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ICF International Reports Fourth Quarter and Full Year 2014 Results

February 26, 2015 at 4:05 PM EST
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Fourth Quarter Highlights

  • Total Revenue Increased 20 Percent to $276 Million
  • Commercial Revenue Growth Was 46 Percent, Led by Digital Services and Energy Business Areas
  • Adjusted EPS Was $0.51, Exclusive of Certain International Office Closures and Acquisition-related Costs; Diluted EPS Was $0.44
  • Completed Acquisition of Olson, Provider of Digital Marketing Solutions

Full Year Highlights

  • Total Revenues Increased 11 Percent Surpassing $1 Billion for the First Time, Led by 19 Percent Growth in Commercial Revenue
  • Adjusted EPS Was $2.19; Diluted EPS Was $2.00
  • Record Contract Wins of $1.3 Billion
  • Operating Cash Flow Was $79 Million

Recently-Completed Acquisitions Bring Digital Services and Strategic Communications Revenue Run-Rate to More Than $300 Million

FAIRFAX, Va.--(BUSINESS WIRE)--Feb. 26, 2015-- ICF International, Inc. (NASDAQ:ICFI), a leading provider of consulting services and technology solutions to government and commercial clients, reported results for the fourth quarter and 12 months ended December 31, 2014.

Fourth Quarter 2014 Results

“Fourth quarter performance illustrates ICF’s success over the last several years in diversifying our revenue sources and building scale in growth markets. Revenues in the fourth quarter included a significantly increased share from private sector clients, helped by the acquisition of digital services provider Olson. In addition to the 8-week contribution from Olson, commercial revenue performance benefitted from the double-digit growth of both our existing digital services/strategic communications business and our energy markets consulting and implementation work. International government revenue growth continued to be strong, almost doubling on a year-over-year basis and accounting for 8 percent of total revenues, up from 5 percent in the fourth quarter of 2013. State and local government increased 16 percent to account for 10 percent of fourth quarter revenues. This double-digit growth across a large portion of our revenue base more than offset the flat year-on-year performance of our federal government business, where spending headwinds continue to impact workflow.

“Our two major markets, ‘Energy, Environment & Infrastructure’ and ‘Health, Social Programs & Consumer/Financial,’ each posted double-digit revenue growth in the fourth quarter and accounted for 92 percent of total revenues. ICF’s recognized expertise in the key domain areas of health, energy, environment and consumer engagement provides us with an important competitive advantage in retaining and winning business from commercial and government clients.

“Operating income growth was significantly higher than revenue growth, reflecting the increased contribution of commercial business, which accounted for 36 percent of revenues, up from 30 percent in the fourth quarter of 2013,” said ICF International Chairman and Chief Executive Officer Sudhakar Kesavan.

For the fourth quarter, revenue was $276.4 million, a 20 percent increase over the $229.8 million reported in the 2013 fourth quarter. Adjusted EBITDA was $26.6 million, or 9.6 percent of revenues. Net income, exclusive of certain international office closures and acquisition-related costs, was $10.0 million, or $0.51 per diluted share, representing increases of 23 percent and 28 percent, respectively, over the comparable year-ago period.

Reported EBITDA, net income and diluted earnings per share for the fourth quarter were $24.5 million, $8.8 million and $0.44, respectively.

Last year’s fourth quarter results were affected by the 16-day federal government shutdown in October 2013.

Full Year 2014 Results

For 2014, revenue was $1,050.1 million, up 11 percent over the $949.3 million reported for full year 2013. Adjusted EBITDA was $98.6 million, or 9.4 percent of revenues, and up 14.3 percent from the prior year. Net income, exclusive of acquisition and restructuring-related costs was $43.8 million, or $2.19 per share, increases of 10 percent and 11 percent, respectively, over the comparable period in 2013.

“This was another record year for ICF in contract wins. Continued investments in business development over the last several years, and our added scale combined with subject matter knowledge, have enabled ICF to capture an increasing number of implementation contracts, which are often natural follow-ons to our advisory work,” Mr. Kesavan noted.

Backlog and New Business Awards

Backlog was $1.9 billion at the end of the fourth quarter of 2014. Funded backlog was $850 million, or 45 percent of the total. The total value of contracts awarded to ICF in the 2014 fourth quarter was $262 million, up 17 percent from the same period for the prior fiscal year. The value of full year 2014 contract awards was a record $1.3 billion, an increase of 11 percent over the comparable year-ago period.

Commercial Business Fourth Quarter 2014 Highlights

Revenues from commercial clients increased to $100 million in the fourth quarter, up 46 percent from the same period last year, and accounted for 36 percent of total revenues. Revenues from energy advisory and energy efficiency clients were $38 million, up 13.2 percent from the same period last year. Energy advisory and energy efficiency clients accounted for 38 percent of commercial revenues and digital services/strategic communications clients accounted for 37 percent of commercial revenues.

Key Commercial Sales Highlights in the Fourth Quarter

Commercial sales were $104 million in the fourth quarter and $369 million for 2014. ICF was awarded more than 500 commercial projects globally in the fourth quarter. The largest awards were:

Other wins with a value of more than $1 million each include business development work with a major U.S. international airport, digital marketing for a major U.S. consumer products company and energy efficiency and environmental management work for several major utilities.

Government Business Fourth Quarter 2014 Highlights

  • U.S. federal government revenues were flat with the comparable period in 2013, posting a slight 0.3 percent increase in the fourth quarter and accounting for 46 percent of total revenues, compared with 55 percent in the fourth quarter of the prior fiscal year. ICF saw growth in a number of areas, including the departments of Health and Human Services, State and the Environmental Protection Agency.
  • U.S. state and local government revenues increased 15.5 percent and accounted for 10 percent of total revenues, led by increased disaster recovery work related to Superstorm Sandy.
  • International government revenues increased 91.4 percent and accounted for 8 percent of total revenues, up from 5 percent in the fourth quarter of 2013, resulting from the Mostra acquisition which was completed in February 2014, and contract wins with the European Commission and the U.K. government.

Key Government Contracts Awarded in the Fourth Quarter

ICF was awarded more than 100 U.S. federal contracts and task orders and more than 200 additional contracts from other U.S. state and local governments and international governments. The largest awards include:

  • Cybersecurity: A $27 million subcontract that supports the U.S. Department of Defense’s (DOD) cybersecurity efforts to protect and defend itself against malicious intent. This is the third program of this nature that ICF supports at DOD.
  • Environmental Claims Processing: A $14.5 million contract with the Commonwealth of Pennsylvania to administer reimbursement claims regarding underground storage tanks’ environmental damage.
  • Technical Assistance: A $12.6 million grant from the U.S. Department of Housing and Urban Development to provide technical assistance across a range of programs.
  • Health and Social Programs: An $8.4 million contract with the U.S. Department of Health and Human Services to support the Responsible Fatherhood information clearing house.
  • Health and Social Programs: A $5 million contract with the U.S. Department of Health and Human Services to support responsible drinking initiatives.

Additional awards of more than $1 million each from international governments include integrated marketing and communications support as well as education policy support for the European Commission and urban infrastructure investment assistance for a European aid agency. U.S. state government awards of more than $1 million each include work on a behavioral risk survey, education program evaluation, an energy efficiency business partners program and environmental impact reviews.

Summary and Outlook

“Our revenue diversification strategy has firmly positioned ICF in the commercial and international government arenas, which in the aggregate represented approximately 44 percent of fourth quarter revenues, up from 35 percent just one year ago. We have balanced this shift in client categories with a continued commitment to building our areas of subject matter expertise and expanding our digital services capabilities around customer and stakeholder engagement.

“Looking ahead, we anticipate continued growth in our commercial business led by digital services and our energy markets areas. Additionally, we expect to see continued positive year-over-year comparisons in our international government business on a local currency basis, but we expect that to be more than offset due to the strong U.S. dollar. Our Superstorm Sandy recovery work for state and local clients will start to wind down in the second quarter. We entered 2015 with a higher total contract backlog than we had at the comparable period in 2014, but we are assuming that federal government revenues in 2015 will slightly decline compared to 2014. To summarize, we are expecting year-over-year revenue growth of 14.3 percent, adjusted EBITDA growth of 24.7 percent and non-GAAP diluted EPS growth of 13.9 percent at the midpoint of our guidance,” Mr. Kesavan concluded.

             

The table below summarizes ICF’s full year 2015 guidance.

Revenue(1)

           $1.175 billion-$1.225 billion
EBITDA margin           10-10.5 percent

Non-GAAP Diluted EPS(2)

           $2.78 - $2.93
GAAP Diluted EPS           $2.25 - $2.40
Cash flow from operating activities           $90 million - $100 million
             

(1)Includes estimated impact of foreign exchange translations and revenues lost as a result of international office closures of approximately $20 million.

(2)Excludes $17 million amortization of intangibles, which equates to $0.53 of diluted earnings per share.

All per share guidance assumes weighted average shares outstanding of approximately 20 million and a full year effective tax rate of 38 percent.

About ICF International

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

Caution Concerning Forward-looking Statements

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

 
ICF International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
 
                                         
      Three months ended     Twelve months ended
      December 31,     December 31,
      2014     2013     2014     2013
      (Unaudited)                    
                                         
Gross Revenue     $ 276,426       $ 229,759       $ 1,050,134       $ 949,303  
Direct Costs       168,485         143,146         654,946         591,516  
Operating costs and expenses:                                        
Indirect and selling expenses       83,447         68,874         302,020         272,387  
Depreciation and amortization       3,876         2,886         13,369         11,238  
Amortization of intangible assets       4,008         2,266         10,437         9,477  
Total operating costs and expenses       91,331         74,026         325,826         293,102  
Operating Income       16,610         12,587         69,362         64,685  
Interest expense       (1,966 )       (577 )       (4,254 )       (2,447 )
Other expense       33         (221 )       (958 )       (12 )
Income before income taxes       14,677         11,789         64,150         62,226  
Provision for income taxes       5,914         4,033         24,120         22,896  
Net income     $ 8,763       $ 7,756       $ 40,030       $ 39,330  
                                         
Earnings per Share:                                        
Basic     $ 0.45       $ 0.39       $ 2.04       $ 1.99  
Diluted     $ 0.44       $ 0.38       $ 2.00       $ 1.95  
                                         
Weighted-average Shares:                                        
Basic       19,409         19,826         19,608         19,755  
Diluted       19,744         20,233         19,997         20,186  
                                         
Other comprehensive income (loss):                                        
Foreign currency translation adjustments, net of tax       (596 )       248         (1,491 )       251  
Comprehensive income, net of tax     $ 8,167       $ 8,004       $ 38,539       $ 39,581  
                                         
                                         
                                         
Reconciliation of non-GAAP financial measures:                                        
                                         

Reconciliation of Service Revenue

                                        
Revenue     $ 276,426       $ 229,759       $ 1,050,134       $ 949,303  
Subcontractor and Other Direct Costs*       73,660         58,423         275,740         239,529  
Service Revenue     $ 202,766       $ 171,336       $ 774,394       $ 709,774  
                                         

Reconciliation of EBITDA

                                        
Operating Income     $ 16,610       $ 12,587       $ 69,362       $ 64,685  
Depreciation and amortization       7,884         5,152         23,806         20,715  
EBITDA       24,494         17,739         93,168         85,400  
Acquisition-related expenses**       799         536         2,243         903  
Special charges related to severance for staff realignment***       —         —         1,931         —  
Special charges related to office closures       1,284         —         1,284         —  
Adjusted EBITDA     $ 26,577       $ 18,275       $ 98,626       $ 86,303  
                                         

Reconciliation of Adjusted EPS

                                        
Diluted EPS     $ 0.44       $ 0.38       $ 2.00       $ 1.95  
Acquisition-related expenses, net of tax       0.03         0.02         0.07         0.03  
Special charges related to severance for staff realignment, net of tax       —         —         0.06         —  
Special charges related to office closures, net of tax       0.04         —         0.04         —  
Foreign currency loss related to office closure, net of tax       —         —         0.02         —  
Adjusted EPS     $ 0.51       $ 0.40       $ 2.19       $ 1.98  
                                         
               
          *   Subcontractor and Other Direct Costs exclude Direct Labor and Fringe.
          **   Acquisition-related expenses include expenses related to closed and anticipated-to-close acquisitions.
          ***  

Special charges related to severance were for the staff realignment announced in the second quarter of 2014, a portion of which was not recognized until the third quarter of 2014.
               
                     
ICF International, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
 
                     
      December 31, 2014     December 31, 2013
                     
Current Assets:                    
Cash     $ 12,122       $ 8,953  
Contract receivables, net       260,254         205,062  
Prepaid expenses and other       10,338         7,847  
Income tax receivable       5,715         4,482  
Total current assets       288,429         226,344  
Total property and equipment, net       43,241         30,214  
Other assets:                    
Goodwill       687,778         418,839  
Other intangible assets, net       76,707         12,239  
Restricted cash       1,478         1,864  
Other assets       12,707         11,414  
Total Assets     $ 1,110,340       $ 700,914  
                     
Current Liabilities:                    
Accounts payable     $ 65,755       $ 45,544  
Accrued salaries and benefits       56,314         45,994  
Accrued expenses and other current liabilities       42,308         32,256  
Deferred revenue       31,554         20,282  
Deferred income taxes       7,312         6,144  
Total current liabilities       203,243         150,220  
Long-term liabilities:                    
Long-term debt       350,052         40,000  
Deferred rent       19,997         12,912  
Deferred income taxes       27,886         10,780  
Other       8,473         12,911  
Total Liabilities       609,651         226,823  
Commitments and Contingencies                    
Stockholders’ Equity:                    
Preferred stock, par value $.001 per share; 5,000,000 shares authorized; none issued       —         —  
Common stock, par value $.001 per share; 70,000,000 shares authorized; 21,035,654 and 20,617,270 shares issued; and 19,430,154 and 19,764,634 shares outstanding as of December 31, 2014, and December 31, 2013, respectively       21         21  
Additional paid-in capital       267,206         250,698  
Retained earnings       285,937         245,907  
Treasury stock       (49,994 )       (21,545 )
Accumulated other comprehensive loss       (2,481 )       (990 )
Total Stockholders’ Equity       500,689         474,091  
Total Liabilities and Stockholders’ Equity     $ 1,110,340       $ 700,914  
                     
 
ICF International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
 
                     
      Twelve months ended
      December 31,
      2014     2013
Cash flows from operating activities                    
Net income     $ 40,030       $ 39,330  
Adjustments to reconcile net income to net cash provided by operating activities:                    
Bad debt expense       272         112  
Deferred income taxes       4,071         2,434  
Non-cash equity compensation       11,008         8,891  
Depreciation and amortization       23,806         20,715  
Deferred rent       2,685         2,606  
Other adjustments, net       (3,015 )       1,972  
Changes in operating assets and liabilities, net of the effect of acquisitions:                    
Contract receivables       (2,464 )       233  
Prepaid expenses and other assets       (1,743 )       (3,633 )
Accounts payable       9,424         390  
Accrued salaries and benefits       4,286         3,753  
Accrued expenses       683         (1,091 )
Deferred revenue       (2,099 )       (2,407 )
Income tax receivable and payable       (6,453 )       6,749  
Restricted cash       387         150  
Other liabilities       (1,718 )       609  
Net cash provided by operating activities       79,160         80,813  
Cash flows from investing activities                    
Capital expenditures for property and equipment and capitalized software       (12,974 )       (14,161 )
Payments for business acquisitions, net of cash received       (347,871 )       (4,763 )
Net cash used in investing activities       (360,845 )       (18,924 )
                     
Cash flows from financing activities                    
Advances from working capital facilities       733,032         139,215  
Payments on working capital facilities       (422,980 )       (204,215 )
Debt issue costs       (1,245 )       —  
Proceeds from exercise of options       1,831         3,103  
Tax benefits of stock option exercises and award vesting       3,543         1,213  
Net payments for stockholder issuances and buybacks       (28,323 )       (7,447 )
Net cash provided by (used in) financing activities       285,858         (68,131 )
Effect of exchange rate changes on cash       (1,004 )       470  
Increase (decrease) in cash       3,169         (5,772 )
Cash, beginning of period       8,953         14,725  
Cash, end of period     $ 12,122       $ 8,953  
                     
Supplemental disclosure of cash flow information                    
Cash paid during the period for:                    
Interest     $ 2,728       $ 2,459  
Income taxes     $ 24,335       $ 13,670  
                     
Non-cash investing and financing transactions:                    
Fair value of contingent consideration payable in connection with acquisition     $ —       $ 2,842  
                     
 
ICF International, Inc. and Subsidiaries
Supplemental Schedule
                         
                         
Revenue by market    

Three Months Ended

     Twelve Months Ended
      December 31,     December 31,
      2014     2013     2014     2013
                         
Energy, environment, and infrastructure     38 %     41 %     38 %     39 %
Health, social programs, and consumer/financial     54 %     48 %     52 %     49 %
Public safety and defense     8 %     11 %     10 %     12 %
                         
Total     100 %     100 %     100 %     100 %
                         
                         
                         
Revenue by client     Three Months Ended     Twelve Months Ended
      December 31,     December 31,
      2014     2013     2014     2013
                         
U.S. federal government     46 %     55 %     51 %     58 %
U.S. state and local government     10 %     10 %     10 %     9 %
International government     8 %     5 %     9 %     5 %
Government     64 %     70 %     70 %     72 %
                         
Commercial     36 %     30 %     30 %     28 %
                         
Total     100 %     100 %     100 %     100 %
                         
                         
                         
Revenue by contract     Three Months Ended     Twelve Months Ended
      December 31,     December 31,
      2014     2013     2014     2013
                         
Time-and-materials     44 %     52 %     47 %     52 %
Fixed-price     39 %     30 %     34 %     29 %
Cost-based     17 %     18 %     19 %     19 %
                         
Total     100 %     100 %     100 %     100 %
                                 

 

 

Source: ICF International, Inc.

Investor contacts:
MBS Value Partners
Lynn Morgen, +1.212.750.5800
lynn.morgen@mbsvalue.com
or
MBS Value Partners
Barbara Cano, +1.212.750.5800
barbara.cano@mbsvalue.com
or
Corporate and media relations contact:
ICF International
Steve Anderson, +1.703.934.3847
steve.anderson@icfi.com

 

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Some of the information on this Web site and the documents within it may contain forward-looking statements regarding future events or the future financial performance of the Company. Any forward-looking statement speaks only as of the date made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made. We refer you to the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q on file with the U.S. Securities and Exchange Commission (SEC). These documents identify important factors that could cause the actual results to differ materially from those contained in our forward-looking statements.