ICF (NASDAQ:ICFI), a consulting and technology services provider to government and commercial clients around the world, reported results for the first quarter ended March 31, 2017.
“Revenue growth of 4.5 percent in the first quarter represented a solid start to 2017, with each of our key client categories posting positive year-over-year revenue comparisons. Commercial revenue increased 9.4 percent from last year’s first quarter, and revenue from government clients in the aggregate increased 1.9 percent. ICF’s balanced business model, which gives us both the benefits of a large government backlog and the upside potential of a growing commercial client base, enables continued growth in both revenue and earnings,” said Sudhakar Kesavan, ICF’s Chairman and Chief Executive Officer.
“Business activity progressed as expected in the first quarter. Contract awards totaled $250 million, over 80 percent of which represented new business wins. Proposal and award activity in the government arena increased progressively throughout the quarter, and we continued to experience strong demand for commercial energy efficiency work. At the end of the first quarter, ICF had a record business development pipeline of $4.7 billion, setting the stage for future growth.
“We continue to actively manage our cost structure to optimize returns. In the first quarter, we incurred special charges related to facility consolidations equivalent to $0.07 per share, net of tax, which will result in occupancy cost savings over the next several years. The effect of the special charges was partially offset by a lower first quarter tax rate. Exclusive of the net effect of these two adjustments, growth in diluted EPS outpaced revenue growth,” Mr. Kesavan noted.
First Quarter 2017 Results
First quarter 2017 total revenue was $296.3 million, a 4.5 percent increase from $283.6 million in the first quarter of 2016. Service revenue2 was up 3.5 percent at $219.8 million, compared to $212.4 million. Net income was $10.2 million in the first quarter of 2017, or $0.52 per diluted share; inclusive of $0.07 per share, net of tax, of special charges related to facility consolidation activities. Partially offsetting these charges was a lower effective tax rate due to tax benefits from the vesting and exercise of equity-based compensation. This compares to net income of $9.9 million, or $0.51 per diluted share in the same period of the prior year.
Non-GAAP EPS3 increased 11 percent to $0.69 per share in the first quarter of 2017 compared to $0.62 in the prior year. EBITDA4 was $23.9 million, down 3.8 percent from $24.8 million in the first quarter of 2016. First quarter 2017 EBITDA margin was 8.1 percent, a 70 basis point decrease from the 8.8 percent reported in the comparable period last year. Adjusted EBITDA5, which excludes $1.7 million in special charges related to facility consolidations, was $25.6 million, representing 8.6 percent of revenue and up 3 percent year-over-year.
Backlog and New Business Awards
Total backlog was $2.0 billion at the end of the first quarter of 2017. Funded backlog was $1.0 billion, or approximately 50 percent of the total backlog. The total value of contracts awarded in the 2017 first quarter was $250 million, bringing the trailing twelve month book-to-bill ratio to 1.19.
Government Business First Quarter 2017 Highlights
- U.S. federal government revenue increased 0.7 percent year-on-year to $138.0 million. Federal government revenue accounted for 47 percent of total revenue compared to 49 percent of total revenue in the first quarter of 2016.
- U.S. state and local government revenue increased 4.7 percent year-on-year and accounted for 11 percent of total revenue, the same percentage as in the 2016 first quarter.
- International government revenue increased 6.7 percent year-on-year and accounted for 6 percent of total revenue, the same percentage as in the 2016 first quarter. On a constant currency basis, the increase would have been 11 percent in this year’s first quarter.
Key Government Contracts Awarded in the First Quarter
ICF was awarded more than 70 U.S. federal government contracts and task orders and more than 250 additional contracts from state and local and international governments. The largest awards included:
- Infrastructure/Environmental Planning: A contract with a value of up to $25.6 million with the Los Angeles County Metropolitan Transit Authority to provide environmental impact services.
- Program Support: A contract extension with a value of up to $10.6 million with the U.S. Department of Energy to continue our support to the Office of Electricity.
- Program Evaluation: Three contracts with a combined value of $7.2 million with the U.S. Agency for International Development to conduct various studies and evaluations including baseline surveys, end-line studies, evaluations, and thematic studies.
- Program Support: A contract with a ceiling of $6.4 million with the U.S. National Institutes of Health to provide communications services and tools to the National Institute on Alcohol Abuse and Alcoholism.
Other contract wins with a value of at least $2 million included: facilitation support services to the U.S. Department of Defense Commander Navy Installations Command; engineering services for renewable projects for the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy; and ongoing enterprise strategy and management services to the U.S. Department of State’s Bureau of Consular Affairs.
Commercial Business First Quarter 2017 Highlights
- Commercial revenue was $105.5 million, 9.4 percent above the $96.5 million in last year’s first quarter. Commercial revenue accounted for 36 percent of total revenue compared to 34 percent of total revenue in the 2016 first quarter.
- Marketing services accounted for 39 percent of commercial revenue. Energy markets, which include energy efficiency programs for utilities, represented 36 percent of commercial revenue.
Key Commercial Contracts Awarded in the First Quarter
Commercial sales were $159.5 million in the first quarter of 2017, and ICF was awarded more than 750 commercial projects globally during the period. The largest awards were:
- An $18.9 million contract with a major utility in the Eastern U.S. to continue to support residential, commercial and industrial energy efficiency programs.
- Five contracts with a combined value of $14.5 million with a major utility in the Eastern U.S. to support residential energy efficiency programs and conduct a climate vulnerability study.
- Projects with a combined value of up to $8.9 million with a large consortium of utilities in the Northeastern U.S. to provide energy efficiency support services to consortium members’ residential new home construction programs.
- A contract with a value of $5.7 million with a major utility in the Eastern U.S. to support commercial and industrial energy efficiency programs.
- A contract with a value of $5.5 million with a major utility in the Midwestern U.S. to provide energy efficiency support services to its new home construction program.
- Seven contracts with a combined value of $5.4 million with a major Midwestern U.S. utility to provide market research and support services to its residential energy efficiency programs.
- Ten task orders with a combined value of $5.3 million with a U.S. food company to provide public relations and communications support services for several product lines.
- More than 25 task orders with a combined value of $4.9 million with a U.S. beverage company to provide social media and other marketing services support for a number of its products.
- A contract extension with a value of $4.3 million with an international hotel chain to continue to provide analytics and marketing technology support services.
Other commercial contract wins with accounts totaling at least $1 million included: environmental services for a wind project developer; program support services for a number of U.S. utilities; communications and digital solutions services for two major health insurers; merger and integration support and digital listening services for an industrial manufacturer; creative services for a global fast food company; impact assessment of a product offering for a social media company; business strategy and analytical services for a provider of industrial aviation services; public relations and marketing support for two food manufacturers; communications strategy for a financial services company; and ongoing marketing support for a floor care product manufacturer.
Summary and Outlook
“Our first quarter results support the assumptions underpinning our full year 2017 guidance. The federal budget agreement announced earlier this week, which maintained funding levels across the civilian agencies, lends further support to our assumptions.
“Based on our current visibility, we re-affirm our expectation of revenue ranging from $1.20 to $1.24 billion, diluted earnings per share of $2.50 to $2.75 and Non GAAP EPS of $2.84 to $3.09 for full year 2017. Additionally, we continue to expect 2017 operating cash flow to be in the range of $90 million to $100 million.
“ICF is well positioned for continued revenue and earnings growth due to our balanced portfolio. We have a diversified roster of U.S. federal, state and local, and international government clients. Additionally, we are recognized leaders across key commercial markets, including energy and aviation consulting, energy efficiency programs, and in marketing and communications services, which we are leveraging to build customer and stakeholder engagement across our entire client base,” Mr. Kesavan concluded.
1,2,3,4,5. Non-GAAP EPS, Service Revenue, EBITDA, and Adjusted EBITDA are non-GAAP measurements. A reconciliation of all non-GAAP measurements is set forth below. ↩