PR Newswire | Nov 5, 2020 04:06PM EST

11/05 15:05 CST

ICF Reports Third Quarter 2020 Results FAIRFAX, Va., Nov. 5, 2020

FAIRFAX, Va., Nov. 5, 2020 /PRNewswire/ --

Third Quarter Highlights:

* Total Revenue Was $360 Million * Service Revenue? Was $265 Million, up 3% * Diluted EPS of $0.94; Non-GAAP EPS? was $1.10 * Adjusted EBITDA Margin on Service Revenue? 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 EBITDA? 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.

EBITDA? was $36.9 million, up 3.6% from the $35.6 million reported in the third quarter of 2019. Adjusted EBITDA? 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 EBITDAMargin, and Adjusted EBITDA Margin on Service Revenue are non-GAAPmeasurements. A reconciliation of all non-GAAP measurements to the mostapplicable GAAP number is set forth below. Special charges are items that wereincluded within our consolidated statements of comprehensive income but are notindicative of ongoing performance and have been presented net of applicableU.S. GAAP taxes. The presentation of non-GAAP measurements may not becomparable to other similarly titled measures used by other companies.

About ICFICF (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 StatementsStatements 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+1.212.750.5800David Gold, ADVISIRY PARTNERS,david.gold@advisiry.com+1.212.750.5800Company 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 2020 2019 2020 2019per share amounts)

Revenue $360,315 $373,918 $1,072,540 $1,081,889

Direct costs 223,288 238,158 677,311 689,160

Operating costs andexpenses:

Indirect and selling 100,123 100,130 302,649 298,099expenses

Depreciation and 5,143 5,035 15,386 15,392amortization

Amortization of 3,511 1,931 9,843 6,143intangible assets

Total operating costs 108,777 107,096 327,878 319,634and expenses

Operating income 28,250 28,664 67,351 73,095

Interest expense (3,488) (2,824) (10,921) (8,211)

Other (expense) (223) (141) 316 (367)income

Income before income 24,539 25,699 56,746 64,517taxes

Provision for income 6,668 6,069 14,607 14,958taxes

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-averageShares:

Basic 18,853 18,799 18,841 18,810

Diluted 19,086 19,169 19,111 19,208

Cash dividendsdeclared per common $ 0.14 $ 0.14 $ 0.42 $ 0.42share

Other comprehensiveincome (loss), net of 3,671 (3,281) (7,616) (5,851)tax

Comprehensive income, $ 21,542 $ 16,349 $ 34,523 $ 43,708net of tax

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 2020 2019 2020 2019per share amounts)

Reconciliation ofService Revenue

Revenue $360,315 $373,918 $1,072,540 $1,081,889

Subcontractor andother direct costs ^ (95,592) (116,710) (291,217) -330,990(3)

Service revenue $264,723 $257,208 $ 781,323 $ 750,899

Reconciliation ofEBITDA and AdjustedEBITDA

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 6,668 6,069 14,607 14,958taxes

Depreciation and 8,654 6,966 25,229 21,535amortization

EBITDA 36,904 35,630 92,580 94,630

Adjustment related toimpairment of - - - 1,728intangible assets ^(4)

Special chargesrelated to 11 - 1,953 -acquisitions ^(5)

Special chargesrelated to severance 847 166 3,695 1,321for staff realignment^(6)

Special chargesrelated to facilitiesconsolidations, - 194 - 263office closures, andour future corporateheadquarters ^(7)

Adjustment related to - - - (782)bad debt reserve (8)

Total special charges 858 360 5,648 2,530

Adjusted EBITDA $ 37,762 $ 35,990 $ 98,228 $ 97,160

EBITDA Margin Percent 10.2% 9.5% 8.6% 8.7%on Revenue ^(9)

EBITDA Margin Percenton Service Revenue ^ 13.9% 13.9% 11.8% 12.6%(9)

Adjusted EBITDAMargin Percent on 10.5% 9.6% 9.2% 9.0%Revenue ^(9)

Adjusted EBITDAMargin Percent on 14.3% 14.0% 12.6% 12.9%Service Revenue ^(9)

Reconciliation ofNon-GAAP Diluted EPS

Diluted EPS $ 0.94 $ 1.02 $ 2.20 $ 2.58

Adjustment related toimpairment of - - - 0.09intangible assets

Special chargesrelated to - - 0.10 -acquisitions

Special chargesrelated to severance 0.04 0.01 0.19 0.07for staff realignment

Special chargesrelated to facilitiesconsolidations, - 0.01 - 0.06office closures, andour future corporateheadquarters

Adjustment related to - - - (0.04)bad debt reserve

Amortization of 0.18 0.10 0.52 0.32intangibles

Income tax effects ^ (0.06) (0.02) (0.20) (0.12)(10)

Non-GAAP EPS $ 1.10 $ 1.12 $ 2.81 $ 2.96

^(2)These tables provide reconciliations of non-GAAP financial measures to themost applicable GAAP numbers. While we believe that these non-GAAP financialmeasures may be useful in evaluating our financial information, they should beconsidered supplemental in nature and not as a substitute for financialinformation prepared in accordance with GAAP. Other companies may definesimilarly titled non-GAAP measures differently and, accordingly, care should beexercised in understanding how we define these measures.

^(3)Subcontractor and other direct costs is direct costs excluding direct laborand fringe costs.

^(4) Adjustment related to impairment of intangible assets: We recognizedimpairment expense of $1.7 million in the second quarter of 2019 related tointangible assets associated with a historical business acquisition.

^(5) Special charges related to acquisitions: These costs consist primarily ofconsultants and other outside third-party costs, as well as integration costsassociated with an acquisition.

^(6) Special charges related to severance for staff realignment: These costsare mainly due to involuntary employee termination benefits for our officers,groups of employees who have been notified that they will be terminated as partof a consolidation or reorganization or, to the extent that the costs are notincluded in the previous two categories, involuntary employee terminationbenefits for employees who have been terminated as a result of COVID-19.

^(7)Special charges related to facilities consolidations, office closures, andour future corporate headquarters: These costs are exit costs associated withterminated leases or full office closures. The exit costs include chargesincurred under a contractual obligation that existed as of the date of theaccrual and for which we will continue to pay until the contractual obligationis satisfied but with no economic benefit to us. Additionally, we incurredone-time charges with respect to the execution of a new lease agreement for ourcorporate headquarters.

^(8)Adjustment related to bad debt reserve: During 2018, we established a baddebt reserve for amounts due from a utility client that had filed forbankruptcy and included the reserve as an adjustment due to its relative size. The adjustment in 2019 reflects a favorable revision of our prior estimate ofcollectability based on a third party acquiring the receivables.

^(9) EBITDA Margin Percent and Adjusted EBITDA Margin Percent were calculatedby dividing the non-GAAP measure by the corresponding revenue.

^(10)Income tax effects were calculated using an effective U.S. GAAP tax rateof 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, 2020and 2019, respectively.

ICF International, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in thousands,except share September 30, 2020 December 31, 2019and per shareamounts)

ASSETS

CurrentAssets:

Cash and cash $ 8,237 $ 6,482equivalents

Contractreceivables, 230,277 261,176net

Contract 139,860 142,337assets

Prepaidexpenses and 20,518 17,402other assets

Income tax 11,687 7,320receivable

Total Current 410,579 434,717Assets

Property and 62,020 58,237Equipment, net

Other Assets:

Goodwill 906,999 719,934

Otherintangible 63,200 25,829assets, net

Operatinglease - 138,582 133,965right-of-useassets

Other assets 26,091 23,352

Total Assets $ 1,607,471 $ 1,396,034

LIABILITIESANDSTOCKHOLDERS'EQUITY

CurrentLiabilities:

Currentportion of $ 10,000 $ -long-term debt

Accounts 77,124 134,578payable

Contract 36,473 37,413liabilities

Operatinglease 33,581 32,500liabilities -current

Accruedsalaries and 82,842 52,130benefits

Accruedsubcontractors 38,111 45,619and otherdirect costs

Accruedexpenses and 27,616 35,742other currentliabilities

Total Current 305,747 337,982Liabilities

Long-termLiabilities:

Long-term debt 362,280 164,261

Operatinglease 123,974 119,250liabilities -non-current

Deferred 43,202 37,621income taxes

Otherlong-term 45,357 22,369liabilities

Total 880,560 681,483Liabilities

Contingencies

Stockholders'Equity:

Preferredstock, parvalue $.001;5,000,000 - -sharesauthorized;none issued

Common stock,par value$.001;70,000,000sharesauthorized;23,150,496 and22,846,374shares issuedatSeptember 30,2020 and 23 23December 31,2019,respectively;18,857,661 and18,867,555sharesoutstanding atSeptember 30,2020 andDecember 31,2019,respectively

Additionalpaid-in 357,328 346,795capital

Retained 578,554 544,840earnings

Treasurystock,4,292,835 and3,978,819shares at (189,234) (164,963)September 30,2020 andDecember 31,2019,respectively

Accumulatedother (19,760) (12,144)comprehensiveloss

TotalStockholders' 726,911 714,551Equity

TotalLiabilitiesand $ 1,607,471 $ 1,396,034Stockholders'Equity

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 cashprovided 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 ofthe 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 (12,910) (20,686)capitalized software

Payments for business acquisitions, net of cash (253,090) (3,569)acquired

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 (123) (274)Equivalents, and Restricted Cash

Increase (Decrease) in Cash, Cash Equivalents, and 1,755 (5,534)Restricted Cash

Cash, Cash Equivalents, and Restricted Cash, 6,482 12,986Beginning of Period

Cash, Cash Equivalents, and Restricted Cash, End of $ 8,237 $ 7,452Period

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 metricsthat provide useful information about the nature of our operations. Clientmarkets provide insight into the breadth of our expertise. Client type is anindicator of the diversity of our client base. Revenue by contract mixprovides insight in terms of the degree of performance risk that we haveassumed.

^(12)Certain immaterial revenue percentages in the prior year have beenreclassified due to minor adjustments and reclassifications.

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SOURCE ICF