.

Let me take a minute to highlight several key sales results for Q1. We continue to win new contracts at the environmental protection agency that add to our leadership position there. In January, we won a new $11 million, five-year contract to assist EPA in helping state and local governments implement clean energy and climate change policies. Services to be provided include technical assistance to state and local governments and designing and implementing clean energy strategies with the three major regional climate initiatives; those being the Regional Greenhouse Gas Initiative, the Western Climate Initiative and the Midwestern Greenhouse Gas Reduction Accord.

Later in the quarter we also won a new five-year contract, valued at up to $21 million with EPA's national center for environmental assessment, which is their center for assessing human health and ecological risk. Under this contract, we will help evaluate human exposures and assist in developing state-of-the-art methods, models, databases and guidance documents for human health risk assessment.

We continue to win work in energy efficiency program design and implementation. During the first quarter we announced a two-year, $2.2 million contract to support the commercial lighting program with the New York State Energy Research and Development Authority, the state agency that oversees New York's energy efficiency programs.

In addition, Sudhakar also mentioned that we were notified that we've won three more utility energy efficiency implementation contracts worth nearly $40 million over three years. We will announce the details of these contracts once they are signed. We continue to be optimistic about this growth area.

In the health and human services area, we won a $2.2 million subcontract with the Department of Health and Human Services to evaluate the effectiveness of regional and national child welfare centers. Since we closed on the macro-transaction, a key focus has been to take advantage of Macro's extensive resources and relationships within HHS and its constituent agencies. We believe that ICF, together with Macro, combines to form a strong presence in research, evaluation and consulting and implementation in the health and human services markets.

In addition, with ICF's acknowledged leadership in environment health and ecological risk, we have an unequaled combination of capabilities for addressing both the risks and the solutions related to the health and environmental priorities of the federal government and other governmental entities throughout the world.

The acquisition and integration of Macro is going well. We've identified a number of proposal opportunities that we are bidding together, which we could not have bid separately or where our bid is much stronger because we are together. Many, but not all of these opportunities are in the health arena. They also include opportunities in climate change, IT, new initiatives in public diplomacy and environmental sciences.

One of our long-standing ICF clients has just this week asked us to submit a proposal to modify our current contract to conduct 1,500 interviews a week for 17 weeks on the swine flu virus. This modification is expected to be in the several million-dollar range, and we would not have been able to do this work in-house without Macro.

At the end of the third quarter, as Sudhakar mentioned, our new business pipeline grew to a record $1.8 billion. This pipeline consists of a number of larger projects above $10 million across all of our key markets. Finally in the midst of all this activity, our turnover continues to be low. In fact, during the first quarter our turnover was an exceptionally low 1.8%, which annualized translates into a 7.4% rate. I would like to turn the call over to our CFO, Alan Stewart to review our first quarter financial highlights. Alan?

Thank you, John, and good morning to all. Our gross revenue for the first quarter of 2009 was $157.9 million compared to $175.1 million for the 2008 first quarter, reflecting the wind-down of the Road Home contract. As Sudhakar noted, revenue from our core business increased significantly this quarter to $112.3 million, up 22% from last year's $92.3 million.

Revenue from the Road Home contract was $45.5 million for the recent quarter, 45% below last year's first quarter as this contract winds down. This quarter gross profit increased 7.1% to $58.6 million primarily due to decreased levels of subcontractor cost associated with the Road Home contract. Gross profit margin trended up to 37.1% from 35.2% in the 2008 fourth quarter compared to 31.3% in last year's first quarter.

We expect the gross profit margin to progressively move up to our historical levels of approximately 40% once the Road Home contract is completed, which would be in Q3 of this year. If you exclude the $987,000 in special charges attributable to acquisition costs and $1.7 million for non-cash equity related compensation, indirect and selling expenses were $42.6 million for this quarter, up slightly from the $40.4 million in last year's fourth quarter after two consecutive quarters of decline. This is due to significant proposal efforts and higher-than-planned indirect labor cost in the commercial transportation area.

Interest expense was $0.7 million, down slightly from the $1.1 million from this year's fourth quarter. We paid down $9 million of long-term debt, which stood about $71 million prior to the acquisition of Macro International. Upon the completion of that transaction, we added $155 million of debt, which resulted in a revolver balance at the end of the quarter of $226 million.

The effective tax rate for the first quarter of 2009 was 37.8%, resulting from a one-time benefit releasing certain tax valuation allowances and reserves. I am pleased to report that we have been successful with various tax initiatives and we estimate the annual tax rate will be 40.5% for the full year of 2009.

First quarter 2009 net income was $5.9 million or $0.38 per fully diluted share and included the $987,000 charge in transactional-related expenses related to the acquisition of Macro. As you know these acquisition related expenses are now required to be expensed as incurred under SFAS 141R while in prior years such costs were capitalized as part of the transaction. Excluding these transaction-related expenses and the one-time tax benefit, pro forma net income was $6.2 million or $0.40 per fully diluted share.

As noted in our earnings release, Macro's included in our balance sheet on March 31, 2009. Some points to note; our net accounts receivables balance was $184.3 million, which included $36.6 million from the Macro acquisition. Without Macro, the accounts receivable balance from ICF was $147.7 million, down from the $150.8 million level at December 31, 2008. For ICF before the inclusion of Macro, this represents 84 days sales outstanding at March 31st 2009, compared to 83 days sales outstanding at December 31, 2008.

If you deduct the amount of deferred revenue for these periods, the adjusted days of sales outstanding would be 77 days for both periods ending March '09 and December '08. We continue to anticipate DSO's in the long-term to be at our 75 to 85 day historical average.

Turning to our cash flow statement for the three months ending March 31st, cash flow from operations provided $9.5 million and we had cash capital expenditures of $700,000 for the first quarter. We are currently waiting for the audit and review of Macro's financial statements by KPMG and would expect to file an amended form 8-K with those financials in the next several weeks.

Regarding 2009 full-year guidance; we currently anticipate amortization from purchased intangibles and depreciation and amortization will be approximately $11.6 million and $8.4 million respectively. Interest expense is estimated at $7.2 million for the year, with a tax provision estimated at 41.2% for the next quarter with an annualized rate of 40.5%

We expect cash capital expenditures of approximately $8 million for the full year, reflecting our continued investments in corporate infrastructure to accommodate our rapid growth over the last year and our anticipated future growth. This will be lower than the $10 million we spent last year. Based on these projections, we would expect to pay down an additional $40 million of debt by the end of the calendar year. And with that I'd like to turn the call back to Sudhakar.

Thank you, Alan. To sum up, we're optimistic about our business prospects and providing second quarter guidance, we are balancing a number of factors; one, positive demand trends in our government markets; two, the general economic environment. Three, the fact that this is the last quarter for the Road Home contract; and four, that this is the first quarter where we will incorporate Macro International's operating results.

Taking these all together, our guidance is for the second quarter 2009 revenues of between $175 million and $180 million and earnings per diluted share of $0.30 to $0.33. For the full year we are narrowing our previous revenue guidance to $660 million to $680 million, expecting organic growth rate of approximately 15% and we are providing a fully diluted EPS range of $1.30 to $1.35. Operator, I would now like to open the call for questions.

(Operator Instructions). Your first question comes from the line of Joseph Vafi from Jefferies and Company.

Hi, guys, good morning, good results on the quarter. Can you just talk about some of the guidance here for a minute, obviously this is the first time you're providing in your release an earnings number for the year. If we look at the Q2 numbers and we look at -- first of all, I guess, the question is are we still assuming a very modest amount of Road Home revenue in the Q2 numbers at this point in the outlook?

Yes, we are giving single digits, maybe $5 million to $7 million of Road Home revenues.

Okay. So, with Road Home basically out of the numbers at this point and just doing a back-of-the-envelope calculation, we're looking for operating margins I guess somewhere in the mid 6% ranges, is that the right way to be thinking about the base business now, without any Road Home revenue in it?

We did 6.4% in the first quarter, I would say looking forward it's probably in the 6% to 6.5% range on an operating margin basis.

Okay, and, Alan, that was 6.4% in the core business in the first quarter, is that what you --

First quarter as reported.

As reported, okay.

As reported.

And is generally the second quarter, do you have higher utilization for your consultants and that on the base business, that should -- should that help the operating margin on a sequential basis in the core business?

Yes, we typically -- the second or third quarter are typically our strongest quarters, so utilization is typically -- phases up in those two quarters so we'll have stronger margins in those two quarters.

Okay, and I guess the next question is are you seeing that utilization track up as we're still, as we're now a month into the quarter, into Q2 that is?

Yes, we're seeing the typical phase up in level of effort as we go into the second quarter.

Okay, and then maybe switching gears a little bit and talking about the stimulus a little bit; do you expect to see the stimulus spend come in on existing vehicles or actually do you think there's enough of a workforce in the government to actually put new pieces of business out to bid and actually go through the whole adjudication process on brand new contract vehicles?

Yes, I believe that it will be both, Joe. I think that if the monies are such that they are not in the 3-figure million dollar ranges, than it will be in the existing vehicles as they are going to be very large procurements then we believe they will be separate vehicles because of the interest in making sure that there's transparency, et cetera associated with how the monies are being spent and I think the bureaucracy feels that if you do the larger procurements you have to do them competitively. We do believe there will be a lot of bidding at the state and local level too, there will be a lot of work at the state and local level on existing contracts, especially on the infrastructure side. So, I think it will be a bit of both.

Okay. All right, thanks, guys. I'll turn the call over.

Your next question comes from the line of Tobey Summer from SunTrust Robinson Humphrey. Please proceed.

Good morning, this is Frank in for Tobey. Quick question about costs going into the second quarter and the back half of the year, do you expect any additional costs related to Macro or can you quantify some of the costs related to the Road Home wind-down and what's built into guidance there?

We don't see any additional costs due to the Macro acquisition, if that was the question. We think that they are well run and we don't anticipate spending any additional costs for the acquisition or integration purposes, we think that there is -- we will be able to manage that. So, that shouldn't be an issue.

I think dollars will be spent on the business development side.

Yes, we are basically going to -- just like we do always, choose the opportunities we have on the business development side and put the resources where we think on a variety of criteria where there are larger procurements than where we believe that we have a good chance of winning, we'll just move the business development resources where we can. And I think as we told you in the Macro call about a month ago, we are thoroughly focused on business development expenditure to crank up their pipeline and crank up their growth rates.

Right, and on the Road Home, I would say that, I think that we, as we've discussed previously, that contract is fully -- all the costs of that contract are paid for as part of the program, so I think we see minimal wind-down costs related to the Road Home. We haven't seen any change in that since we spoke in the last quarter, and so again I think there we see minimal risk of wind-down costs related to the Road Home.

Okay, great and can you talk a little bit about the current hiring environment in staffing?

It's a good environment. Right now we believe that we are finding the right people, as I've said in the past, in past earnings calls the kinds of people we look for traditionally are slightly different from the other government services firms in the area, but we have found that even when we compete for say IT people, we believe we have an advantage because we think that they like to do work in specific domain areas where they can see something happening, instead of just generic IT stuff. So I think that the general hiring environment is a good one and we are filling our positions -- it's always, we always have to work at it, but we are filling our positions reasonably comfortably.

Great, thank you very much.

Your next question comes from the line of Jason Kupferberg from UBS. Please proceed.

Thanks, wanted to ask a question more top-line oriented, I guess. I think last quarter your press release talked about an '09 target for organic growth of over 15%, if I'm not mistaken, I think this quarter you guys are saying around 15%. I know that the bookings in Q1 were a little light, obviously those can be lumpy in a given quarter, but are you being a little more conservative on the organic growth forecast just given the fact that as you mentioned some of the opportunities related to the stimulus package might be getting pushed to the right, here?

I think our -- when we originally gave the guidance if you recall when we had the discussion in some of the earnings calls we were at $433 million of run-rate revenue for the core business, and we said we'll hit $500 million, so the number there was 15.7%, $433 million to $500 million if you calculated 15.7%, so that was the basis of our saying over 15%. I'm not saying that it's not going to be 15.7%, I think if I say around 15% or approximately 15% or over 15%, it's the same thing to me. So it could certainly be 15.7%.

Okay.

I didn't pass the words that carefully, but maybe I should have.

Okay, that's helpful. So, I guess this sequential ramp that you need to get to that mid-teens range, let's call it. I know this came up on last quarter's call and now that you've got another quarter under your belt, any change in your visibility in terms of getting there now that you have four months of bookings under your belt?

I think that we are cautiously optimistic. We did 14 in order to get to the 15 we have to do 16 next quarter --

Right.

So I think we are reasonably optimistic, we just want to -- as I said we are not [right there] at the moment, but we think we are cautiously optimistic, we think we can get there.

Can you just clarify, the $660 million to $680 million in total revs this year, how much of that is Macro?

About approximately $115 million.

$115 million, okay so that --

Fifteen.

So that is simply taking '08 run-rate and putting no growth on it it sounds like.

Very nominal growth, right.

Just a nominal growth rate on that, yes.

Just being a little bit conservative, which makes sense. Okay and just last one for you, Alan. Full-year '09 operating cash flow expectations? I know you gave us the CapEx piece and I know you're going to have a lot more C&A going through this year with the intangibles and wanted to get a sense of how you expect cash flow to trend --

Yes, a little early as we're modeling through the Macro purchases and expenditures or DPO's and DSO's, so I'd like to wait until the next call to give more details -- more detailed cash flow views.

Okay.

I think the best thing I can say is we do expect to pay about $40 million of the revolver debt by the end of the year, but I have a few other moving parts that we need to clarify.

Okay. All right, we'll wait until then. Thank you.

Your next question comes from the line of Bill Loomis from Stifel Nicolaus, please proceed.

Hi, thank you, good quarter. Alan, just looking at the -- just to be clear on some of the assumptions, when you said amortization and intangibles, so there was $3.3 million in D&A in the first quarter so what you're implying is it's going to be roughly $5.7 million each quarter for the next three? Did I understand that right?

Right, the big jump up is obviously the amortization of purchase intangibles on Macro, which was a significant acquisition, so --

So if I layer that in and you mentioned that you expect gross margin to be 40% or so after Road Home drops off, so since it's only going to be $5 million, $6 million or so in the second quarter, you'll be I assume fairly getting -- somewhere between 37% in the first quarter and the 40% and then probably around upper 30%s, 40% by third quarter. Is that the way you're looking at it?

Yes, I would say definitely 40% by the third quarter with, as we go forward, a potential for upside depending on what happens on stimulus and additional energy efficiency contracts.

Okay, so to get to your guidance and the lower margins that you're indicating in the second quarter, you have to have a pretty big jump in indirect and selling expenses as a percent of revenue, not in aggregate, because obviously Macro's coming aboard, but what's the rationale for that and why is it going to be so high through the year per your guidance of 6.5% to 6% operating margins for the year?

Clearly, Macro comes with its own indirect expenses. We're in the process of looking at their budgets with ours and forecasting out. So, our estimates reflect the combination of the two companies right now.

Okay, but with the -- is there anything unusual with -- that's going on in terms of you mentioned higher B&P in the first quarter and some lower utilization on the transportation side. Is that being -- are you factoring in some expenses like that into the next few quarters as well?

Yes, I think that we are. If things improve that would be good, but in the commercial transportation arena, we don't anticipate that much of an improvement in the second quarter.

Okay, but there's no unusual cost items -- per what you already talked about on Road Home, you said there was no unusual cost items there and it doesn't sound like there's any big expense overhang other than the intangibles, obviously, from the Macro acquisitions, so --

That's correct.

Is that correct?

That's correct, yes.

Okay, and then finally on the revenues if I take the $175 million and take out $38 million for Macro, I get about $138 million and then take away the $6 million for Road Home, you're showing very strong sequential growth organically from roughly $112 million to $131 million or so. What's the key driver of that, which is it the BG&E contracts or is it just accumulation of your wins last year that's showing that strong growth?

Yes, I think it's obviously a blend and I think you've mentioned several of them. I think the BG&E contract is obviously we kicked that off right at the end of the first quarter and that will be a strong driver. I think we have several other energy efficiency contracts that we think will be up and running in the second quarter. And then the several larger contracts we won late last year NIH, early childhood education, D&IH IT effort at Zetac, I think we're seeing the full effect of those of picking up and so I think it's both the energy efficiency and several of the large contract wins from last year and just the generally strong trends we're seeing in our markets. And then obviously the second quarter does phase-up on about a seasonal basis for us, so I think that's another part of it.

Okay, but if you take -- if you're looking at the revenue, your revenue guidance for the year and then based on what you're saying on second quarter taking out that roughly $7 million and Road Home doesn't look like a lot of sequential growth or really any for the back half of the year, is that being conservative or is there something that you expect to drop off or something in the back half?

Well, no, I don't expect anything to drop off. I mean there is the seasonality, the fourth quarter, the seasonality it does -- we typically see softness in the fourth quarter, certainly in the commercial side and the government, there is a seasonality there.

So I think, again I think we see a strong jump into the second quarter, we then usually have a strong third quarter, typically a slight increase and then the fourth quarter comes down given the seasonality. And so I think that's certainly part of the story and then there's the number of working days. I believe this year the second half of the year has fewer working days, three or four fewer working days and so that's part of it. But again, I think it's -- primary driver in the fourth quarter certainly is the seasonality.

Okay. Thank you.

Your next question comes from the line of Eric Prouty from Canaccord. Please proceed.

Great, thank you very much. Is there any way of giving us an idea of how many other contracts you see out on the horizon from an energy efficiency standpoint, not the BG&E size but more in the range of these three contracts coming up? Are you seeing few opportunities are you seeing many utilities around the country starting to institute such programs?

We believe that there are many utilities trying to institute such programs of the size we've mentioned. Right now there are between five and 10 in our pipeline, we are hoping to see more as the year proceeds. So, as John pointed out, we believe that it's going to be something which we will pursue with some focus this year. We do believe that there are significant opportunities there.

Great, and then secondly on the transportation side, we're gearing up here in the not-too-distant future for the I guess discussion around the highway trusts looking to reinitiate the five-year highway trust budgetary cycle; there's a lot of talk about either upping the highway funding significantly and or creating different mechanisms beyond the federal gasoline tax to fund the highway trust. Are you guys -- is that work that you guys could get involved in? Is there any potential contracts or advisory work that you see from a governmental standpoint with those discussions coming up?

Eric, we certainly do a lot of work for FHWA, the federal highways administration, and we also do quite a bit of work for a lot of the state DOTs, so I think on the advisory side, we do have existing contract vehicles where we could potentially do work if there is work on the advisory side with this. I'd also point out that if there is more work in that arena, we'd also be well positioned at the state level because we do do quite a bit of state DOT work, especially in the western states and in the mid-Atlantic area.

Great, thanks a lot.

Your next question comes from the line of Tim Quillin from Stephens Incorporated. Please proceed.

Good morning.

Morning, Tim.

Your guidance for the second quarter and for the full year, especially at the low end of the guidance for the full year implies that the back half earnings might be lower. Is that a possibility you're looking for and what would be the rationale there?

I think you're adding a significant amount of depreciation and amortization on the Macro acquisition in the last half of the year, so clearly with Road Home coming off in the first quarter, you're replacing some revenue that has less of an operating income impact. I think low-end of the guidance respects some conservatism of just what's happening in the general macroeconomic environment.

Okay, but the D&A would be there for Q2 as well, is that right?

That's true.

Okay. So you're just building in some conservatism regarding your commercial businesses in the back half of the year?

Yes, that together with the fact that we are making these four factors which I mentioned at the end of my conference call remarks. There are a lot of moving parts here and we just are working through these moving parts and so I think this is our best assessment of what the lows and the highs could potentially be.

Okay, great. And then in terms of your pipeline right now and your bidding activity, how should we think about your booking seasonality over the next three quarters. Should we -- how much business do you plan, or bids do you plan to submit in Q2 and do you expect the bookings that the award activity to be especially high in 3Q or 4Q? Just help us understand when we should expect the pickup in bookings. Thanks a lot.

Yes, again I think typically from a seasonality standpoint, Q2 and Q3 would be our strongest quarters for bookings. Typically Q3 would be the strongest, but Q2 and Q3 are the strongest and I think that's where we would expect to see the pickup in bookings.

You also asked about the submissions of bids. In anticipation of that we really start gearing up in Q2 and early Q3 because we typically expect a lot more decisions at the end of the fiscal year.

Government fiscal year.

In the government fiscal year, so that proceeds, often proceeds the bookings just a little bit, that's typical.

Thank you.

Your next question comes from the line of Tim McHugh from William Blair and Company. Please proceed.

Yes, first on the energy efficiency contracts that you mentioned you won recently. When could those start to contribute to your growth?

Well, I think that they'll -- you'll really start to see the impacts of those in Q3. I think that we expect to sign them in Q2 and get started, but you'll see the real impact as we go into Q3.

Okay, and then, Alan, a question for you on the numbers; the depreciation amortization you described, is there any rapid amortization there that would fall off say 6 to 9 months from now that maybe we should think about a different run-rate as we move into 2010?

No, not in that time frame.

Okay. And then lastly, Sudhakar, you talked about the uncertainty on the stimulus-related work; recognizing that it might be taking a little longer than you might have hoped for, how do you feel competitively versus where you felt maybe 3 to 4 months ago as some of the projects have moved along? Do you feel better or worse about your positioning to win some of the contracts?

I feel quite good about it. The -- as I said there are some activity so we are working on one or two efforts which where we are I think well positioned. So we believe there is no change in that, I felt good a few months ago and I feel good now. The activity as I have always said is going to basically be reflected in the fourth quarter and in 2010.

So I think from a position point of view, we are in good shape as I pointed out that we have 90% of our revenues coming from equal or nearly equally split between health and human services and social programs and energy environment transportation issues. So I think a lot of the money is going to be spent in those two broad areas and we feel good about it.

Okay and then lastly, Alan, if I can ask one more. At this point with the Road Home, you said $7 million of revenue for next quarter, or $5 million to $7 million, how much cost is left as we think about the indirect expenses or moving into the third quarter there? Are there a few million dollars of cost that will also come out as we move to Q3 or are most of the costs the indirect costs gone?

No, I would say other than maybe two handfuls of people, executives and that, that we will pull and redeploy in other areas of the company who will be very valuable to us, there are really no additional costs as we wind down the contracts.

I would just -- from an indirect cost perspective, I think there has been very little indirect cost on the Road Home that program's been fully supported and paid for by the state and I think as we -- we exit Louisiana, we certainly do want to hang on to some of the key staff, but I think we're already well on our way to cycling them into projects that we've won including some of the energy efficiency and implementation work and some of our other implementation contracts.

So I think, I really expect very minimal indirect costs associated with the wind down to Road Home. I think we've been -- there's been very little indirect costs in that program and I think we've been managing the transition out very carefully and I don't expect any material indirect cost there.

Okay, thank you.

(Operator Instructions), Your next question comes from the line of Steve Ferazani from Sidoti. Please proceed.

Good morning. Sudhakar, in your comments you mentioned the fact that if Congress doesn't move forward there's other alternatives on the climate change side. Given the recent EPA findings, did you see a rapid ramp-up in interest post the end of Q1? Would you expect that to continue?

Yes, I think that the EPA findings were important, but I do think that the administration prefers that there be a legislative solution to this issue and I think that they'll -- the idea is to push Congress along to come up with some broader regulatory framework within which greenhouse gas emissions are regulated. So I believe that the administration has done all this to push Congress along.

So I believe there is an heightened awareness and there'll be more activity, but I don't know that the administration will necessarily push itself that much more rapidly ahead of Congress. I think they are trying to persuade Congress to come along and come up with a broad regulatory framework instead of doing it under the Clean Air Act.

But in lieu of something moving forward or the slow work of Congress, are you now seeing the catalyst that power -- the utilities cannot wait and have to make the investment now, or would we wait until next year to see a lot more work in that arena?

I think that it's a little too soon to tell, but I think as far as utilities are concerned; they've already decided that they have to do something, as you can -- as evidenced by all these energy efficiency procurements.

Right.

They're out there trying to do energy efficiency primarily as a means of reducing CO2 emissions, and so I think that the utilities are pretty much decided that they're going to do something and I think that the specific initiatives by the administration or by Congress, I think it's a little too soon to tell.

Okay. And then on the infrastructure side, has there just been no activity at all, or no one willing to commit at this point. I mean I'm guessing your work should be front-end loaded in terms of infrastructure spending. What are you seeing there at this point, still nothing or what?

No, I think that on the infrastructure spending side, we do do work which is not front-end loaded in the sense that once the projects are started up we do a lot of the monitoring for -- we are the state's engineer. For example, we monitor how the project is proceeding. So we do get revenues even on infrastructure projects which are shovel-ready as I had pointed out.

So we are seeing some, but it has not yet reached the states and as I've said we're seeing some RFP activity on the infrastructure side, but there is not the level as I had said. So there is some, there is a little more than what it was last time I spoke to all of you, but nowhere near what it should be given the numbers which we have talked about.

Okay, and then finally on the Macro acquisition I know when you announced that you had talked about it hadn't necessarily been growing under the former parent. Have you targeted at this point or is it still too early, growth avenues? And can the health segment grow at similar rates as the environment and the infrastructure and the energy side?

Yes, I would say absolutely. It can grow at certainly much higher rates than it's currently growing at. We believe that the health arena generally is a very good arena to be in and we've certainly targeted, we have over the last months or so gotten a list of projects and there's almost nearly 30 of them which we are pursuing now with increased vigor and we believe that they will yield fruit in the next few months, in the next few quarters.

As I had said in the Macro call, it's a government services business, it takes some time for the revenues to crank up and for the awards to be done, but we certainly are not letting any grass grow under our feet, we are quite aggressive in trying to pursue opportunities which we believe will -- we are now able to do because of the fact that we have Macro as part of ICF.

Great, thanks a lot.

At this time, I'm showing you have no further questions. I would like to now hand the call back over to management for closing remarks.

Thank you again for participating this morning. We look forward to speaking to you again in early August. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.