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ICF Reports Second Quarter 2018 Results

FAIRFAX, Va., Aug. 2, 2018 /PRNewswire/ -- 

(PRNewsfoto/ICF International)

Second Quarter Highlights:

  • Total Revenue Was $324 Million, Up 6 Percent
  • Diluted EPS of $0.71, Up 13 Percent; Non-GAAP EPS¹ Was $0.80
  • Adjusted EBITDA Margin¹ on Service Revenue¹ Was 11.9 Percent
  • Contract Awards Increased 74 Percent to $590 Million; TTM Contract Awards Were $1.6 Billion for a Book-to-Bill of 1.28x
  • Increased Business Development Spending Drives Record Pipeline of $5.7 Billion at Quarter-End

Company Raises 2018 Revenue and EPS Guidance by $50 million and $0.10; respectively

ICF (NASDAQ: ICFI), global consultancy and digital services providers to government and commercial clients around the world, reported results for the second quarter ended June 30, 2018.

"Second quarter results showed good year-on-year growth across our government and commercial client sets and strong business development metrics that position ICF for future growth," said Sudhakar Kesavan, ICF's Chairman and Chief Executive Officer.

"In the second quarter, revenue growth from government clients was led by strong gains in our international government work. Both energy markets and marketing services were key drivers of second quarter commercial revenue growth, posting double-digit and high single-digit year-on-year increases, respectively. Similar to this year's first quarter, we significantly increased our business development spending to fund capture and proposal activity around disaster recovery opportunities and are pleased with our success to date.  Revenues associated with recent disaster recovery contract wins are expected to significantly ramp up in the second half of the year. This growth will be enhanced by our acquisition of DMS Disaster Consultants, a 50-person disaster planning and recovery advisory firm, which we announced today and detailed in a separate release.

"This was a record second quarter of contract wins for ICF. Contract awards were broad-based across our client sets and increased 74 percent, primarily representing new business. At the end of the second quarter, our business development pipeline was a record $5.7 billion, up from $4.4 billion at the end of the prior quarter, setting the stage for continued growth," Mr. Kesavan noted.

Second Quarter 2018 Results

Second quarter 2018 revenue was $324.3 million, a 5.8 percent increase from $306.4 million in the second quarter of 2017. Service revenue grew 2.7 percent year-over-year to $231.0 million. Net income was $13.6 million in the second quarter, up 14.1 percent from $11.9 million in the second quarter of 2017. Diluted earnings per share (EPS) amounted to $0.71, a 12.7 percent increase from $0.63 per diluted share in the prior year period.

Non-GAAP EPS increased 9.6 percent year-on-year to $0.80 per share in the second quarter of 2018, from $0.73 in the year-ago quarter. EBITDA1 was $27.3 million, compared to $29.3 million in the second quarter of 2017.   Adjusted EBITDA1 was $27.4 million compared to $29.9 million in last year's second quarter. Second quarter 2018 adjusted EBITDA margin was 11.9 percent of service revenue compared to 13.3 percent in the 2017 second quarter.  Both EBITDA and adjusted EBITDA in the second quarter of 2018 were impacted primarily by significant marketing investments associated with pursuing disaster recovery opportunities.

Backlog and New Business Awards

Total backlog was $2.2 billion at the end of the second quarter of 2018. Funded backlog was $1.1 billion, representing approximately half of the total backlog. The total value of contracts awarded in the 2018 second quarter was $590 million, up 74 percent year-on-year, representing a book-to-bill ratio of 1.82. 

Government Business Second Quarter 2018 Highlights

Revenue from government clients was $208.7 million, up 5.5% year-on-year.

  • U.S. federal government revenue was $138.9 million and accounted for 43 percent of total revenue, compared to 46 percent of total revenue in the second quarter of 2017.
  • U.S. state and local government revenue was $35.3 million and accounted for 11 percent of total revenue, compared to 12 percent of total revenue in the second quarter of 2017.
  • International government revenue was $34.5 million and accounted for 10 percent of total revenue, up from 7 percent in last year's second quarter.

Key Government Contracts Awarded in the Second Quarter

ICF was awarded more than 80 U.S. federal contracts and task orders and more than 250 additional contracts from U.S. state and local and international governments. The largest awards have an aggregate value of more than $370 million and are listed below: 

  • Disaster recovery: As previously disclosed in our 8-K filing, a professional services agreement with an authority of the government of Puerto Rico to provide disaster recovery grant claims review and disaster recovery project formulation services assistance related to Hurricanes Irma and Maria.
  • Technical assistance: A contract with the U.S. Agency for International Development to provide implementation support services and technical assistance to improve national diagnostic networks, laboratory systems, and disease surveillance mechanisms.
  • Cybersecurity services: A contract with the U.S. Air Force to provide comprehensive cybersecurity support across the U.S. Air Force enterprise.
  • Program support: Two task orders with the U.S. Department of Defense to provide strategic planning and program support to the Defense Security Service.
  • Technical assistance: A contract modification with the New Jersey Department of Community Affairs to provide ongoing regulatory compliance and construction management support related to Superstorm Sandy.

Select other government contract and task order wins with a value greater than $2 million included: additional funding to provide program support services for the Pennsylvania Department of Insurance; a recompete with the Connecticut Department of Public Health to provide support services related to the U.S. Centers for Disease Control'sBehavioral Risk Factor Surveillance Survey; and environmental planning services for a California county water resources agency and a western U.S. transit authority.

Commercial Business Second Quarter 2018 Highlights

  • Commercial revenue was $115.7 million, 6.5 percent above the $108.6 million in last year's second quarter.
  • Energy markets, which includes energy efficiency programs for utilities, represented 48 percent of commercial revenue. Marketing services accounted for 43 percent of commercial revenues.

Key Commercial Contracts Awarded in the Second Quarter

Commercial sales were $144.0 million in the second quarter of 2018, and ICF was awarded more than 700 commercial projects globally during the period.

The Energy Markets contracts below have an aggregate value of over $10 million:

  • Contracts with a northeastern U.S. utility to support its residential energy efficiency programs and provide related services.
  • A contract extension with a midwestern U.S. utility to continue support for its residential energy efficiency programs.
  • Multiple task orders with a western U.S. utility to provide environment and planning services.

The Marketing Services contracts below have an aggregate value of over $70 million:

  • Multiple contracts and task orders with a U.S. health insurer to continue providing marketing support for its programs.
  • Two task orders with a U.S. hospitality company to provide support for its loyalty program.
  • Multiple task orders with a health, beauty, and home care products company to provide digital solutions services.
  • A contract with a U.S. healthcare association to provide digital strategy services.
  • Renewal of the retainer with the Belize Tourism Board to continue to provide marketing services.         

Selected other commercial contract wins with a value of more than $1 million included: customer relationship marketing services for a large U.S. consumer packaged foods company; training development for a U.S. city airport system; marketing services for a North American fitness club chain; loyalty strategy for a U.K. telecommunications and internet service provider; environment and planning services for a western U.S. utility; energy efficiency program support for a southwestern U.S. utility; digital solutions services for a U.S. manufacturer of fluid-handling systems and products; advisory services for an aviation company; and customer strategy for a global e-commerce platform.

Dividend Payment

On August 2, 2018, ICF declared a quarterly cash dividend of $0.14 per share, payable on October 16, 2018 to shareholders of record on September 7, 2018.

Summary and Outlook

"Our first half results, together with our funded backlog, and record pipeline levels have enhanced our visibility heading into the second half of 2018. Consequently, we are increasing our guidance for revenue and EPS for full year 2018.

"We now expect to report total revenue of $1.295 billion to $1.335 billion for full year 2018. The midpoint of our updated guidance is equivalent to 7.0 percent year-on-year growth. GAAP diluted EPS is expected to be in the range of $3.35 to $3.55, exclusive of any special charges.  Non-GAAP EPS is expected to range from $3.70 to $3.90.  Per-share guidance is based on a weighted average number of shares outstanding of 19.2 million.  Operating cash flow is expected to be in the range of $100 million to $110 million," concluded Mr. Kesavan.

1 Non-GAAP EPS, Service Revenue, EBITDA, and Adjusted EBITDA are non-GAAP measurements. EBITDA Margin and Adjusted EBITDA Margin are the non-GAAP measures divided by the appropriate revenue.  A reconciliation of all non-GAAP measurements to the most applicable GAAP number is set forth below.  The presentation of non-GAAP measurements may not be comparable to other similarly titled measures used by other companies.

About ICF
ICF (NASDAQ:ICFI) is a global consulting services company with over 5,500 specialized experts, but we are not your typical consultants. At ICF, business analysts and policy specialists work together with digital strategists, data scientists and creatives. We combine unmatched industry expertise with cutting-edge engagement capabilities to help organizations solve their most complex challenges. Since 1969, public and private sector clients have worked with ICF to navigate change and shape the future. Learn more at icf.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 (Unaudited)

(in thousands, except per share amounts)












Three months ended


Six months ended



June 30,


June 30,



2018


2017


2018


2017

Revenue


$          324,315


$          306,392


$           627,095


$            602,687

Direct costs


206,565


190,896


395,391


374,503

Operating costs and expenses:









Indirect and selling expenses


90,410


86,240


180,069


175,042

Depreciation and amortization


4,045


4,299


8,514


8,818

Amortization of intangible assets


2,270


2,749


4,514


5,483

Total operating costs and expenses


96,725


93,288


193,097


189,343










Operating income


21,025


22,208


38,607


38,841

Interest expense


(2,167)


(2,537)


(3,833)


(4,488)

Other (expense) income


(318)


226


(214)


335

Income before income taxes


18,540


19,897


34,560


34,688

Provision for income taxes


4,923


7,960


8,526


12,574

Net income


$            13,617


$            11,937


$             26,034


$              22,114










Earnings per Share:









Basic


$                0.72


$                0.64


$                 1.39


$                  1.17

Diluted


$                0.71


$                0.63


$                 1.36


$                  1.15










Weighted-average Shares:









Basic


18,806


18,775


18,738


18,840

Diluted


19,209


19,086


19,208


19,252










Cash dividends declared per common share


$                0.14


$                   —


$                 0.28


$                     —










Other comprehensive (loss) income, net of tax


(3,317)


2,100


(1,708)


2,472

Comprehensive income, net of tax


$            10,300


$            14,037


$             24,326


$              24,586










 

 

ICF International, Inc. and Subsidiaries

Reconciliation of Non-GAAP financial measures (2) (Unaudited)

(in thousands, except per share amounts)












Three months ended


Six months ended



June 30,


June 30,



2018


2017


2018


2017

Reconciliation of Service Revenue









Revenue


$          324,315


$          306,392


$           627,095


$            602,687

Subcontractor and other direct costs(3)


(93,330)


(81,446)


(172,212)


(157,980)

Service revenue


$          230,985


$          224,946


$           454,883


$            444,707










Reconciliation of EBITDA and Adjusted EBITDA









Net income


$            13,617


$            11,937


$             26,034


$              22,114

Other expense (income)


318


(226)


214


(335)

Interest expense


2,167


2,537


3,833


4,488

Provision for income taxes


4,923


7,960


8,526


12,574

Depreciation and amortization


6,315


7,048


13,028


14,301

EBITDA


27,340


29,256


51,635


53,142

Acquisition-related expenses(4)


44



46


Special charges related to severance for staff realignment(5)



577


655


577

Special charges related to facilities consolidations and office closures(6)



21



1,719

Total special charges and adjustments


44


598


701


2,296

Adjusted EBITDA


$            27,384


$            29,854


$             52,336


$              55,438










EBITDA Margin Percent on Revenue(7)


8.4%


9.5%


8.2%


8.8%

EBITDA Margin Percent on Service Revenue(7)


11.8%


13.0%


11.4%


11.9%

Adjusted EBITDA Margin Percent on Revenue(7)


8.4%


9.7%


8.3%


9.2%

Adjusted EBITDA Margin Percent on Service Revenue(7)


11.9%


13.3%


11.5%


12.5%










Reconciliation of Non-GAAP EPS









Diluted EPS


$                0.71


$                0.63


$                 1.36


$                  1.15

Special charges related to severance for staff realignment



0.03


0.03


0.03

Special charges related to facilities consolidations and office closures





0.10

Amortization of intangibles


0.12


0.14


0.24


0.28

Income tax effects on amortization, special charges, and adjustments(8)


(0.03)


(0.07)


(0.07)


(0.15)

Non-GAAP EPS


$                0.80


$                0.73


$                 1.56


$                  1.41










(2)These tables provide reconciliations of non-GAAP financial measures to the most applicable GAAP numbers. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Other companies may define similarly titled non-GAAP measures differently and, accordingly, care should be exercised in understanding how we define these measures. 





(3)Subcontractor and Other Direct Costs is equal to Direct Costs minus Direct Labor and Fringe Costs.





(4)Acquisition-related expenses: These costs are mainly related to closed and anticipated-to-close acquisitions, consisting primarily of consultant and other outside third-party costs.





(5) Special charges related to severance for staff realignment: These costs are mainly due to either involuntary employee termination benefits for Company officers who have been terminated as part of a consolidation or reduction in operations.





(6) Special charges related to facilities consolidations and office closures: These costs are exit costs associated with terminated leases or full office closures. These exit costs include charges incurred under a contractual obligation that existed as of the date of the accrual and for which we will continue to pay until the contractual obligation is satisfied but with no economic benefit to us.





(7) EBITDA Margin Percent and Adjusted EBITDA Margin Percent were calculated by dividing the non-GAAP measure by the corresponding revenue.





(8)Income tax effects were calculated using an effective GAAP tax rate of 26.6% and 40.0%, and 24.7% and 36.3% for the three and six months ended June 30, 2018 and 2017, respectively.





 

 

ICF International, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share amounts)








June 30, 2018


December 31, 2017



(Unaudited)



Assets





Current Assets:





Cash and cash equivalents


$                           6,322


$                               11,809

Contract receivables, net


174,652


168,318

Contract assets


130,241


123,197

Prepaid expenses and other assets


16,393


11,327

Income tax receivable


12,134


5,596

Restricted cash - current



11,191

Total Current Assets


339,742


331,438

Property and Equipment, net


44,937


38,052

Other Assets:





Goodwill


693,027


686,108

Other intangible assets, net


33,437


35,304

Restricted cash - non-current


1,279


1,266

Other assets


22,129


18,087

Total Assets


$                    1,134,551


$                          1,110,255






Liabilities and Stockholders' Equity





Current Liabilities:





Accounts payable


$                         63,705


$                               75,074

Contract liabilities


25,886


38,571

Accrued salaries and benefits


44,125


45,645

Accrued subcontractors and other direct costs


30,228


47,508

Accrued expenses and other current liabilities


24,891


17,572

Total Current Liabilities


188,835


224,370

Long-term Liabilities:





Long-term debt


243,645


206,250

Deferred rent


14,214


15,119

Deferred income taxes


34,831


33,351

Other


17,655


15,135

Total Liabilities


499,180


494,225






Commitments and Contingencies 










Stockholders' Equity:





Preferred stock, par value $.001; 5,000,000 shares authorized; none issued



Common stock, par value $.001; 70,000,000 shares authorized; 22,328,695 and
22,019,315 shares issued as of June 30, 2018 and December 31, 2017,
respectively; 18,825,993 and 18,661,801 shares outstanding as of June 30, 2018
and December 31, 2017, respectively


22


22

Additional paid-in capital


317,013


307,821

Retained earnings


456,358


434,766

Treasury stock


(130,446)


(121,540)

Accumulated other comprehensive loss


(7,576)


(5,039)

Total Stockholders' Equity


635,371


616,030

Total Liabilities and Stockholders' Equity


$                    1,134,551


$                          1,110,255






 

 

ICF International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)








Six Months Ended



 June 30, 



2018


2017

Cash Flows from Operating Activities





Net income


$                    26,034


$              22,114

Adjustments to reconcile net income to net cash (used in) provided by operating
   activities:





Non-cash equity compensation


5,347


5,361

Depreciation and amortization


13,027


14,301

Facilities consolidation reserve


(127)


1,625

Deferred taxes and other adjustments, net


1,339


4,421

Changes in operating assets and liabilities:





Contract assets and liabilities


(19,658)


(13,813)

Contract receivables, net


(5,971)


6,952

Prepaid expenses and other assets


(7,115)


(2,978)

Accounts payable


(11,283)


(9,953)

Accrued salaries and benefits


(1,378)


(3,375)

Accrued subcontractors and other direct costs


(17,280)


(6,550)

Accrued expenses and other current liabilities


3,757


(2,326)

Income tax receivable and payable


(7,315)


(5,441)

Other liabilities


(1,102)


6,307

Net Cash (Used in) Provided by Operating Activities


(21,725)


16,645






Cash Flows from Investing Activities





Capital expenditures for property and equipment and capitalized software


(9,397)


(6,083)

Payments for business acquisitions, net of cash received


(11,838)


(91)

Net Cash Used in Investing Activities


(21,235)


(6,174)






Cash Flows from Financing Activities





Advances from working capital facilities


284,773


348,975

Payments on working capital facilities


(247,378)


(330,363)

Payments on capital expenditure obligations


(3,131)


(2,276)

Debt issue costs


(21)


(1,489)

Proceeds from exercise of options


3,533


2,431

Dividends paid


(2,635)


Net payments for stockholder issuances and buybacks


(8,597)


(25,253)

Net Cash Provided by (Used in) Financing Activities


26,544


(7,975)

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash


(249)


366






(Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash


(16,665)


2,862

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period


24,266


7,885

Cash, Cash Equivalents, and Restricted Cash, End of Period


$                      7,601


$              10,747






Supplemental Disclosure of Cash Flow Information





Cash paid during the period for:





Interest


$                      3,641


$                3,923

Income taxes


$                    11,490


$              12,982






Non-cash investing and financing transactions:





Capital expenditure obligations


$                      6,121


$                     —






 

 

ICF International, Inc. and Subsidiaries

Supplemental Schedule(9)



















Revenue by client markets


Three months ended


Six Months Ended



June 30,


June 30,



2018


2017


2018


2017

Energy, environment, and infrastructure


41%


39%


41%


40%

Health, education, and social programs


41%


42%


41%


42%

Safety and security


8%


9%


8%


8%

Consumer and financial


10%


10%


10%


10%

Total


100%


100%


100%


100%



















Revenue by client mix


Three months ended


Six Months Ended



June 30,


June 30,



2018


2017


2018


2017

U.S. federal government


43%


46%


43%


46%

U.S. state and local government


11%


12%


11%


12%

International government


10%


7%


10%


7%

Government


64%


65%


64%


65%

Commercial


36%


35%


36%


35%

Total


100%


100%


100%


100%



















Revenue by contract mix


Three months ended


Six Months Ended



June 30,


June 30,



2018


2017


2018


2017

Fixed-price


42%


40%


41%


39%

Time-and-materials


40%


42%


40%


43%

Cost-based


18%


18%


19%


18%

Total


100%


100%


100%


100%



















(9)As is shown in the supplemental schedule, we track revenue by key metrics that provide useful information about the nature of our operations. The client markets metric provides insight into the breadth of our expertise while the client mix metric is an indicator of the diversity of our client base. The contract mix metric provides insight in terms of the degree of performance risk we assume.

 

Investor Contacts:
Lynn Morgen, ADVISIRY PARTNERS, lynn.morgen@advisiry.com +1.212.750.5800
David Gold, ADVISIRY PARTNERS, david.gold@advisiry.com +1.212.750.5800

Company Information Contact:
Lauren Dyke, ICF, lauren.dyke@ICF.com +1.571.373.5577

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SOURCE ICF