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ICF International Reports Third Quarter 2015 Results

  • Total Revenue Increased 9 Percent
  • Commercial Revenues Increased 35 Percent; Federal Government Revenues Were up 1 Percent
  • EBITDA1 Margin Reached 10.4 Percent; Adjusted EBITDA1 Margin Was 10.8 Percent
  • Non-GAAP EPS1 Was $0.75; Diluted EPS Was $0.59, Inclusive of $0.02 of Special Charges
  • Year-to-Date Operating Cash Flow Was $43 Million, $23 Million ahead of Last Year
  • Contract Awards Reached $465 Million for the Third Quarter and $1.1 Billion Year-to-Date, Representing Book-to-Bills of 1.61 and 1.29, Respectively

FAIRFAX, Va.--(BUSINESS WIRE)--Oct. 29, 2015-- ICF International, Inc. (NASDAQ:ICFI), a leading provider of consulting services and technology solutions to government and commercial clients, reported results for the third quarter and nine months ended September 30, 2015.

Third Quarter 2015 Results

“Third quarter results support our expectations for substantially improved performance in the second half of this year compared to the first half,” said ICF International Chairman and Chief Executive Officer Sudhakar Kesavan. “Year-on-year revenue growth was driven by a significant increase in commercial revenues and benefited from positive growth in U.S. federal government business. The substantial improvement in operating profitability resulted from higher utilization across our business. Exclusive of special charges, adjusted EBITDA margin was 10.8 percent for the quarter, the highest level in the last seven years.

“Our Digital Services Group, which we recently renamed ICF Olson, is comprised of ICF’s legacy commercial and state and local digital services business and Olson, which we acquired in 2014. ICF Olson was the leading contributor to our third quarter revenue and EBITDA growth, and its commercial revenues accounted for 42 percent of our total commercial revenues. We won 30 new accounts in the third quarter across a broad range of industries, reflecting the collaboration of the creative and analytical strengths of Olson with ICF’s existing technology implementation capabilities. Recent wins and the improvement in ICF Olson’s business development pipeline indicate similar revenue and EBITDA performance in the fourth quarter of this year and set the stage for growth in 2016.

“In the third quarter, our U.S. federal government business performed well. Revenues increased slightly, and this represented the best quarterly comparison that we have reported in more than three years. At the same time, we succeeded in winning a large number of contracts that position ICF for continued growth in 2016. Of particular note is the contract value of federal awards that involve a digital services component, which indicates the robust demand for these qualifications across our government client base. State and local government revenues declined in the third quarter, resulting in their year-to-date performance being approximately even with last year’s. On a constant currency basis, international government revenues increased an estimated 11 percent, despite delays in certain projects for the European Union. As a result of the appreciation of the U.S. dollar against foreign currencies, most notably the Euro, the British pound and the Canadian dollar, reported international government revenues declined 5 percent from last year’s third quarter,” Mr. Kesavan noted.

Third quarter 2015 revenue was $289.0 million, a 9.1 percent increase from the $264.8 million reported in the 2014 third quarter. Service revenue2 increased 12.6 percent to $216.4 million. Gross margin expanded to 38.5 percent from 37.3 percent in the third quarter of 2014. Adjusted EBITDA was $31.1 million and EBITDA was $30.1 million, representing margins of 10.8 percent and 10.4 percent, respectively. Non-GAAP EPS was $0.75 per share. Reported net income was $11.5 million, or $0.59 per diluted share, inclusive of $0.02 per share in special charges related to international office closures and severance costs.

Backlog and New Business Awards

Backlog was $2.0 billion at the end of the third quarter of 2015, up from $1.9 billion at the end of last year’s third quarter. Funded backlog was $916 million, or 47 percent of the total. The total value of contracts awarded in the third quarter of 2015 was $465 million. In the first nine months of 2015, the total value of contracts awarded to ICF was $1.1 billion, an increase of 6.3 percent from the $1.04 billion reported in the comparable 2014 period.

Commercial Business Third Quarter 2015 Highlights

Revenues from commercial clients increased 35.5 percent in the third quarter to $101.9 million as compared to last year’s third quarter, and represented 35 percent of total revenue. Digital services accounted for 42 percent of commercial revenues. Energy markets, which includes energy efficiency, represented 32 percent of commercial revenues.

Commercial Contracts Awarded in the Third Quarter

Commercial awards were $70.3 million for the third quarter.

ICF was awarded more than 700 commercial projects globally in the third quarter. Some of the awards included:

  • A $4.2 million contract with a multi-national package delivery company to provide content management support for marketing efforts.
  • A $3.5 million contract with a major medical research organization to help improve outcomes for transitioning veterans.
  • A $1.8 million contract with a leading maker of residential and commercial access control products for business-to-business e-commerce solutions in support of sales.
  • Two contracts totaling $1.8 million with an international automobile company to support communications programs.
  • A $1.5 million contract with a medical school in the Southwest U.S. to deliver digital support for a branding campaign.
  • A $1.5 million contract with an international chemical company to provide strategic management and communications consulting.
  • A $1.5 million contract with a major nationwide financial services company to provide strategic communications consulting support.
  • Two contracts totaling $1.5 million with a nationwide technology and industrial company to provide digital program support for management.
  • Two contracts with utility clients aggregating $1.3 million for environmental planning and energy portfolio evaluation.
  • A $1.2 million contract with a private investment firm to perform environmental impact research in the Western U.S.
  • A contract valued at more than $1 million with a real estate investment trust to design and implement the company’s Web-based content management platform.
  • A $1 million contract with a major energy company based in the Northeast U.S. to support commercial and industrial and residential energy efficiency efforts.
  • A $1 million contract with an international airline based in Asia to provide digital marketing communications support.

Other notable commercial awards included a total of two contracts with two international hotel companies to support their loyalty programs and a contract to provide digital content management support for an international home improvement company.

Government Business Third Quarter 2015 Highlights

  • U.S. federal government revenues increased 0.6 percent to $141.4 million in the third quarter and accounted for 49 percent of total revenue compared to 53 percent in last year’s third quarter.
  • U.S. state and local government revenues decreased 8.6 percent and accounted for 9 percent of total revenue, compared to 11 percent in the year-ago period.
  • International government revenues decreased 4.7 percent on a reported basis, which was an estimated increase of 11 percent on a constant currency basis, and accounted for 7 percent of total revenue, down from 8 percent in last year’s third quarter.

Government Contracts Awarded in the Third Quarter

ICF was awarded more than 100 U.S. federal government contracts and task orders and hundreds of additional contracts from other U.S. state and local and international governments. Some of the awards included:

Additional state and local government awards of $1 million or more included a contract with a Western U.S. state to support flood safety efforts and an energy efficiency program with a large state in the Northeast U.S. to research commercial buildings and their associated energy use.

Awards of more than $1 million from international governments included a contract to support the government of Malaysia in the development of its maritime ports sector, a contract with a European executive body to provide strategic communications and marketing support for a major tourism campaign and a contract with the European Union to provide strategic communications support for a waste management program.

Summary and Outlook

“Third quarter results represented significant year-over-year revenue growth. More importantly, we were able to achieve profitability levels that aligned with our expectations for EBITDA margin and reflected the increased utilization we had anticipated. Based on our current visibility, we expect our fourth quarter results to be comparable on a sequential basis, as the roll-out of new contracts and the greater mix of commercial projects offset the seasonality of our federal government business.

“Specifically, we expect full year 2015 revenues to be approximately $1.140 billion, non-GAAP EPS3 to range from $2.65 to $2.70 and adjusted EPS4 to range from $2.10 to $2.15. We expect fourth quarter EBITDA margin to be at least 10.5 percent and full year cash flow from operations to exceed $90 million.

“Recent contract awards and pipeline activity have positioned ICF for organic growth in 2016 across our key markets and we expect to be able to achieve an EBITDA margin in the range of 10 percent to 10.5 percent for the year, driven by higher utilization rates and revenue growth,” Mr. Kesavan noted.

All per share guidance assumes weighted average shares outstanding of approximately 19.7 million and a full year effective tax rate of no more than 38.5 percent.

1 EBITDA, Adjusted EBITDA and non-GAAP EPS are non-GAAP measurements. A reconciliation for all non-GAAP references is set forth below the Consolidated Statement of Comprehensive Income table.

2 Service Revenue is a non-GAAP measurement. A reconciliation for all non-GAAP references is set forth below the Consolidated Statement of Comprehensive Income table.

3 Excludes $17.2 million amortization of intangibles, which adds $0.54 to diluted earnings per share, and expenses related to acquisitions, office closures and severance, net of taxes.

4 Excludes expenses related to acquisitions and special charges for office closures and severance, net of taxes.

About ICF International

ICF International (NASDAQ:ICFI) provides professional services and technology solutions that deliver beneficial impact in areas critical to the world's future. ICF is fluent in the language of change, whether driven by markets, technology, or policy. Since 1969, we have combined a passion for our work with deep industry expertise to tackle our clients' most important challenges. We partner with clients around the globe—advising, executing, innovating—to help them define and achieve success. Our more than 5,000 employees serve government and commercial clients from more than 70 offices worldwide. ICF's website is www.icfi.com.

Caution Concerning Forward-looking Statements

Statements that are not historical facts and involve known and unknown risks and uncertainties are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements may concern our current expectations about our future results, plans, operations and prospects and involve certain risks, including those related to the government contracting industry generally; our particular business, including our dependence on contracts with U.S. federal government agencies; and our ability to acquire and successfully integrate businesses. These and other factors that could cause our actual results to differ from those indicated in forward-looking statements are included in the "Risk Factors" section of our securities filings with the Securities and Exchange Commission. The forward-looking statements included herein are only made as of the date hereof, and we specifically disclaim any obligation to update these statements in the future.

                 
ICF International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
 
Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
(Unaudited) (Unaudited)
 
Gross Revenue $ 288,951 $ 264,796 $ 851,427 $ 773,708
Direct Costs 177,864 166,064 520,684 486,461
Operating costs and expenses:
Indirect and selling expenses 81,011 74,704 249,626 218,573
Depreciation and amortization 4,316 3,227 12,058 9,493
Amortization of intangible assets 4,263   2,273   12,866   6,429  
Total operating costs and expenses 89,590   80,204   274,550   234,495  
Operating Income 21,497 18,528 56,193 52,752
Interest expense (2,674 ) (800 ) (7,727 ) (2,288 )
Other expense (52 ) (335 ) (1,473 ) (991 )
Income before income taxes 18,771 17,393 46,993 49,473
Provision for income taxes 7,226   5,840   18,374   18,206  
Net income $ 11,545   $ 11,553   $ 28,619   $ 31,267  
 
Earnings per Share:
Basic $ 0.60   $ 0.59   $ 1.47   $ 1.59  
Diluted $ 0.59   $ 0.59   $ 1.45   $ 1.56  
 
Weighted-average Shares:
Basic 19,316   19,450   19,413   19,682  
Diluted 19,556   19,713   19,743   20,069  
 
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax (3,900 ) (1,355 ) (4,489 ) (895 )
Comprehensive income, net of tax $ 7,645   $ 10,198   $ 24,130   $ 30,372  
 
 
 
Reconciliation of Non-GAAP financial measures:
 

Reconciliation of Service Revenue

Gross Revenue $ 288,951 $ 264,796 $ 851,427 $ 773,708
Subcontractor and Other Direct Costs* (72,532 ) (72,663 ) (209,312 ) (202,080 )
Service Revenue $ 216,419   $ 192,133   $ 642,115   $ 571,628  
 

Reconciliation of EBITDA and Adjusted EBITDA

Net Income 11,545 11,553 28,619 31,267
Other expense 52 335 1,473 991
Interest expense 2,674 800 7,727 2,288
Provision for income taxes 7,226 5,840 18,374 18,206
Depreciation and amortization 8,579   5,500   24,924   15,922  
EBITDA 30,076 24,028 81,117 68,674
Acquisition-related expenses** 815 189 1,444
Special charges related to severance for staff realignment*** 512 252 512 1,931
Special charges related to office closures 513     669    
Adjusted EBITDA $ 31,101   $ 25,095   $ 82,487   $ 72,049  
 

Reconciliation of Adjusted and Non-GAAP EPS

Diluted EPS $ 0.59 $ 0.59 $ 1.45 $ 1.56
Acquisition-related expenses, net of tax 0.02 0.04
Special charges related to severance for staff realignment, net of tax 0.01 0.01 0.01 0.06
Special charges related to office closures, net of tax 0.01     0.05   0.02  
Adjusted EPS 0.61 0.62 1.51 1.68
Amortization of intangibles, net of tax 0.14   0.08   0.40   0.20  
Non-GAAP EPS $ 0.75   $ 0.70   $ 1.91   $ 1.88  
 
* Subcontractor and Other Direct Costs exclude Direct Labor and Fringe.
** Acquisition-related expenses include expenses related to closed and anticipated-to-close acquisitions.
*** Special charges related to severance were for the staff realignment in the second quarter of 2014 and third quarter of 2015.
             
ICF International, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
 
September 30, 2015 December 31, 2014
(Unaudited)
Current Assets:
Cash and cash equivalents $ 5,722 $ 12,122
Contract receivables, net 271,671 260,254
Prepaid expenses and other 11,076 10,338
Income tax receivable   5,715  
Total current assets 288,469   288,429  
Total property and equipment, net of accumulated depreciation of $75,932 and $58,357
as of September 30, 2015 and December 31, 2014, respectively 45,078 43,241
Other assets:
Goodwill 690,576 687,778
Other intangible assets, net 63,409 76,707
Restricted cash 1,403 1,478
Other assets 13,121   12,707  
Total Assets $ 1,102,056   $ 1,110,340  
 
Current Liabilities:
Accounts payable $ 58,115 $ 65,755
Accrued salaries and benefits 46,113 56,314
Accrued expenses and other current liabilities 44,867 42,308
Deferred revenue 34,543 31,554
Income tax payable 5,488
Deferred income taxes 6,984   7,312  
Total current liabilities 196,110   203,243  
Long-term liabilities:
Long-term debt 332,155 350,052
Deferred rent 15,732 19,997
Deferred income taxes 23,757 27,886
Other 16,924   8,473  
Total Liabilities 584,678 609,651
Commitments and Contingencies
Stockholders’ Equity:
Preferred stock, par value $.001 per share; 5,000,000 shares authorized; none issued
Common stock, par value $.001 per share; 70,000,000 shares authorized; 21,292,905 and 21,035,654 issued; and 19,222,745 and 19,430,154 outstanding as of September 30, 2015 and December 31, 2014, respectively 21 21
Additional paid-in capital 277,300 267,206
Retained earnings 314,556 285,937
Treasury stock (67,529 ) (49,994 )
Accumulated other comprehensive loss (6,970 ) (2,481 )
Total Stockholders’ Equity 517,378   500,689  
Total Liabilities and Stockholders’ Equity $ 1,102,056   $ 1,110,340  
 
ICF International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
       
Nine months ended
September 30,
2015 2014
(Unaudited)
Cash flows from operating activities
Net income $ 28,619 $ 31,267
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash equity compensation 8,466 8,858
Depreciation and amortization 24,924 15,922
Other adjustments, net (1,255) (1,712)
Changes in operating assets and liabilities, net of the effect of acquisitions:
Contract receivables, net (13,713) (25,293)
Prepaid expenses and other assets (2,030) (6,378)
Accounts payable (6,904) (96)
Accrued salaries and benefits (10,258) (2,954)
Accrued expenses (1,722) 4,170
Deferred revenue 3,440 (3,629)
Income tax receivable and payable 11,233 228
Other liabilities 2,101 (847)
Net cash provided by operating activities 42,901 19,536
 
Cash flows from investing activities
Capital expenditures for property and equipment and capitalized software (12,194) (10,582)
Payments for business acquisitions, net of cash received (1,818) (59,537)
Net cash used in investing activities (14,012) (70,119)
 
Cash flows from financing activities
Advances from working capital facilities 300,150 369,936
Payments on working capital facilities (318,047) (294,720)
Debt issue costs (854)
Proceeds from exercise of options 572 1,569
Tax benefits of stock option exercises and award vesting 1,261 2,617
Net payments for stockholder issuances and buybacks (17,739) (28,835)
Net cash (used in) provided by financing activities (33,803) 49,713
Effect of exchange rate changes on cash (1,486) (574)
Decrease in cash (6,400) (1,444)
Cash, beginning of period 12,122 8,953
Cash, end of period $ 5,722 $ 7,509
 
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 7,729 $ 2,109
Income taxes $ 13,015 $ 17,271
 
ICF International, Inc. and Subsidiaries
Supplemental Schedule
       
 
Revenue by market Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
 
Energy, environment, and infrastructure 33 % 34 % 33 % 34 %
Health, education, and social programs 47 % 47 % 46 % 48 %
Safety and security 8 % 10 % 8 % 10 %
Consumer and financial 12 % 9 % 13 % 8 %
       
Total 100 % 100 % 100 % 100 %
 
 
 
Revenue by client Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
 
U.S. federal government 49 % 53 % 48 % 52 %
U.S. state and local government 9 % 11 % 9 % 11 %
International government 7 % 8 % 7 % 9 %
Government 65 % 72 % 64 % 72 %
 
Commercial 35 % 28 % 36 % 28 %
       
Total 100 % 100 % 100 % 100 %
 
 
 
Revenue by contract Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
 
Time-and-materials 42 % 47 % 43 % 48 %
Fixed-price 37 % 33 % 38 % 33 %
Cost-based 21 % 20 % 19 % 19 %
       
Total 100 % 100 % 100 % 100 %

Source: ICF International

Investor Contacts:
MBS Value Partners
Lynn Morgen, +1.212.750.5800
lynn.morgen@mbsvalue.com
or
MBS Value Partners
Betsy Brod, +1.212.750.5800
betsy.brod@mbsvalue.com
or
Company Information Contact:
ICF International
Steve Anderson, +1.703.934.3847
steve.anderson@icfi.com