ICF International, Inc. (NASDAQ:ICFI), a leading provider of consulting services and technology solutions to government and commercial clients, reported results for the third quarter and nine months ended September 30, 2015.
Third Quarter 2015 Results
“Third quarter results support our expectations for substantially improved performance in the second half of this year compared to the first half,” said ICF International Chairman and Chief Executive Officer Sudhakar Kesavan. “Year-on-year revenue growth was driven by a significant increase in commercial revenues and benefited from positive growth in U.S. federal government business. The substantial improvement in operating profitability resulted from higher utilization across our business. Exclusive of special charges, adjusted EBITDA margin was 10.8 percent for the quarter, the highest level in the last seven years.
“Our Digital Services Group, which we recently renamed ICF Olson, is comprised of ICF’s legacy commercial and state and local digital services business and Olson, which we acquired in 2014. ICF Olson was the leading contributor to our third quarter revenue and EBITDA growth, and its commercial revenues accounted for 42 percent of our total commercial revenues. We won 30 new accounts in the third quarter across a broad range of industries, reflecting the collaboration of the creative and analytical strengths of Olson with ICF’s existing technology implementation capabilities. Recent wins and the improvement in ICF Olson’s business development pipeline indicate similar revenue and EBITDA performance in the fourth quarter of this year and set the stage for growth in 2016.
“In the third quarter, our U.S. federal government business performed well. Revenues increased slightly, and this represented the best quarterly comparison that we have reported in more than three years. At the same time, we succeeded in winning a large number of contracts that position ICF for continued growth in 2016. Of particular note is the contract value of federal awards that involve a digital services component, which indicates the robust demand for these qualifications across our government client base. State and local government revenues declined in the third quarter, resulting in their year-to-date performance being approximately even with last year’s. On a constant currency basis, international government revenues increased an estimated 11 percent, despite delays in certain projects for the European Union. As a result of the appreciation of the U.S. dollar against foreign currencies, most notably the Euro, the British pound and the Canadian dollar, reported international government revenues declined 5 percent from last year’s third quarter,” Mr. Kesavan noted.
Third quarter 2015 revenue was $289.0 million, a 9.1 percent increase from the $264.8 million reported in the 2014 third quarter. Service revenue2 increased 12.6 percent to $216.4 million. Gross margin expanded to 38.5 percent from 37.3 percent in the third quarter of 2014. Adjusted EBITDA was $31.1 million and EBITDA was $30.1 million, representing margins of 10.8 percent and 10.4 percent, respectively. Non-GAAP EPS was $0.75 per share. Reported net income was $11.5 million, or $0.59 per diluted share, inclusive of $0.02 per share in special charges related to international office closures and severance costs.
Backlog and New Business Awards
Backlog was $2.0 billion at the end of the third quarter of 2015, up from $1.9 billion at the end of last year’s third quarter. Funded backlog was $916 million, or 47 percent of the total. The total value of contracts awarded in the third quarter of 2015 was $465 million. In the first nine months of 2015, the total value of contracts awarded to ICF was $1.1 billion, an increase of 6.3 percent from the $1.04 billion reported in the comparable 2014 period.
Commercial Business Third Quarter 2015 Highlights
Revenues from commercial clients increased 35.5 percent in the third quarter to $101.9 million as compared to last year’s third quarter, and represented 35 percent of total revenue. Digital services accounted for 42 percent of commercial revenues. Energy markets, which includes energy efficiency, represented 32 percent of commercial revenues.
Commercial Contracts Awarded in the Third Quarter
Commercial awards were $70.3 million for the third quarter.
ICF was awarded more than 700 commercial projects globally in the third quarter. Some of the awards included:
- A $4.2 million contract with a multi-national package delivery company to provide content management support for marketing efforts.
- A $3.5 million contract with a major medical research organization to help improve outcomes for transitioning veterans.
- A $1.8 million contract with a leading maker of residential and commercial access control products for business-to-business e-commerce solutions in support of sales.
- Two contracts totaling $1.8 million with an international automobile company to support communications programs.
- A $1.5 million contract with a medical school in the Southwest U.S. to deliver digital support for a branding campaign.
- A $1.5 million contract with an international chemical company to provide strategic management and communications consulting.
- A $1.5 million contract with a major nationwide financial services company to provide strategic communications consulting support.
- Two contracts totaling $1.5 million with a nationwide technology and industrial company to provide digital program support for management.
- Two contracts with utility clients aggregating $1.3 million for environmental planning and energy portfolio evaluation.
- A $1.2 million contract with a private investment firm to perform environmental impact research in the Western U.S.
- A contract valued at more than $1 million with a real estate investment trust to design and implement the company’s Web-based content management platform.
- A $1 million contract with a major energy company based in the Northeast U.S. to support commercial and industrial and residential energy efficiency efforts.
- A $1 million contract with an international airline based in Asia to provide digital marketing communications support.
Other notable commercial awards included a total of two contracts with two international hotel companies to support their loyalty programs and a contract to provide digital content management support for an international home improvement company.
Government Business Third Quarter 2015 Highlights
- U.S. federal government revenues increased 0.6 percent to $141.4 million in the third quarter and accounted for 49 percent of total revenue compared to 53 percent in last year’s third quarter.
- U.S. state and local government revenues decreased 8.6 percent and accounted for 9 percent of total revenue, compared to 11 percent in the year-ago period.
- International government revenues decreased 4.7 percent on a reported basis, which was an estimated increase of 11 percent on a constant currency basis, and accounted for 7 percent of total revenue, down from 8 percent in last year’s third quarter.
Government Contracts Awarded in the Third 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:
- Digital Services: A flexible ordering agreement with value of up to $250 million with U.S. Centers for Disease Control and Prevention (CDC) to provide comprehensive support for CDC’s digital tools, presence and systems including all websites on CDC.gov, social media, digital communications, public relations and cloud services.
- Strategic Communications: A $100 million multiple-award blanket purchase agreement with the CDC to provide a full range of health communication services.
- Social Programs: Two task orders with a combined total value of $40 million with the U.S. Department of Health and Human Services to operate the Office of Child Care’s (OCC) State Capacity Building Center and to design and build OCC’s new child care hotline and website.
- Survey Research: A $31.2 million contract with the U.S. Department of Housing and Urban Development’s Policy Development and Research Division to continue supporting the agency’s annual Improper Payment for Quality Control for Rental Subsidy Determination Study.
- Program Management and IT: A $30 million contract with the U.S. National Aeronautics and Space Administration to provide technical, analytic and programmatic support services to the U.S. Global Change Research Program, the coordinating body for global change activities across the U.S. federal government.
- Information Technology: A $30 million subcontract to support a governmental agency by providing IT services for a critical benefits portal.
- Survey Research: A blanket purchase agreement with a value of up to $21.5 million with the Internal Revenue Service to support efforts to measure and improve customer satisfaction with its services.
- Business Processes: A $20 million contract with the State of Maryland’s Department of Human Resources to implement, manage and operate the state’s customer service center in support of public welfare services.
- Digital Services: A $13.5 million initial five-year contract with the California Lottery, plus five one-year option periods, to serve as the organization’s digital agency of record and provide strategic, creative and technology leadership, as well as ongoing support and client service.
- Energy Efficiency: A contract with an estimated value of $10 million with a city in the Northeast to provide technical services support to an energy efficiency and water conservation program.
- Information Technology: A $7 million contract with the CDC to support the Division of Scientific Education and Professional Development of the Center for Surveillance, Epidemiology and Laboratory Services by managing two of its most critical systems, including the Fellowship Management System and the Training and Continuing Education Online System.
- Public Health: A $6.9 million task order with the CDC to provide operations and maintenance as well as technical support for the Enhanced HIV/AIDS Reporting System.
- Information Technology: A $5 million contract with the U.S. Department of Health and Human Services to redesign the Administration for Community Living’s Aging Integrated Database, a Web-based system that provides public access to data about the U.S. aging community.
- Transportation Management: A $5 million contract with the New York State Department of Transportation to support transportation demand management efforts.
Additional state and local government awards of $1 million or more included a contract with a Western U.S. state to support flood safety efforts and an energy efficiency program with a large state in the Northeast U.S. to research commercial buildings and their associated energy use.
Awards of more than $1 million from international governments included a contract to support the government of Malaysia in the development of its maritime ports sector, a contract with a European executive body to provide strategic communications and marketing support for a major tourism campaign and a contract with the European Union to provide strategic communications support for a waste management program.
Summary and Outlook
“Third quarter results represented significant year-over-year revenue growth. More importantly, we were able to achieve profitability levels that aligned with our expectations for EBITDA margin and reflected the increased utilization we had anticipated. Based on our current visibility, we expect our fourth quarter results to be comparable on a sequential basis, as the roll-out of new contracts and the greater mix of commercial projects offset the seasonality of our federal government business.
“Specifically, we expect full year 2015 revenues to be approximately $1.140 billion, non-GAAP EPS3 to range from $2.65 to $2.70 and adjusted EPS4 to range from $2.10 to $2.15. We expect fourth quarter EBITDA margin to be at least 10.5 percent and full year cash flow from operations to exceed $90 million.
“Recent contract awards and pipeline activity have positioned ICF for organic growth in 2016 across our key markets and we expect to be able to achieve an EBITDA margin in the range of 10 percent to 10.5 percent for the year, driven by higher utilization rates and revenue growth,” Mr. Kesavan noted.
All per share guidance assumes weighted average shares outstanding of approximately 19.7 million and a full year effective tax rate of no more than 38.5 percent.
1EBITDA, Adjusted EBITDA and non-GAAP EPS are non-GAAP measurements. A reconciliation for all non-GAAP references is set forth below the Consolidated Statement of Comprehensive Income table.
2Service Revenue is a non-GAAP measurement. A reconciliation for all non-GAAP references is set forth below the Consolidated Statement of Comprehensive Income table.
3Excludes $17.2 million amortization of intangibles, which adds $0.54 to diluted earnings per share, and expenses related to acquisitions, office closures and severance, net of taxes.
4Excludes expenses related to acquisitions and special charges for office closures and severance, net of taxes.
To view the full release, including financial tables, download the PDF.
