ICF International, Inc. (NASDAQ:ICFI), a leading provider of consulting services and technology solutions to government and commercial clients, reported results for the first quarter ended March 31, 2015.
First Quarter 2015 Results
“Our first quarter started slowly, but we have seen a pickup in business across several of our key markets, which gives us confidence that we will continue to improve significantly in the second quarter and sustain that performance for the rest of the year.
“We were pleased with the first quarter performance of our commercial digital services business, which posted substantial revenue growth attributed to the contribution of our Olson acquisition and the strong organic growth of our legacy digital services business. Together, digital services accounted for 45 percent of total first quarter commercial revenues,” said ICF Chairman and Chief Executive Officer Sudhakar Kesavan.
“There were two unexpected issues that caused first quarter financial results to be below our expectations. First, certain of our commercial advisory businesses faced contract delays and challenges in the first quarter. Second, we experienced project timing issues in our international government business that reduced its revenue performance, although we expect to re-capture a portion of that work in the second half of this year. The lower utilization rates associated with deferred spending in these areas reduced our EBITDA margin performance in the first quarter. We have reduced the midpoint of our full year revenue and EPS guidance ranges to reflect the slow start to 2015.
“U.S. federal government revenues were essentially flat compared to those of the prior year. We continued to grow our federal business in the key areas of our domain expertise where we have scale, such as energy, health and IT services, and posted low single-digit revenue growth in these markets. This growth was offset by lower revenues from our safety and security market, similar to the trends we experienced in 2014. Based on our current backlog, we believe that safety and security-related revenues will remain at first quarter levels in the remaining quarters of this year. State and local revenues increased 9.3 percent, but as previously reported, we expect to see a reduction in Superstorm Sandy-related work, now anticipated in this year’s second half.
“ICF had strong contract wins in the first quarter, posting a 46 percent increase in the value of new awards, comprised of double-digit year-on-year growth in our commercial, U.S. federal and international government markets.”
First quarter 2015 revenue was $273.5 million, an 11.6 percent increase from the $245.1 million reported in the 2014 first quarter. Service revenue increased 14.9 percent to $210.3 million. Gross margin expanded to 39.8 percent from 37.3 percent, primarily reflective of the increased contribution of commercial business to total revenues. Adjusted EBITDA was $24.5 million, and adjusted EBITDA margin was 9.0 percent. Net income was $7.9 million, or $0.40 per diluted share. Non-GAAP earnings were $0.54 per diluted share. In last year’s first quarter, the company reported net income of $9.7 million, or $0.48 per diluted share, and non-GAAP earnings were $0.55 per diluted share.
Backlog and New Business Awards
Backlog was $1.8 billion at the end of the first quarter of 2015, up from $1.6 billion at the end of last year’s first quarter. Funded backlog was $833 million, or 46 percent of the total. The total value of contracts awarded in the first quarter of 2015 was $266 million, an increase of 46 percent from the $182 million reported in the comparable period last year.
Commercial Business First Quarter 2015 Highlights
Revenues from commercial clients increased 48 percent in the first quarter to $102 million and represented 37 percent of total revenue. Digital services accounted for 45 percent of commercial revenues. Energy markets, which includes energy efficiency, represented 30 percent of commercial revenues.
Commercial Contracts Awarded in the First Quarter
Commercial awards were $117 million for the first quarter, representing a book to bill ratio of 1.15.
ICF was awarded more than 800 commercial projects globally in the first quarter. Some of the awards included:
- Energy Markets
- Energy Efficiency: A $16 million contract with a major U.S. utility in the Midwest to support energy efficiency programs with a full suite of implementation services.
- Digital Services
- Customer Loyalty Programs: Four contracts with a combined value of more than $11 million to support customer loyalty programs for a national restaurant chain, a designer eyewear company, an international retailer and a major hotel company.
- Public Relations and Marketing: Two contracts with a combined value of more than $2.5 million to support public relations and marketing programs for a major soft drink company and a multinational confection company.
Other commercial awards greater than $2 million included a contract to provide energy efficiency support for a major U.S. utility; and a contract to provide support for a residential energy efficiency program for another major U.S. utility.Government Business First Quarter 2015 Highlights
- U.S. federal government revenues remained essentially flat at $128.7 million in the first quarter and accounted for 47 percent of total revenue, compared to 53 percent in last year’s first quarter.
- U.S. state and local government revenues increased 9.3 percent and accounted for 10 percent of total revenue, comparable to the year-ago period.
- International government revenues decreased 27.3 percent and accounted for 6 percent of total revenue, down from 9 percent in last year’s first quarter. Approximately 45 percent of the year-over-year decrease was a result of the strengthening of the U.S. dollar as compared to the euro and British pound.
Government Contracts Awarded for the 2015 First Quarter
ICF was awarded nearly 100 U.S. federal government contracts and task orders and hundreds of additional contracts from other U.S. state and local and international governments. Some of the awards included:
- Information Technology: A $19.4 million contract extension with U.S. Department of State’s Bureau of Consular Affairs to provide support to the Consular Systems and Technology Division in eight program areas.
- Communications and Event Management: A $7.5 million contract with the European Commission’s Directorate-General for Communication to provide event management and communications support to the Europe Direct network.
- Communications and Event Management: A $7 million contract with the European Commission’s Directorate General Employment, Social Affairs, Skills and Labour Mobility to support public employment services across the 28 member states of the European Union.
- Training and Technical Assistance: A $6.4 million modification to an existing contract with the State of California to develop an online assessment tool to support California’s welfare case managers.
- Technical Assistance, Research and Evaluation: A multiple-award indefinite delivery/indefinite quantity contract with a ceiling of $500 million with the U.S. Department of Health and Human Services to provide support to offices throughout the department.
Additional awards of more than $1 million each from international governments included providing content production for European Parliament’s EuroparlTV, a contract with the European Commission’s Directorate General for Home Affairs to provide communications support for migration work and another contract with the European Commission to provide communications support for Youth Guarantee to address youth unemployment.
The largest state and local government awards greater than $1 million included two program support contracts to assist victims of Superstorm Sandy, a contract to provide environmental documentation for a California rail project, and a contract with a major university to design and conduct a program supporting education efforts.
Summary and Outlook
“The key drivers of 2015 revenue and earnings growth remain in place. The commercial businesses that underperformed in the first quarter improved as the quarter progressed and we continue to invest in those areas where underlying long term demand for our services is strong. In addition, the outlook for federal state and local government revenues has improved to flat or slightly up for the balance of 2015. Our diversified revenue mix provides ICF a unique opportunity to benefit from higher margin work for commercial clients and the visibility of a contract backlog comprised primarily of multi-year government awards. Additionally, the cross-sell potential brought by our recent Olson acquisition gives us significant long term growth catalysts in both the commercial and government arenas. We have lowered our full year 2015 guidance to reflect first quarter headwinds, but we believe results for the remaining three quarters of this year will reflect average EBITDA margin levels of 10 to 10.5 percent, progressively improving throughout the year, ” Mr. Kesavan concluded.
|Revenue(1)||$1.160 billion to $1.210 billion|
|Non-GAAP Diluted EPS(2)|| $2.68 - $2.83
|GAAP Diluted EPS|| $2.15 - $2.30
|Cash flow from operating activities||$90 million - $100 million|
(1)Includes estimated impact of foreign exchange translations and revenues lost as a result of restructuring initiatives in 2014.
(2)Excludes $17.2 million amortization of intangibles, which adds $0.53 to diluted earnings per share, acquisition-related expenses and charges to office closures, net of taxes.
All per share guidance assumes weighted average shares outstanding of approximately 20 million and a full year effective tax rate of 38 percent.
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