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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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class |
Trading Symbols(s) |
Name of each exchange on which registered |
The |
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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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 October 27, 2023, there were
ICF INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE
PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets at September 30, 2023 (Unaudited) and December 31, 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. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
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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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September 30, 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 |
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Finance lease liabilities |
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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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Nine Months Ended |
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September 30, |
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September 30, |
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(in thousands, except per share amounts) |
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2023 |
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2022 |
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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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$ |
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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 income |
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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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$ |
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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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$ |
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$ |
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Diluted |
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$ |
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$ |
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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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$ |
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$ |
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Other comprehensive loss, net of tax |
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( |
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Comprehensive income, net of tax |
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$ |
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$ |
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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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Nine Months Ended |
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September 30, |
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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 credit losses |
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Deferred income taxes and unrecognized income tax benefits |
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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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Gain on divestiture of a business |
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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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( |
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Operating lease assets and liabilities, net |
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( |
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Accounts payable |
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Accrued salaries and benefits |
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( |
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( |
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Accrued subcontractors and other direct costs |
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( |
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Accrued expenses and other current liabilities |
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( |
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Income tax receivable and payable |
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Other liabilities |
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Net Cash Provided by 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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Proceeds from working capital adjustments related to prior business acquisition |
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— |
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Payments for business acquisitions, net of cash acquired |
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Proceeds from divestiture of a business |
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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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Proceeds from other short-term borrowings |
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— |
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Repayments of 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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Debt issuance costs |
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— |
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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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( |
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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 (Used in) Provided by Financing Activities |
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( |
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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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Acquisition of property and equipment through finance lease |
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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 terms “federal” or “federal government” refer to the U.S. federal government, and “state and local” or “state and local government” refer 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 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 them 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 which extended the sunset date from December 31, 2022 to December 31, 2024.
The Company completed its adoption of the provisions of ASU 2020-04 during the second quarter of 2023 upon amendment of its last interest rate swap from LIBOR-based to SOFR-based pricing.
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 nine months ended September 30, 2023 and 2022:
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September 30, 2023 |
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September 30, 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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September 30, 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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( |
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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 and nine months ended September 30, 2023, the Company sold $
NOTE 4 – GOODWILL
The changes in carrying amount of goodwill during the nine months ended September 30, 2023 were as follows:
Balance as of December 31, 2022 |
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$ |
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Add: Goodwill resulting from business combination |
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Less: Goodwill resulting from business divestiture |
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( |
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Effect of foreign currency translation |
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Balance as of September 30, 2023 |
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$ |
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See “Note 13 – Acquisition and Divestiture” for the details of the business combination and divestiture resulting in the changes in goodwill.
NOTE 5 – 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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Nine Months Ended |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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Operating lease cost |
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$ |
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$ |
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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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Finance lease cost - interest |
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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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( |
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Total lease cost |
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$ |
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$ |
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$ |
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$ |
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8
Future minimum lease payments under non-cancellable operating and finance leases as of September 30, 2023 were as follows:
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Operating |
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Finance |
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September 30, 2024 |
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$ |
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$ |
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September 30, 2025 |
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September 30, 2026 |
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September 30, 2027 |
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September 30, 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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Other information related to operating and finance leases for nine months ended September 30, 2023 and 2022 is as follows:
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2023 |
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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 |
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