ICF Reports Third Quarter 2018 Results

ICF (NASDAQ:ICFI), a global consulting and digital services provider, reported results for the third quarter ended September 30, 2018.  

“This was another quarter of strong performance for ICF. We executed well across an expanded set of government and commercial clients and won a record dollar amount of contract awards that sets the stage for continued growth in 2019,” said Sudhakar Kesavan, ICF’s Chairman and Chief Executive Officer. "Revenue growth in the quarter was led by our work with state and local government clients, which included the start-up of recently-won disaster recovery work, and by the continued strength of our business with international government clients, which together drove a 14 percent year-on-year increase in total government revenues for the period. Revenue from commercial clients was slightly ahead of the similar period last year, with higher results from our marketing services and energy markets work offsetting the wind-down of certain infrastructure and aviation consulting projects."

“Adjusted EBITDA margin on service revenue was 13.8 percent, a 190 basis-point sequential increase while we continued to invest in developing and pursuing a large pipeline of opportunities and in our back office infrastructure to support future growth. These results along with a lower tax rate enabled us to report solid double-digit growth in both diluted EPS and Non-GAAP EPS.

“Contract awards increased 61 percent in the third quarter and 25 percent year-to date, demonstrating that ICF’s domain expertise and cross-cutting capabilities in technology and engagement are well aligned with demand dynamics in both the government and commercial arenas. Our client set is well-diversified, and the average contract size continues to increase in line with our broad-based services,” Mr. Kesavan noted.

Third Quarter 2018 Results

Third quarter 2018 total revenue was $333.0 million, representing 9.1 percent growth over the $305.3 million reported in the third quarter of 2017. Service revenue increased 4.3 percent year-over-year to $231.3 million, from $221.8 million. Net income amounted to $16.7 million in the 2018 third quarter, 21.8 percent ahead of the $13.7 million reported in last year’s third quarter. Diluted earnings per share increased 19.4 percent to $0.86 from $0.72 per diluted share, and Non-GAAP EPS increased 21.7 percent to $1.01 per share from $0.83. EBITDA was $30.9 million, approximately flat with the $30.8 million reported in the third quarter of 2017. Third quarter 2018 EBITDA margin was 9.3 percent, compared to the 10.1 percent reported one year ago. Adjusted EBITDA¹ was $31.9 million, above the $31.0 million in last year’s third quarter. Third quarter 2018 adjusted EBITDA margin on service revenue was 13.8 percent compared to 14.0 percent in the 2017 third quarter.

Backlog and New Business Awards

Total backlog was $2.5 billion at the end of the third quarter of 2018. Funded backlog was $1.3 billion, or approximately 51 percent of the total backlog. The total value of contracts awarded in the 2018 third quarter was $647 million, representing 61 percent year-on-year growth and bringing the trailing twelve-month book-to bill ratio to 1.45.

Government Business Second Quarter 2018 Highlights

Revenue from government clients was $222.3 million, up 14.1 percent year-on-year.

• U.S. federal government revenue was $139.9 million, representing a 1.9 percent decline. Federal government revenue accounted for 42 percent of total revenue, compared to 47 percent of total revenue in the third quarter of 2017. .
• U.S. state and local government revenue increased by $25.9 million or 87 percent year-on-year to $55.8 million. State and local accounted for 17 percent of total revenue, compared to 10 percent of total revenue in the 2017 third quarter. .
• International government revenue increased 18 percent year-on-year and accounted for 8 percent of total revenue, compared with 7 percent in the 2017 third quarter.

Key Government Contracts Awarded in the Third Quarter

ICF was awarded more than 175 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 $578 million. Year-to-date government awards totaled over $1.2 billion. Awards won in the third quarter included:

• Survey research: A recompete contract for $200 million, representing our largest award in the period, with the U.S. Agency for International Development to support the global Demographic and Health Surveys Program that provides national level information on a range of health indicators, such as nutrition, infectious diseases and maternal health.
• Technical assistance: A contract with USAID to provide training, technical assistance, and other support related to environmental compliance reporting for all USAID projects during the design phase and monitoring of select programs during their period of performance. .
• Program support: A recompete contract with the U.S. Department of Energy to provide technical, information technology, and management support to the Office of Electricity Delivery and Energy Reliability..
• Program support: A recompete contract with the U.S. Centers for Disease Control to provide program support to the BioSense Program.
• Analytical and evaluation support: A contract with the U.S. Environmental Protection Agency (EPA) to provide economic, environmental, and regulatory analytical and evaluation services to support the National Water Program and EPA’s major water policy and regulatory actions. .
• Analytics support: A recompete contract with the U.S. Department of Health and Human Services to provide analytics support and analytics tool development to the Office of the Inspector General (OIG) to combat fraud, waste and abuse in the Medicare and Medicaid entitlement programs as well as for other HHS discretionary programs.
• Program support: A recompete contract with EPA to provide analytical, technical, and outreach support for ENERGY STAR® Buildings Program including research and analysis, strategy development and communications, user support and program implementation, energy tracking and benchmarking, resource/tool development and training, and tracking effectiveness of program offerings. 
• Disaster recovery and economic transformation: A grant from the U.S. Department of Labor to design, develop, and implement an “on the job” training program with a variety of U.S. Virgin Islands employers to build skills of dislocated workers due to hurricanes Irma and Maria.
• Public health: A contract with the U.S. Health Resources and Services Administration to provide services related to benchmarking and disseminating HIV/AIDS care and treatment data.

Select other government contract and task order wins with a value greater than $5 million included: ongoing support for the state of New York’s 511 rideshare program; ongoing services for antibiotics/sepsis campaigns for CDC; support for CDC’s HIV/STD prevention program; continuing support for the U.S. National Cancer Institute’s smokefree.gov program; and additional cybersecurity support services to the Army Research Lab.

Subsequent to the End of the Third Quarter

The Company was informed that it has been awarded contracts with an aggregate value of more than $50 million over several years to provide disaster recovery support in Texas related to Hurricane Harvey. Additional details with respect to these contracts will be contained in the Company’s fourth quarter 2018 earnings release.

Commercial Business Third Quarter 2018 Highlights

• Commercial revenue was $110.7 million, stable with the $110.4 million in last year’s third quarter. Commercial revenue accounted for 33 percent of total revenue compared to 36 percent of total revenue in the 2017 third quarter. 
• Energy markets, which include energy efficiency programs, represented 48 percent of commercial revenue. Marketing services accounted for 47 percent of commercial revenue.

Key Commercial Contracts Awarded in the Third Quarter

Commercial sales were $69 million in the third quarter of 2018 and $338 million year-to-date.  ICF was awarded almost 600 commercial projects globally during the third quarter including:

In Energy Markets:

• Contracts with a western U.S. utility to support its residential energy efficiency programs and provide related services.
• A contract with a western U.S. utility to provide strategic communications services.
• A contract extension with a northeastern U.S. utility to continue providing support for its energy efficiency programs.
• A contract with a mid-Atlantic U.S. utility to support its residential energy efficiency portfolio.

In 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 U.S. health insurer to provide additional marketing services.
• A contract with a multinational power management company to provide digital solutions services.
• Multiple task orders with a publisher of educational products to continue to provide marketing services.

Selected other commercial contract wins with a value of more than $1 million included: ongoing support for loyalty programs for a hospitality chain; environment and planning services for a western U.S. utility; program implementation services for a North American energy company; visual identity services for a U.S. financial institution; and technology solutions services for a U.S. health insurer.

Dividend Payment

On November 1, 2018, ICF declared a quarterly cash dividend of $0.14 per share, payable on January 16, 2019 to shareholders of record on December 7, 2018.

Summary and Outlook

“Year-to-date results were in line with our expectations and have put us on track to meet our full year 2018 guidance for revenue and EPS growth. Cash flow from operations for 2018 will be in the range of $80 million to $100 million, lower than our initial projection, as a result of timing issues related to media buys, milestone payments and the set-up of invoicing processes associated with a recently-awarded large contract.

“We ended the third quarter with higher backlog, record contract awards and a business development pipeline approaching $5.5 billion. These metrics underpin our confidence that 2019 will be another strong growth year for ICF and reflect the positive spending trends we continue to see in our government and commercial markets. Additionally, recent acquisitions have expanded our capabilities in key growth areas, including disaster response and recovery, communications strategy and digital engagement, which will enable ICF to provide an expanded array of services to clients,” Mr. Kesavan concluded.

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