- Total Revenues Increased 8.5 Percent to
$265 Million - Commercial Revenue Growth Was 14 Percent Led by Digital Services and Energy Business Areas
- Adjusted EPS Was
$0.62 , Exclusive of M&A Expenses and Special Charges; Diluted EPS Was$0.59 - Record Contract Awards Were
$618 Million ; Book-to-Bill Ratio Was 2.3
Acquisition of Digital Services Provider Olson Closed
Third Quarter 2014 Results
For the third quarter, revenue was
Reported EBITDA, net income and diluted earnings per share for the third quarter were
“ICF’s increasingly diversified client base and our recognized expertise in key end markets continued to benefit our results,” noted
“Our two major markets—‘Energy, Environment & Infrastructure’ and ‘Health, Social Programs & Consumer/Financial’—posted revenue growth of 9 percent and 13 percent, respectively, and represented 90 percent of total revenues for the period. We believe this demonstrates the competitive advantages of our domain knowledge in advising and implementing programs for both government and commercial clients. On an adjusted basis, growth in operating profit outpaced our revenue increase in the third quarter, reflective of higher productivity throughout the organization and recent actions taken to align staffing with our changing business mix.
“Contract awards reached a record
On
“The Olson acquisition positions ICF as a full-service digital services provider to commercial and government clients. The transaction increases our mix of higher margin commercial business, creates substantial cross-selling opportunities with ICF’s and Olson’s existing commercial clients and enables ICF to provide commercial best practices in digital and strategic communications work for government clients,” Mr. Kesavan said.
Backlog and New Business Awards
Backlog was
Commercial Business Third Quarter 2014 Highlights
Revenues from commercial clients increased 14 percent in the third quarter from the same period last year and accounted for 29 percent of total revenues. Revenues from energy advisory and energy efficiency clients were
Key Commercial Sales Highlights in the Third Quarter
Commercial sales were
ICF was awarded more than 400 commercial projects globally in the third quarter. The largest awards included:
- Energy Efficiency: Three contracts with a combined value of up to
$61 million withBaltimore Gas & Electric to extend and enhance energy efficiency services. Two additional energy efficiency engagements with other U.S. utilities totaled$2.5 million . - Energy Infrastructure: A
$1.4 million environmental management review of a natural gas drilling project. - Digital Services:
$3.3 million in digital data applications for a consumer products company, a financial industry association and a national retail grocery chain.
Other contracts with significant value include an Asian aviation market study, a smart commercial energy program implementation, public health survey research for a private university, and a strategic plan for an aerospace manufacturer.
Government Business Third Quarter 2014 Highlights
- U.S. federal government revenues declined 3 percent in the third quarter and accounted for 52 percent of total revenues, compared with 58 percent in last year’s third quarter. Despite the decrease in federal government revenues, ICF saw growth in a number of areas, including the Departments of
Health and Human Services ,Housing and Urban Development , State, Veterans Affairs and theEnvironmental Protection Agency . - U.S. state and local government revenues increased 19 percent and accounted for 11 percent of total revenues, up from 10 percent in last year’s third quarter, led by increased disaster recovery work related to Superstorm Sandy.
- International government revenues increased 94 percent and accounted for 8 percent of total revenues, up from 5 percent in last year’s third quarter, resulting from contract wins with the
U.K. government and theEuropean Commission and the Mostra acquisition, which was completed inFebruary 2014 .
Key Government Contracts Awarded in the Third Quarter
ICF was awarded more than 200 U.S. federal contracts and task orders and hundreds of additional contracts from other U.S. state and local governments and international governments. The largest awards included:
- Information Technology: A contract with a ceiling of
$100 million from theNational Institutes of Health to support biomedical and clinical information services and a$25 million contract withPension Benefit Guaranty Corporation (PBGC) to modernize PBGC’s business operations and customer service. Digital Services and Strategic Communications : A single-award blanket purchase agreement with a value of up to$100 million to support the expansion and promotion of the National Cancer Institute’s Tobacco Cessation Resources program.- Program Implementation: A
$78 million contract to establish theNational Capacity Building Center for Public Child Welfare Agencies for the Department of Health and Human Services . - Environment: An
$18.5 million contract with theOffice of Superfund Remediation and Technology Innovation to provide technical, training, meeting and outreach support. - Research and Evaluation: An
$18.5 million contract withSubstance Abuse and Mental Health Services Administration to support theCenter for Mental Health Services’ Suicide Prevention Branch in evaluating its suicide prevention programs on a national level. - International Development: An
$18 million agreement to support theU.S. Agency for International Development in strengthening health information systems in developing countries. - Public Health: A
$14.5 million task order with theCenters for Disease Control and Prevention (CDC) to provide evaluation and technical assistance services to states, tribal agencies and community organizations recently awarded grants to prevent and control chronic diseases and promote healthy communities. In addition, ICF won three new contracts with the CDC, each valued at greater than$10 million , to provide IT and technical support and evaluation services for CDC programs.
Additional U.S. federal government awards greater than
The largest nonfederal government awards included environmental management projects at the state and local level and communications program evaluation and regulatory program support for the
Summary and Outlook
“ICF’s third quarter performance reflected the improved profitability that we have achieved due to recent staff realignments and the increasing contribution of our commercial business. Fourth quarter results are expected to be strong, benefitting from similar trends to those of the third quarter and easier year-on-year comparisons. We expect the Olson acquisition to add approximately
“For full year 2014, revenues are expected to range from
“It is important to note that if we excluded related integration, amortization and personnel retention expenses, the Olson acquisition is estimated to have a positive impact of
“Record levels of third quarter and year-to-date bookings position ICF for continued growth in 2015. Based on our current visibility, we expect to enter 2015 with a total contract backlog at higher levels than the beginning of 2014. We anticipate continued growth from our existing commercial business, which should account for approximately 36 percent of our total pro forma 2014 revenues, inclusive of the Olson transaction. After making business development and technology investments in Olson, the acquisition is expected to add between 80 and 100 basis points to ICF’s EBITDA margin beginning in 2015,” Mr. Kesavan said.
ICF will provide full year 2015 revenue and earnings guidance when the company releases its fourth quarter 2014 results.
About
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 risks related to: the potential difficulties and delays in integrating Olson (the “Merger”) or fully realizing anticipated cost savings and other benefits from the Merger; the reaction to the Merger of customers, employees and counterparties; the government contracting industry generally; and our particular business, including our dependence on contracts with U.S. federal government agencies. 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
____________
1 In the third quarter of 2014, the nomenclature for the category of “Non-U.S. Government” revenue by client was changed to “International Government.” The criteria for determining the revenue in the two categories remain the same.
| ICF International, Inc. and Subsidiaries | |||||||||||||||
| Consolidated Statements of Comprehensive Income | |||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||
| Gross Revenue | $ | 264,796 | $ | 244,055 | $ | 773,708 | $ | 719,544 | |||||||
| Direct Costs | 166,064 | 154,024 | 486,461 | 448,370 | |||||||||||
| Operating costs and expenses: | |||||||||||||||
| Indirect and selling expenses | 74,704 | 67,647 | 218,573 | 203,513 | |||||||||||
| Depreciation and amortization | 3,227 | 2,771 | 9,493 | 8,352 | |||||||||||
| Amortization of intangible assets | 2,273 | 2,459 | 6,429 | 7,211 | |||||||||||
| Total operating costs and expenses | 80,204 | 72,877 | 234,495 | 219,076 | |||||||||||
| Operating Income | 18,528 | 17,154 | 52,752 | 52,098 | |||||||||||
| Interest expense | (800 | ) | (476 | ) | (2,288 | ) | (1,870 | ) | |||||||
| Other (expense) income | (335 | ) | 140 | (991 | ) | 209 | |||||||||
| Income before income taxes | 17,393 | 16,818 | 49,473 | 50,437 | |||||||||||
| Provision for income taxes | 5,840 | 5,687 | 18,206 | 18,863 | |||||||||||
| Net income | $ | 11,553 | $ | 11,131 | $ | 31,267 | $ | 31,574 | |||||||
| Earnings per Share: | |||||||||||||||
| Basic | $ | 0.59 | $ | 0.56 | $ | 1.59 | $ | 1.60 | |||||||
| Diluted | $ | 0.59 | $ | 0.55 | $ | 1.56 | $ | 1.57 | |||||||
| Weighted-average Shares: | |||||||||||||||
| Basic | 19,450 | 19,802 | 19,682 | 19,685 | |||||||||||
| Diluted | 19,713 | 20,165 | 20,069 | 20,088 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||
| Foreign currency translation adjustments | (1,355 | ) | 445 | (895 | ) | 3 | |||||||||
| Comprehensive income | $ | 10,198 | $ | 11,576 | $ | 30,372 | $ | 31,577 | |||||||
| Reconciliation of non-GAAP financial measures: | |||||||||||||||
|
Reconciliation of Service Revenue |
|||||||||||||||
| Revenue | $ | 264,796 | $ | 244,055 | $ | 773,708 | $ | 719,544 | |||||||
| Subcontractor and Other Direct Costs* | (72,663 | ) | (63,992 | ) | (202,080 | ) | (181,106 | ) | |||||||
| Service Revenue | $ | 192,133 | $ | 180,063 | $ | 571,628 | $ | 538,438 | |||||||
|
Reconciliation of EBITDA |
|||||||||||||||
| Operating Income | $ | 18,528 | $ | 17,154 | $ | 52,752 | $ | 52,098 | |||||||
| Depreciation and amortization | 5,500 | 5,230 | 15,922 | 15,563 | |||||||||||
| EBITDA | 24,028 | 22,384 | 68,674 | 67,661 | |||||||||||
| Acquisition-related expenses** | 815 | 106 | 1,444 | 367 | |||||||||||
| Special charges related to severance for staff realignment*** | 252 | — | 1,931 | — | |||||||||||
| Adjusted EBITDA | $ | 25,095 | $ | 22,490 | $ | 72,049 | $ | 68,028 | |||||||
|
Reconciliation of Adjusted EPS |
|||||||||||||||
| Diluted EPS | $ | 0.59 | $ | 0.55 | $ | 1.56 | $ | 1.57 | |||||||
| Acquisition-related expenses, net of tax | 0.02 | 0.01 | 0.04 | 0.01 | |||||||||||
| Special charges related to severance for staff realignment, net of tax | 0.01 | — | 0.06 | — | |||||||||||
| Foreign currency loss related to office closure, net of tax | — | — | 0.02 | — | |||||||||||
| Adjusted EPS | $ | 0.62 | $ | 0.56 | $ | 1.68 | $ | 1.58 | |||||||
| * | 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 and per share amounts) | ||||||||
| September 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 7,509 | $ | 8,953 | ||||
| Contract receivables, net | 248,154 | 205,062 | ||||||
| Prepaid expenses and other | 13,892 | 7,847 | ||||||
| Income tax receivable | 3,528 | 4,482 | ||||||
| Total current assets | 273,083 | 226,344 | ||||||
|
Total property and equipment, net of accumulated depreciation of $54,774 and $49,229 as of September 30, 2014, and December 31, 2013, respectively |
28,920 | 30,214 | ||||||
| Other assets: | ||||||||
| Goodwill | 461,659 | 418,839 | ||||||
| Other intangible assets, net | 15,852 | 12,239 | ||||||
| Restricted cash | 1,548 | 1,864 | ||||||
| Other assets | 12,419 | 11,414 | ||||||
| Total Assets | $ | 793,481 | $ | 700,914 | ||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 44,729 | $ | 45,544 | ||||
| Accrued salaries and benefits | 44,017 | 45,994 | ||||||
| Accrued expenses | 40,445 | 32,256 | ||||||
| Deferred revenue | 20,471 | 20,282 | ||||||
| Deferred income taxes | 4,155 | 6,144 | ||||||
| Total current liabilities | 153,817 | 150,220 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt | 115,216 | 40,000 | ||||||
| Deferred rent | 14,805 | 12,912 | ||||||
| Deferred income taxes | 11,944 | 10,780 | ||||||
| Other | 9,027 | 12,911 | ||||||
| Total Liabilities | 304,809 | 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; 21,019,032 and 20,617,270 shares issued; and 19,397,733 and 19,764,634 shares outstanding as of September 30, 2014, and December 31, 2013, respectively | 21 | 21 | ||||||
| Additional paid-in capital | 263,740 | 250,698 | ||||||
| Retained earnings | 277,174 | 245,907 | ||||||
| Treasury stock | (50,378 | ) | (21,545 | ) | ||||
| Accumulated other comprehensive loss | (1,885 | ) | (990 | ) | ||||
| Total Stockholders’ Equity | 488,672 | 474,091 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 793,481 | $ | 700,914 | ||||
| ICF International, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| (in thousands) | ||||||||
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2014 | 2013 | |||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 31,267 | $ | 31,574 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Non-cash equity compensation | 8,858 | 6,565 | ||||||
| Depreciation and amortization | 15,922 | 15,563 | ||||||
| Other adjustments, net | (1,712 | ) | 2,816 | |||||
| Changes in operating assets and liabilities, net of the effect of acquisitions: | ||||||||
| Contract receivables, net | (25,293 | ) | (10,473 | ) | ||||
| Prepaid expenses and other assets | (6,378 | ) | (5,349 | ) | ||||
| Accounts payable | (96 | ) | (2,118 | ) | ||||
| Accrued salaries and benefits | (2,954 | ) | (3,094 | ) | ||||
| Accrued expenses | 4,170 | 4,871 | ||||||
| Deferred revenue | (3,629 | ) | (3,414 | ) | ||||
| Income tax receivable and payable | 228 | 8,512 | ||||||
| Other liabilities | (847 | ) | 1,229 | |||||
| Net cash provided by operating activities | 19,536 | 46,682 | ||||||
| Cash flows from investing activities | ||||||||
| Capital expenditures for property and equipment and capitalized software | (10,582 | ) | (10,082 | ) | ||||
| Payments for business acquisitions, net of cash received | (59,537 | ) | (4,763 | ) | ||||
| Net cash used in investing activities | (70,119 | ) | (14,845 | ) | ||||
| Cash flows from financing activities | ||||||||
| Advances from working capital facilities | 369,936 | 90,790 | ||||||
| Payments on working capital facilities | (294,720 | ) | (131,726 | ) | ||||
| Debt issue costs | (854 | ) | — | |||||
| Proceeds from exercise of options | 1,569 | 2,360 | ||||||
| Tax benefits of stock option exercises and award vesting | 2,617 | 338 | ||||||
| Net payments for stockholder issuances and buybacks | (28,835 | ) | (2,465 | ) | ||||
| Net cash provided by (used in) financing activities | 49,713 | (40,703 | ) | |||||
| Effect of exchange rate changes on cash | (574 | ) | 147 | |||||
| Decrease in cash | (1,444 | ) | (8,719 | ) | ||||
| Cash, beginning of period | 8,953 | 14,725 | ||||||
| Cash, end of period | $ | 7,509 | $ | 6,006 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 2,109 | $ | 1,881 | ||||
| Income taxes | $ | 17,271 | $ | 9,764 | ||||
| Non-cash investing and financing transactions: | ||||||||
| Fair value of contingent consideration payable in connection with acquisition | $ | — | $ | 8,028 | ||||
| ICF International, Inc. and Subsidiaries | ||||||||||||
| Supplemental Schedule | ||||||||||||
| Revenue by market | Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Energy, environment, and infrastructure | 39 | % | 39 | % | 39 | % | 39 | % | ||||
| Health, social programs, and consumer/financial | 51 | % | 49 | % | 51 | % | 48 | % | ||||
| Public safety and defense | 10 | % | 12 | % | 10 | % | 13 | % | ||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||
| Revenue by client | Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| U.S. federal government | 52 | % | 58 | % | 52 | % | 59 | % | ||||
| U.S. state and local government | 11 | % | 10 | % | 11 | % | 9 | % | ||||
| International government | 8 | % | 5 | % | 9 | % | 4 | % | ||||
| Government | 71 | % | 73 | % | 72 | % | 72 | % | ||||
| Commercial | 29 | % | 27 | % | 28 | % | 28 | % | ||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||
| Revenue by contract | Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | |||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||
| Time-and-materials | 47 | % | 52 | % | 48 | % | 52 | % | ||||
| Fixed-price | 33 | % | 27 | % | 33 | % | 28 | % | ||||
| Cost-based | 20 | % | 21 | % | 19 | % | 20 | % | ||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Source:
Investor contacts:
ICF International
Douglas Beck, +1-703-934-3820
douglas.beck@icfi.com
or
MBS Value Partners
Lynn Morgen, +1-212-750-5800
lynn.morgen@mbsvalue.com
