UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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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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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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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). ☐ Yes
As of April 28, 2023, there were
ICF INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE
PERIOD ENDED MARCH 31, 2023
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets at March 31, 2023 (Unaudited) and December 31, 2022 |
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Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2023 and 2022 |
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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
Item 1. Financial Statements
ICF International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share amounts) |
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March 31, 2023 |
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December 31, 2022 |
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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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Restricted cash |
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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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Goodwill |
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Other intangible assets, net |
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Operating lease - right-of-use assets |
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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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Current portion of long-term debt |
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$ |
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$ |
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Accounts payable |
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Contract liabilities |
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Operating lease liabilities - current |
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Finance lease liabilities - current |
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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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Finance lease liabilities - non-current |
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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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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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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)
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Three Months Ended |
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March 31, |
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(in thousands, except per share amounts) |
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2023 |
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2022 |
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Revenue |
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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, net |
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Other 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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Earnings per Share: |
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Basic |
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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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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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Other comprehensive (loss) income, net of tax |
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Comprehensive income, net of tax |
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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)
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Three Months Ended |
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March 31, |
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(in thousands) |
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2023 |
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2022 |
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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 provided by operating activities: |
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Provision for (recovery of) credit losses |
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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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— |
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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, net of the effects of acquisitions: |
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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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Operating lease assets and liabilities, net |
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Accounts payable |
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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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Income tax receivable and payable |
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Other liabilities |
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Net Cash Used in Operating Activities |
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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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Payments for business acquisitions, net of cash acquired |
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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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Other short-term borrowings |
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— |
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Receipt of restricted contract funds |
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Payment of restricted contract funds |
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Payments of principal portion of finance leases |
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— |
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Proceeds from exercise of options |
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Dividends paid |
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Net payments for stock issuances and buybacks |
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Payments on business acquisition liabilities |
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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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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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Tenant improvements funded by lessor |
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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
(Unaudited)
(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. Material intercompany transactions and balances have been eliminated.
Nature of Operations
The Company provides professional services and technology-based solutions, including management, marketing, technology, and policy consulting and implementation services, in the areas of energy, environment, infrastructure and disaster recovery; health and social programs; and security and other civilian/commercial. The Company offers a full range of services to clients throughout the entire life cycle of a policy, program, project, or initiative, from research and analysis, 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 customers are U.S. federal government departments and agencies. 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-profit 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 Reston, Virginia. The Company maintains additional offices throughout the world, including more than
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, impairment of goodwill and long-lived assets, accrued liabilities, revenue recognition (including estimates of variable considerations in determining the total contract price and allocation of performance obligations), the remaining 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
6
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 accounting and 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. Entities can elect to not apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. Also, entities 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 entities may elect to apply the amendments prospectively through December 31, 2022, the sunset date. In December 2022, the FASB issued ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 that extended the sunset date from December 31, 2022 to December 31, 2024.
As of March 31, 2023, the Company has one interest rate swap contract with a variable interest rate that references LIBOR. The contract expires on August 31, 2023.
Reclassification
Certain immaterial amounts in the consolidated statements of comprehensive income have been reclassified to conform to the current year’s presentation. To be consistent with the current presentation of interest, net, the Company reclassified $
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 three months ended March 31, 2023 and 2022:
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March 31, 2023 |
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March 31, 2022 |
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Beginning |
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Ending |
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Beginning |
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Ending |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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$ |
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Restricted cash |
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Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows |
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$ |
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$ |
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$ |
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$ |
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7
NOTE 3 – CONTRACT RECEIVABLES, NET
Contract receivables, net consisted of the following:
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March 31, 2023 |
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December 31, 2022 |
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Billed and billable |
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$ |
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$ |
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Allowance for expected credit losses |
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( |
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Contract receivables, net |
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$ |
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$ |
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On December 23, 2022, the Company entered into a Master Receivables Purchase Agreement (the “MRPA”) with MUFG Bank, Ltd. (“MUFG”) for the sale from time to time of certain eligible billed receivables. The purchase price of each receivable is equal to the net invoice amount minus a specified discount. The receivables are sold without recourse and the Company does not retain any ongoing financial interest in the transferred receivables other than providing servicing activities. The Company accounts for the transfers as sales under ASC 860, Transfers and Servicing, derecognizes the receivables from its consolidated balance sheets at the date of the sale, and includes the cash received from MUFG as part of cash flows from operating activities on its consolidated statement of cash flows.
During the three months ended March 31, 2023, the Company sold $
NOTE 4 – LEASES
The Company has operating and finance leases for facilities and equipment which have remaining terms ranging from
The Company’s lease cost is recognized on a straight-line basis over the lease term. Lease cost consists of the following:
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Three Months Ended |
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March 31, 2023 |
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March 31, 2022 |
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Operating lease cost |
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$ |
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$ |
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Finance lease cost - amortization of right-of-use assets |
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— |
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Finance lease cost - interest |
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— |
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Short-term lease cost |
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Variable lease cost |
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Sublease income |
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( |
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( |
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Total lease cost |
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$ |
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$ |
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Future minimum lease payments under non-cancellable operating and finance leases as of March 31, 2023 were as follows:
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Operating |
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Finance |
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March 31, 2024 |
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$ |
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$ |
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March 31, 2025 |
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March 31, 2026 |
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March 31, 2027 |
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March 31, 2028 |
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Thereafter |
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Total future minimum lease payments |
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Less: Interest |
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( |
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( |
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Total lease liabilities |
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$ |
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$ |
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8
Other information related to operating and finance leases is as follows:
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March 31, 2023 |
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March 31, 2022 |
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Cash paid for amounts included in the measurement of lease liabilities: |
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||
Operating cash outflows for operating leases |
|
$ |
|
|
$ |
|
||
Operating cash outflows for finance leases |
|
|
|
|
|
— |
|
|
Financing cash outflows for finance leases |
|
|
|
|
|
— |
|
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
$ |
|
||
Weighted-average remaining lease term |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
— |
|
|
Weighted-average discount rate |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
— |
|
|
NOTE 5 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
At March 31, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following:
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Deposits |
$ |
|
|
$ |
|
||
Restricted contract funds |
|
|
|
|
|
||
IT and software licensing costs |
|
|
|
|
|
||
Taxes and insurance premiums |
|
|
|
|
|
||
Facilities rental and lease exit costs |
|
|
|
|
|
||
Interest |
|
|
|
|
|
||
Professional services |
|
|
|
|
|
||
Dividends |
|
|
|
|
|
||
Cash collected not yet remitted to purchaser of billed receivables |
|
|
|
|
|
||
Other accrued expenses and current liabilities |
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
$ |
|
|
$ |
|
||
NOTE 6 – LONG-TERM DEBT
At March 31, 2023 and December 31, 2022, long-term debt consisted of:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||
|
|
Average |
|
Outstanding |
|
|
Average |
|
Outstanding |
|
||
Term Loan |
|
|
|
$ |
|
|
|
|
$ |
|
||
Delayed-Draw Term Loan |
|
|
|
|
|
|
|
|
|
|
||
Revolving Credit |
|
|
|
|
|
|
|
|
|
|
||
Total before debt issuance costs |
|
|
|
|
|
|
|
|
||||
Unamortized debt issuance costs |
|
|
|
|
( |
) |
|
|
|
|
( |
) |
Total |
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
As of March 31, 2023, the Company had unused delayed draw term loan facility $
9
Future scheduled repayments of debt principal are as follows:
Payments due by |
|
Term Loan |
|
|
Delayed-Draw Term Loan |
|
|
Revolving Credit |
|
|
Total |
|
||||
March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
March 31, 2025 |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
March 31, 2026 |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
March 31, 2027 |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
May 6, 2027 (Maturity) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NOTE 7 – REVENUE RECOGNITION
Disaggregation of Revenue
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 and business factors. Those categories are client market, client type, and contract mix. Client markets provide 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 as a subcontractor to a commercial company as government revenue when the ultimate client is a government agency or department. 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.
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
||||
Client Markets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Energy, environment, infrastructure, and disaster recovery |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Health and social programs |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Security and other civilian & commercial |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
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 March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
||||
Contract Mix: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Time-and-materials |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Fixed price |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Cost-based |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
10
Contract Balances:
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 following table summarizes the contract balances as of March 31, 2023 and December 31, 2022:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Contract assets |
|
$ |
|
|
$ |
|
||
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
Net contract assets (liabilities) |
|
$ |
|
|
$ |
|
||
The net contract assets (liabilities) as of March 31, 2023 increased by $
Performance Obligations:
The Company had $
NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses interest rate swap agreements to manage or hedge its interest rate risk under the Credit Facility. Notwithstanding the terms of the swaps, the Company is ultimately obligated for all amounts due and payable under the Credit Facility. The derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Management intends that the Swaps remain effective and, on a quarterly basis, evaluates them to determine their effectiveness or ineffectiveness and records the change in fair value as an adjustment to other comprehensive income or loss. The Company does not use derivative instruments for speculative or trading purposes.
At March 31, 2023, the Company had floating-to-fixed interest rate swaps (the “Swaps”) for an aggregate notional amount of $
11
NOTE 9 – INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2023 and 2022 was
The Company is subject to federal income tax 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
NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss as of March 31, 2023 and 2022 included the following:
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||
|
|
Foreign |
|
|
Gain on Sale |
|
|
Change in |
|
|
Total |
|
||||
Accumulated other comprehensive (loss) income at December 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive (loss) income before reclassifications |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income (3) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Effect of taxes (4) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total current period other comprehensive (loss) income |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at March 31, 2023 |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||
|
|
Foreign |
|
|
Gain on Sale |
|
|
Change in |
|
|
Total |
|
||||
Accumulated other comprehensive (loss) income at December 31, 2021 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
||
Amounts reclassified from accumulated other comprehensive (loss) income (3) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
||
Effect of taxes (4) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Total current period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Accumulated other comprehensive (loss) income at March 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
12
NOTE 11 – STOCKHOLDERS’ EQUITY
Changes in stockholders’ equity for the three months ended March 31, 2023 and 2022 are as follows:
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated |
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of shares pursuant to vesting of restricted stock units |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Payments for stock buybacks |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||||||||||||||||||
|
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated |
|
|
|
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Exercise of stock options |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of shares pursuant to vesting of restricted stock units |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Payments for stock buybacks |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||||
NOTE 12 – ACCOUNTING FOR STOCK-BASED COMPENSATION
On April 4, 2018, the Company’s board of directors (the “board”) approved the 2018 Omnibus Incentive Plan (the “2018 Omnibus Plan”), which was subsequently approved by the Company’s 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”). The 2018 Omnibus Plan was amended on May 28, 2020 to increase the number of shares available for issuance.
The 2018 Omnibus Plan, as amended, allows the Company to grant
During the three months ended March 31, 2023, the Company granted to its employees
The Company recognized stock-based compensation expense of $
13
NOTE 13 – EARNINGS PER SHARE
The Company’s 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 of stock options, RSUs, and PSAs were exercised or converted into stock. 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 the end of the related performance period and the result would be dilutive under the treasury stock method.
As of March 31, 2023, the PSAs granted during the year ended December 31, 2021 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, 2022 and during the three months ended March 31, 2023 have not yet completed their initial
The dilutive effect of stock options, RSUs, and PSAs for each period reported is summarized below:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
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 14 – SHARE REPURCHASE PROGRAM
In September 2017, the board approved a share repurchase program that allows for share repurchases in the aggregate up to $
Purchases under this program may be made from time to time at prevailing market prices in the open market or in privately negotiated transactions pursuant to Rule 10b-18 under the Exchange Act and in accordance with applicable insider trading and other securities laws and regulations. The purchases are funded from existing cash balances and/or borrowings, and the repurchased shares are held in treasury. The timing and extent to which the Company repurchases its shares will depend on market conditions and other corporate considerations in the Company’s sole discretion.
For the three months ended March 31, 2023 and 2022, the Company used $
14
NOTE 15 – FAIR VALUE
Financial instruments measured at fair value on a recurring basis and their location within the accompanying consolidated balance sheets are as follows:
|
March 31, 2023 |
|
|
|
|||||||||||||
(in thousands) |
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Location on Balance Sheet |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps - current portion |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
Prepaid expenses and other assets |
||
Forward contract agreements |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
Prepaid expenses and other assets |
||
Interest rate swaps - long-term portion |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
Other assets |
||
Deferred compensation investments in cash surrender life insurance |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
Other assets |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps - long-term portion |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
Other long-term liabilities |
||
Deferred compensation plan liabilities |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
Other long-term liabilities |
||
|
December 31, 2022 |
|
|
|
|||||||||||||
(in thousands) |
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Location on Balance Sheet |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps - current portion |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
Prepaid expenses and other assets |
||
Interest rate swaps - long-term portion |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
Other assets |
||
Deferred compensation investments in cash surrender life insurance |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
Other assets |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation plan liabilities |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
Other long-term liabilities |
||
NOTE 16 – SUBSEQUENT EVENTS
Dividend
On May 9, 2023, the board approved a $
NOTE 17 – COMMITMENTS AND CONTINGENCIES
Letters of Credit
At March 31, 2023, the Company had open standby letters of credit totaling $
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.
15
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 Securities and Exchange Commission (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:
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. We undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
The terms “we,” “our,” “us,” and “the 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, 2022, filed with the SEC on March 1, 2023 (our “Annual Report”).
16
OVERVIEW AND OUTLOOK
We provide professional services and technology-based solutions, 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 three key markets:
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:
Our clients utilize our services because we combine diverse institutional knowledge and experience with the deep subject matter expertise of our highly educated staff, which we deploy in multi-disciplinary teams. We believe that our domain expertise and the program knowledge developed from our research and analytics, 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 to our broad array of clients. Although we describe our multiple service offerings to clients that operate in three markets to provide a better understanding of the scope and scale of our business, we do not manage our business or allocate our resources based on those service offerings or client markets. Rather, on a project-by-project basis, we assemble the best team from throughout the enterprise to deliver highly customized solutions that are tailored to meet the needs of each client.
We believe that, in the long-term, 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 the environment and use of clean energy and energy efficiency; health promotion, treatment, and cost control; the means by which public health can be improved effectively on a cross-jurisdiction basis; natural disaster recovery and rebuild efforts; and ongoing homeland security threats.
We also see significant opportunity to further leverage our digital and client engagement capabilities across our client base. Our future results will depend on the success of our strategy to enhance our client relationships and seek larger engagements that span the entire program life cycle, and to complete and successfully integrate additional strategic acquisitions. We will continue to focus on building scale in our vertical and horizontal domain expertise, developing business with our existing clients as well as new customers, 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.
Although 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 and/or debt ceiling 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, the very nature of opportunities arising out of disaster recovery means 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. 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 ongoing operations, potential acquisitions, customary capital expenditures, and other working capital requirements.
17
Energy, Environment, Infrastructure, and Disaster Recovery
For decades, we have advised our clients on energy and environmental issues, including the impact of human activity on natural resources, and have helped develop solutions for infrastructure-related challenges. In addition to addressing government policy and regulation in these areas, our work focuses on industries that are affected by these policies and regulations, particularly in those industries most heavily involved in the use and delivery of energy. Significant factors affecting suppliers, users, and regulators of energy are driving private and public sector demand for professional services firms, including:
We assist energy enterprises worldwide in their efforts to analyze, develop, and implement strategies related to their business operations and the interrelationships of those operations with the environment and applicable government regulations. We utilize our policy expertise, deep industry knowledge, and proprietary modeling tools to advise government and commercial clients on key topics related to electric power, traditional fuels, and renewable sources of energy. Our areas of expertise include power market analysis and modeling, transmissions analysis, flexible load and distribution system management, electric system reliability standards, energy asset valuation and due diligence, regulatory and litigation support, fuels market analysis, air regulatory strategy, and renewable energy and green power project implementation.
We also assist commercial and government clients in designing, implementing, and evaluating demand side management programs, both for residential and for commercial and industrial sectors. Utility companies must balance the changing demand for energy with a price-sensitive, environmentally conscious consumer base. We help utilities meet these needs, guiding them through the entire life cycle of energy efficiency and related demand side management and electrification programs, including policy and planning, determining technical requirements, and program implementation and improvement.
Carbon emissions have been an important focus of federal government regulation, international governments, many state and local governments, and multinational corporations around the world. Reducing or offsetting greenhouse gas (“GHG”) emissions continues to be the subject of both public and private sector interest, and the regulatory landscape in this area is still evolving. The need to address carbon and other harmful emissions has significantly changed the way the world’s governments and industries interact and continues to be one of the drivers of interest in energy efficiency. Moreover, how government and business adapt to the effects of climate change continues to be of global importance. We support governments at the federal and state and local level, including providing comprehensive support to the National Science and Technology Council’s Global Change Research Program. Additionally, we support ministries and agencies of the government of the United Kingdom (the “U.K.”) and the European Commission (the “E.C.”), as well as commercial clients, on these and related issues.
18
We believe that demand for our services will continue to grow as government, industry, and other stakeholders seek to provide natural disaster recovery and rebuilding. In the wake of the major hurricanes (Ian, Harvey, Ida, Irma, Maria, Laura and Michael) that devastated communities in Texas, Florida, North Carolina, Louisiana, the U.S. Virgin Islands, and Puerto Rico, the affected areas remain in various stages of relief and recovery efforts. Our prior experience with disaster relief and rebuild efforts, including after hurricanes Katrina and Rita and Superstorm Sandy, puts us in a favorable position to provide recovery and housing assistance, and environmental and infrastructure solutions, including disaster mitigation, on behalf of federal departments and agencies, state, territorial and local jurisdictions, and regional agencies. We support ongoing disaster recovery and mitigation efforts in a variety of US states, territories, and local jurisdictions that have been affected by natural disasters including but not limited to hurricanes.
We also have decades of experience in designing, evaluating, and implementing environmental policies and environmental compliance programs for energy, transportation (including aviation), and other infrastructure projects. A number of key issues are driving increased demand for the services we provide in these areas, including:
By leveraging our interdisciplinary skills, which range from finance and economics to earth and life sciences, information technology, and program management, we are able to provide a wide range of services that include complex environmental impact assessments, environmental management information systems, air quality assessments, program evaluation, transportation and aviation planning and operational improvement, strategic communications, and regulatory reinvention. Our acquisition of Blanton & Associates (“Blanton”) in September 2022 added to these skills and expanded our geographic reach. We help clients deal specifically with the interrelated environmental, business, and social implications of issues surrounding all transportation modes and infrastructure. From the environmental management of complex infrastructure engagements to strategic and operational concerns of airlines and airports, our solutions draw upon our expertise and institutional knowledge in transportation, urban and land use planning, industry management practices, financial analysis, environmental sciences, and economics.
19
Health, and Social Programs
We also apply our expertise across our full suite of services in the areas of health, and social programs. We believe that a confluence of factors will drive an increased need for public and private focus on these areas, including, among others:
We believe we are well positioned to provide our services to help our clients develop and manage effective programs in the areas of health, education, and social programs at the international, regional, national, and local levels. Our subject matter expertise includes public health, biomedical research, healthcare quality, mental health, international health and development, health communications and associated interactive technologies, education, child and family welfare needs, housing and communities, and substance abuse. Our combination of domain knowledge and our experience in information technology-based applications provides us with strong capabilities in health and social programs informatics and analytics, which we believe will be of increasing importance as the need to manage information grows. We partner with our clients in the government and commercial sectors to increase their knowledge base, support program development, enhance program operations, evaluate program results, and improve program effectiveness.
In the area of federal health, we support many agencies and programs within the U.S. Department of Health and Human Services (“HHS”), including the National Institutes of Health (the “NIH”), the Centers for Disease Control and Prevention (the “CDC”), and the Centers for Medicare and Medicaid Services (“CMS”) by conducting primary data collection and analyses, assisting in designing, delivering and evaluating programs, managing technical assistance centers, providing instructional systems, developing information technology applications, and managing information clearinghouse operations. Our 2021 acquisition of ESAC brought a strong team with deep expertise in bioinformatics to further extend our capabilities in this arena. Our 2022 acquisition of SemanticBits, LLC (“SemanticBits”) brought substantial expertise in technology applications used in CMS to oversee healthcare quality. Increasingly, we provide multichannel communications and messaging for public health programs. We also provide training and technical assistance for early care and educational programs (such as Head Start), and health and demographic surveys in developing countries for the U.S. Department of State (the “DoS”). In the area of social programs, we provide extensive training, technical assistance, and program analysis and support services for a number of the housing programs of the U.S. Department of Housing and Urban Development (“HUD”) and state, territorial, and local governments. In addition, we provide research, program design, evaluation, and training for educational initiatives at the federal and state level. We provide similar services to a variety of U.K. ministries, as well as several Directorates-General of the European Commission.
Security and Other Civilian & Commercial
We serve a number of other important government missions and commercial markets. These government missions range from Security (e.g., the Departments of Defense, Homeland Security, and Justice) to a variety of other civilian government departments and agencies; commercial markets include those we serve with our commercial marketing and communications services.
20
Security programs continue to be a critical priority of the federal government, state and local governments, international governments (especially in Europe), and in the commercial sector. We believe we are positioned to meet the following key safety concerns:
These security concerns create demand for government programs that can identify, prevent, and mitigate key cybersecurity issues and the societal issues they cause.
In addition, the U.S. Department of Defense (“DoD”) is undergoing major transformations in its approach to strategies, processes, organizational structures, and business practices due to several complex, long-term factors, including:
We provide key services to DoD, the U.S. Department of Homeland Security (“DHS”), the U.S. Department of Justice (“DoJ”), and analogous Directorates-General at the European Commission. We support DoD by providing high-end strategic planning, analysis, and technology-based solutions around cybersecurity. We also provide the defense sector with critical infrastructure protection, environmental management, human capital assessment, military community research, and technology-enabled solutions.
At the DHS, we assist in shaping and managing critical programs to ensure the safety of communities, developing critical infrastructure protection plans and processes, establishing goals and capabilities for national preparedness at all levels of government in the U.S., and managing the national program to test radiological emergency preparedness at the state and local government levels in communities adjacent to nuclear power facilities. At the DoJ, we provide technical and communications assistance to programs that help victims of crime and at-risk youths. At the E.C., we provide support and analytical services related to justice and home affairs issues within the European context.
Other large Federal departments and agencies, such as USDA and Treasury, also face important challenges that motivate them to transform their business processes and to modernize the associated technology systems. ICF supports these organizations with a variety of technology and program support services.
21
In the area of commercial marketing and communications, some of the long-term market factors that we believe will have an impact on our clients include:
We combine our expertise in strategic communications, marketing and creative services, and public relations with our strengths in interactive and mobile technologies to help companies develop stronger relationships and engage with their customers and stakeholders across all channels, whether via traditional or digital media, to drive better operating results. We took steps in 2022 to exit our traditional advertising and marketing platform technology business lines and refocus on the core services of business transformation, loyalty, and integrated communications across several key verticals. Target customer areas include airlines, airports, electric and gas utilities, health care companies, transportation, travel, and hospitality firms.
Across all of the areas described above we assist our clients in their growing efforts to ensure equity in their program operations, whether it is with an environmental justice or a health equity focus, or some other perspective depending on the program being delivered.
Employees and Offices:
We have approximately 9,000 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, our 50 regional offices throughout the U.S. and more than 20 offices in key regions outside the U.S., including offices in the U.K., Belgium, 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, assumptions, 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, and income taxes. If any of these estimates, assumptions or judgments prove to be incorrect, our reported results could be materially affected. Actual results may differ significantly from our estimates under different assumptions or conditions. 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” 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 U.S. GAAP and the current environment that may have an effect on our financial statements.
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.
SELECTED KEY METRICS
In order to evaluate operations, we track revenue by key metrics that provide useful information about the nature of our operations. 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 7 – Revenue Recognition” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
22
RESULTS OF OPERATIONS
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
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.
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
Dollars |
|
|
Percentages of Revenue |
|
|
Year-to-Year Change |
|
|||||||||||||||
(dollars in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Dollars |
|
|
Percent |
|
||||||
Revenue |
|
$ |
483,282 |
|
|
$ |
413,468 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
$ |
69,814 |
|
|
|
16.9 |
% |
Direct Costs |
|
|
312,565 |
|
|
|
258,158 |
|
|
|
64.7 |
% |
|
|
62.4 |
% |
|
|
54,407 |
|
|
|
21.1 |
% |
Operating Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Indirect and selling expenses |
|
|
123,733 |
|
|
|
117,452 |
|
|
|
25.6 |
% |
|
|
28.4 |
% |
|
|
6,281 |
|
|
|
5.3 |
% |
Depreciation and amortization |
|
|
6,309 |
|
|
|
4,838 |
|
|
|
1.3 |
% |
|
|
1.2 |
% |
|
|
1,471 |
|
|
|
30.4 |
% |
Amortization of intangible assets |
|
|
9,224 |
|
|
|
5,317 |
|
|
|
1.9 |
% |
|
|
1.3 |
% |
|
|
3,907 |
|
|
|
73.5 |
% |
Total Operating Costs and Expenses |
|
|
139,266 |
|
|
|
127,607 |
|
|
|
28.8 |
% |
|
|
30.9 |
% |
|
|
11,659 |
|
|
|
9.1 |
% |
Operating Income |
|
|
31,451 |
|
|
|
27,703 |
|
|
|
6.5 |
% |
|
|
6.7 |
% |
|
|
3,748 |
|
|
|
13.5 |
% |
Interest expense, net |
|
|
(9,457 |
) |
|
|
(2,627 |
) |
|
|
(2.0 |
%) |
|
|
(0.6 |
%) |
|
|
(6,830 |
) |
|
|
260.0 |
% |
Other expense |
|
|
(558 |
) |
|
|
(439 |
) |
|
|
(0.1 |
%) |
|
|
(0.1 |
%) |
|
|
(119 |
) |
|
|
27.1 |
% |
Income before Income Taxes |
|
|
21,436 |
|
|
|
24,637 |
|
|
|
4.4 |
% |
|
|
6.0 |
% |
|
|
(3,201 |
) |
|
|
(13.0 |
%) |
Provision for Income Taxes |
|
|
5,038 |
|
|
|
6,775 |
|
|
|
1.0 |
% |
|
|
1.6 |
% |
|
|
(1,737 |
) |
|
|
(25.6 |
%) |
Net Income |
|
$ |
16,398 |
|
|
$ |
17,862 |
|
|
|
3.4 |
% |
|
|
4.4 |
% |
|
$ |
(1,464 |
) |
|
|
(8.2 |
%) |
Revenue. Revenue for the three months ended March 30, 2023 was $483.3 million, compared to $413.5 million for the three months ended March 30, 2022, an increase of $69.8 million or 16.9%. The increase in revenue was driven by our U.S. federal government and U.S. state and local government clients, increases in our U.S. and international commercial clients, as well as the favorable impact of our acquisitions of SemanticBits and Blanton & Associates in third quarter of 2022. These gains were offset by decreases from our international government work.
The Energy, Environment, Infrastructure and Disaster Recovery client market increased $18.4 million or 10.9% over the same period last year and was driven by:
The Health and Social Programs client market increased $47.6 million or 30.5% over the same period last year and was driven by:
The Security and Other Civilian & Commercial client market increased $3.8 million or 4.3% over the same period last year and was driven by:
23
Direct Costs. The increase of $54.4 million in direct costs was driven by increases of $31.3 million in our direct labor and associated fringe benefit costs and $23.1 million in our subcontractor and other direct costs, which was driven, in part, by the acquisitions of SemanticBits and Blanton in the third quarter of 2022, as well as the growth in the business. Our direct labor and associated fringe benefit costs as a percentage of direct costs were 57.8% for each of the three-month periods ended March 31, 2023 and 2022, respectively. Our subcontractor and other direct costs as a percentage of direct costs was steady at 42.2% for each of the three-month periods ended March 31, 2023 and 2022, respectively. The increase in our direct costs was also due to additional work performed during the three months ended March 31, 2023 compared to the same period in 2022, partly due to our recent acquisitions previously noted. Our direct costs as a percent of revenue were 64.7% for the three months ended March 31, 2023, compared to 62.4% for the three months ended March 31, 2022. Our direct labor and associated fringe benefit costs as a percentage of revenue were 37.4% and 36.1% for the three months ended March 31, 2023 and 2022, respectively, and our subcontractor and other direct costs as a percentage of revenue were 27.3% and 26.3%, for the three months ended March 31, 2023 and 2022, respectively.
Indirect and selling expenses. For the three months ended March 31, 2023, our indirect and selling expenses increased $6.3 million, or 5.3%, compared to the prior year, primarily due to additional indirect labor and associated fringe costs of $3.8 million and to general and administrative costs of $2.5 million. The increase in our indirect labor and associated fringe costs was a result of additional headcount from our recent acquisitions in 2022 as well as additional labor resources to support our growth. The increase in our general and administrative costs were primarily from impairment of $0.9 million of intangible asset related to a prior acquisition, an increase of $0.9 million in travel expense, and additional credit losses of $0.7 million in 2023 compared to 2022. Although we saw our overall indirect and selling expenses increase in 2023, our indirect and selling expenses as a percent of revenue decreased to 25.6% for the three months ended March 31, 2023 compared to 28.4% for the three months ended March 31, 2022 as we continue to implement efficiency measures and reduce our operating expenses while supporting our revenue growth.
Depreciation and amortization. The increase of $1.5 million in our depreciation and amortization was from $0.9 million of additional depreciation expense and $0.6 million of additional amortization expense resulting from additional capital expenditure in the three months ended March 31, 2023 as compared to 2022.
Amortization of intangible assets. The increase of amortization of intangible assets was primarily due to the amortization of intangible assets acquired in our acquisitions of SemanticBits and Blanton in the third quarter of 2022.
Operating Income. Our operating income increased by $3.7 million for the three months ended March 31, 2023 compared to the prior year due to higher gross profit offset by higher operating costs to support our growing operations.
Interest expense, net. The increase of $6.8 million in interest expense, net, was primarily due to higher average debt balance of $634.3 million during the three months ended March 31, 2023 as compared to $461.2 million during the same period in 2022, as a result of our acquisition activities. We utilize floating-to-fixed interest rate swap agreements (the “Swaps”) to hedge the variable interest portion of our debt. For the three months ended March 31, 2023, settlements of the Swaps provided a reduction of $1.4 million to our interest expense, net, compared to $0.9 million in additional interest for the same period in 2022. Our average interest rate on borrowings, inclusive of the impact of the Swaps, was 5.5% for the three months ended March 31, 2023 compared to 2.1% for the three months ended March 31, 2022.
Other expense. Other expense did not materially change for the three months ended March 31, 2023 as compared to 2022.
Provision for Income Taxes. Our effective income tax rate for the three months ended March 31, 2023 and 2022 was 23.5% and 27.5%, respectively. The decrease in the effective income tax rate was primarily due to the impact of windfall tax benefits relating to equity-based compensation that vested during the quarter and non-taxable income on insurance investments partially offset by non-deductible executive compensation and additional valuation allowance on foreign tax credits generated during the quarter.
NON-GAAP MEASURES
The following tables provide reconciliations of financial measures that are not calculated in accordance with generally accepted accounting principles in the U.S. to their most comparable U.S. GAAP measures (“non-GAAP”). While we believe that these non-GAAP financial measures provided additional information to investors and may be useful in evaluating our financial information, they should be considered supplemental in nature and not as a substitute for financial information prepared in accordance with U.S. GAAP. Other companies may define similarly titled non-GAAP measures differently and, accordingly, care should be exercised in understanding how we define these measures as similarly named measures are unlikely to be comparable across different companies.
Service Revenue
We compute Service Revenue as U.S. GAAP revenue less subcontractor and other direct costs (which include third-party materials and travel expenses, excluding any associated margins), which we believe represents the service we provide to our customer for directly contracting with and managing the activities of subcontractors. We believe Service Revenue is a useful measure to investors that best represents services that we provide to clients through our own employees.
24
The table below presents a reconciliation of U.S. GAAP revenue to Service Revenue for the periods indicated.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Revenue |
|
$ |
483,282 |
|
|
$ |
413,468 |
|
Subcontractor and other direct costs |
|
|
(131,978 |
) |
|
|
(108,898 |
) |
Service Revenue |
|
$ |
351,304 |
|
|
$ |
304,570 |
|
EBITDA and Adjusted EBITDA
Earnings before interest, 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 intended to be measures 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.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Net income |
|
$ |
16,398 |
|
|
$ |
17,862 |
|
Interest, net |
|
|
9,457 |
|
|
|
2,627 |
|
Provision for income taxes |
|
|
5,038 |
|
|
|
6,775 |
|
Depreciation and amortization |
|
|
15,533 |
|
|
|
10,155 |
|
EBITDA (1) |
|
|
46,426 |
|
|
|
37,419 |
|
Impairment of long-lived assets (2) |
|
|
894 |
|
|
|
— |
|
Acquisition-related expenses (3) |
|
|
803 |
|
|
|
1,319 |
|
Severance and other costs related to staff realignment (4) |
|
|
2,495 |
|
|
|
1,226 |
|
Facilities consolidations and office closures (5) |
|
|
359 |
|
|
|
— |
|
Expenses related to the transfer to our new corporate headquarters (6) |
|
|
— |
|
|
|
1,882 |
|
Total Adjustments |
|
|
4,551 |
|
|
|
4,427 |
|
Adjusted EBITDA |
|
$ |
50,977 |
|
|
$ |
41,846 |
|
25
Non-GAAP Diluted Earnings per Share
Non-GAAP diluted earnings per share (“Non-GAAP Diluted EPS”) represents diluted U.S. GAAP earnings per share (“U.S. GAAP Diluted EPS”) excluding the impact of certain items noted above, as well as the impact of amortization of intangible assets related to our acquisitions and income tax effects of these exclusions. 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. 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 U.S. GAAP Diluted EPS to Non-GAAP Diluted EPS for the periods indicated.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
U.S. GAAP Diluted EPS |
|
$ |
0.87 |
|
|
$ |
0.94 |
|
Impairment of long-lived assets |
|
|
0.04 |
|
|
|
— |
|
Acquisition-related expenditures |
|
|
0.04 |
|
|
|
0.07 |
|
Severance and other costs related to staff realignment |
|
|
0.13 |
|
|
|
0.06 |
|
Facilities consolidations and office closures |
|
|
0.02 |
|
|
|
— |
|
Expenses related to the transfer to our new corporate headquarters |
|
|
— |
|
|
|
0.10 |
|
Amortization of intangibles |
|
|
0.49 |
|
|
|
0.28 |
|
Income tax effects on amortization, special charges, and adjustments (1) |
|
|
(0.17 |
) |
|
|
(0.14 |
) |
Non-GAAP Diluted EPS |
|
$ |
1.42 |
|
|
$ |
1.31 |
|
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Borrowing Capacity. Short-term liquidity requirements are created by our use of funds for working capital, capital expenditures, debt service, dividends, and share repurchases. We expect to meet these requirements through a combination of our cash and cash equivalents at hand, cash flow from operations, and borrowings. Our primary source of borrowings is from our Credit Facility with a syndicate of multiple commercial banks, as described in “Note 6 — Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. As of March 31, 2023, we had $499.6 million, or $403.5 million after taking into account the financial and performance-based limitations, available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program. We believe that our cash balances, expected cash flows from operations, and access to our Credit Facility will be sufficient to meet our working capital needs, debt servicing commitments, share repurchase, and dividend payment requirements for the next twelve months and beyond.
We have entered into floating-to-fixed interest rate swap agreements (the “Swaps”) for a total notional value of $275.0 million to hedge a portion of our floating rate Credit Facility. The Swaps expire in 2023, 2025, and 2028, respectively, and we may consider entering into additional hedges as these existing hedges expire. For additional details on the Swaps, see “Note 8 — Derivative Instruments and Hedging Activities” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
There are other conditions, such as the ongoing war in Ukraine and the recent increase in inflation, both in the U.S. and globally, that create uncertainty in the global economy, which in turn may impact, among other things, our ability to generate positive cash flows from operations and our ability to successfully execute and fund key initiatives. However, our current belief is 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 ongoing operations, customary capital expenditures and acquisitions, quarterly cash dividends, share repurchases and organic growth. Additionally, we continuously analyze our capital structure to ensure we have capital to fund future strategic acquisitions.
The recent closures of Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”) in March 2023 and First Republic Bank (”Republic”) in May 2023 have raised significant concerns about bank-specific risks, broader financial institution liquidity risks, and the stability of the banking system in the United States. We did not hold any of our funds in, or have any banking relationship with SVB, Signature, or Republic. To date, we have not experienced any issues with the banks where we do maintain our accounts or have other banking relationships. We hold our funds in large commercial banks and our intent is to maintain account balances at a reasonably low level to reduce our risk of loss from a sudden failure at any individual bank. Our Credit Facility is supported by a syndicate of multiple commercial banks, and each bank in the syndicate provides a pro rata percentage of our total available borrowings and commitments independently of the others. No member of the bank syndicate is responsible for providing more than fifteen percent of the total available borrowings and commitments.
We continue to monitor the state of the financial markets to assess the continuing availability of borrowing capacity under the Credit Facility and the cost of additional capital from both debt and equity markets. At present, we believe we will be able to continue to access these markets at commercially reasonable terms and conditions if we need additional capital in the near term.
26
Financial Condition. There were several changes in our consolidated balance sheet as of March 31, 2023 compared to the consolidated balance sheet as of December 31, 2022. Significant changes are discussed below.
Cash and cash equivalents decreased to $5.4 million as of March 31, 2023, from $11.3 million on December 31, 2022 and restricted cash increased to $3.6 million as of March 31, 2023 from $1.7 million on December 31, 2022. These balances and the changes to the balances of cash and cash equivalents and restricted cash are further discussed in “Cash Flow” below and in “Note 2 — Restricted Cash” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
Contract receivables, net of allowance for expected credit losses, as of March 31, 2023, decreased to $221.1 million from $232.3 million on December 31, 2022 due to the timing of our billings and collection of client invoices. Contract receivables are a significant component of our working capital and may be favorably or unfavorably impacted by our collection efforts, including timing from new contract startups, and other short-term fluctuations related to the payment practices of our clients. We also utilize our MRPA with MUFG Bank, Ltd. to sell certain eligible billed receivables and sold $28.6 million in receivables during the first quarter of 2023. See “Note 3 — Contract Receivables, Net” in the “Notes to Consolidated Financial Statements” in this Quarterly Report
Contract assets and contract liabilities represent revenue in excess of billings and billings in excess of revenue, respectively, both of which generally arise from revenue recognition timing and contractually stipulated billing schedules or billing complexity. At March 31, 2023, contract assets and contract liabilities were $188.1 million and $25.8 million, respectively, compared to $169.1 million and $25.8 million, respectively, at December 31, 2022.
We evaluate our collections efforts using the days-sales-outstanding ratio (“DSO”), which we calculate by dividing total accounts receivable (contract receivables, net and contract assets, less contract liabilities), by revenue per day for the trailing 90-day period. Our DSO improved to 71 days at March 31, 2023, from 79 days at March 31, 2022, due, in part, to the utilization of our MRPA and improved collection efforts. Excluding collections relating to the Puerto Rico disaster relief and rebuild efforts (which include unusually long invoice payment cycles due to complex customer reporting and billing requirements), DSO was 68 days at March 31, 2023 compared to 74 days at March 31, 2022.
Accounts payable decreased to $109.9 at March 31, 2023 from $135.8 million at December 31, 2022, and our accrued expenses totaled $171.6 million at March 31, 2023 as compared to $209.5 million at December 31, 2022. The changes in our accounts payable and accrued expenses are primarily due to the timing of invoices from our vendors and subcontractors for services rendered and our subsequent payments of those invoices.
Long-term debt (exclusive of unamortized debt issuance costs) increased to $602.7 million on March 31, 2023 from $561.4 million on December 31, 2022, primarily due to the net advance on our Credit Facility of $41.4 million to fund short-term working capital needs. The average debt balances on the Credit Facility for the three months ended March 31, 2023 and 2022 were $634.3 million and $461.2 million, respectively. We deploy cash flow from operations as our primary source of funding and utilize our Credit Facility to fund any temporary cash requirements.
Inflation. Our business and results of operations have not been materially affected by inflation and changing prices during the period presented and we do not expect to be materially affected in the future due to the nature of our business as a provider of professional services with contracts that can be negotiated with new prices.
Share Repurchase Program. The objective of our share repurchase program has been to offset dilution resulting from our employee incentive plan. Our share repurchase program is described in “Note 14 — Share Repurchase Program” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. 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. The purchases will be funded from our existing cash balances and/or borrowings, and the repurchased shares will be held in treasury.
During the three months ended March 31, 2023, we repurchased 180,000 shares under this program at an average price of $100.70 per share. As of March 31, 2023, $93.7 million remained available for share repurchases.
Dividends. We pay quarterly cash dividends to our shareholders of record at $0.14 per share. Total dividend payments during the three months ended March 31, 2023 were $2.6 million.
Cash dividends declared thus far in 2023 are as follows:
Dividend Declaration Date |
|
Dividend Per Share |
|
|
Record Date |
|
Payment Date |
|
February 28, 2023 |
|
$ |
0.14 |
|
|
March 24, 2023 |
|
April 13, 2023 |
May 9, 2023 |
|
$ |
0.14 |
|
|
June 9, 2023 |
|
July 14, 2023 |
27
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 three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Net Cash Used in Operating Activities |
|
$ |
(16,831 |
) |
|
$ |
(7,055 |
) |
Net Cash Used in Investing Activities |
|
|
(6,900 |
) |
|
|
(6,454 |
) |
Net Cash Provided by Financing Activities |
|
|
19,688 |
|
|
|
2,674 |
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash |
|
|
11 |
|
|
|
(525 |
) |
Decrease in Cash, Cash Equivalents, and Restricted Cash |
|
$ |
(4,032 |
) |
|
$ |
(11,360 |
) |
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.
Net cash used in operating activities increased by $9.8 million primarily due to an additional payroll cycle that increased the use of cash by $25.2 million during the first quarter of 2023 and the timing of vendor payments, partially offset by higher proceeds from sale of receivables.
Net cash used in investing activities increased by $0.4 million primarily due to payments for prior business acquisitions.
Net cash provided by cash flows from financing activities increased by $17.0 million primarily due to net lower cash payments against restricted contract funds of $12.2 million and higher borrowing against our Credit Facility of $3.3 million.
28
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. There have been no significant changes in our internal controls over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the periods covered by this Quarterly Report or, to our knowledge, 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.
29
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 the 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 the three months ended March 31, 2023:
Period |
|
Total Number |
|
|
Average Price |
|
|
Total Number of |
|
|
Maximum Number |
|
||||
January 1 - January 31 |
|
|
129,605 |
|
|
$ |
99.17 |
|
|
|
113,573 |
|
|
$ |
93,743,956 |
|
February 1 - February 28 |
|
|
66,427 |
|
|
$ |
103.20 |
|
|
|
66,427 |
|
|
$ |
93,743,956 |
|
March 1 - March 31 |
|
|
29,015 |
|
|
$ |
107.28 |
|
|
|
— |
|
|
$ |
93,743,956 |
|
Total |
|
|
225,047 |
|
|
$ |
101.40 |
|
|
|
180,000 |
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
30
Item 6. Exhibits
Exhibit Number |
|
Exhibit |
|
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101 |
|
The following materials from the ICF International, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 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.* |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Submitted electronically herewith.
31
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.
|
ICF INTERNATIONAL, INC. |
||
|
|
|
|
May 10, 2023 |
By: |
|
/s/ John Wasson |
|
|
|
John Wasson |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
May 10, 2023 |
By: |
|
/s/ Barry Broadus |
|
|
|
Barry Broadus |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
32
Exhibit 31.1
Certification of the Principal Executive Officer
Pursuant to Rule 13a-14(a) and 15d-14(a)
I, John Wasson, President and Chief Executive Officer of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICF International, Inc. (the “Registrant”);
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;
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;
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:
(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;
(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;
(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
(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
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):
(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
(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.
May 10, 2023 |
|
/s/ John Wasson |
|
|
John Wasson |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
Certification of the Principal Financial Officer
Pursuant to Rule 13a-14(a) and 15d-14(a)
I, Barry Broadus, Chief Financial Officer of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICF International, Inc. (the “Registrant”);
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;
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;
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:
(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;
(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;
(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
(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
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):
(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
(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.
May 10, 2023 |
|
/s/ Barry Broadus |
|
|
Barry Broadus |
|
|
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 March 31, 2023 (the “Report”) of ICF International, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, John Wasson, President and Chief Executive Officer of the Registrant, hereby certify that:
(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
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
May 10, 2023 |
|
/s/ John Wasson |
|
|
John Wasson |
|
|
President and Chief Executive Officer |
|
|
(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 March 31, 2023 (the “Report”) of ICF International, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Barry Broadus, Chief Financial Officer of the Registrant, hereby certify that:
(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
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
May 10, 2023 |
|
/s/ Barry Broadus |
|
|
Barry Broadus |
|
|
Chief Financial Officer (Principal Financial Officer) |