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ICF Reports First Quarter 2017 Results

May 4, 2017 at 4:07 PM EDT
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First Quarter Highlights

  • Total Revenue Increased 4.5 Percent over Last Year Led by a 9.4 Percent Increase in Commercial Revenue
  • Diluted EPS was $0.52, which includes of $0.07 of Special Charges; Non-GAAP EPS1 was $0.69 
  • Contract Awards Were $250 Million; TTM Contract Awards Were $1.4 Billion for a Book-to-Bill of 1.19
  • Operating Cash Flow Increased $20 Million Year-over-Year

FAIRFAX, Va.--(BUSINESS WIRE)--May 4, 2017-- ICF (NASDAQ:ICFI), a consulting and technology services provider to government and commercial clients around the world, reported results for the first quarter ended March 31, 2017.

“Revenue growth of 4.5 percent in the first quarter represented a solid start to 2017, with each of our key client categories posting positive year-over-year revenue comparisons. Commercial revenue increased 9.4 percent from last year’s first quarter, and revenue from government clients in the aggregate increased 1.9 percent. ICF’s balanced business model, which gives us both the benefits of a large government backlog and the upside potential of a growing commercial client base, enables continued growth in both revenue and earnings,” said Sudhakar Kesavan, ICF’s Chairman and Chief Executive Officer.

“Business activity progressed as expected in the first quarter. Contract awards totaled $250 million, over 80 percent of which represented new business wins. Proposal and award activity in the government arena increased progressively throughout the quarter, and we continued to experience strong demand for commercial energy efficiency work. At the end of the first quarter, ICF had a record business development pipeline of $4.7 billion, setting the stage for future growth.

“We continue to actively manage our cost structure to optimize returns. In the first quarter, we incurred special charges related to facility consolidations equivalent to $0.07 per share, net of tax, which will result in occupancy cost savings over the next several years. The effect of the special charges was partially offset by a lower first quarter tax rate. Exclusive of the net effect of these two adjustments, growth in diluted EPS outpaced revenue growth,” Mr. Kesavan noted.

First Quarter 2017 Results

First quarter 2017 total revenue was $296.3 million, a 4.5 percent increase from $283.6 million in the first quarter of 2016. Service revenue1 was up 3.5 percent at $219.8 million, compared to $212.4 million. Net income was $10.2 million in the first quarter of 2017, or $0.52 per diluted share; which includes of $0.07 per share, net of tax, of special charges related to facility consolidation activities. Partially offsetting these charges was a lower effective tax rate due to tax benefits from the vesting and exercise of equity-based compensation. This compares to net income of $9.9 million, or $0.51 per diluted share in the same period of the prior year.

Non-GAAP EPS1 increased 11 percent to $0.69 per share in the first quarter of 2017 compared to $0.62 in the prior year. EBITDA1 was $23.9 million, down 3.8 percent from $24.8 million in the first quarter of 2016. First quarter 2017 EBITDA margin was 8.1 percent, a 70 basis point decrease from the 8.8 percent reported in the comparable period last year. Adjusted EBITDA1, which excludes $1.7 million in special charges related to facility consolidations, was $25.6 million, representing 8.6 percent of revenue and up 3 percent year-over-year.

Backlog and New Business Awards

Total backlog was $2.0 billion at the end of the first quarter of 2017. Funded backlog was $1.0 billion, or approximately 50 percent of the total backlog. The total value of contracts awarded in the 2017 first quarter was $250 million, bringing the trailing twelve month book-to-bill ratio to 1.19.

Government Business First Quarter 2017 Highlights

  • U.S. federal government revenue increased 0.7 percent year-on-year to $138.0 million. Federal government revenue accounted for 47 percent of total revenue compared to 49 percent of total revenue in the first quarter of 2016.
  • U.S. state and local government revenue increased 4.7 percent year-on-year and accounted for 11 percent of total revenue, the same percentage as in the 2016 first quarter.
  • International government revenue increased 6.7 percent year-on-year and accounted for 6 percent of total revenue, the same percentage as in the 2016 first quarter. On a constant currency basis, the increase would have been 11 percent in this year’s first quarter.

Key Government Contracts Awarded in the First Quarter

ICF was awarded more than 70 U.S. federal government contracts and task orders and more than 250 additional contracts from state and local and international governments. The largest awards included:

  • Infrastructure/Environmental Planning: A contract with a value of up to $25.6 million with the Los Angeles County Metropolitan Transit Authority to provide environmental impact services.
  • Program Support: A contract extension with a value of up to $10.6 million with the U.S. Department of Energy to continue our support to the Office of Electricity.
  • Program Evaluation: Three contracts with a combined value of $7.2 million with the U.S. Agency for International Development to conduct various studies and evaluations including baseline surveys, end-line studies, evaluations, and thematic studies.
  • Program Support: A contract with a ceiling of $6.4 million with the U.S. National Institutes of Health to provide communications services and tools to the National Institute on Alcohol Abuse and Alcoholism.

Other contract wins with a value of at least $2 million included: facilitation support services to the U.S. Department of Defense Commander Navy Installations Command; and ongoing enterprise strategy and management services to the U.S. Department of State’s Bureau of Consular Affairs.

Commercial Business First Quarter 2017 Highlights

  • Commercial revenue was $105.5 million, 9.4 percent above the $96.5 million in last year’s first quarter. Commercial revenue accounted for 36 percent of total revenue compared to 34 percent of total revenue in the 2016 first quarter.
  • Marketing services accounted for 39 percent of commercial revenue. Energy markets, which include energy efficiency programs for utilities, represented 36 percent of commercial revenue.

Key Commercial Contracts Awarded in the First Quarter

Commercial sales were $159.5 million in the first quarter of 2017, and ICF was awarded more than 750 commercial projects globally during the period. The largest awards were:

Energy Markets:

  • An $18.9 million contract with a major utility in the Eastern U.S. to continue to support residential, commercial and industrial energy efficiency programs.
  • Five contracts with a combined value of $14.5 million with a major utility in the Eastern U.S. to support residential energy efficiency programs.
  • Projects with a combined value of up to $8.9 million with a large consortium of utilities in the Northeastern U.S. to provide energy efficiency support services to consortium members’ residential new home construction programs.
  • A contract with a value of $5.7 million with a major utility in the Eastern U.S. to support commercial and industrial energy efficiency programs.
  • A contract with a value of $5.5 million with a major utility in the Midwestern U.S. to provide energy efficiency support services to its new home construction program.
  • Seven contracts with a combined value of $5.4 million with a major Midwestern U.S. utility to provide market research and support services to its residential energy efficiency programs.

Marketing Services:

  • Ten task orders with a combined value of $5.3 million with a U.S. food company to provide public relations and communications support services for several product lines.
  • More than 25 task orders with a combined value of $4.9 million with a U.S. beverage company to provide social media and other marketing services support for a number of its products.
  • A contract extension with a value of $4.3 million with an international hotel chain to continue to provide analytics and marketing technology support services.

Other commercial contract wins with accounts totaling at least $1 million included: program support services for a number of U.S. utilities; communications and digital solutions services for two major health insurers; merger and integration support and digital listening services for an industrial manufacturer; creative services for a global fast food company; impact assessment of a product offering for a social media company; business strategy and analytical services for a provider of industrial aviation services; public relations and marketing support for two food manufacturers; communications strategy for a financial services company; and ongoing marketing support for a floor care product manufacturer.

Summary and Outlook

“Our first quarter results support the assumptions underpinning our full year 2017 guidance. The federal budget agreement announced earlier this week, which maintained funding levels across the civilian agencies, lends further support to our assumptions.

“Based on our current visibility, we re-affirm our expectation of revenue ranging from $1.20 to $1.24 billion, diluted earnings per share of $2.50 to $2.75 and Non GAAP EPS of $2.84 to $3.09 for full year 2017. Additionally, we continue to expect 2017 operating cash flow to be in the range of $90 million to $100 million.

“ICF is well positioned for continued revenue and earnings growth due to our balanced portfolio. We have a wide-ranging roster of U.S. federal, state and local, and international government clients. Additionally, we are recognized leaders across key commercial markets, including energy and aviation consulting, energy efficiency programs, and in marketing and communications services, which we are leveraging to build customer and stakeholder engagement across our entire client base,” Mr. Kesavan concluded.

About ICF

ICF (NASDAQ:ICFI) is a global consulting and technology services provider with more than 5,000 professionals focused on making big things possible for our clients. We are business analysts, public policy experts, technologists, researchers, digital strategists, social scientists and creatives. Since 1969, government and commercial clients have worked with ICF to overcome their toughest challenges on issues that matter profoundly to their success. Come engage with us at www.icf.com.

Caution Concerning Forward-looking Statements

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

1 Non-GAAP EPS, Service Revenue, EBITDA, and Adjusted EBITDA are non-GAAP measurements. A reconciliation of all non-GAAP measurements is set forth below.

         
ICF International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
         
    Three months ended
    March 31,
    2017   2016
    (Unaudited)
         
Revenue  $296,295   $283,599 
Direct Costs   183,607    177,199 
Operating costs and expenses:        
Indirect and selling expenses   88,802    81,559 
Depreciation and amortization   4,519    4,019 
Amortization of intangible assets   2,734    3,128 

Total operating costs and expenses

   96,055    88,706 
         
Operating Income   16,633    17,694 
Interest expense   (1,951)   (2,445)
Other income   109    275 
Income before income taxes   14,791    15,524 
Provision for income taxes   4,614    5,633 
Net income  $10,177   $9,891 
         
Earnings per Share:        
Basic  $0.54   $0.52 
Diluted  $0.52   $0.51 
         
Weighted-average Shares:        
Basic   18,972    18,994 
Diluted   19,423    19,273 
         
Other comprehensive income (loss):        
Foreign currency translation adjustments, net of tax   372    (917)
Total other comprehensive income (loss), net of tax   372    (917)
Comprehensive income, net of tax  $10,549   $8,974 
           
          
ICF International, Inc. and Subsidiaries
Reconciliation of Non-GAAP financial measures
(in thousands, except per share amounts)
           
      Three months ended
      March 31,
      2017   2016
      (Unaudited)
           

Reconciliation of Service Revenue

         
Revenue   $296,295   $283,599 
Subcontractor and Other Direct Costs(1)    (76,534)   (71,169)
Service Revenue   $219,761   $212,430 
           

Reconciliation of EBITDA and Adjusted EBITDA

         
Net Income   $10,177   $9,891 
Other (income) expense    (109)   (275)
Interest expense    1,951    2,445 
Provision for income taxes    4,614    5,633 
Depreciation and amortization    7,253    7,147 
EBITDA    23,886    24,841 
Special charges related to facility consolidations and office closures    1,698    — 
Adjusted EBITDA   $25,584   $24,841 
           

Reconciliation of Non-GAAP EPS

         
Diluted EPS   $0.52   $0.51 
Special charges related to facility consolidations and office closures    0.10    — 
Amortization of intangibles    0.14    0.16 
Income tax effects(2)    (0.07)   (0.05)
Non-GAAP EPS   $0.69   $0.62 
           
(1) Subcontractor and Other Direct Costs exclude Direct Labor and Fringe Costs.
(2) 

Income tax effects were calculated using an effective U.S. GAAP tax rate of 31.2% and 36.3% for the first quarter of fiscal year 2017 and 2016, respectively.

  

 

         
ICF International, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
         
    

March 31, 2017

   

December 31, 2016

    (Unaudited)    
Current Assets:        
Cash and cash equivalents  $8,207   $6,042 
Contract receivables, net   278,795    281,365 
Prepaid expenses and other   13,294    11,724 
Income tax receivable   1,362    — 
Total current assets   301,658    299,131 

Total property and equipment, net of accumulated depreciation of $78,252 and $74,076 as of March 31, 2017 and December 31, 2016, respectively

   38,719    40,484 
Other assets:        
Goodwill   683,998    683,683 
Other intangible assets, net   43,408    46,129 
Restricted cash   1,247    1,843 
Other assets   14,883    14,301 
Total Assets  $1,083,913   $1,085,571 
         
Current Liabilities:        
Accounts payable  $54,129   $70,586 
Accrued salaries and benefits   50,087    44,003 
Accrued expenses and other current liabilities   45,925    52,631 
Deferred revenue   27,280    29,394 
Income tax payable   —    106 
Total current liabilities   177,421    196,720 
Long-term liabilities:        
Long-term debt   275,843    259,389 
Deferred rent   15,035    15,600 
Deferred income taxes   43,843    39,114 
Other   9,518    8,744 
Total Liabilities   521,660    519,567 
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; 21,906,617 and 21,663,432 issued; and 18,837,025 and 19,021,262 outstanding as of March 31, 2017 and December 31, 2016, respectively   22    22 
Additional paid-in capital   297,077    292,427 
Retained earnings   382,067    371,890 
Treasury stock   (107,645)   (88,695)
Accumulated other comprehensive loss   (9,268)   (9,640)
Total Stockholders’ Equity   562,253    566,004 
Total Liabilities and Stockholders’ Equity  $1,083,913   $1,085,571 
           
 

ICF International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

          
     Three months ended
     March 31,
     2017   2016
     (Unaudited)
Cash flows from operating activities         
Net income   $10,177   $9,891 
Adjustments to reconcile net income to net cash provided by operating activities:     
Non-cash equity compensation    2,618    2,641 
Depreciation and amortization    7,253    7,147 
Other adjustments, net    5,944    1,152 
Changes in operating assets and liabilities:         
Contract receivables, net    3,094    (19,460)
Prepaid expenses and other assets    (2,170)   (5,812)
Accounts payable    (16,583)   (12,441)
Accrued salaries and benefits    6,058    5,154 
Accrued expenses and other current liabilities    (7,304)   (3,848)
Deferred revenue    (2,206)   (812)
Income tax receivable and payable    (1,475)   3,645 
Restricted cash    603    (12)
Other liabilities    696    (622)
Net cash provided by (used in) operating activities    6,705    (13,377)
          
Cash flows from investing activities         
Capital expenditures for property and equipment and capitalized software    (2,571)   (4,184)
Payments for business acquisitions, net of cash received    (91)   — 
Net cash used in investing activities    (2,662)   (4,184)
          
Cash flows from financing activities         
Advances from working capital facilities    127,179    123,279 
Payments on working capital facilities    (110,725)   (96,881)
Payments on capital expenditure obligations    (1,454)   (1,010)
Proceeds from exercise of options    2,095    — 
Net payments for stockholder issuances and buybacks    (19,014)   (6,664)
Net cash (used in) provided by financing activities    (1,919)   18,724 
Effect of exchange rate changes on cash    41    449 
Increase in cash and cash equivalents    2,165    1,612 
Cash and cash equivalents, beginning of period    6,042    7,747 
Cash and cash equivalents, end of period   $8,207   $9,359 
          
Supplemental disclosure of cash flow information         
Cash paid during the period for:         
Interest   $1,988   $1,485 
Income taxes   $1,296   $587 
            
   
ICF International, Inc. and Subsidiaries  
Supplemental Schedule  
          
Revenue by market   Three Months Ended 
    March 31, 
    2017   2016 
          
Energy, environment, and infrastructure   40%  38%
Health, education, and social programs   42%  44%
Safety and security   8%  8%
Consumer and financial   10%  10%
          
Total   100%  100%
          
          
Revenue by client   Three Months Ended 
    March 31, 
    2017   2016 
          
U.S. federal government   47%  49%
U.S. state and local government   11%  11%
International government   6%  6%
Government   64%  66%
          
Commercial   36%  34%
          
Total   100%  100%
          
          
Revenue by contract   Three Months Ended 
    March 31, 
    2017   2016 
          
Time-and-materials   43%  43%
Fixed-price   38%  38%
Cost-based   19%  19%
          
Total   100%  100%
          

 

 

Source: ICF

Investor Contacts:
MBS Value Partners
Lynn Morgen, +1-212-750-5800
lynn.morgen@mbsvalue.com
or
David Gold, +1-212-750-5800
david.gold@mbsvalue.com
or
Company Information Contact:
ICF
Erica Eriksdotter, +1-703-934-3668
erica.eriksdotter@icf.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.