UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number:
(Exact name of Registrant as Specified in its Charter)
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22-3661438 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act.
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Title of each class |
Trading Symbols(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
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Large accelerated filer |
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☒ |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 26, 2019, there were
ICF INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE
PERIOD ENDED JUNE 30, 2019
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets at June 30, 2019 (Unaudited) and December 31, 2018 |
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Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2019 and 2018 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
ICF International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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June 30, 2019 |
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December 31, 2018 |
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(Unaudited) |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Contract receivables, net |
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Contract assets |
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Prepaid expenses and other assets |
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Income tax receivable |
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Total Current Assets |
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Property and Equipment, net |
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Other Assets: |
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Restricted cash - non-current |
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— |
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Goodwill |
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Other intangible assets, net |
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Operating lease - right-of-use assets |
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— |
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Other assets |
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current Liabilities: |
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Accounts payable |
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$ |
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$ |
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Contract liabilities |
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Operating lease liabilities - current |
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— |
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Accrued salaries and benefits |
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Accrued subcontractors and other direct costs |
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Accrued expenses and other current liabilities |
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Total Current Liabilities |
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Long-term Liabilities: |
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Long-term debt |
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Operating lease liabilities - non-current |
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— |
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Deferred rent |
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— |
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Deferred income taxes |
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Other long-term liabilities |
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Total Liabilities |
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Contingencies (Note 15) |
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Stockholders’ Equity: |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock |
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( |
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Accumulated other comprehensive loss |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
ICF International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Direct costs |
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Operating costs and expenses: |
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Indirect and selling expenses |
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Depreciation and amortization |
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Amortization of intangible assets |
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Total operating costs and expenses |
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Operating income |
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Interest expense |
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Other income (expense) |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Earnings per Share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average Shares: |
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Basic |
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Diluted |
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Cash dividends declared per common share |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive loss, net of tax |
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Comprehensive income, net of tax |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ICF International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
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Six Months Ended |
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June 30, |
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2019 |
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2018 |
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Cash Flows from Operating Activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash used in operating activities: |
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Bad debt expense |
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Deferred income taxes |
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Non-cash equity compensation |
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Depreciation and amortization |
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Facilities consolidation reserve |
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Amortization of debt issuance costs |
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Impairment of long-lived assets |
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— |
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Other adjustments, net |
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Changes in operating assets and liabilities: |
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Net contract assets and liabilities |
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Contract receivables |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued salaries and benefits |
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( |
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Accrued subcontractors and other direct costs |
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( |
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Accrued expenses and other current liabilities |
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Income tax receivable and payable |
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( |
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( |
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Other liabilities |
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( |
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Net Cash Used in Operating Activities |
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( |
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( |
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Cash Flows from Investing Activities |
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Capital expenditures for property and equipment and capitalized software |
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( |
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( |
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Payments for business acquisitions, net of cash received |
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( |
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Net Cash Used in Investing Activities |
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Cash Flows from Financing Activities |
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Advances from working capital facilities |
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Payments on working capital facilities |
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Payments on capital expenditure obligations |
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( |
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Debt issue costs |
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— |
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Proceeds from exercise of options |
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Dividends paid |
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( |
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( |
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Net payments for stockholder issuances and buybacks |
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( |
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Net Cash Provided by Financing Activities |
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Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash |
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Decrease in Cash, Cash Equivalents, and Restricted Cash |
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( |
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Cash, Cash Equivalents, and Restricted Cash, Beginning of Period |
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Cash, Cash Equivalents, and Restricted Cash, End of Period |
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$ |
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$ |
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Supplemental Disclosure of Cash Flow Information |
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Cash paid during the period for: |
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Interest |
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$ |
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$ |
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Income taxes |
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$ |
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$ |
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Non-cash investing and financing transactions: |
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Capital expenditure obligations |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
5
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation
The accompanying consolidated financial statements include the accounts of ICF International, Inc. and its subsidiaries (collectively, the “Company”), and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). All significant intercompany transactions and balances have been eliminated.
Nature of Operations
The Company provides professional services and technology-based solutions to government and commercial clients, including management, marketing, technology, and policy consulting and implementation services in the areas of: energy, environment, and infrastructure; health, education and social programs; safety and security; and consumer and financial services. The Company offers a full range of services to these clients throughout the entire life cycle of a policy, program, project, or initiative, from research, analysis, assessment and advice to design and implementation of programs and technology-based solutions, as well as the provision of engagement services and programs.
The Company’s major clients are U.S. federal government departments and agencies, most significantly the Department of Health and Human Services, Department of State and Department of Defense. The Company also serves U.S. state (including territories) and local government departments and agencies, international governments, and commercial clients worldwide. Commercial clients include airlines, airports, electric and gas utilities, oil companies, banks and other financial services companies, transportation, travel and hospitality firms, non-profits/associations, law firms, manufacturing firms, retail chains, and distribution companies. The term “federal” or “federal government” refers to the U.S. federal government, and “state and local” or “state and local government” refers to U.S. state and local governments and U.S. territorial governments, unless otherwise indicated.
The Company, incorporated in Delaware, is headquartered in Fairfax, Virginia. It maintains offices throughout the world, including
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Areas of the consolidated financial statements where estimates may have the most significant effect include contractual and regulatory reserves, valuation and lives of tangible and intangible assets, contingent consideration related to business acquisitions, impairment of long-lived assets, accrued liabilities, revenue recognition and costs to complete fixed-price contracts, bonus and other incentive compensation, stock-based compensation, reserves for tax benefits and valuation allowances on deferred tax assets, provisions for income taxes, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ from management's estimates.
Interim Results
The unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in financial statements, prepared in accordance U.S. GAAP, to be condensed or omitted. In management’s opinion, the unaudited consolidated financial statements contain all adjustments that are of a normal recurring nature, necessary for a fair presentation of the results of operations and financial position of the Company for the interim periods presented. The Company reports operating results and financial data in
Reclassifications
Certain amounts in the 2018 consolidated statements of cash flows have been reclassified to conform to the current year presentation.
6
Significant Accounting Policies
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities (current and non-current) on the consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments as of the commencement date. Since most lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate as of the commencement date in estimating the present value of future payments. The operating lease ROU asset is based on the present value of future lease payments and excludes impacts from lease incentives and initial costs incurred to obtain the lease. Lease terms, for the purposes of determining each lease’s present value, include options to extend or terminate the lease if it is reasonably certain and economically reasonable that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company uses leases to obtain use of a variety of different resources, including those for the use of facilities or equipment. These agreements may contain both lease and non-lease components which are generally accounted for separately. For equipment leases (including copier leases), the Company accounts for the lease component as well as insignificant non-lease components, as a single lease.
Long-Lived Assets
The Company reviews its long-lived assets, including property and equipment and amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for any excess of the carrying amount over the fair value of the asset. The Company recognized impairment expense, included in indirect and selling expenses, of $
Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard related to leases, Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet for those leases classified as operating leases. Under the new standard, required disclosures enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The Company, using a modified retrospective adoption approach, is also required to recognize and measure leases existing at the beginning of the period of adoption, with certain practical expedients available.
The Company adopted the standard effective January 1, 2019. The Company chose the following practical expedients: not to re-assess existing and expired contracts to determine if they contain embedded leases; not to re-assess lease classification on existing leases; not to re-assess initial direct costs of obtaining leases; to account for lease and non-lease components as a single lease component for equipment leases; and to only apply the standard to leases with a term greater than twelve months.
The most significant impact of adopting the standard was the recognition of ROU assets and lease liabilities for operating leases on the Company’s consolidated balance sheets but it did not have a material impact on the Company’s consolidated statements of comprehensive income or consolidated statements of cash flow. The impact to the consolidated balance sheets before and after the adoption are as follows:
|
|
|
January 1, 2019 |
|
|||||||||
|
|
|
Before Adoption |
|
|
Adoption Adjustments |
|
|
After Adoption |
|
|||
|
Operating lease - right-of-use assets |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Operating lease liabilities - current |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Operating lease liabilities - non-current |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Deferred rent |
|
|
|
|
|
|
( |
) |
|
|
— |
|
7
Stock Compensation
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718). The standard simplifies the accounting for share-based compensation to non-employees by aligning the guidance with share-based payments to employees. It is effective for interim and annual reporting periods beginning after December 15, 2018. The Company’s adoption of ASU 2018-07 did not have a material impact on the consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is considered a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard also requires the entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement and present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting arrangement. The standard is effective for interim periods and fiscal years beginning after December 15, 2019 with early adoption permitted. The standard may be implemented using either the retrospective or prospective method. The Company is currently in the process of evaluating the impact of adoption and mode of adoption but does not anticipate that there will be a material impact on the consolidated financial statements as a result of adopting the standard.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. The ASU requires companies to measure credit losses by using a methodology that reflects the expected credit losses based on historical information, current economic conditions, and reasonable and supportable information. The new standard is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption but does not anticipate that there will be a material impact on the consolidated financial statements as a result of adopting the standard.
NOTE 2 – CONTRACT RECEIVABLES, NET
Contract receivables, net consisted of the following:
|
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|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Billed and billable |
|
$ |
|
|
|
$ |
|
|
|
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
Contract receivables, net |
|
$ |
|
|
|
$ |
|
|
NOTE 3 – GOODWILL
The changes in the carrying amount of goodwill during the six-months period ended June 30, 2019 were as follows:
|
Balance as of December 31, 2018 |
|
$ |
|
|
|
Goodwill resulting from business combination - Olson (1) |
|
|
|
|
|
Goodwill resulting from business combination - We Are Vista (2) |
|
|
|
|
|
Goodwill resulting from business combination - DMS Disaster Consultants (3) |
|
|
( |
) |
|
Effect of foreign currency translation |
|
|
( |
) |
|
Balance as of June 30, 2019 |
|
$ |
|
|
|
(1) |
|
|
(2) |
|
|
(3) |
|
8
NOTE 4 – LONG-TERM DEBT
On May 17, 2017, the Company entered into a Fifth Amended and Restated Business Loan and Security Agreement with a syndication of
The Company has the option to borrow funds under the Credit Facility at interest rates based on both LIBOR (1, 3, or 6-month rates) and the Base Rate (as defined herein), at its discretion, plus their applicable margins. Base Rates are fluctuating per annum rates of interest equal to the highest of (i) the Federal Funds Open Rate, plus
The Credit Facility is collateralized by substantially all of the assets of the Company and requires that the Company remain in compliance with certain financial and non-financial covenants. The financial covenants require, among other things, that the Company maintain at all times an Interest Coverage Ratio (as defined under the Credit Facility) of not less than
As of June 30, 2019, the Company had $
NOTE 5 – LEASES
The Company has operating leases for facilities and equipment which have remaining terms ranging from
Operating leases consisted of the following at June 30, 2019:
|
Real estate facilities |
|
$ |
|
|
|
Office equipment |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
|
( |
) |
|
Total operating lease right-of-use assets |
|
$ |
|
|
Rent expense is recognized on a straight-line basis over the lease term. Rent expense consists of the following:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
|
June 30, 2019 |
|
|
June 30, 2019 |
|
||
|
Operating lease costs |
|
$ |
|
|
|
$ |
|
|
|
Short-term lease costs |
|
|
|
|
|
|
|
|
|
Variable lease costs |
|
|
|
|
|
|
|
|
|
Total rent expense |
|
|
|
|
|
|
|
|
9
Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
|
June 30, 2020 |
|
$ |
|
|
|
June 30, 2021 |
|
|
|
|
|
June 30, 2022 |
|
|
|
|
|
June 30, 2023 |
|
|
|
|
|
June 30, 2024 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future minimum lease payments |
|
|
|
|
|
Less: Interest |
|
|
( |
) |
|
Total operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
Operating lease liabilities - current |
|
$ |
|
|
|
Operating lease liabilities - non-current |
|
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
Other information related to operating leases is as follows:
|
|
|
Six Months Ended |
|
|
|
|
|
June 30, 2019 |
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
|
|
|
Weighted-average remaining lease term - operating leases |
|
|
5.1 |
|
|
Weighted-average discount rate - operating leases |
|
|
|
% |
At June 30, 2019, the Company had additional operating leases that have not yet commenced of $
NOTE 6 – OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Other comprehensive income (loss) includes foreign currency translation adjustments arising from the conversion of financial statements of foreign subsidiaries into U.S. dollars, the amortization of the gain on the sale of an interest rate hedge agreement, and the change in the fair value of current interest rate hedge agreements. Components of accumulated other comprehensive loss as of June 30, 2019 and 2018 are as follows:
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreements (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at March 31, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current period other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Effect of taxes (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current period other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at June 30, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
10
|
|
|
Six Months Ended June 30, 2019 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreements (2)(5) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at January 1, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Effect of taxes (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current period other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at June 30, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Three Months Ended June 30, 2018 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreement (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at March 31, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Effect of taxes (3) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total current period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at June 30, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
Six Months Ended June 30, 2018 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreement (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at January 1, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Reclassification of stranded tax effects due to adoption of accounting principle (4) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Adjusted beginning balance |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Effect of taxes (3) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Total current period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at June 30, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
11
|
(1) |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
|
(5) |
|
NOTE 7 – STOCKHOLDERS’ EQUITY
Changes in stockholders’ equity for the three and six months ended June 30, 2019 and 2018 are as follows:
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at March 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net payments for stock issuances and buybacks |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Six Months Ended June 30, 2019 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at January 1, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net payments for stock issuances and buybacks |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Three Months Ended June 30, 2018 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at March 31, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net payments for stock issuances and buybacks |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
12
|
|
|
Six Months Ended June 30, 2018 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at January 1, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net payments for stock issuances and buybacks |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Reclassification of stranded tax effects due to adoption of accounting principle |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
NOTE 8 – RESTRICTED CASH
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets for the periods presented to the total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows for the six months ended June 30, 2019 and 2018:
|
|
|
2019 |
|
|
2018 |
|
||||||||||
|
|
|
Beginning |
|
|
Ending |
|
|
Beginning |
|
|
Ending |
|
||||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Restricted cash - current (1) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Restricted cash - non-current |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
NOTE 9 – REVENUE RECOGNITION
The Company disaggregates revenue from clients, most of which is earned over time, into categories that depict how the nature, amount and uncertainty of revenue and cash flows are affected by economic factors. Those categories are client market, client type and contract mix. Client market revenue information provides insight into the breadth of the Company’s expertise. In classifying revenue by client market, the Company attributes revenue from a client to the market that the Company believes is the client’s primary market. The Company also classifies revenue by the type of entity for which it does business, which is an indicator of the diversity of its client base. The Company attributes revenue generated from being a subcontractor to a commercial company as government revenue when the ultimate client is a government agency or department. Finally, disaggregation by contract mix provides insight in terms of the degree of performance risk that the Company has assumed. Fixed-price contracts are considered to provide the highest amount of performance risk as the Company is required to deliver a scope of work or level of effort for a negotiated fixed price. Time-and-materials contracts require the Company to provide skilled employees on contracts for negotiated fixed hourly rates. Since the Company is not required to deliver a scope of work, but merely skilled employees, it considers these contracts to be less risky than a fixed-price agreement. Cost-based contracts are considered to provide the lowest amount of performance risk since the Company is generally reimbursed for all contract costs incurred in performance of contract deliverables with only the amount of incentive or award fees (if applicable) dependent on the achievement of negotiated performance requirements.
13
Increases in revenue from energy, environment, and infrastructure client markets, and U.S. state and local governments in the three and six months ended June 30, 2019 compared to the prior year period were primarily due to work performed on disaster recovery and relief efforts which also caused an increase in revenue generated through time-and-materials contracts. Consumer and financial services client market revenue increased primarily due to acquisitions during the prior year.
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||||||||||||||||
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
||||||||
|
Client Markets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy, environment, and infrastructure |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
Health, education, and social programs |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Safety and security |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Consumer and financial services |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
|
|
Three Months Ended |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
June 30, 2019 |
|
|
June 30, 2018 |
|
|
2019 |
|
|
2018 |
|
||||||||||||||||||||
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
||||||||
|
Client Type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal government |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
U.S. state and local government |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
International government |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Total Government |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Commercial |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
|
|
Three Months Ended |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
June 30, 2019 |
|
|
June 30, 2018 |
|
|
2019 |
|
|
2018 |
|
||||||||||||||||||||
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
||||||||
|
Contract Mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-and-materials |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
Fixed price |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Cost-based |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Contract assets consist primarily of unbilled amounts resulting from long-term contracts when revenue recognized exceeds the amount billed often due to billing schedule timing. Contract liabilities result from advance payments received on a contract or from billings in excess of revenue recognized on long-term contracts due to billing schedule timing. The net contact assets (liabilities) increased $
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Contract assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
%) |
|
Net contract assets (liabilities) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
14
Performance Obligations:
The Company had $
NOTE 10 – INCOME TAXES
The Company’s effective tax rate for the three months ended June 30, 2019 and 2018 was
The Company is subject to federal income taxes as well as taxes in various state, local and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company’s
The Company’s total liability for unrecognized tax benefits as of June 30, 2019 was $
The Company does not recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company has made no provision for deferred U.S. income taxes or additional foreign taxes on future unremitted earnings of its controlled foreign subsidiaries because the Company considers these earnings to be permanently invested.
On December 20, 2017, the U.S. Congress passed the Tax Act, which was signed into law on December 22, 2017 and was generally effective beginning January 1, 2018. The Company has been impacted in several ways as a result of the Tax Act, including, but not limited to, a permanent reduction in the federal corporate income tax rate from
The Tax Act subjects U.S. corporations to current tax on global intangible low-taxed income (or “GILTI”) earned by certain foreign subsidiaries. Pursuant to a FASB Staff Q&A, Topic 740 No. 5, “Accounting for Global Intangible Low-Taxed Income”, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company elected in the first quarter of fiscal year 2018 to recognize the resulting tax on GILTI as a period expense in the period the tax was incurred. The GILTI tax provision for the three and six months ended June 30, 2019 and 2018 was immaterial.
NOTE 11 – ACCOUNTING FOR STOCK COMPENSATION
On April 4, 2018, the Company’s board of directors approved the 2018 Omnibus Incentive Plan (the “2018 Omnibus Plan”), which was subsequently approved by the stockholders and became effective on May 31, 2018 (the “Effective Date”). The 2018 Omnibus Plan replaced the previous 2010 Omnibus Incentive Plan (the “Prior Plan”).
On or after the Effective Date, the 2018 Omnibus Plan allows the Company to grant
During the six months ended June 30, 2019, the Company granted to its employees
The Company recognized stock-based compensation expense of $
15
NOTE 12 – EARNINGS PER SHARE
Earnings per share (“EPS”) is computed by dividing reported net income by the weighted-average number of shares outstanding. Diluted EPS considers the potential dilution that could occur if common stock equivalents were exercised or converted into stock. The difference between the basic and diluted weighted-average equivalent shares with respect to the Company’s EPS calculation was due entirely to the assumed exercise of stock options and the vesting and settlement of RSUs and PSAs. PSAs are included in the computation of diluted shares only to the extent that the underlying performance conditions (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were also the end of the applicable performance period and the result would be dilutive under the treasury stock method.
As of June 30, 2019, the PSAs granted during the year ended December 31, 2017 met the related performance conditions for the initial performance period and were included in the calculation of diluted EPS. However, the PSAs granted during the year ended December 31, 2018 and during the six months ended June 30, 2019 have not yet completed their initial two-year performance period and therefore were excluded in the calculation of diluted EPS. There were
The dilutive effect of stock options, RSUs, and PSAs for each period reported is summarized below:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Net Income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of basic shares outstanding during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, RSUs, and performance shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of diluted shares outstanding during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted earnings per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 13 – SHARE REPURCHASE PROGRAM
The Company’s current share repurchase program allows for share repurchases in the aggregate up to $
NOTE 14 – SUBSEQUENT EVENTS
On
16
NOTE 15 – CONTINGENCIES
Litigation and Claims
The Company is involved in various legal matters and proceedings arising in the ordinary course of business. While these matters and proceedings cause it to incur costs, including, but not limited to, attorneys’ fees, the Company currently believes that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on its financial position, results of operations, or cash flows.
Road Home Contract
On June 10, 2016, the Office of Community Development (the “OCD”) of the State of Louisiana filed a written administrative demand with the Louisiana Commissioner of Administration against ICF Emergency Management Services, L.L.C. (“ICF Emergency”), a subsidiary of the Company, in connection with ICF Emergency’s administration of the Road Home Program (“Program”). The Program contract was a three-year, $
The Program was primarily intended to help homeowners and landlords of small rental properties affected by Hurricanes Rita and Katrina. In its administrative demand, the OCD sought approximately $
17
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD-LOOKING STATEMENTS
Some of the statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” “would,” or similar words. You should read statements that contain these words carefully. The risk factors described in our filings with the SEC, as well as any cautionary language in this Quarterly Report, provide examples of risks, uncertainties, and events that may cause actual results to differ materially from the expectations described in the forward-looking statements, including, but not limited to:
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Our dependence on contracts with United States (“U.S.”) federal, state and local, and international governments, agencies and departments for the majority of our revenue; |
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Changes in federal government budgeting and spending priorities; |
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Failure by Congress or other governmental bodies to approve budgets and debt ceiling increases in a timely fashion and related reduction in government spending; |
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Failure of the Administration and Congress to agree on spending priorities, which may result in temporary shutdowns of non-essential federal functions, including our work to support such functions; |
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Results of routine and non-routine government audits and investigations; |
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Dependence of commercial work on certain sectors of the global economy that are highly cyclical; |
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Failure to realize the full amount of our backlog; |
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Risks inherent in being engaged in significant and complex disaster relief efforts involving multiple tiers of government in very stressful environments; |
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Difficulties in integrating acquisitions generally; |
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Risks resulting from expanding service offerings and client base; |
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Acquisitions we undertake may present integration challenges, fail to perform as expected, increase our liabilities, and/or reduce our earnings; |
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The lawsuit filed by the State of Louisiana seeking approximately $220.2 million in alleged overpayments from the Road Home contract; and |
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Additional risks as a result of having international operations. |
Our forward-looking statements are based on the beliefs and assumptions of our management and the information available to our management at the time these disclosures were prepared. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
The terms “we,” “our,” “us,” and “Company,” as used throughout this Quarterly Report, refer to ICF International, Inc. and its subsidiaries, unless otherwise indicated. The term “federal” or “federal government” refers to the U.S. federal government, and “state and local” or “state and local government” refers to U.S. state and local governments and the governments of U.S. territories. The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission on February 27, 2019 (our “Annual Report”).
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OVERVIEW AND OUTLOOK
We provide professional services and technology-based solutions to government and commercial clients, including management, marketing, technology, and policy consulting and implementation services. We help our clients conceive, develop, implement, and improve solutions that address complex business, natural resource, social, technological, and public safety issues. Our services primarily support clients that operate in four key markets:
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Energy, Environment, and Infrastructure; |
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Health, Education, and Social Programs; |
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Safety and Security; and |
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Consumer and Financial Services. |
We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative. Our primary services include:
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Advisory Services; |
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Program Implementation Services; |
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Analytics Services; |
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Digital Services; and |
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Engagement Services. |
Our clients utilize our services because we offer a combination of deep subject matter expertise, technical solutions, and institutional experience. We believe that our domain expertise and the program knowledge developed from our research and analytic, and assessment and advisory engagements further position us to provide a full suite of services.
We report operating results and financial data as a single segment based on the consolidated information used by our chief operating decision-maker in evaluating the financial performance of our business and allocating resources. Our single segment represents our core business – professional services for government and commercial clients. Although we describe our multiple service offerings and client markets to provide a better understanding of our business operations, we offer integrated solutions, pulling from resources across our Company and, accordingly, do not manage our business or allocate our resources based on those service offerings or client market areas.
We believe that demand for our services will continue to grow as government, industry, and other stakeholders seek to address critical long-term societal and natural resource issues due to heightened concerns about: clean energy and energy efficiency; health promotion, treatment, and cost control; natural disaster relief and rebuild efforts; and ongoing homeland security threats. In the wake of the major hurricanes (Harvey, Irma, Maria and Michael) that devastated communities in Texas, Florida, the U.S. Virgin Islands, and Puerto Rico, the affected areas remain in various stages of relief and recovery efforts. We believe our prior and current experience with disaster relief and rebuild efforts, including those from Hurricanes Maria, Katrina and Rita, and Superstorm Sandy, put us in a favorable position to continue to provide recovery assistance, housing, and environmental and infrastructure solutions on behalf of federal departments and agencies, state and local governments, and regional agencies.
We also see significant opportunity to further leverage our digital and client engagement capabilities across our commercial and government client base. Our future results will depend on the success of our strategy to enhance our client relationships and seek larger engagements spanning all aspects of the program life cycle, as well as completely and successfully integrating strategic acquisitions. We will continue to focus on building scale in vertical and horizontal domain expertise, developing business with both our government and commercial clients, and replicating our business model in selective geographies. In doing so, we will continue to evaluate strategic acquisition opportunities that enhance our subject matter knowledge, broaden our service offerings, and/or provide scale in specific geographies.
While we continue to see favorable long-term market opportunities, there are certain business challenges facing all government service providers. Administrative and legislative actions by the federal government to address changing priorities or in response to the budget deficit could have a negative impact on our business, which may result in a reduction to our revenue and profit and adversely affect cash flow. Similarly, while disaster recovery work efforts are funded by the federal government, the very nature of opportunities arising out of disaster recovery mean they can involve unusual challenges. Factors such as the overall stress on communities and people affected by disaster recovery situations, political complexities and challenges among involved government agencies, and a higher than normal risk of audits and investigations, may result in a reduction to our revenue and profit and adversely affect cash flow. However, we believe we are well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the federal government, as well as to state and local and international governments and commercial clients.
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Employees and Offices:
We have more than 7,000 full and part-time employees around the globe, including many recognized as thought leaders in their respective fields. We serve clients globally from our headquarters in the Washington, D.C. metropolitan area, 69 regional offices throughout the U.S. and U.S. territories and 15 offices in key regions outside the U.S., including offices in the United Kingdom, Belgium, China, India and Canada.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion of our financial condition and results of operations is based on our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and our application of critical accounting policies, including: revenue recognition, impairment of goodwill and other intangible assets, income taxes, and stock-based compensation. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 2 – Summary of Significant Accounting Policies” in our Annual Report and “Note 1—Basis of Presentation and Nature of Operations—Significant Accounting Policies” and “Note 1—Basis of Presentation and Nature of Operations—Recent Accounting Pronouncements” in the “Notes to Consolidated Financial Statements” in this Quarterly Report for further discussions of our significant accounting policies and estimates.
We periodically evaluate our critical accounting policies and estimates based on changes in generally accepted accounting principles that may have an effect on our financial statements. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 revised the accounting for leases and requires lessees to recognize an operating lease right-of-use asset and a corresponding operating lease liability (current and non-current) that depicts the rights and obligations arising from an operating lease agreement. We implemented ASU 2016-02 on January 1, 2019 and elected certain practical expedients available under the ASU. The result of the adoption was the recognition of an operating lease right-of-use asset totaling $137.2 million and operating lease liabilities totaling $152.9 million as of the adoption date. For further discussion see “Note 1—Basis of Presentation and Nature of Operations—Significant Accounting Policies — Leases” and “Note 1—Basis of Presentation and Nature of Operations—Recent Accounting Pronouncements Adopted” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting standards are discussed in “Note 1—Basis of Presentation and Nature of Operations—Recent Accounting Pronouncements” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
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SELECTED KEY METRICS
In order to evaluate operations, we track revenue by key metrics that provide useful information about the nature of our business. Client markets provide insight into the breadth of our expertise. Client type is an indicator of the diversity of our client base. Revenue by contract mix provides insight in terms of the degree of performance risk that we have assumed. Significant variances in the key metrics are discussed under the revenue section of the results of operations. For further discussion see “Note 9—Revenue Recognition” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
The table below sets forth certain items from our unaudited consolidated statements of comprehensive income, the percentage of revenue for such items in the periods provided, and the period-over-period rate of change and percentage of revenue for the periods indicated.
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Year-to-Year Change |
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Three Months Ended June 30, |
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Three Months Ended |
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Dollars |
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Percentages |
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June 30, 2018 and 2019 |
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(dollars in thousands) |
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2019 |
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2018 |
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2019 |
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2018 |
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Dollars |
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Percent |
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Revenue |
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$ |
366,717 |
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$ |
324,315 |
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100.0% |
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100.0 |
% |
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$ |
42,402 |
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13.1% |
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Direct Costs |
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235,053 |
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206,565 |
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64.1% |
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63.7 |
% |
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28,488 |
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13.8% |
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Operating Costs and Expenses: |
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Indirect and selling expenses |
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101,450 |
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90,410 |
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27.7% |
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27.9 |
% |
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11,040 |
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12.2% |
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Depreciation and amortization |
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5,595 |
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4,045 |
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1.5% |
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1.3 |
% |
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1,550 |
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38.3% |
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Amortization of intangible assets |
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2,077 |
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2,270 |
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0.6% |
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0.7 |
% |
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(193 |
) |
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(8.5%) |
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Total Operating Costs and Expenses |
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109,122 |
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96,725 |
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29.8% |
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29.9 |
% |
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12,397 |
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12.8% |
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Operating Income |
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22,542 |
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21,025 |
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6.1% |
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6.4 |
% |
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1,517 |
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7.2% |
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Interest expense |
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(2,934 |
) |
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(2,167 |
) |
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(0.8%) |
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(0.6 |
%) |
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(767 |
) |
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35.4% |
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Other income (expense) |
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186 |
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(318 |
) |
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0.1% |
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(0.1 |
%) |
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504 |
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(158.5%) |
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Income before Income Taxes |
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19,794 |
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18,540 |
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5.4% |
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5.7 |
% |
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1,254 |
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6.8% |
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Provision for Income Taxes |
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5,183 |
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4,923 |
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1.4% |
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1.5 |
% |
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|
260 |
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5.3% |
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Net Income |
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$ |
14,611 |
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$ |
13,617 |
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4.0% |
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4.2 |
% |
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$ |
994 |
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7.3% |
Revenue. Revenue for the three months ended June 30, 2019 was $366.7 million, compared to $324.3 million for the three months ended June 30, 2018, representing an increase of $42.4 million or 13.1%. The increase in revenue was primarily attributable to a $37.1 million increase in government revenue and a $5.3 million increase in revenue from commercial clients. The increase in government client revenue was the result of a $38.4 million increase in revenue earned on state and local government contracts, primarily because of increases in the energy, environment and infrastructure client market in response to hurricane relief and recovery efforts, and a $1.7 million increase in our federal government clients. This increase in government revenue was partially offset by a $3.0 million decrease in revenue from our international government clients. The increase in commercial revenue was primarily due to a $3.5 million increase in our consumer and financial services client revenue, a $1.4 million increase in our health, education and social programs client market and a $0.4 million increase in our energy, environment and infrastructure client market revenue.
Direct Costs. Direct costs for the three months ended June 30, 2019 were $235.1 million compared to $206.6 million for the three months ended June 30, 2018, an increase of $28.5 million or 13.8%. The increase in direct costs was attributable to an increase of $21.1 million in subcontractor and other direct costs and $7.4 million increase in direct labor and associated fringe benefits. The increase in both subcontractor and other direct costs and direct labor is primarily due to an increase in revenues. As we have been successful in winning larger contracts, our own labor services as a percentage of revenues has generally decreased because larger contracts typically are broader in scope and require more diverse capabilities, resulting in more subcontracted effort, additional other direct costs, and slightly lower margins. Direct costs as a percent of revenue increased to 64.1% for the three months ended June 30, 2019, compared to 63.7% for the three months ended June 30, 2018.
Indirect and selling expenses. Indirect and selling expenses for the three months ended June 30, 2019 was $101.5 million compared to $90.4 million for the three months ended June 30, 2018, an increase of $11.0 million or 12.2%. The increase in indirect and selling expense was primarily due to a $6.9 million increase in indirect labor and fringe due to expenses from increases in corporate overhead. General and administrative costs increased $4.1 million, which included expense related to the $1.7 million impairment of intangible assets, increased costs to invest in our internal infrastructure and processes, additional rent and related charges, and additional severance from our internal restructuring. Indirect and selling expenses as a percent of revenue decreased to 27.7% for the three months ended June 30, 2019, compared to 27.9% for the three months ended June 30, 2018.
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Depreciation and amortization. Depreciation and amortization was $5.6 million for the three months ended June 30, 2019 compared to $4.0 million for the three months ended June 30, 2018. The increase in depreciation and amortization is the result of the depreciation of investment in infrastructure costs made by the Company over the last few years and the accelerated depreciation of leasehold improvements on leases that terminated during the period.
Amortization of intangible assets. Amortization of intangible assets for the three months ended June 30, 2019 was $2.1 million compared to $2.3 million for the three months ended June 30, 2018. The $0.2 million decrease was primarily due to reduced levels of amortization of intangible assets associated with prior acquisitions, which were partially offset by amortization of intangible assets from recent acquisitions.
Operating Income. Operating income was $22.5 million for the three months ended June 30, 2019 compared to $21.0 million for the three months ended June 30, 2018, an increase of $1.5 million or 7.2%. Operating income as a percentage of revenue decreased to 6.1% for the three months ended June 30, 2019, compared to 6.4% for the three months ended June 30, 2018. The increase in operating income is largely due to increases in revenue and the leveraging of our indirect and selling expenses, offset by proportionately larger increases in the direct costs from the increased utilization of subcontractors mentioned above and the impairment of an intangible asset. The decrease in the operating margin is due to the increased use of subcontractors and other direct costs.
Interest expense. For the three months ended June 30, 2019 and 2018, interest expense was $2.9 million and $2.2 million resulting in an increase of $0.8 million or 35.4%. The increase in interest expense for the three months ended June 30, 2019 was due to an increase in the weighted average debt balance and higher weighted-average interest rates on our long-term debt.
Other income (expense). Other income was $0.1 million for the three months ended June 30, 2019 compared to other expense of $0.3 million for the three months ended June 30, 2018. The activity in other income (expense) for the three months ended June 30, 2019 and 2018 is primarily due to unrealized and realized foreign currency gains and losses.
Provision for Income Taxes. For the three months ended June 30, 2019, income tax expense was $5.2 million compared to $4.9 million for the three months ended June 30, 2018, an increase of $0.3 million. The effective income tax rate for the three months ended June 30, 2019 and 2018 was 26.2% and 26.6%, respectively. The decrease in the effective income tax rate was primarily due to a change in estimate of non-deductible executive compensation and recognition of permanently non-taxable income, which were partially offset by an increase in valuation allowance against excess foreign tax credits generated in the three months ended June 30, 2019.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
The table below sets forth certain items from our unaudited consolidated statements of comprehensive income, the percentage of revenue for such items in the periods provided, and the period-over-period rate of change and percentage of revenue for the periods indicated.
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Year-to-Year Change |
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Six Months Ended June 30, |
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Six Months Ended |
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Dollars |
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Percentages |
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June 30, 2018 and 2019 |
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(dollars in thousands) |
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2019 |
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2018 |
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2019 |
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2018 |
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Dollars |
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Percent |
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Revenue |
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$ |
707,971 |
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$ |
627,095 |
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100.0% |
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100.0 |
% |
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$ |
80,876 |
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12.9% |
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Direct Costs |
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|
451,002 |
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|
395,391 |
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63.7% |
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|
63.1 |
% |
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|
55,611 |
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|
14.1% |
|
Operating Costs and Expenses: |
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|
|
|
|
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|
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Indirect and selling expenses |
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197,969 |
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|
180,069 |
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28.0% |
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|
28.7 |
% |
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|
17,900 |
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|
9.9% |
|
Depreciation and amortization |
|
|
10,357 |
|
|
|
8,514 |
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|
1.5% |
|
|
1.4 |
% |
|
|
1,843 |
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|
21.6% |
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Amortization of intangible assets |
|
|
4,212 |
|
|
|
4,514 |
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|
0.6% |
|
|
0.7 |
% |
|
|
(302 |
) |
|
(6.7%) |
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Total Operating Costs and Expenses |
|
|
212,538 |
|
|
|
193,097 |
|
|
30.1% |
|
|
30.8 |
% |
|
|
19,441 |
|
|
10.1% |
|
Operating Income |
|
|
44,431 |
|
|
|
38,607 |
|
|
6.2% |
|
|
6.1 |
% |
|
|
5,824 |
|
|
15.1% |
|
Interest expense |
|
|
(5,387 |
) |
|
|
(3,833 |
) |
|
(0.7%) |
|
|
(0.6 |
%) |
|
|
(1,554 |
) |
|
40.5% |
|
Other expense |
|
|
(226 |
) |
|
|
(214 |
) |
|
— |
|
|
— |
|
|
|
(12 |
) |
|
5.6% |
|
Income before Income Taxes |
|
|
38,818 |
|
|
|
34,560 |
|
|
5.5% |
|
|
5.5 |
% |
|
|
4,258 |
|
|
12.3% |
|
Provision for Income Taxes |
|
|
8,889 |
|
|
|
8,526 |
|
|
1.3% |
|
|
1.4 |
% |
|
|
363 |
|
|
4.3% |
|
Net Income |
|
$ |
29,929 |
|
|
$ |
26,034 |
|
|
4.2% |
|
|
4.1 |
% |
|
$ |
3,895 |
|
|
15.0% |
22
Revenue. Revenue for the six months ended June 30, 2019 was $708.0 million, compared to $627.1 million for the six months ended June 30, 2018, representing an increase of $80.9 million or 12.9%. The increase was attributable to a $67.6 million increase in government revenue and a $13.3 million increase in our commercial clients. The increase in government clients was the result of a $72.5 million increase in revenue earned on state and local government contracts, primarily because of increases in the energy, environment and infrastructure client market in response to hurricane relief and recovery efforts, offset by a decrease of $4.5 million in our federal clients, primarily the result of decreases in our health, education, and social program market clients. The increase in commercial revenue was primarily due to a $10.3 million increase in our consumer and financial services market clients, a $1.3 million increase in our health, education and social program market clients, and a $1.7 million increase in our energy, environment, and infrastructure market clients.
Direct Costs. Direct costs for the six months ended June 30, 2019 were $451.0 million compared to $395.4 million for the six months ended June 30, 2018, an increase of $55.6 million or 14.1%. The increase in direct costs was attributable to an increase of $42.1 million in subcontractor and other direct costs and a $13.5 million increase in direct labor and associated fringe benefits. The increase in both subcontractor and other costs and direct labor is the result of an increase in revenues, as discussed above. Direct costs as a percent of revenue increased to 63.7% for the six months ended June 30, 2019, compared to 63.1% for the six months ended June 30, 2018. The increase in the direct costs as a percent of revenue is due to the increase use of subcontractors in performing contracts in the six months ended June 30, 2019 compared to the prior period particularly in connection with hurricane relief and recovery efforts.
Indirect and selling expenses. Indirect and selling expenses for the six months ended June 30, 2019 were $198.0 million compared to $180.1 million for the six months ended June 30, 2018, an increase of $17.9 million or 9.9%. The increase in indirect and selling expenses was primarily due to an increase in indirect labor and fringe of $10.6 million, which is due to additional labor costs associated with the acquisitions and the general increase in labor year over year, and a $7.3 million increase in general and administrative costs, which included expenses related to the $1.7 million impairment of intangible assets, increased costs to invest in our internal infrastructure and processes, additional rent and related charges, and additional severance from our internal restructuring, partially offset by a reduction in bad debt expense due to a change in our estimate of the collectability of amounts due from a client that recently filed for bankruptcy. Indirect and selling expenses as a percent of revenue decreased to 28.0% for the six months ended June 30, 2019, compared to 28.7% for the six months ended June 30, 2018.
Depreciation and amortization. Depreciation and amortization was $10.4 million for the six months ended June 30, 2019 compared to $8.5 million for the six months ended June 30, 2018. The increase in depreciation and amortization is the result of increased depreciation on investment in infrastructure costs made by us over the last few years and accelerated depreciation of leasehold improvements on leases that terminated during the period.
Amortization of intangible assets. Amortization of intangible assets for the six months ended June 30, 2019 was $4.2 million compared to $4.5 million for the six months ended June 30, 2018. The $0.3 million decrease was primarily due to reduced levels of intangible assets amortization associated with prior acquisitions, partially offset by amortization from recent acquisitions.
Operating Income. Operating income was $44.4 million for the six months ended June 30, 2019 compared to $38.6 million for the six months ended June 30, 2018, an increase of $5.8 million or 15.1%. Operating income as a percentage of revenue increased to 6.2% for the six months ended June 30, 2019, compared to 6.1% for the same period in 2018. The changes were largely due to growth in revenue and the leveraging of our indirect and selling expenses, offset by proportionately larger increases in the direct costs from the increased utilization of subcontractors.
Interest expense. For the six months ended June 30, 2019 and 2018, interest expense was $5.4 million and $3.8 million resulting in an increase of $1.6 million or 40.5%. The higher interest expense for the six months ended June 30, 2019 was due to higher weighted average interest rates and higher weighted average debt balances for the six-month period ended June 30, 2019 compared to the six months ended June 30, 2018.
Other expense. Other expense was $0.2 million and $0.2 million for the six months ended June 30, 2019 and 2018. The activity in other expense income for the six months ended June 30, 2019 and 2018 is primarily due to unrealized and realized foreign currency gains and losses.
Provision for Income Taxes. For the six months ended June 30, 2019, income tax expense was $8.9 million compared to $8.5 million for the six months ended June 30, 2018, an increase of $0.4 million and the effective income tax rate for the six months ended June 30, 2019 and 2018 was 22.9% and 24.7%, respectively. The decrease in the effective tax rate was primarily due to additional tax deductions from equity-based compensation and permanently non-taxable income realized in the six months ended June 30, 2019 compared to the six months ended June 30, 2018.
23
NON-GAAP MEASURES
Service Revenue
Service revenue represents revenue less subcontractor and other direct costs, which, among other things, include third-party materials and travel expenses. We believe service revenue is a useful measure to investors since, as a consulting firm, a key source of our profit is revenue obtained from the services that we provide to our clients through our employees. Service revenue is not a recognized term under U.S. GAAP and should not be considered an alternative to revenue as a measure of operating performance. This presentation of service revenue may not be comparable to other similarly titled measures used by other companies because other companies may use different methods to prepare similarly titled measures.
The table below presents a reconciliation of revenue to service revenue for the periods indicated:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Revenue |
|
$ |
366,717 |
|
|
$ |
324,315 |
|
|
$ |
707,971 |
|
|
$ |
627,095 |
|
|
Subcontractor and other direct costs |
|
|
(114,381 |
) |
|
|
(93,330 |
) |
|
|
(214,280 |
) |
|
|
(172,212 |
) |
|
Service revenue |
|
$ |
252,336 |
|
|
$ |
230,985 |
|
|
$ |
493,691 |
|
|
$ |
454,883 |
|
EBITDA and Adjusted EBITDA
Earnings before interest and other income and/or expense, tax, and depreciation and amortization (“EBITDA”) is a measure we use to evaluate operating performance. We believe EBITDA is useful in assessing ongoing trends and, as a result, may provide greater visibility in understanding our operations.
Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of the performance of our ongoing operations. We evaluate these adjustments on an individual basis based on both the quantitative and qualitative aspects of the item, including their size and nature as well as whether or not we expect them to occur as part of our normal business on a regular basis. We believe that the adjustments applied in calculating adjusted EBITDA are reasonable and appropriate to provide additional information to investors.
EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be used as alternatives to net income as a measure of operating performance. This presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies because other companies may use different methods to prepare similarly titled measures. EBITDA and Adjusted EBITDA are not intended to be a measure of free cash flow for management’s discretionary use as these measures do not include certain cash requirements such as interest payments, tax payments, capital expenditures and debt service.
The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated. Certain immaterial amounts in the prior year has been revised to conform with the current presentation of Adjusted EBITDA:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Net income |
|
$ |
14,611 |
|
|
$ |
13,617 |
|
|
$ |
29,929 |
|
|
$ |
26,034 |
|
|
Other (income) expense |
|
|
(186 |
) |
|
|
318 |
|
|
|
226 |
|
|
|
214 |
|
|
Interest expense |
|
|
2,934 |
|
|
|
2,167 |
|
|
|
5,387 |
|
|
|
3,833 |
|
|
Provision for income taxes |
|
|
5,183 |
|
|
|
4,923 |
|
|
|
8,889 |
|
|
|
8,526 |
|
|
Depreciation and amortization |
|
|
7,672 |
|
|
|
6,315 |
|
|
|
14,569 |
|
|
|
13,028 |
|
|
EBITDA |
|
|
30,214 |
|
|
|
27,340 |
|
|
|
59,000 |
|
|
|
51,635 |
|
|
Adjustment related to impairment of intangible assets (1) |
|
|
1,728 |
|
|
|
— |
|
|
|
1,728 |
|
|
|
— |
|
|
Special charges related to acquisition expenses (2) |
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
|
106 |
|
|
Special charges related to severance for staff realignment (3) |
|
|
701 |
|
|
|
— |
|
|
|
1,155 |
|
|
|
655 |
|
|
Special charges related to facilities consolidations and office closures (4) |
|
|
69 |
|
|
|
— |
|
|
|
69 |
|
|
|
— |
|
|
Adjustment related to bad debt reserve (5) |
|
|
— |
|
|
|
— |
|
|
|
(782 |
) |
|
|
— |
|
|
Total special charges |
|
|
2,498 |
|
|
|
44 |
|
|
|
2,170 |
|
|
|
761 |
|
|
Adjusted EBITDA |
|
$ |
32,712 |
|
|
$ |
27,384 |
|
|
$ |
61,170 |
|
|
$ |
52,396 |
|
|
(1) |
Adjustment related to impairment of intangible assets: The Company recognized impairment expense of $1.7 million in the second quarter of 2019 related to intangible assets associated with a historical business acquisition. |
24
|
(2) |
Special charges related to acquisition expenses: These costs are mainly related to closed and anticipated-to-close acquisitions, consisting primarily of consultant and other outside third-party costs and amortization of deferred consideration payments, discounted as part of the acquisition. |
|
(3) |
Special charges related to severance for staff realignment: These costs are mainly due to involuntary employee termination benefits for Company officers or groups of employees who have been notified that they will be terminated as part of a consolidation or reorganization. |
|
(4) |
Special charges related to facilities consolidation and office closure: These costs are exit costs associated with terminated leases or full office closures. The 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. |
|
(5) |
Adjustment related to bad debt reserve: During 2018, we established a bad debt reserve for amounts due from a utility client that had filed for bankruptcy and included the reserve as an adjustment due to its relative size. The adjustment reflects a favorable revision of our prior estimate of collectability based on third party interest in acquiring the receivables. |
Non-GAAP Diluted Earnings per Share
Non-GAAP diluted earnings per share (“EPS”) represents diluted EPS excluding the impact of certain items such as severance for staff realignment, and facility consolidations and office closures (which are also excluded from Adjusted EBITDA as described further above), as well as the impact of amortization of intangible assets related to our acquisitions. While these adjustments may be recurring and not infrequent or unusual, we do not consider these adjustments to be indicative of the performance of our ongoing operations. Non-GAAP diluted EPS is not a recognized term under U.S. GAAP and is not an alternative to basic or diluted EPS as a measure of performance. This presentation of Non-GAAP diluted EPS may not be comparable to other similarly titled measures used by other companies because other companies may use different methods to prepare similarly titled measures. We believe that the supplemental adjustments applied in calculating Non-GAAP diluted EPS are reasonable and appropriate to provide additional information to investors.
The following table presents a reconciliation of diluted EPS to Non-GAAP diluted EPS for the periods indicated:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Diluted EPS |
|
$ |
0.76 |
|
|
$ |
0.71 |
|
|
$ |
1.56 |
|
|
$ |
1.36 |
|
|
Adjustment related to impairment of intangible assets |
|
|
0.09 |
|
|
|
— |
|
|
|
0.09 |
|
|
|
— |
|
|
Special charges related to severance for staff realignment |
|
|
0.04 |
|
|
|
— |
|
|
|
0.06 |
|
|
|
0.03 |
|
|
Special charges related to facilities consolidations and office closures |
|
|
0.05 |
|
|
|
— |
|
|
|
0.05 |
|
|
|
— |
|
|
Adjustment related to bad debt reserve |
|
|
— |
|
|
|
— |
|
|
|
(0.04 |
) |
|
|
— |
|
|
Amortization of intangibles |
|
|
0.11 |
|
|
|
0.12 |
|
|
|
0.22 |
|
|
|
0.24 |
|
|
Income tax effects (1) |
|
|
(0.08 |
) |
|
|
(0.03 |
) |
|
|
(0.09 |
) |
|
|
(0.07 |
) |
|
Non-GAAP EPS |
|
$ |
0.97 |
|
|
$ |
0.80 |
|
|
$ |
1.85 |
|
|
$ |
1.56 |
|
|
(1) |
Income tax effects were calculated using an effective U.S. GAAP tax rate of 26.2% and 26.6% for the three months ended June 30, 2019 and 2018, respectively, and 22.9% and 24.7% for the six months ended June 30, 2019 and 2018, respectively. |
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Borrowing Capacity. Short-term liquidity requirements are created by our use of funds for working capital, capital expenditures, and the need to provide any debt service. We expect to meet these requirements through a combination of cash flow from operations and borrowings. Our primary source of borrowings is from our Fifth Amended and Restated Business Loan and Security Agreement with a syndicate of 11 commercial banks (the “Credit Facility”), as described in “Note 4—Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
We believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, customary capital expenditures and acquisitions, quarterly cash dividends and organic growth. Additionally, we continuously analyze our capital structure to ensure we have sufficient capital to fund future significant, strategic acquisitions. We monitor the state of the financial markets on a regular basis to assess the availability and cost of additional capital resources both from debt and equity sources. We believe that we will be able to access these markets at commercially reasonable terms and conditions if, in the future, we need additional borrowings or capital.
25
We drew upon our Credit Facility due to the recent declines in our cash flows from operations. The decline in cash flow from operations has been primarily driven by the extended timing of client billings and collections of our disaster relief and rebuild efforts. Due to factors such as the overall stress of such situations, political complexities and challenges among involved government agencies, the timing of cash flow from such operations is more uncertain than others. Moreover, the billing processes have complex reporting requirements and the funding processes have been slow to distribute funds once billed. Management continues to address the cash flows from the disaster relief and rebuild effort to bring the collections to a more current basis and reduce our need to draw upon our Credit Facility to fund operations.
Financial Condition. There were several changes in our balance sheet as of June 30, 2019 compared to the balance sheet as of December 31, 2018. Cash and cash equivalents decreased to $6.3 million as of June 30, 2019, from $11.7 million on December 31, 2018. Restricted cash (current and non-current) decreased to no restricted cash at June 30, 2019 from $1.3 million at December 31, 2018. These changes are further discussed in “Cash Flow” below.
Contract receivables, net of allowance for doubtful accounts, increased to $277.0 million compared to $231.0 million on December 31, 2018 primarily due to extended timing of billings and collections from the disaster relief and rebuild efforts. Contract receivables are a significant component of our working capital and generally increase due to revenue growth and may be favorably or unfavorably impacted by our collection’s efforts, including timing from new contract startups, and other short-term fluctuations related to the payment practices of our clients. Contract assets and contract liabilities, on a contract by contract basis, represent revenue in excess of billings, and billings in excess of revenue, respectively, both of which generally arise from revenue timing and contractually stipulated billing schedules or billing complexity. At June 30, 2019, contract assets and contract liabilities were $142.0 million and $33.4 million, respectively, compared to $126.7 million and $33.5 million, respectively, at December 31, 2018.
We evaluate our collections efforts using the days-sales-outstanding ratio, or DSO, which we calculate by dividing total accounts receivable (contract receivables, net and contract assets, less contract liabilities), by revenue per day. Days-sales-outstanding increased from 77 days for the quarter ended December 31, 2018 to 95 days for the quarter ended June 30, 2019 primarily due to timing differences in client billings and collections driven largely by disaster relief and rebuild efforts which have complex reporting and billing requirements. The DSO, excluding disaster relief and rebuild efforts, was 84 days for the quarter ended June 30, 2019 compared to the 77 days for the comparable quarter in 2018.
Property and equipment, net of depreciation and amortization, increased due to capital expenditures primarily related to increases in capitalized software and computer equipment as the Company invests in its infrastructure as well as obtaining additional property and equipment.
Goodwill, as discussed in “Note 3—Goodwill” in the “Notes to Consolidated Financial Statements” in this Quarterly Report, increased due to an immaterial correction of an error from a prior acquisition, settlement of contingent or extended commitments under the purchase agreements and the impact of foreign currency translation.
Effective January 1, 2019, the Company implemented the new lease standard. The standard, among other changes, requires lessees to recognize, for all leases with terms of greater than one year, an operating lease right-of-use asset and an operating lease liability (current and non-current), which depicts the rights and obligations arising from a lease agreement. As a result, the Company has reflected an operating lease right-of-use asset totaling $132.7 million related to its operating leases and $29.2 million and $116.9 million of current and non-current operating lease liabilities as of June 30, 2019, respectively. The adoption of the new standard is discussed in “Note 1-Basis of Presentation and Nature of Operations-Significant Accounting Policies” and “Note 1—Basis of Presentation and Nature of Operations—Recent Accounting Pronouncements” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
Total current liabilities, exclusive of the current portion of operating lease liabilities and contract liabilities (both of which are discussed above), consists of: accounts payable, accrued salaries and benefits, accrued subcontractors and other direct costs and accrued expenses and other current liabilities. These operating liabilities were $211.3 million at June 30, 2019, a decrease of $33.3 million compared to $244.6 million at December 31, 2018. The net decrease in these liabilities was due primarily to timing of payments in the first half of 2019.
Long-term debt increased to $288.5 million on June 30, 2019 from $200.4 million on December 31, 2018, primarily due to net draws on our Credit Facility of $88.1 million to primarily fund current operations and capital improvements. The weighted average debt balance on the Credit Facility for the three and six months ended June 30, 2019 and 2018 was $283.1 million and $242.7 million and $267.1 million and $224.4 million. The weighted average interest rate on the Credit Facility, excluding any fees and unamortized debt issuance costs, for the three months ended June 30, 2019 and 2018 was 3.74% and 3.18%, respectively, and for the six months ended June 30, 2019 and 2018 was 3.75% and 3.01%, respectively. We generally utilize cash flow from operations as our primary source of funding and turn to our Credit Facility to fund temporary fluctuations such as increases in accounts receivable, reductions in accounts payable and accrued expenses, purchase of treasury stock and to meet funding requirements for acquisitions.
26
We have explored various options for mitigating the risk associated with potential fluctuations in the foreign currencies in which we conduct transactions. We currently have forward contract agreements (“currency hedges”) in an amount proportionate to work anticipated to be performed under certain contracts in Europe. We recognize changes in the fair value of the currency hedges in our results of operations. We may increase the number, size and scope of our currency hedges as we analyze options for mitigating our foreign exchange risk. Management views the current impact of the hedges to the consolidated financial statements as not material.
Share Repurchase Program. In September 2017 the board of directors approved a share repurchase program that authorizes share repurchases in the aggregate up to $100.0 million. Our total repurchases are also limited by the Credit Facility as described in “Note 13—Share Repurchase Program” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. Our overall repurchase limit is the lower of the amount imposed by our board of directors and by the Credit Facility. Purchases under the repurchase program may be made from time to time at prevailing market prices in open market purchases or in privately negotiated transactions pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance with applicable insider trading and other securities laws and regulations. The purchases will be funded from existing cash balances and/or borrowings, and the repurchased shares will be held in treasury and used for general corporate purposes. The timing and extent to which we repurchase our shares will depend upon market conditions and other corporate considerations, as may be considered in our sole discretion. During the six months ended June 30, 2019, we repurchased 248,000 shares under this program at an average price of $72.79 per share. As of June 30, 2019, $68.0 million remained available for share repurchases under the share repurchase program.
Dividends. Cash dividends declared thus far in 2019 are as follows:
|
Dividend Declaration Date |
|
Dividend Per Share |
|
|
Record Date |
|
Payment Date |
|
|
February 26, 2019 |
|
$ |
0.14 |
|
|
March 29, 2019 |
|
April 16, 2019 |
|
May 2, 2019 |
|
$ |
0.14 |
|
|
June 14, 2019 |
|
July 16, 2019 |
|
August 1, 2019 |
|
$ |
0.14 |
|
|
September 13, 2019 |
|
October 15, 2019 |
Cash Flow. We consider cash on deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The following table sets forth our sources and uses of cash for the six months ended June 30, 2019 and 2018:
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
(in thousands) |
|
2019 |
|
|
2018 |
|
||
|
Net Cash Used in Operating Activities |
|
$ |
(47,946 |
) |
|
$ |
(21,725 |
) |
|
Net Cash Used in Investing Activities |
|
|
(16,335 |
) |
|
|
(21,235 |
) |
|
Net Cash Provided by Financing Activities |
|
|
57,492 |
|
|
|
26,544 |
|
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash |
|
|
107 |
|
|
|
(249 |
) |
|
Decrease in Cash, Cash Equivalents, and Restricted Cash |
|
$ |
(6,682 |
) |
|
$ |
(16,665 |
) |
Our operating cash flows are primarily affected by the overall profitability of our contracts, our ability to invoice and collect from our clients in a timely manner, and the timing of vendor and subcontractor payments in accordance with negotiated payment terms. We bill most of our clients on a monthly basis after services are rendered. Operating activities used $47.9 million in cash for the six months ended June 30, 2019 compared to cash used by operating activities of $21.7 million for the six months ended June 30, 2018. The decrease in cash flows provided by operations for the six months ended June 30, 2019 compared to the prior year was primarily due to the increase in contract assets and net decrease in our operating liabilities, partially offset by the improvement in net income. The increase in contract assets is primarily due to the slower collection from our disaster relief and rebuild clients, as evidenced by the increase in DSO from 77 days for the quarter ended December 31, 2018 to 95 days for the quarter ended June 30, 2019. The decrease in our operating liabilities is a result of our timing of payments in the first half of 2019.
Investing activities used cash of $16.3 million for the six months ended June 30, 2019, compared to $21.2 million for the six months ended June 30, 2018. Our cash flows used in investing activities consists primarily of capital expenditures and acquisitions. The cash used in investing activities for the six months ended June 30, 2019 included acquisitions of $1.8 million and $14.5 million for capital expenditures. The cash used in investing activities for the six months ended June 30, 2018 included acquisition costs of $11.8 million and $9.4 million of capital expenditures.
27
Our cash flows provided by financing activities consists primarily of debt and equity transactions. For the six months ended June 30, 2019, cash flows provided by financing activities of $57.5 million was largely attributable to cash provided by net advances on our Credit Facility of $88.1 million, partially offset by cash used for net payments for stock issuances and buybacks of $24.2 million, primarily representing shares repurchased under our share repurchase program, payments of cash dividends totaling $5.3 million and $1.6 million payments of capital expenditure obligations. For the six months ended June 30, 2018, cash flows used in financing activities of $26.5 million was largely attributable to net advances on our Credit Facility of $37.4 million and cash received in the exercise of options of $3.5 million, partially offset by cash used for payments for stock issuances and buybacks of $8.6 million, $3.1 million payments of capital expenditure obligations, and payments of cash dividends totaling $2.6 million.
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.
|
Item 4. |
Controls and Procedures |
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting. As of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. We performed the evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As a result of the Company’s adoption of the new lease accounting standard ASU 2016-02, Leases (Topic 842), we implemented controls to ensure adequate evaluation of our lease commitments and assessment of the impact of the new accounting standard related to our financial statements to facilitate its adoption on January 1, 2019. There were no other significant changes to our internal control over financial reporting due to the adoption of the new standard, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the period covered by this Quarterly Report or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and may not be detected.
28
PART II. OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
We are involved in various legal matters and proceedings arising in the ordinary course of business. While these matters and proceedings cause us to incur costs, including, but not limited to, attorneys’ fees, we currently believe that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on our financial position, results of operations, or cash flows.
|
Item 1A. |
Risk Factors |
There have been no material changes in those risk factors discussed in the section entitled “Risk Factors” disclosed in Part I, Item 1A of our Annual Report.
The risks described in our Annual Report are not the only risks that we encounter. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, and/or operating results.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Purchase of Equity Securities by Issuer. The following table summarizes our share repurchase activity for three months ended June 30, 2019:
|
Period |
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid per Share (2) |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
|
||||
|
April 1 - April 30 |
|
|
43,895 |
|
|
$ |
76.04 |
|
|
|
42,000 |
|
|
$ |
74,262,799 |
|
|
May 1 - May 31 |
|
|
44,565 |
|
|
$ |
74.98 |
|
|
|
44,000 |
|
|
$ |
70,964,098 |
|
|
June 1 - June 30 |
|
|
40,000 |
|
|
$ |
73.85 |
|
|
|
40,000 |
|
|
$ |
68,010,294 |
|
|
Total |
|
|
128,460 |
|
|
$ |
74.99 |
|
|
|
126,000 |
|
|
|
|
|
|
(1) |
The total number of shares purchased of 128,460 includes shares repurchased pursuant to our share repurchase program described further in footnote (3) below, as well as shares purchased from employees to pay required withholding taxes related to the settlement of any restricted stock units and performance-based share awards in accordance with our applicable long-term incentive plan. |
|
(2) |
During the three months ended June 30, 2019, we repurchased 2,460 shares of common stock from employees in satisfaction of tax withholding obligations at an average price of $75.66 per share. |
|
(3) |
The current share repurchase program authorizes share repurchases in the aggregate up to $100.0 million, not to exceed the amount allowed under the Credit Facility. During the three months ended June 30, 2019, we repurchased 126,000 shares under the stock repurchase plan at an average price of $74.98 per share. |
|
Item 3. |
Defaults Upon Senior Securities |
None.
|
Item 4. |
Mine Safety Disclosures |
Not applicable.
|
Item 5. |
Other Information |
None.
29
|
Item 6. |
Exhibits |
|
Exhibit Number |
|
Exhibit |
|
|
|
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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The following materials from the ICF International, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.* |
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Submitted electronically herewith. |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ICF INTERNATIONAL, INC. |
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August 2, 2019 |
By: |
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/s/ Sudhakar Kesavan |
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Sudhakar Kesavan |
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Chairman and Chief Executive Officer |
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(Principal Executive Officer) |
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August 2, 2019 |
By: |
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/s/ James Morgan |
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James Morgan |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
31
Exhibit 31.1
Certification of the Principal Executive Officer
Pursuant to Rule 13a-14(a) and 15d-14(a)
I, Sudhakar Kesavan, Chief Executive Officer of the registrant, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of ICF International, Inc. (the “Registrant”); |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
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4. |
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
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5. |
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or person performing the equivalent functions): |
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(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
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August 2, 2019 |
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/s/ Sudhakar Kesavan |
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Sudhakar Kesavan |
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Chairman and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
Certification of the Principal Financial Officer
Pursuant to Rule 13a-14(a) and 15d-14(a)
I, James Morgan, Chief Financial Officer of the registrant, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of ICF International, Inc. (the “Registrant”); |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
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4. |
The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
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5. |
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or person performing the equivalent functions): |
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(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
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August 2, 2019 |
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/s/ James Morgan |
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James Morgan |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (the “Report”) of ICF International, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Sudhakar Kesavan, Chief Executive Officer of the Registrant, hereby certify that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
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August 2, 2019 |
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/s/ Sudhakar Kesavan |
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Sudhakar Kesavan |
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Chairman and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (the “Report”) of ICF International, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, James Morgan, Chief Financial Officer of the Registrant, hereby certify that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
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August 2, 2019 |
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/s/ James Morgan |
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James Morgan |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |