ICF Reports Third Quarter 2017 Results

Nov 02, 2017 04:05 pm
FAIRFAX, Va. -- 

ICF (NASDAQ:ICFI), a consulting and technology services provider to government and commercial clients around the world, reported results for the third quarter ended September 30, 2017.

Third Quarter 2017 Results

“Third quarter results set the stage for us to achieve the full year 2017 revenue, earnings and cash flow guidance we provided at the beginning of this year,” said Sudhakar Kesavan, ICF’s Chairman and Chief Executive Officer.

“Efficient program performance and staff utilization, together with benefits from ongoing cost reduction initiatives, drove solid EBITDA performance in the third quarter, resulting in EBITDA margins of 10.1 percent and 13.9 percent on total and service revenue, respectively.

“Third quarter revenue was stable with last year’s levels even with one less working day, and year-to-date revenue increased 1.4 percent. In this year’s third quarter we experienced delays in pass-through revenue on several government contracts, which we expect to partially recapture in the fourth quarter. Due to the addition of these and other pass-through revenue, we expect to see a shift in the historical seasonality of ICF’s revenue trends this year, with fourth quarter revenue sequentially above third quarter levels.

“As expected, revenue from commercial clients continued to increase, driven by our energy markets work, and accounted for over 36 percent of third-quarter revenue. Government revenue was modestly below year-ago levels primarily as a result of the delay of pass-through revenue to the fourth quarter and into 2018. Except for the impact of lower pass-through activity, federal government revenue was approximately flat year-on-year. Strong double-digit revenue growth from international government clients more than offset the decline in state and local government revenue, which resulted from temporary delays in certain environmental and infrastructure projects in California.

“We continued to see sequential improvement in contract award activity in the third quarter, although as expected with the transition to the new administration, the seasonal trajectory in federal government contract activity associated with the government year-end was muted. Our current trailing twelve month book-to-bill ratio is at 1.1, and at the end of the third quarter funded backlog was 48 percent of total backlog. ICF’s business development pipeline was over $4.3 billion at the end of the third quarter, approximately 8 percent ahead of the similar period last year.

“Additionally, in the wake of Hurricanes Harvey, Irma and Maria, we were awarded two IDIQ contracts by state and local agencies in October that represent vehicles through which ICF will bid on task orders that fall within our area of housing recovery expertise. We expect additional RFPs to be released for support of CDBG-funded housing recovery programs at the state, county and local levels in Texas and Florida, and in the Territory of Puerto Rico, over the next several quarters. In the meantime, we have started to deploy ICF staff members to provide technical assistance support to certain of the affected areas through task orders under existing subcontracts with large engineering firms,” Mr. Kesavan noted.

Third quarter 2017 total revenue was $305.3 million, compared to $306.5 million in the third quarter of last year. Service revenue was $221.8 million, compared to $223.2 million in the third quarter of 2016. Net income amounted to $13.7 million in the third quarter of 2017, a 1.9 percent year-over-year increase from $13.4 million. Diluted earnings per share increased 2.9 percent to $0.72 from $0.70 per diluted share in the same quarter of last year. Non-GAAP EPS increased 2.5 percent to $0.83 per share compared to $0.81 in the third quarter of last year. EBITDA was $30.8 million, inclusive of $0.3 million in special charges, approximately flat with $31.0 million in the third quarter of 2016. Third quarter 2017 EBITDA margin was 10.1 percent of total revenue, at the same level as last year. Adjusted EBITDA¹ margin, exclusive of the aforementioned special charges, was 10.2 percent of total revenue and 14.0 percent of service revenue.

Backlog and New Business Awards

Total backlog was $2.1 billion at the end of the third quarter of 2017. Funded backlog was $1.0 billion, or approximately 48 percent of the total backlog. The total value of contracts awarded in the 2017 third quarter was $401 million, bringing the trailing twelve month book-to-bill ratio to 1.1.

Government Business Third Quarter 2017 Highlights

  • U.S. federal government revenue was $142.3 million, a 4.9 percent decline due to lower pass-through revenue that was pushed out into the fourth quarter and 2018. Federal government revenue accounted for 47 percent of total revenue, compared to 49 percent of total revenue in the third quarter of 2016.
  • U.S. state and local government revenue decreased 11 percent year-on-year to $29.8 million due to temporary project delays and accounted for 10 percent of total revenue, compared to 11 percent of total revenue in the 2016 third quarter.
  • International government revenue increased 31 percent year-on-year, continuing its positive momentum, and accounted for 7 percent of total revenue, compared to 5 percent of total revenue in the 2016 third quarter.

Key Government Contracts Awarded in the Third Quarter

ICF was awarded more than 150 U.S. federal government contracts and task orders and more than 200 additional contracts from state and local and international governments. Some of the largest awards included:

  • Strategic communications: A re-compete blank purchase agreement with a ceiling of $50 million with the National Cancer Institute to provide biomedical informatics services, communications, and content.
  • Program support: A single-award indefinite-delivery, indefinite quantity re-compete contract with a ceiling of $25 million with the U.S. Department of Health and Human Services’ (HHS) Assistant Secretary for Preparedness and Response (ASPR) to continue the development and operation of the agency’s information gateway and technical assistance center for healthcare system preparedness and response.
  • Program management and communications: A contract with a ceiling of $20.7 million with the U.S. Department of Interior Bureau of Reclamation to provide program management, compliance documentation, modeling, and a variety of communications support for the long-term operation of California’s Central Valley Project and State Water Project.
  • Strategic communications: A re-compete contract with a ceiling of $20 million with the National Cancer Institute to provide communications services for the Division of Cancer Control and Population Sciences.
  • Survey and program support: A re-compete task order with a value of more than $13 million with the Centers for Disease Control to continue to administer the National Youth Tobacco Survey.
  • Program support: A task order with a value of $12.6 million with the U.S. Department of Defense Air Force Air Mobility Command to provide support to the Enterprise Learning Office.
  • Program support: A contract with a value of $9.8 million with the U.S. Postal Service to provide customer registration program support.
  • Program support: A task order with a value of $9.2 million with the CDC Cancer Surveillance system to collect, process, analyze, and disseminate cancer incidence data.

Other government contract wins with a value of at least $5 million included: onsite support for state and tribal technical assistance for child welfare IT systems for the HHS Administration for Children and Families Children’s Bureau; preparation and dissemination of health information for the National Institutes of Health, National Center for Complementary and Integrative Health; program capacity building services for the Office of Community Services of the Administration for Children and Families; and continued support for the U.S. Department of Justice, Office of Juvenile Justice and Delinquency Prevention’s National Training and Technical Assistance Center.

Commercial Business Third Quarter 2017 Highlights

  • Commercial revenue was $110.6 million, 4.3 percent above the $106.1 million in last year’s third quarter. Commercial revenue accounted for 36 percent of total revenue, compared to 35 percent of total revenue in the 2016 third quarter.
  • Energy markets, which include energy efficiency programs, represented 40 percent of commercial revenue. Marketing services accounted for 40 percent of commercial revenue.

Key Commercial Contracts Awarded in the Third Quarter

Commercial sales were $93.2 million in the third quarter of 2017, and ICF was awarded more than 600 commercial projects globally during the period. The largest awards were:

Energy Markets

  • Four task orders with a combined value of $17.9 million with a utility in the southeastern U.S. to provide marketing services for its energy efficiency programs.
  • A contract with a ceiling of $8.3 million with an eastern U.S. utility to provide visual inspections and simple energy efficiency measures to its low- and moderate-income customers.
  • Two contracts with a combined value of $2.4 million with a wind energy company to prepare an environmental impact statement and master plan for a wind energy development project.

Marketing Services

  • Multiple contracts and modifications with a combined value of $27.3 million with a health insurance company to provide marketing services for its programs.
  • Multiple contracts and task orders with a combined value of $2.6 million with a health insurance company to provide program management support.

Other commercial contract and task order wins which were at least $1 million included: environmental support services for a western U.S. utility; digital marketing services for a financial services company; additional marketing services for a floor care products manufacturer; digital services for a trade association; implementation support for a Canadian utility’s home energy assistance program; additional marketing services for an international hotel chain; and loyalty program support for a national clothing retailer.

Summary and Outlook

“ICF’s year-to-date results reflect solid performance and represents our ability to capture growth across our diversified client set.

“Based on year-to-date results and current visibility, we have narrowed our full year 2017 guidance ranges. We expect revenue to range from $1.21 billion to $1.23 billion, diluted earnings per share to be between $2.50 and $2.60, and Non-GAAP EPS to range from $2.95 to $3.05. Additionally, we continue to expect operating cash flow to be in the range of $90 million to $100 million.

“Looking ahead to 2018, we believe that ICF’s government business is well positioned to support key federal agencies where spending is likely to remain stable or increase compared to fiscal 2017 levels, to assist state and local jurisdictions with post-hurricane housing recovery, and to further drive international revenue growth. On the commercial side, we expect energy markets to continue to grow thanks to contracts won and a robust business development pipeline, and commercial marketing services to build on positive year-to-date business development momentum and success in winning integrated contracts,” Mr. Kesavan concluded.

About ICF

ICF is a global consulting services company with over 5,000 specialized experts, but we are not your typical consultants. At ICF, business analysts and policy specialists work together with digital strategists, data scientists and creatives. We combine unmatched industry expertise with cutting-edge engagement capabilities to help organizations solve their most complex challenges. Since 1969, public and private sector clients have worked with ICF to navigate change and shape the future. Learn more at icf.com.

Caution Concerning Forward-looking Statements

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

1 Non-GAAP EPS, Service Revenue, EBITDA, and Adjusted EBITDA are non-GAAP measurements. A reconciliation of all non-GAAP measurements to the most applicable GAAP number is set forth below. EBITDA margin percent is calculated by dividing the non-GAAP measure by the corresponding revenue.

       
ICF International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
 
Three months ended Nine Months Ended
September 30, September 30,
  2017     2016     2017     2016  
(Unaudited) (Unaudited)
Revenue $ 305,301 $ 306,520 $ 907,988 $ 895,538
Direct Costs 189,992 191,310 564,495 562,697
Operating costs and expenses:
Indirect and selling expenses 84,558 84,193 259,600 250,393
Depreciation and amortization 4,613 4,130 13,431 12,233
Amortization of intangible assets   2,742     3,111     8,225     9,387  
Total operating costs and expenses   91,913     91,434     281,256     272,013  
 
Operating Income 23,396 23,776 62,237 60,828
Interest expense (2,175 ) (2,407 ) (6,663 ) (7,312 )
Other (expense) income   (311 )   732     24     950  
Income before income taxes 20,910 22,101 55,598 54,466
Provision for income taxes   7,218     8,664     19,792     20,555  
Net income $ 13,692   $ 13,437   $ 35,806   $ 33,911  
 
Earnings per Share:
Basic $ 0.73   $ 0.71   $ 1.90   $ 1.79  
Diluted $ 0.72   $ 0.70   $ 1.86   $ 1.75  
 
Weighted-average Shares:
Basic   18,666     18,965     18,807     18,989  
Diluted   19,024     19,329     19,218     19,345  
 
Other comprehensive income (loss), net of tax   558     (165 )   3,030     (3,108 )
Comprehensive income, net of tax $ 14,250   $ 13,272   $ 38,836   $ 30,803  
     
ICF International, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
(in thousands, except per share amounts)
 
Three months ended Nine Months Ended
September 30, September 30,
  2017     2016     2017     2016  
(Unaudited) (Unaudited)

Reconciliation of Service Revenue

Revenue $ 305,301 $ 306,520 $ 907,988 $ 895,538
Subcontractor and Other Direct Costs   (83,534 )   (83,346 )   (241,514 )   (237,567 )
Service Revenue $ 221,767   $ 223,174   $ 666,474   $ 657,971  
 

Reconciliation of EBITDA and Adjusted EBITDA

Net Income $ 13,692 $ 13,437 $ 35,806 $ 33,911
Other expense (income) 311 (732 ) (24 ) (950 )
Interest expense 2,175 2,407 6,663 7,312
Provision for income taxes 7,218 8,664 19,792 20,555
Depreciation and amortization   7,355     7,241     21,656     21,620  
EBITDA 30,751 31,017 83,893 82,448
Special charges related to severance for staff realignment (2) 264 389 841 1,475
Special charges related to facility consolidations and office closures   2     53     1,721     108  
Adjusted EBITDA $ 31,017   $ 31,459   $ 86,455   $ 84,031  
 
EBITDA Margin Percent on Revenue (3) 10.1 % 10.1 % 9.2 % 9.2 %
EBITDA Margin Percent on Service Revenue (3) 13.9 % 13.9 % 12.6 % 12.5 %
Adjusted EBITDA Margin Percent on Revenue (3) 10.2 % 10.3 % 9.5 % 9.4 %
Adjusted EBITDA Margin Percent on Service Revenue (3) 14.0 % 14.1 % 13.0 % 12.8 %
 

Reconciliation of Non-GAAP EPS

Diluted EPS $ 0.72 $ 0.70 $ 1.86 $ 1.75
Special charges related to severance for staff realignment 0.01 $ 0.02 0.04 0.08
Special charges related to facility consolidations and office closures 0.01 — 0.11 0.01
Amortization of intangibles 0.14 $ 0.16 0.43 0.49
Income tax effects (4)   (0.05 ) $ (0.07 )   (0.20 )   (0.22 )
Non-GAAP EPS $ 0.83   $ 0.81   $ 2.24   $ 2.11  
 
(2) Special charges related to severance were for an unplanned reduction in workforce of senior management in the third quarter of 2016 and the second and third quarter of 2017, and international staff realignment in the second quarter of 2016.
 
(3) EBITDA Margin Percent and Adjusted EBITDA Margin Percent were calculated by dividing the non-GAAP measures by the corresponding revenue.
 
(4) Income tax effects were calculated using an effective U.S. GAAP tax rate of 34.5% and 39.2% for the third quarter of fiscal year 2017 and 2016, respectively, and an effective tax rate of 35.6% and 37.7% for the first nine months of fiscal year 2017 and 2016, respectively.
   
ICF International, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
 
September 30, 2017 December 31, 2016
(Unaudited)
Current Assets:
Cash and cash equivalents $ 6,485 $ 6,042
Contract receivables, net 288,060 281,365
Prepaid expenses and other 12,902 11,724
Income tax receivable   1,598     —  
Total current assets   309,045     299,131  
Total property and equipment, net 36,027 40,484
Other assets:
Goodwill 685,922 683,683
Other intangible assets, net 37,971 46,129
Restricted cash 1,251 1,843
Other assets   17,431     14,301  
Total Assets $ 1,087,647   $ 1,085,571  
 
Current Liabilities:
Accounts payable $ 62,604 $ 70,586
Accrued salaries and benefits 54,807 39,763
Accrued expenses and other current liabilities 44,377 52,631
Deferred revenue 34,485 29,394
Income tax payable   —     106  
Total current liabilities   196,273     192,480  
Long-term liabilities:
Long-term debt 230,080 259,389
Deferred rent 14,970 15,600
Deferred income taxes 47,160 39,114
Other   14,378     12,984  
Total Liabilities 502,861 519,567
Commitments and Contingencies (Note 13)
Stockholders’ Equity:
Preferred stock, par value $.001 per share; 5,000,000 shares authorized; none issued — —

Common stock, $.001 par value; 70,000,000 shares authorized; 22,009,402 and 21,663,432 shares issued; 18,639,314 and 19,021,262 shares outstanding as of September 30, 2017 and December 31, 2016, respectively

22 22
Additional paid-in capital 305,394 292,427
Retained earnings 407,696 371,890
Treasury stock (121,716 ) (88,695 )
Accumulated other comprehensive loss   (6,610 )   (9,640 )
Total Stockholders’ Equity   584,786     566,004  
Total Liabilities and Stockholders’ Equity $ 1,087,647   $ 1,085,571  
   
ICF International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
 
Nine Months Ended
September 30,
  2017     2016  
(Unaudited)
Cash flows from operating activities
Net income $ 35,806 $ 33,911
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash equity compensation 8,158 7,674
Depreciation and amortization 21,655 21,620
Facilities consolidation reserve 1,351 —
Deferred taxes and other adjustments, net 7,473 5,223
Changes in operating assets and liabilities:
Contract receivables, net (3,876 ) (18,286 )
Prepaid expenses and other assets (2,835 ) (4,875 )
Accounts payable (8,822 ) (4,387 )
Accrued salaries and benefits 14,795 18,921
Accrued expenses and other current liabilities (9,996 ) 3,779
Deferred revenue 4,470 160
Income tax receivable and payable (1,710 ) (5,567 )
Other liabilities   3,815     (386 )
Net cash provided by operating activities   70,284     57,787  
 
Cash flows from investing activities
Capital expenditures for property and equipment and capitalized software (8,475 ) (10,654 )
Payments for business acquisitions, net of cash received   (92 )   —  
Net cash used in investing activities   (8,567 )   (10,654 )
 
Cash flows from financing activities
Advances from working capital facilities 460,875 360,947
Payments on working capital facilities (490,184 ) (391,285 )
Payments on capital expenditure obligations (3,394 ) (3,030 )
Debt issue costs (1,591 ) —
Proceeds from exercise of options 4,722 2,104
Net payments for stockholder issuances and buybacks   (32,934 )   (13,408 )
Net cash used in financing activities (62,506 ) (44,672 )
Effect of exchange rate changes on cash, cash equivalents, and restricted cash   640     (596 )
Increase in Cash, Cash Equivalents, and Restricted Cash (149 ) 1,865
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period   7,885     9,109  
Cash, Cash Equivalents, and Restricted Cash, End of Period $ 7,736   $ 10,974  
 
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 6,042   $ 6,085  
Income taxes $ 15,085   $ 15,137  
         
ICF International, Inc. and Subsidiaries
Supplemental Schedule
 
Revenue by market Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Energy, environment, and infrastructure 40% 40% 40% 39%
Health, education, and social programs 42% 42% 42% 43%
Safety and security 8% 8% 8% 8%
Consumer and financial 10% 10% 10% 10%
Total 100% 100% 100% 100%
 
 
 
Revenue by client Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
U.S. federal government 47% 49% 46% 49%
U.S. state and local government 10% 11% 11% 11%
International government 7% 5% 7% 6%
Government 64% 65% 64% 66%
Commercial 36% 35% 36% 34%
Total 100% 100% 100% 100%
 
 
 
Revenue by contract Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Time-and-materials 41% 42% 42% 43%
Fixed-price 40% 39% 39% 38%
Cost-based 19% 19% 19% 19%
Total 100% 100% 100% 100%

Investor Contacts:
MBS Value Partners
Lynn Morgen, 1-212-750-5800
[email protected]
or
MBS Value Partners
David Gold, 1-212-750-5800
[email protected]
or
Company Information Contact:
ICF
Lauren Dyke, +1-571-373-5577
[email protected]