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icfi-10q_20220630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐	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: 001-33045

ICF International, Inc.

(Exact name of Registrant as Specified in its Charter)

Delaware		22-3661438
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

9300 Lee Highway, Fairfax, VA		22031
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (703) 934-3000

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.

Title of each class	Trading Symbols(s)	Name of each exchange on which registered
Common Stock	ICFI	NASDAQ

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. ☒ Yes ☐ No

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). ☒ Yes ☐ No

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.

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). ☐ Yes ☒ No

As of July 29, 2022, there were 18,818,604 shares outstanding of the registrant’s common stock.

ICF INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q FOR THE

PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021	3

	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Six Months Ended June 30, 2022 and 2021	4

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION		32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

ICF International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands, except share and per share amounts)	June 30, 2022			December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	6,063		$	8,254
Restricted cash		2,401			12,179
Contract receivables, net		218,807			237,684
Contract assets		190,506			137,867
Prepaid expenses and other assets		23,196			42,354
Income tax receivable		11,979			10,825
Total Current Assets		452,952			449,163
Property and Equipment, net		70,689			52,053
Other Assets:
Goodwill		1,043,908			1,046,760
Other intangible assets, net		69,178			79,645
Operating lease - right-of-use assets		164,602			177,417
Other assets		49,473			44,496
Total Assets	$	1,850,802		$	1,849,534

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt	$	15,000		$	10,000
Accounts payable		99,365			105,652
Contract liabilities		24,612			39,665
Operating lease liabilities - current		26,267			34,901
Accrued salaries and benefits		86,583			85,517
Accrued subcontractors and other direct costs		44,946			39,400
Accrued expenses and other current liabilities		45,102			61,496
Total Current Liabilities		341,875			376,631
Long-term Liabilities:
Long-term debt		435,075			411,605
Operating lease liabilities - non-current		185,970			191,805
Deferred income taxes		47,643			41,913
Other long-term liabilities		20,822			24,110
Total Liabilities		1,031,385			1,046,064

Commitments and Contingencies (Note 19)

Stockholders’ Equity:
Preferred stock, par value $.001; 5,000,000 shares authorized; none issued		—			—
Common stock, par value $.001; 70,000,000 shares authorized; 23,705,062 and 23,535,671 shares issued at June 30, 2022 and December 31, 2021, respectively; 18,818,604 and 18,876,490 shares outstanding at June 30, 2022 and December 31, 2021, respectively		23			23
Additional paid-in capital		393,224			384,984
Retained earnings		680,323			649,298
Treasury stock, 4,886,458 and 4,659,181 shares at June 30, 2022 and December 31, 2021, respectively		(241,566	)		(219,800	)
Accumulated other comprehensive loss		(12,587	)		(11,035	)
Total Stockholders’ Equity		819,417			803,470
Total Liabilities and Stockholders’ Equity	$	1,850,802		$	1,849,534

The accompanying notes are an integral part of these consolidated financial statements.

ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands, except per share amounts)	2022			2021			2022			2021
Revenue	$	423,110		$	392,525		$	836,578		$	771,003
Direct costs		268,905			246,646			527,063			478,728
Operating costs and expenses:
Indirect and selling expenses		114,403			106,178			231,855			216,160
Depreciation and amortization		5,063			4,728			9,901			9,998
Amortization of intangible assets		4,963			3,019			10,280			6,034
Total operating costs and expenses		124,429			113,925			252,036			232,192

Operating income		29,776			31,954			57,479			60,083
Interest expense		(4,103	)		(2,612	)		(6,800	)		(5,295	)
Other income (expense)		98			(46	)		(271	)		(463	)
Income before income taxes		25,771			29,296			50,408			54,325
Provision for income taxes		7,374			8,984			14,149			15,662
Net income	$	18,397		$	20,312		$	36,259		$	38,663

Earnings per Share:
Basic	$	0.98		$	1.08		$	1.93		$	2.05
Diluted	$	0.97		$	1.07		$	1.91		$	2.03

Weighted-average Shares:
Basic		18,796			18,843			18,795			18,864
Diluted		18,954			19,022			18,991			19,078

Cash dividends declared per common share	$	0.14		$	0.14		$	0.28		$	0.28

Other comprehensive (loss) income, net of tax		(4,211	)		432			(1,552	)		3,212
Comprehensive income, net of tax	$	14,186		$	20,744		$	34,707		$	41,875

The accompanying notes are an integral part of these consolidated financial statements.

ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
(in thousands)	2022			2021
Cash Flows from Operating Activities
Net income	$	36,259		$	38,663
Adjustments to reconcile net income to net cash provided by operating activities:
(Recovery of) provision for credit losses		(172	)		7,782
Deferred income taxes		4,741			2,489
Non-cash equity compensation		6,507			6,163
Depreciation and amortization		20,181			16,032
Facilities consolidation reserve		(156	)		(148	)
Amortization of debt issuance costs		617			309
Impairment of long-lived assets		—			303
Other adjustments, net		868			1,365
Changes in operating assets and liabilities, net of the effects of acquisitions:
Net contract assets and liabilities		(71,612	)		(13,698	)
Contract receivables		17,520			(29,070	)
Prepaid expenses and other assets		(5,758	)		(3,108	)
Operating lease assets and liabilities, net		(997	)		(3,361	)
Accounts payable		(5,801	)		3,667
Accrued salaries and benefits		1,512			2,738
Accrued subcontractors and other direct costs		6,754			(37,035	)
Accrued expenses and other current liabilities		(3,253	)		20,619
Income tax receivable and payable		(1,572	)		(7,193	)
Other liabilities		771			(176	)
Net Cash Provided by Operating Activities		6,409			6,341

Cash Flows from Investing Activities
Capital expenditures for property and equipment and capitalized software		(11,026	)		(7,475	)
Proceeds from working capital adjustments related to prior business acquisition		2,911			—
Net Cash Used in Investing Activities		(8,115	)		(7,475	)

Cash Flows from Financing Activities
Advances from working capital facilities		869,529			382,552
Payments on working capital facilities		(838,259	)		(364,395	)
Receipt of restricted contract funds		10,967			75,158
Payment of restricted contract funds		(20,550	)		(117,399	)
Debt issue costs		(4,776	)		—
Proceeds from exercise of options		194			2,773
Dividends paid		(5,280	)		(5,284	)
Net payments for stock issuances and buybacks		(20,778	)		(18,365	)
Payments on business acquisition liabilities		(121	)		(682	)
Net Cash Used in Financing Activities		(9,074	)		(45,642	)
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash		(1,189	)		699

Decrease in Cash, Cash Equivalents, and Restricted Cash		(11,969	)		(46,077	)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period		20,433			81,987
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	8,464		$	35,910

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest	$	6,473		$	5,319
Income taxes	$	12,373		$	20,714
Non-cash investing and financing transactions:
Tenant improvements funded by lessor	$	20,243		$	—

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

(dollar amounts in tables in thousands, except share and per share data)

NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Basis of Presentation

The accompanying consolidated financial statements include the accounts of ICF International, Inc. (“ICFI”) and its principal subsidiary, ICF Consulting Group, Inc. (“Consulting,” and together with ICFI, the “Company”), and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). Consulting is a wholly owned subsidiary of ICFI. ICFI is a holding company with no operations or assets other than its investment in the common stock of Consulting. All other subsidiaries of the Company are wholly owned by Consulting. 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. 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 and analysis and assessment and advice to design and implementation of programs and technology-based solutions, and 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, health care companies, banks and other financial services companies, transportation, travel and hospitality firms, non-profits/associations, 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 (including territories) and local governments, unless otherwise indicated.

The Company, incorporated in Delaware, is headquartered in Fairfax, Virginia. The Company maintains additional offices throughout the world, including 50 offices in the U.S. and U.S. territories and more than 20 offices in key markets outside the U.S., including offices in the United Kingdom, Belgium, China, India, and Canada.

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 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 goodwill and 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 (the “SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in financial statements, prepared in accordance with 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 one operating segment and reporting unit. Operating results for the three and six month periods ended June 30, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2021 and the notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 25, 2022.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The provisions of this ASU are elective and apply to all entities, subject to meeting certain criteria, that have debt or hedging contracts, among other contracts, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company can elect to not apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. Also, the Company can elect various optional expedients that would allow it to continue to apply hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022.

On May 6, 2022, the Company entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with a group of lenders to amend and restate in its entirety the Fifth Amended and Restated Business Loan and Security Agreement, entered into on March 3, 2020 (as amended, the “Existing Credit Agreement”; for additional information see Note 7—Long-Term Debt). The Restated Credit Agreement amended and restated the Existing Credit Agreement to include, among other things, replacing the LIBOR based interest pricing conventions with Secured Overnight Financing Rate (“SOFR”) based interest pricing conventions. The Company elected to apply the optional expedient that allows it to continue to qualify for the shortcut method to assess hedge effectiveness on the related LIBOR-based interest rate hedges (see Note 9—Derivative Instruments and Hedging Activities) and presumes perfect effectiveness. The optional expedient did not result in any impact on the Company’s operating results, financial position, or cash flows. The Company expects to amend the hedge contracts to a SOFR based interest index in the near future.

NOTE 2 – 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, 2022 and 2021:

	June 30, 2022				June 30, 2021
	Beginning		Ending		Beginning		Ending
Cash and cash equivalents	$	8,254	$	6,063	$	13,841	$	9,603
Restricted cash⁽¹⁾		12,179		2,401		68,146		26,307
Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	20,433	$	8,464	$	81,987	$	35,910

(1)

Under a contract with a customer that commenced in the fourth quarter of fiscal year 2020, the Company received advance payments to be used to pay providers of services to the customer, a separate third party. The advanced payments are treated as restricted cash - current as the Company is required under the contract to distribute the advanced funds to the third-party providers of services or return the advanced funds to the customer. Because the Company receives the advance payments from the customer, which must be refunded to the customer or remitted to a third party, the cash receipts are treated as borrowings rather than receipts for the provision of goods or services. Therefore, these cash receipts are presented in the consolidated statements of cash flows as financing cash inflows, “Receipt of restricted contract funds,” with the subsequent payments classified as financing cash outflows, “Payment of restricted contract funds.” See Note 6 – Accrued Expenses and Other Current Liabilities for the corresponding liability.

NOTE 3 – CONTRACT RECEIVABLES, NET

Contract receivables, net consisted of the following:

	June 30, 2022			December 31, 2021
Billed and billable	$	224,683		$	245,425
Allowance for expected credit losses		(5,876	)		(7,741	)
Contract receivables, net	$	218,807		$	237,684

NOTE 4 – GOODWILL

The changes in the carrying amount of goodwill during the six-months period ended June 30, 2022 were as follows:

Balance as of December 31, 2021	$	1,046,760
Measurement period adjustments - ESAC acquisition		87
Measurement period adjustments - Creative Systems and Consulting acquisition		2,044
Effect of foreign currency translation		(4,983	)
Balance as of June 30, 2022	$	1,043,908

NOTE 5 – LEASES

The Company has operating leases for facilities and equipment which have remaining terms ranging from 1 to 17 years. The leases may include options to extend the lease periods for up to 5 years at rates approximating market rates and/or options to terminate the leases within 1 year. The leases may include a residual value guarantee or a responsibility to return the property to its original state of use. A limited number of leases contain provisions that provide for rental increases based on consumer price indices. The change in rent expense resulting from changes in these indices are included within variable rent.

The Company’s lease cost is recognized on a straight-line basis over the lease term. Lease cost consists of the following:

	Three Months Ended					Six Months Ended
	June 30, 2022			June 30, 2021		June 30, 2022			June 30, 2021
Operating lease cost	$	9,436		$	8,654	$	18,938		$	17,447
Short-term lease cost		144			105		277			236
Variable lease cost		27			9		47			19
Sublease income		(28	)		—		(38	)		—
Total lease cost	$	9,579		$	8,768	$	19,224		$	17,702

Future minimum lease payments under non-cancellable leases as of June 30, 2022 were as follows:

June 30, 2023		$	28,496