ICF Reports Third Quarter 2020 Results
FAIRFAX, Va., Nov. 5, 2020 /PRNewswire/ --
Third Quarter Highlights:
-- Total Revenue Was $360 Million
-- Service Revenue¹ Was $265 Million, up 3%
-- Diluted EPS of $0.94; Non-GAAP EPS¹ was $1.10
-- Adjusted EBITDA Margin on Service Revenue¹ Was 14.3%
-- Record Third Quarter Contract Awards of $792 Million; TTM Contract
Awards Were $1.8 Billion For a Book-to-Bill Ratio of 1.2
-- Year-to-Date Cash Flow Was $95 Million
--Raises Full Year 2020 EPS and Cash Flow Guidance--
ICF (NASDAQ:ICFI), a global consulting and digital services provider, reported results for the third quarter ended September 30, 2020.
Commenting on the results, John Wasson, president and chief executive officer said, "This was another quarter of strong performance for ICF, demonstrating the resilience of our diversified business model, excellent execution across our client set, and positive impact of our key growth catalysts.
"Service revenue increased 3% year-on-year, led by programs for federal government clients and energy-related advisory and implementation work for commercial clients. Favorable business mix, higher utilization and lower SG&A costs drove Adjusted EBITDA¹ growth of 4.9% and resulted in a 14.3% Adjusted EBITDA margin on service revenue, 30 basis points above last year and 180 basis points ahead of the prior quarter.
"Another financial highlight of the third quarter was operating cash flow, which increased by $84 million, bringing year-to-date operating cash flow to $95 million, primarily due to improved collections. We utilized these funds to pay down $79 million of long-term debt associated with the January acquisition of ITG.
"This was the highest third quarter for contract wins in the company's history, representing a trailing-12-month (TTM) book-to-bill ratio of 1.2, setting the stage for future growth. ICF was awarded $792 million in contracts, including strategic wins that align with the growth catalysts we have identified: IT modernization/digital transformation, public health, commercial energy and disaster management. In disaster management, we have won small but strategic mitigation contracts in four states since the beginning of this year and are awaiting award decisions on larger contracts in additional jurisdictions."
Third Quarter 2020 Results
Third quarter 2020 total revenue was $360.3 million, 3.6% below the $373.9 million reported in the third quarter of 2019, due primarily to lower pass-through revenues. Service revenue increased 2.9% to $264.7 million from $257.2 million. Net income was $17.9 million, down 9.0% from the $19.6 million in the third quarter 2019. Diluted earnings per share (EPS) amounted to $0.94, 7.8% below the $1.02 reported in the prior year's third quarter. Non-GAAP EPS was $1.10 per diluted share, as compared to $1.12 in the year-ago quarter.
Year-on-year net income and EPS comparisons reflected increased interest and amortization expense related to the ITG acquisition, which was completed on January 31, 2020, as well as a higher income tax rate.
EBITDA¹ was $36.9 million, up 3.6% from the $35.6 million reported in the third quarter of 2019. Adjusted EBITDA¹ was $37.8 million, 4.9% above the $36.0 million reported in the comparable quarter of 2019. Third quarter 2020 adjusted EBITDA margin on service revenue expanded by 30 basis points year-on-year to 14.3%.
Backlog and New Business Awards
Total backlog was $2.9 billion at the end of the third quarter of 2020. Funded backlog was $1.5 billion, or approximately 53% of the total backlog. The total value of contracts awarded in the 2020 third quarter was $792 million, resulting in a TTM book-to-bill ratio of 1.2.
Government Revenue Third Quarter 2020 Highlights
Revenue from government clients was $247.0 million, steady year-over-year.
-- U.S. federal government revenue was $175.1 million compared to $148.3
million in the year-ago quarter, an increase of 18% year-on-year.
Federal government revenue accounted for 49% of total revenue, compared
to 40% of total revenue in the third quarter of 2019.
-- U.S. state and local government revenue was $51.6 million, compared to
$71.5 million in the year-ago quarter. State and local government
clients represented 14% of total revenue, compared to 19% in the third
quarter of 2019.
-- International government revenue was $20.3 million, compared to $28.0
million in the year-ago quarter. International government revenue
accounted for 6% of total revenue, compared to 7% in the third quarter
of 2019.
Key Government Contracts Awarded in the Third Quarter
ICF was awarded more than 200 U.S. federal government contracts and task orders and more than 200 additional contracts from U.S. state and local and international governments with an aggregate value of over $680 million. Notable awards won in the third quarter included:
Training and Technical Assistance/IT Modernization
-- Two re-compete contracts valued up to $124.6 million by the U.S.
Department of Health and Human Services' (HHS) Children's Bureau (CB) to
operate and modernize its child welfare clearinghouse and provide
technical assistance to states and tribes in modernizing their child
welfare IT systems. The scope of work was expanded from the previous
contracts to include $35 million in IT modernization work.
-- One new and four re-compete contracts with a total combined value of
$103.4 million with the HHS Administration for Children and Families
(ACF) to provide training and technical assistance to support Head Start
programs across 18 states and the District of Columbia.
-- A new single-award blanket purchase agreement (BPA) with a ceiling of
$49.0 million with the U.S. Food and Drug Administration to provide IT
platform, operations and maintenance, advisory and development services
for its Digital Services Center.
-- Three agreements with a combined value of up to $31.0 million with HHS
ACF to provide training, technical assistance and IT modernization
support to state, tribal and territorial early education and child care
programs.
-- A new $24.4 million contract with HHS CB to provide engineering and
architecture services for the development of a new cloud-based National
Child Welfare Data Management System.
Information, Communications and Outreach
-- A multi-award re-compete BPA with a ceiling of $49.0 million with the
U.S. National Institutes of Health (NIH) to provide biomedical, public
health, clinical and consumer health information services to the
National Library of Medicine.
-- Two re-compete contracts with a combined value of $12.0 million with NIH
to develop and disseminate information related to complementary health
interventions and dietary supplements.
-- A re-compete task order with a value of $8.7 million with the U.S.
Department of Labor, Bureau of International Labor Affairs (ILAB) to
continue to provide research and publication support for ILAB's
production of congressional and executive order reports on child labor,
forced labor and human trafficking.
-- Multiple agreements with a combined value of $8.3 million with the U.S.
Centers for Disease Control and Prevention to provide communications,
research and related support for drug overdose prevention and
strengthening state, tribal, local and territorial health agencies.
Energy Efficiency
-- A re-compete subcontract with a value of $11.1 million to continue to
provide support for the U.S. Department of Energy Better Buildings
program in the form of outreach to commercial and public building
owners/operators to track, manage and improve their energy use.
Cybersecurity
-- A new contract with a value of up to $11.6 million with a U.S. federal
agency to provide support in the research and development of new cyber
analytics capabilities.
Commercial Revenue Third Quarter 2020 Highlights
-- Commercial revenue was $113.3 million, compared to $126.1 million in the
year-ago quarter. Commercial revenue accounted for 31% of total revenue
compared to 34% of total revenue in the 2019 third quarter.
-- Energy markets, which include energy efficiency programs, represented
53% of commercial revenue. Marketing services accounted for 37% of
commercial revenue.
Key Commercial Contracts Awarded in the Third Quarter 2020
Commercial contract awards were over $100 million in the third quarter of 2020. ICF was awarded almost 700 commercial projects globally during the quarter, which strengthened our position in key markets.
In Energy Markets:
-- Several re-compete contracts with a combined multimillion dollar value
with a consortium of Northeast utilities to provide continued and
expanded design and implementation services supporting the utilities'
new home construction and renovations programs for residential,
multifamily and commercial and industrial metered buildings.
-- A contract with a U.S. energy company to support its beneficial
electrification program for its New York state utilities.
-- Multiple contracts and change orders with a western U.S. utility to
provide a variety of environmental and planning services.
-- Multiple contract amendments with a renewable energy company to provide
environmental services.
-- Multiple contracts and add-ons with a midwestern U.S. utility to provide
energy efficiency program support services.
In Marketing Services:
-- Multiple contracts and contract modifications with a U.S. health insurer
to provide a variety of marketing and paid media campaign services.
-- Multiple task orders with a U.S. beverage company to provide marketing
services.
-- Multiple contract modifications with a manufacturer of floor care
products to provide additional marketing campaign, public relations and
social media services.
Dividend Declaration
On November 5, 2020, ICF declared a quarterly cash dividend of $0.14 per share, payable on January 12, 2021, to shareholders of record on December 11, 2020.
Summary and Outlook
"Strong year-to-date performance highlighted by a 4.1% increase in service revenue, has enabled us to raise our guidance for EPS. Specifically, we now expect GAAP diluted EPS to range from $3.15 to $3.30 exclusive of special charges, up from the previous guidance midpoint of $3.00, and Non-GAAP diluted EPS of $3.90 to $4.05, up from the previous guidance midpoint of $3.65. We now expect 2020 revenues to range from $1.460 billion to $1.500 billion.
"Additionally, we have increased our operating cash flow guidance to approximately $120 million for 2020, up from previous guidance of $110 million, and representing a 31% increase from 2019 levels.
"Looking ahead, we are confident in ICF's growth prospects heading into 2021. In addition to our substantial year-to-date contract awards, our business development pipeline was $6.8 billion at the end of the third quarter, representing significant opportunities in both the government and commercial arenas. We are well-positioned in high-profile areas of federal government spending including IT modernization and public health; bring substantial qualifications and scale to the growing areas of disaster management and mitigation; and are leaders in providing consulting and implementation services to the utility industry. These business attributes, together with a strong corporate culture, position ICF to achieve mid-single-digit organic growth in service revenue in the coming years.
"In addition to these growth catalysts, we are pleased that at ICF our business, environmental and social responsibilities are intertwined. Much of our business is in core service areas that address environmental and social issues, including climate, energy efficiency, disaster management, public health and social programs, which enables us to create positive impacts. Moreover, we are a leader in the way we operate, including being the first professional services firm to go carbon neutral (in 2006), and embracing social justice, diversity and equal pay. We are proud of ICF's ability to make a positive impact on society," Mr. Wasson concluded.
(1) Non-GAAP EPS, Service Revenue,
EBITDA, Adjusted EBITDA, Adjusted
EBITDA Margin, and Adjusted EBITDA
Margin on Service Revenue are non-
GAAP measurements. A reconciliation
of all non-GAAP measurements to the
most applicable GAAP number is set
forth below. Special charges are
items that were included within our
consolidated statements of
comprehensive income but are not
indicative of ongoing performance
and have been presented net of
applicable U.S. GAAP taxes. The
presentation of non-GAAP
measurements may not be comparable
to other similarly titled measures
used by other companies.
About ICF
ICF (NASDAQ:ICFI) is a global consulting services company with over 7,000 full- and part-time employees, 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; our ability to acquire and successfully integrate businesses; and the effects of the novel coronavirus disease (COVID-19) and related federal, state and local government actions and reactions on the health of our staff and that of our clients, the continuity of our and our clients' operations, our results of operations and our outlook. These and other factors that could cause our actual results to differ from those indicated in forward-looking statements that 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.
Investor Contacts:
Lynn Morgen, ADVISIRY PARTNERS, lynn.morgen@advisiry.com +1.212.750.5800
David Gold, ADVISIRY PARTNERS, david.gold@advisiry.com +1.212.750.5800
Company Information Contact:
Lauren Dyke, ICF, lauren.dyke@ICF.com +1.571.373.5577
ICF International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share
amounts) 2020 2019 2020 2019
Revenue $360,315 $373,918 $1,072,540 $1,081,889
Direct costs 223,288 238,158 677,311 689,160
Operating costs and expenses:
Indirect and selling expenses 100,123 100,130 302,649 298,099
Depreciation and amortization 5,143 5,035 15,386 15,392
Amortization of intangible
assets 3,511 1,931 9,843 6,143
Total operating costs and
expenses 108,777 107,096 327,878 319,634
Operating income 28,250 28,664 67,351 73,095
Interest expense (3,488) (2,824) (10,921) (8,211)
Other (expense) income (223) (141) 316 (367)
Income before income taxes 24,539 25,699 56,746 64,517
Provision for income taxes 6,668 6,069 14,607 14,958
Net income $17,871 $19,630 $42,139 $49,559
Earnings per Share:
Basic $0.95 $1.04 $2.24 $2.63
Diluted $0.94 $1.02 $2.20 $2.58
Weighted-average Shares:
Basic 18,853 18,799 18,841 18,810
Diluted 19,086 19,169 19,111 19,208
Cash dividends declared per
common share $0.14 $0.14 $0.42 $0.42
Other comprehensive income
(loss), net of tax 3,671 (3,281) (7,616) (5,851)
Comprehensive income, net of
tax $21,542 $16,349 $34,523 $43,708
ICF International, Inc. and Subsidiaries
Reconciliation of Non-GAAP financial measures(2)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share
amounts) 2020 2019 2020 2019
Reconciliation of Service Revenue
---
Revenue $360,315 $373,918 $1,072,540 $1,081,889
Subcontractor and other direct costs
(3) (95,592) (116,710) (291,217) -330,990
Service revenue $264,723 $257,208 $781,323 $750,899
Reconciliation of EBITDA and Adjusted
EBITDA
---
Net income $17,871 $19,630 $42,139 $49,559
Other loss (income) 223 141 (316) 367
Interest expense 3,488 2,824 10,921 8,211
Provision for income taxes 6,668 6,069 14,607 14,958
Depreciation and amortization 8,654 6,966 25,229 21,535
EBITDA 36,904 35,630 92,580 94,630
Adjustment related to impairment of
intangible assets (4) 1,728
Special charges related to
acquisitions (5) 11 1,953
Special charges related to severance
for staff realignment (6) 847 166 3,695 1,321
Special charges related to facilities
consolidations, office closures, and
our future corporate headquarters
(7) 194 263
Adjustment related to bad debt
reserve (8) (782)
Total special charges 858 360 5,648 2,530
Adjusted EBITDA $37,762 $35,990 $98,228 $97,160
EBITDA Margin Percent on Revenue (9) 10.2% 9.5% 8.6% 8.7%
EBITDA Margin Percent on Service
Revenue (9) 13.9% 13.9% 11.8% 12.6%
Adjusted EBITDA Margin Percent on
Revenue (9) 10.5% 9.6% 9.2% 9.0%
Adjusted EBITDA Margin Percent on
Service Revenue (9) 14.3% 14.0% 12.6% 12.9%
Reconciliation of Non-GAAP Diluted
EPS
---
Diluted EPS $0.94 $1.02 $2.20 $2.58
Adjustment related to impairment of
intangible assets 0.09
Special charges related to
acquisitions 0.10
Special charges related to severance
for staff realignment 0.04 0.01 0.19 0.07
Special charges related to facilities
consolidations, office closures, and
our future corporate headquarters 0.01 0.06
Adjustment related to bad debt
reserve (0.04)
Amortization of intangibles 0.18 0.10 0.52 0.32
Income tax effects (10) (0.06) (0.02) (0.20) (0.12)
Non-GAAP EPS $1.10 $1.12 $2.81 $2.96
(2)These tables provide reconciliations of non-GAAP financial measures
to the most applicable GAAP numbers. While we believe that these non-
GAAP financial measures 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
GAAP. Other companies may define similarly titled non-GAAP measures
differently and, accordingly, care should be exercised in
understanding how we define these measures.
(3)Subcontractor and other direct costs is direct costs excluding
direct labor and fringe costs.
(4) Adjustment related to impairment of intangible assets: We
recognized impairment expense of $1.7 million in the second quarter of
2019 related to intangible assets associated with a historical
business acquisition.
(5) Special charges related to acquisitions: These costs consist
primarily of consultants and other outside third-party costs, as well
as integration costs associated with an acquisition.
(6) Special charges related to severance for staff realignment: These
costs are mainly due to involuntary employee termination benefits for
our officers, groups of employees who have been notified that they
will be terminated as part of a consolidation or reorganization or, to
the extent that the costs are not included in the previous two
categories, involuntary employee termination benefits for employees
who have been terminated as a result of COVID-19.
(7)Special charges related to facilities consolidations, office
closures, and our future corporate headquarters: These costs are exit
costs associated with terminated leases or full office closures. The
exit costs include charges incurred under a contractual obligation
that existed as of the date of the accrual and for which we will
continue to pay until the contractual obligation is satisfied but with
no economic benefit to us. Additionally, we incurred one-time charges
with respect to the execution of a new lease agreement for our
corporate headquarters.
(8)Adjustment related to bad debt reserve: During 2018, we established
a bad debt reserve for amounts due from a utility client that had
filed for bankruptcy and included the reserve as an adjustment due to
its relative size. The adjustment in 2019 reflects a favorable
revision of our prior estimate of collectability based on a third
party acquiring the receivables.
(9) EBITDA Margin Percent and Adjusted EBITDA Margin Percent were
calculated by dividing the non-GAAP measure by the corresponding
revenue.
(10)Income tax effects were calculated using an effective U.S. GAAP tax
rate of 27.2% and 23.6% for the three months ended September 30, 2020
and 2019, respectively, and 25.7% and 23.2% for the nine months ended
September 30, 2020 and 2019, respectively.
ICF International, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share
amounts)
September 30, 2020
December 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents $8,237 $6,482
Contract receivables, net 230,277 261,176
Contract assets 139,860 142,337
Prepaid expenses and other assets 20,518 17,402
Income tax receivable 11,687 7,320
Total Current Assets 410,579 434,717
Property and Equipment, net 62,020 58,237
Other Assets:
Goodwill 906,999 719,934
Other intangible assets, net 63,200 25,829
Operating lease - right-of-use assets 138,582 133,965
Other assets 26,091 23,352
Total Assets $1,607,471 $1,396,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $10,000
$ -
Accounts payable 77,124 134,578
Contract liabilities 36,473 37,413
Operating lease liabilities -current 33,581 32,500
Accrued salaries and benefits 82,842 52,130
Accrued subcontractors and other direct
costs 38,111 45,619
Accrued expenses and other current
liabilities 27,616 35,742
Total Current Liabilities 305,747 337,982
Long-term Liabilities:
Long-term debt 362,280 164,261
Operating lease liabilities - non-
current 123,974 119,250
Deferred income taxes 43,202 37,621
Other long-term liabilities 45,357 22,369
Total Liabilities 880,560 681,483
Contingencies
Stockholders' Equity:
Preferred stock, par value $.001;
5,000,000 shares authorized; none issued
Common stock, par value $.001; 70,000,000
shares authorized; 23,150,496 and
22,846,374 shares issued at September
30, 2020 and December 31, 2019,
respectively; 18,857,661 and 18,867,555
shares outstanding at September 30, 2020
and December 31, 2019, respectively 23 23
Additional paid-in capital 357,328 346,795
Retained earnings 578,554 544,840
Treasury stock, 4,292,835 and 3,978,819
shares at September 30, 2020 and
December 31, 2019, respectively (189,234) (164,963)
Accumulated other comprehensive loss (19,760) (12,144)
Total Stockholders' Equity 726,911 714,551
Total Liabilities and Stockholders'
Equity $1,607,471 $1,396,034
ICF International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
(in thousands) 2020 2019
Cash Flows from Operating Activities
Net income $42,139 $49,559
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 1,517 377
Deferred income taxes 7,838 1,089
Non-cash equity compensation 9,472 11,682
Depreciation and amortization 25,229 21,535
Facilities consolidation reserve (214) (204)
Amortization of debt issuance costs 557 380
Impairment of long-lived assets 1,728
Other adjustments, net (2,278) (1,110)
Changes in operating assets and liabilities, net of
the effects of acquisitions:
Net contract assets and liabilities 2,842 (28,793)
Contract receivables 49,428 (39,711)
Prepaid expenses and other assets 1,084 (385)
Accounts payable (65,044) (5,052)
Accrued salaries and benefits 29,418 23,227
Accrued subcontractors and other direct costs (7,622) (16,895)
Accrued expenses and other current liabilities (9,107) (6,756)
Income tax receivable and payable (4,380) (4,134)
Other liabilities 14,292 (173)
Net Cash Provided by Operating Activities 95,171 6,364
Cash Flows from Investing Activities
Capital expenditures for property and equipment and
capitalized software (12,910) (20,686)
Payments for business acquisitions, net of cash
acquired (253,090) (3,569)
Net Cash Used in Investing Activities (266,000) (24,255)
Cash Flows from Financing Activities
Advances from working capital facilities 946,201 545,539
Payments on working capital facilities (736,645) (500,963)
Payments on capital expenditure obligations (1,712) (1,621)
Debt issue costs (2,093)
Proceeds from exercise of options 37 1,883
Dividends paid (7,910) (7,906)
Net payments for stock issuances and buybacks (23,247) (24,301)
Payments on business acquisition liabilities (1,924)
Net Cash Provided by Financing Activities 172,707 12,631
Effect of Exchange Rate Changes on Cash, Cash
Equivalents, and Restricted Cash (123) (274)
Increase (Decrease) in Cash, Cash Equivalents, and
Restricted Cash 1,755 (5,534)
Cash, Cash Equivalents, and Restricted Cash,
Beginning of Period 6,482 12,986
Cash, Cash Equivalents, and Restricted Cash, End of
Period $8,237 $7,452
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $11,331 $7,581
Income taxes $11,138 $18,061
Non-cash investing and financing transactions:
Tenant improvements funded by lessor $2,207
$ -
ICF International, Inc. and Subsidiaries
Supplemental Schedule(11)(12)
Revenue by client markets Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Energy, environment, and
infrastructure 41% 46% 42% 45%
Health, education, and social
programs 44% 38% 43% 38%
Safety and security 8% 8% 8% 8%
Consumer and financial services 7% 8% 7% 9%
Total 100% 100% 100% 100%
Revenue by client type Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
U.S. federal government 49% 40% 47% 39%
U.S. state and local government 14% 19% 16% 19%
International government 6% 7% 6% 8%
Government 69% 66% 69% 66%
Commercial 31% 34% 31% 34%
Total 100% 100% 100% 100%
Revenue by contract mix Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Time-and-materials 47% 49% 47% 47%
Fixed-price 37% 36% 37% 38%
Cost-based 16% 15% 16% 15%
Total 100% 100% 100% 100%
(11)As is shown in the supplemental
schedule, 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.
(12)Certain immaterial revenue
percentages in the prior year have been
reclassified due to minor adjustments
and reclassifications.
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