ICF Reports First Quarter 2019 Results

ICF (NASDAQ:ICFI), a global consulting and digital services provider, reported results for the first quarter ended March 31, 2019.

“ICF’s first quarter results represented a strong start to 2019, reflecting positive growth drivers in both our government and commercial client sets and the benefits of our diversified business model,” said Sudhakar Kesavan, Chairman and Chief Executive Officer. “Double-digit revenue growth reflected year-on-year increases in revenues from government and commercial clients of 16 percent and 8 percent, respectively.

“Federal government client revenues were stable year-on-year, after adjusting for the impact of the partial federal government shutdown that was in effect for most of January; state and local government revenues more than doubled, driven by increased disaster recovery work; and international government revenue remained stable on a constant currency basis. Commercial revenue performance was led by a double-digit year-on-year increase in commercial marketing services.

“Revenue growth and a favorable business mix resulted in a 24 percent year-on-year increase in operating income and a 60-basis point improvement in adjusted EBITDA margin on service revenue. Net income was up 23 percent, and diluted EPS and Non-GAAP EPS increased 23 percent and 13 percent, respectively. These results include the estimated negative impact of the federal government shutdown, as well as the benefit of a lower-than-expected tax rate.

“Contract awards continued apace in the first quarter, resulting in a trailing twelve-month book-to-bill ratio of 1.3, up from 1.1 at the same time last year. Additionally, our business development pipeline increased considerably both sequentially and year-over-year, reaching $6.4 billion at the end of the first quarter and representing diversified opportunities with both government and commercial clients,” Mr. Kesavan noted.

First Quarter 2019 Results

First quarter 2019 total revenue was $341.3 million, representing 12.7 percent growth over the $302.8 million reported in the first quarter of 2018. Service revenue¹; increased 7.8 percent year-over-year to $241.4 million, from $223.9 million. Net income increased 23.4 percent to $15.3 million in the 2019 first quarter, and diluted EPS was $0.80, which included an estimated $0.05 per share negative impact related to the federal government shutdown that continued for 28 days in January. First quarter net income and EPS figures benefitted from a lower effective tax rate of 19.5 percent, compared to 22.5 percent in the similar year-ago period. In the 2018 first quarter, net income was $12.4 million, or $0.65 per diluted share.

Non-GAAP EPS increased 13.0 percent to $0.87 per share from $0.77 per share in the year ago quarter. EBITDA¹; was $28.8 million, up 18.5 percent from $24.3 million reported in the first quarter of 2018. Adjusted EBITDA¹ was $28.5 million, 13.8 percent above the $25.0 million reported in the comparable quarter of 2018. First quarter 2019 adjusted EBITDA margin on service revenue expanded to 11.8 percent from 11.2 percent in the 2018 first quarter as a result of a more profitable revenue mix.

Backlog and New Business Awards

Total backlog was $2.3 billion at the end of the first quarter of 2019. Funded backlog was $1.1 billion, or approximately 49 percent of the total backlog. The total value of contracts awarded in the 2019 first quarter was $289.1 million, resulting in a trailing-twelve-month (TTM) book-to-bill ratio of 1.3.

Government Revenue First Quarter 2019 Highlights

Revenue from government clients was $224.5 million, up 15.6 percent year-over-year.

• U.S. federal government revenue was $131.8 million. An estimated additional $3.4 million of revenue would have accrued without the partial federal government shutdown. This compares to $134.2 million in the year ago quarter. Federal government revenue accounted for 39 percent of total revenue, compared to 44 percent of total revenue in the first quarter of 2018.
• U.S. state and local government revenue increased by 109.2 percent year-on-year to $65.5 million, driven by our disaster recovery work. State and local government clients represented 19 percent of total revenue, significantly ahead of the 10 percent of total revenue accounted for in the 2018 first quarter.
• International government revenue was $27.2 million, compared to $28.8 million in the year-ago quarter, and accounted for 8 percent of total revenue, compared to 10 percent in the first quarter of 2018. On a constant currency basis, international government revenue was up 0.5 percent.

Key Government Contracts Awarded in the First Quarter

ICF was awarded more than 70 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 $141.6 million. Notable awards won in the first quarter included:

• Strategic communications: A framework contract with the European Commission to provide strategic communications services using creative technologies.
• Disaster recovery: A contract and a contract modification to support housing and infrastructure programs in Texas that are part of state and local government disaster recovery activities associated with Hurricane Harvey.
• Program support: A contract with the U.K. government to provide support services for an urban resilience program in Nepal.
• Environment and planning: A recompete contract with a western U.S. state transportation agency to provide on call environmental services.
• Program support: A recompete contract with the National Science Foundation Directorate for Education and Human Resources to provide program monitoring, data collection, and analysis services.
• Environment and planning: Master services agreements and associated task orders with a western U.S. water authority to provide environmental planning and analysis services.
• Survey research and evaluation: A contract with U.S. Agency for International Development to provide survey research and evaluation services related to MEASURE Evaluation Phase 4.
• Policy analysis: A recompete contract with the Federal Highway Administration of the U.S. Department of Transportation to provide highway policy analysis.

Commercial Revenue First Quarter 2019 Highlights

• Commercial revenue was $116.8 million, up 7.6 percent from the $108.5 million reported in last year’s first quarter. Commercial revenue accounted for 34 percent of total revenue compared to 36 percent of total revenue in the 2018 first quarter.
• Energy markets, which include energy efficiency programs, represented 45 percent of commercial revenue. Marketing services accounted for 47 percent of commercial revenue.

Key Commercial Contracts Awarded in the First Quarter 2019

Commercial sales were $147.5 million in the first quarter of 2019. ICF was awarded more than 800 commercial projects globally during the first quarter including:

In Energy Markets:

• Recompete contracts and a new contract with a midwestern U.S. utility to continue supporting its residential and commercial energy efficiency programs.
• A contract with a southern U.S. utility to support its residential energy efficiency programs.
• A contract to provide support for residential HVAC and lighting energy efficiency programs for a midwestern U.S. utility.
• Several task orders with a western U.S. utility to provide environment and planning services.

In Marketing 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 digital solutions services.
• Multiple task orders with a U.S. confectionery manufacturer to continue to provide marketing services.
• Retainers and task orders to provide marketing services to a U.K. banking group.

Dividend Declaration

On May 2, 2019, ICF declared a quarterly cash dividend of $0.14 per share, payable on July 16, 2019 to shareholders of record on June 14, 2019.

Summary and Outlook

“We expect the catalysts that led to our strong first quarter performance to continue to drive significant growth and margin expansion in 2019. Our existing contract backlog provides considerable visibility, and our record business development pipeline reflects ICF’s increasing scale, deep subject matter expertise, and the cross-cutting implementation capabilities that we bring to both government and commercial client contracts.

“For 2019, we reaffirm our guidance for total revenue of $1.45 billion to $1.50 billion, GAAP earnings per diluted share of $3.75 to $3.95 exclusive of any special charges, and Non-GAAP diluted EPS of $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 is projected to be in the range of $100 million to $120 million. Full year 2019 guidance does not include any significant new disaster recovery-related contract wins or major contract expansions that might occur," concluded Mr. Kesavan.

^{1.Non-GAAP EPS, Service Revenue, EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin on Service Revenue are non-GAAP measurements. A reconciliation of all non-GAAP measurements to the most applicable GAAP number is set forth below. Special charges are items that were included within our statement of comprehensive income but are not indicative of ongoing performance and have been presented net of applicable U.S. GAAP taxes. The presentation of non-GAAP measurements may not be comparable to other similarly titled measures used by other companies.↩}