Fourth Quarter Highlights
- Total Revenue Was $378 Million, Up 18 Percent
- Diluted EPS Was $0.97, Inclusive of $0.09 in Special Charges1
- Non-GAAP EPS1 Was $1.17, up 50 Percent
- Adjusted EBITDA Margin on Service Revenue1 Was 16.5 Percent
- Contract Awards of $286 Million
Full Year 2018 Highlights
- Total Revenue Was $1.34 Billion, up 9 Percent
- Diluted EPS Was $3.18; Inclusive of $0.17 in Special Charges
- Non-GAAP EPS Was $3.73, up 24 Percent
- Adjusted EBITDA Margin on Service Revenue Was 13.4 Percent
- Contract Awards Increased 40 Percent to $1.82 Billion, Representing a Book-to-Book Ratio of 1.4
- Revenue: $1.45 Billion to $1.50 Billion
- Diluted EPS: $3.75-$3.95, Exclusive of Any Special Charges
- Non-GAAP EPS: $4.05-$4.25
ICF (NASDAQ:ICFI), a global consulting and digital services provider, reported results for the fourth quarter and full year ended December 31, 2018.
“Fourth quarter results represented a strong finish to a record year for ICF and demonstrated the strength of the growth drivers that will continue in 2019,” said Sudhakar Kesavan, Chairman and Chief Executive Officer.
“Revenue growth in the fourth quarter was broad-based, across each of our client categories. Revenue from government clients increased 22 percent, driven by our disaster recovery work for state and local government clients. Revenue from commercial clients increased 12 percent from the 2017 fourth quarter, reflecting positive comparisons in both marketing services and energy markets, which together comprised over 90 percent of ICF’s commercial revenue this quarter.
“On a consolidated basis, we delivered 10 percent service revenue1 growth in the fourth quarter, which together with a favorable business mix and higher utilization drove a 26 percent increase in adjusted EBITDA1, and an exceptional adjusted EBITDA to service revenue margin of 16.5 percent.
“Additionally, this was a solid quarter of new contract awards for ICF following a record third quarter, bringing the value of contracts won in 2018 to $1.82 billion, equivalent to a book-to-bill ratio of 1.4. At the same time, our year-end business development pipeline increased to over $5.8 billion, representing a year-over-year increase of 38 percent,” Mr. Kesavan noted.
Fourth Quarter 2018 Results
Fourth quarter 2018 total revenue was $377.9 million, representing 17.7 percent growth over the $321.2 million reported in the fourth quarter of 2017. Service revenue increased 10.0 percent year-over-year to $239.6 million, from $217.8 million. Net income amounted to $18.7 million in the 2018 fourth quarter, or $0.97 per diluted share, inclusive of $0.09 of tax-effected special charges, which included $0.05 for a reserve related to the bankruptcy of Pacific Gas & Electric. The 2018 fourth quarter effective tax rate was higher than anticipated primarily due to valuation allowances of foreign tax credits. In the 2017 fourth quarter, net income was $27.1 million, or $1.41 per diluted share, inclusive of a one-time benefit of $0.85 per diluted share in connection with the Tax Cuts and Jobs Act and $0.13 of tax-effected special charges.
Non-GAAP EPS increased 50.0 percent to $1.17 per share from $0.78 per share in 2017. EBITDA1 was $36.9 million, up 36.1 percent from $27.1 million reported in the fourth quarter of 2017. Adjusted EBITDA was $39.4 million, 25.5 percent above the $31.4 million reported in the 2017 fourth quarter. Fourth quarter 2018 adjusted EBITDA margin on service revenue was 16.5 percent compared to 14.4 percent in the 2017 fourth quarter.
Full Year 2018 Results
For 2018, total revenue amounted to $1.34 billion, representing 8.9 percent growth over the $1.23 billion reported for full year 2017. Service revenue increased 4.7 percent year-over-year to $925.8 million, from $884.2 million in 2017. Full year 2018 net income amounted to $61.4 million, or $3.18 per diluted share, inclusive of $0.17 of tax-effected special charges, which included $0.05 for a reserve related to the bankruptcy of Pacific Gas & Electric. This compares to net income of $62.9 million, or $3.27 per diluted share for last year, inclusive of $0.84 for a one-time tax benefit and $0.24 of tax-effected special charges.
Non-GAAP EPS increased 23.5 percent year-over-year to $3.73 per share from $3.02 per share. EBITDA was $119.5 million, up 7.6 percent from $111.0 million reported in 2017. Adjusted EBITDA was $123.8 million, a 5.0 percent increase over $117.9 million in 2017. The 2018 adjusted EBITDA margin on service revenue was 13.4 percent, as compared to 13.3 percent reported in 2017.
Backlog and New Business Awards
Total backlog was $2.4 billion at the end of the fourth quarter of 2018. Funded backlog was $1.1 billion, or approximately 48 percent of the total backlog. The total value of contracts awarded in the 2018 fourth quarter was $285.8 million. For full year 2018, contract awards were $1.82 billion, representing a book-to-bill ratio of 1.4.
Government Revenue Fourth Quarter 2018 Highlights
Revenue from government clients was $226.0 million, up 21.7 percent year-over-year.
Key Government Contracts Awarded in the Fourth Quarter
ICF was awarded more than 80 U.S. federal contracts and task orders and more than 250 additional contracts from U.S. state and local and international governments with an aggregate value of $156.4 million. Year-to-date government awards totaled $1.36 billion. Awards won in the fourth quarter included:
- Disaster recovery: Multiple awards totaling more than $50 million, which were mentioned in our November 1, 2018 earnings call, to support housing and infrastructure programs that are part of state and local government disaster recovery activities associated with Hurricane Harvey.
- Advisory services: A contract with the Air Force Civil Engineer Command to provide advisory and assistance services.
- Public health: A subcontract to provide services to a federal agency related to addressing underage drinking..
- Environment and planning: Numerous contract amendments with a western U.S. state water resources agency related to environmental evaluation, compliance, permitting, program management, and public outreach.
- Strategic communications:Multiple contracts and task orders with various European Commission agencies and directorates to provide strategic communications services.
- Program support: A contract with an office of the U.S. Department of Education to provide program support services.
Select other government contract and task order wins with a value greater than $2 million included: ongoing technical assistance services for the U.S. Department of Education’s Appalachia Regional Comprehensive Center; program support services for the responsible fatherhood clearinghouse of the Office of Family Assistance; and analysis and planning services for a western U.S. water resources board.
Commercial Revenue Fourth Quarter 2018 Highlights
- Commercial revenue was $151.9 million, up 12.2 percent from the $135.4 million reported in last year’s fourth quarter. Commercial revenue accounted for 40 percent of total revenue compared to 42 percent of total revenue in the 2017 fourth quarter. .
- Energy markets, which include energy efficiency programs, represented 39 percent of commercial revenue. Marketing services accounted for 54 percent of commercial revenue.
Key Commercial Contracts Awarded in the Fourth Quarter
Commercial sales were $129.3 million in the fourth quarter of 2018 and $464.5 million year-to-date. ICF was awarded more than 650 commercial projects globally during the fourth quarter including:
In Energy Markets:
- A contract amendment with a western U.S. energy organization to continue supporting its residential energy efficiency program..
- Contracts with a northeastern U.S. utility to support its residential energy efficiency programs.
- Two contract extensions with a northeastern U.S. utility to continue providing support for its energy efficiency programs.
- A contract and several task orders with a western U.S. utility to provide environment and planning services.
- A work order with an electric transmission company to prepare a cultural resource inventory.
In Marketing Services:
- A retainer with a major U.S. rail transportation system to continue to provide loyalty program services.
- Multiple task orders with a U.S. health insurer to provide additional marketing services.
- Multiple task orders with a U.S. health insurer to provide healthcare business consulting and digital solutions services.
- Multiple task orders with a publisher of educational products to continue to provide marketing services.
Select other commercial contract and task order wins with a value of more than $1 million included: loyalty program services for two hospitality chains; ongoing support for residential energy efficiency programs for a utility in the midwestern U.S.; and program support services for a non-road electrification program for a southeastern U.S. utility.
On February 26, 2019, ICF declared a quarterly cash dividend of $0.14 per share, payable on April 16, 2019 to shareholders of record on March 29, 2019.
ICF received several important recognitions in 2018:
- Forbes named ICF one of “America’s Best Management Consulting Firms” for the third consecutive year
- Awarded Government Contractor of the Year and Program of the Year for a Large Business by Greater Washington GovCon
- A “strong performer” in Forrester’s report on digital experience providers, The Forrester Wave™: Midsize Digital Experience Agencies, Q4 2018
Summary and Outlook
“Looking ahead, we have strong visibility into 2019 based on our existing contract backlog. We expect the catalysts that benefitted our 2018 performance to continue to drive significant growth and further margin expansion in 2019. Each of our client categories is positioned for year-over-year progress in 2019. In government markets, ICF’s domain expertise and cross-cutting implementation skills align with federal agency spending priorities and funding appropriated for post-hurricane housing recovery. In commercial markets, we have a strong pipeline of energy efficiency programs and continue to build our distributed energy and resiliency consulting services. Additionally, we have substantial opportunities to further leverage our commercial marketing services and engagement capabilities broadly across our domestic and international client sets.
“For full year 2019, we expect revenue of $1.45 billion to $1.50 billion. This guidance includes the impact of the partial government shutdown that took place in January 2019 and affected several of ICF’s federal agency clients. The Company expects to re-capture the approximately $3 million in lost revenue due to the shutdown throughout 2019 but will absorb the related operating expenses, which are expected to impact diluted EPS by $0.05 in the first quarter. GAAP earnings per diluted share are expected to be in the range of $3.75 to $3.95, exclusive of any special charges. Non-GAAP diluted EPS is expected to range from $4.05 to $4.25. Per share guidance is based on a weighted average number of shares outstanding of 19.3 million. Operating cash flow, which was slightly below our 2018 guidance due to timing issues, is projected to be in the range of $100 million to $120 million for 2019. Full year 2019 guidance does not include any significant new disaster recovery-related contract wins that might occur,” concluded Mr. Kesavan.
1. Non-GAAP EPS, Service Revenue, EBITDA, and Adjusted EBITDA are non-GAAP measurements. A reconciliation of all non-GAAP measurements to the most applicable GAAP number is set forth below. The presentation of non-GAAP measurements may not be comparable to other similarly titled measures used by other companies. ↩
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.
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.