ICF International Reports Second Quarter 2015 Results

Fairfax VA


Jul 30, 2015

Lynn Morgen
AdvisIRy Partners
Betsy Brod
MBS Value Partners

ICF International, Inc. (NASDAQ:ICFI), a leading provider of consulting services and technology solutions to government and commercial clients, reported results for the second quarter ended June 30, 2015.

Second Quarter 2015 Results

“We are pleased to report that as expected, our second quarter results demonstrated sequential earnings improvement. Our commercial business continued to drive total revenue growth and more than offset the effect of essentially flat federal government revenues and foreign exchange impacts on our international business,” said ICF Chairman and Chief Executive Officer Sudhakar Kesavan.

“Commercial revenue growth benefitted from the performance of our recently formed Digital Services Group (DSG), comprised of ICF’s legacy commercial and state and local digital services and the Olson acquisition, which we completed in November of last year. DSG’s integrated expertise and qualifications serve as a platform for both the further expansion of our commercial business and the cross sell of digital services into our domestic and international government markets. We believe that recent wins and the status of our pipeline opportunities highlight the potential of this business as a substantial organic growth driver for ICF. In fact, DSG won a $9 million contract in Canada using legacy Olson Canada capabilities combined with ICF’s program management skills. We are also in the final stages of negotiations for a contract estimated at $20 million that demonstrates the power of the Olson and ICF combination.

“Our pipeline at the end of the second quarter increased 7 percent sequentially to $3.7 billion, following our record second quarter contract wins and represents significant growth opportunities across our markets and areas of domain expertise.”

Second quarter 2015 revenue was $288.9 million, a 9.5 percent increase from the $263.9 million reported in the 2014 second quarter. Service revenue2 increased 9.6 percent to $215.4 million. Gross margin expanded to 38.3 percent from 36.8 percent, primarily reflective of the increased contribution of commercial business to gross revenues. EBITDA2 was $26.9 million, and EBITDA margin was 9.3 percent. Non-GAAP EPS was $0.63 per share compared to $0.64 in last year’s second quarter. Reported net income was $9.2 million, or $0.47 per diluted share, inclusive of special charges of $0.03 relating to realized foreign currency losses associated with international office closures designed to better align our resources with areas of greater growth potential.

Backlog and New Business Awards

Backlog was $1.8 billion at the end of the second quarter of 2015, up from $1.6 billion at the end of last year’s second quarter. Funded backlog was $803 million, or 44 percent of the total. The total value of contracts awarded in the second quarter of 2015 was $370 million, an increase of 58 percent from the $234 million reported in the comparable period last year. For the first half of 2015, the value of new contract awards was $636 million, 53 percent ahead of the similar 2014 period.

Commercial Business Second Quarter 2015 Highlights

Revenues from commercial clients increased 37.3 percent in the second quarter to $102.5 million and represented 35 percent of total revenue. Digital services accounted for 44 percent of commercial revenues. Energy markets, which includes energy efficiency and is a subset of our energy, environment and infrastructure market, represented 30 percent of commercial revenues.

Commercial Contracts Awarded in the Second Quarter

Commercial awards were $85.3 million for the second quarter.

ICF was awarded more than 700 commercial projects globally in the second quarter. Some of the awards included:

  • Energy Markets
    • Energy Efficiency: Continuation and expansion of two contracts, totaling $14 million, with a major U.S. utility to support residential and commercial and industrial energy efficiency programs with a full suite of implementation services.
  • Digital Services
    • Customer Loyalty Programs: Two contracts with a combined value of $3.8 million to support customer loyalty programs for a major hotel company and a national retailer.
    • Public Relations and Marketing: Two contracts, with a combined value of more than $3.6 million, to support public relations and marketing programs for an international confection company and a nationwide appliance company.
    • Content Management: Two contracts, with a combined value of $2.2 million, to provide digital content management services to a multi-national fashion retailer and a major real estate conglomerate.
  • Healthcare
    • Marketing: A contract valued at $4 million to provide marketing support to a U.S.-based leader in the healthcare services field.

Other commercial awards of approximately $1 million included a contract with a major Southwest utility to administer an energy efficiency program, a contract to provide a digital services program for a promotional products company and a contract to assess the environmental impact of a U.S. wind energy project.

Government Business Second Quarter 2015 Highlights
  • U.S. federal government revenues were $135.4 million in the second quarter, representing a book-to-bill ratio of 1.74. Revenue levels were 0.4 percent below last year and accounted for 47 percent of total revenue compared to 52 percent in last year’s second quarter.
  • U.S. state and local government revenues increased 0.5 percent and continued to account for 10 percent of total revenue as it did in the year-ago period.
  • International government revenues decreased 8.8 percent on a reported basis (but increased an estimated 9.2 percent on a constant currency basis) and accounted for 8 percent of total revenue, down from 10 percent in last year’s second quarter.
Government Contracts Awarded in the Second Quarter

ICF was awarded more than 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:

  • Training and Technical Assistance: A total of five contracts with a combined value of $100 million from the U.S. Department of Health and Human Services to provide training and technical assistance, program management, fiscal operation and quality improvement services for the Head Start program.
  • Technical Support: A $38 million contract with the U.S. Environmental Protection Agency to provide technical, analytical and stakeholder support for ENERGY STAR labeled products and residential programs.
  • Technical Support:contract with a value of up to $35 million from the U.S. Army Contracting Command in support of Force Provider, Product Manager Force Sustainment Systems to provide field service sustainment systems worldwide.
  • Quality Assurance: An $18 million subcontract to support the U.S. Department of Education by providing independent verification and validation and quality assurance services to support the department’s Free Application for Federal Student Aid system.
  • Program Management: A contract with a value of $9.3 million from a major Canadian utility regulatory authority.
  • Analytical and Customer Service: A $7 million blanket purchase agreement from the U.S. Environmental Protection Agency to advance clean energy policies and programs.

Other individual U.S. federal government awards greater than $2 million included three contracts with the Department of Health and Human Services to provide community support evaluation, and digital support to the Program Support Center, and to provide IT services to the National Institutes of Health and two contracts to support veteran relationship management for the Department of Veterans Affairs.

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 support a bulk liquid storage expansion effort by the state of Washington, a contract with the state of Florida to conduct a youth substance abuse survey and a contract with the state of California to support the Bay Delta Conservation Plan.

Additional awards of more than $1 million from international governments included a contract with the European Commission to support its campaign on migration and another contract with the European Commission to support a program that addresses youth unemployment.

Summary and Outlook

“Sequential improvement in second quarter profitability was in line with our expectations and when combined with our recent contract award activity has set the stage for strong second half performance. Our digital marketing services business will remain a driver of solid revenue growth this year, and we have gained further confidence in the full year prospects for our domestic government business, as we now expect both federal and state and local government revenues to increase slightly for full year 2015.

“Looking ahead, we re-affirm the full year EPS and cash flow guidance detailed in the tables below, but based on first half results, we have re-set the midpoint of our revenue guidance to the low end of the previous range.   EBITDA margin levels are expected to be approximately 10.5 percent for the second half of the year, as we benefit from a greater percentage of commercial work and higher company-wide utilization rates,” concluded Mr. Kesavan.

1 Excludes amortization of intangibles and special charges related to office closures, net of tax;  reconciliation for all non-GAAP references are set forth below the Consolidated Statements of Comprehensive Income table.
2 Service revenue and EBITDA are non-GAAP measurements.

The table below summarizes full year 2015 guidance.

 Revenue1  $1.150–$1.170 billion
 Non-GAAP Diluted EPS2  $2.68–$2.83
 Adjusted GAAP Diluted EPS3  $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 and special charges, which totaled $0.05 per diluted share for the first half of 2015.
3 Excludes acquisition-related and special charges, which totaled $0.05 per diluted share for the first half of 2015.

All per share guidance assumes weighted average shares outstanding of approximately 19.8 million and a full year effective tax rate of no more than 38.5 percent. 

To view the full release, including financial tables, download the PDF.

ICF International, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income 2015 Q2

ICF International, Inc. and Subsidiaries Consolidated Balance Sheets 2015 Q2

ICF International, Inc. and Subsidiaries Consolidated Statements of Cash Flows 2015 Q2

ICF International, Inc. and Subsidiaries Supplemental Schedule 2015 Q2

About ICF

ICF (NASDAQ:ICFI) is a global consulting and technology services provider with more than 5,000 professionals focused on making big things possible for our clients. We are business analysts, policy specialists, technologists, researchers, digital strategists, social scientists and creatives. Since 1969, government and commercial clients have worked with ICF to overcome their toughest challenges on issues that matter profoundly to their success. Come engage with us 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.