ICF Reports Second Quarter 2019 Results

ICF (NASDAQ:ICFI), a global consulting and digital services provider, reported results for the second quarter ended June 30, 2019.

“This was another quarter of strong operating performance for ICF, in which we posted double-digit revenue growth that was aligned with the positive catalysts we have identified in our government and commercial markets,” said Sudhakar Kesavan, Chairman and Chief Executive Officer.

“Revenue from government clients increased 17.8 percent, led by our work on disaster recovery programs and higher revenues from U.S. federal government agency clients. Commercial revenues increased 4.6 percent year-on-year, reflecting growth in marketing services and energy efficiency implementation programs. Favorable revenue mix, increased service revenue¹, and higher utilization drove a 19.5 percent increase in adjusted EBITDA¹. Our adjusted EBITDA margin on service revenue was 13.0 percent, 110 basis points higher year-on-year.

“Second quarter contract awards of over $400 million included a modification to our FEMA-funded disaster recovery contract with the Government of Puerto Rico that significantly expanded our services, as well as several strategically important awards from both government and commercial clients. Subsequent to the end of the quarter, ICF was awarded a three-year federally-funded contract to assist with Community Development Block Grant (CDBG) housing recovery in Puerto Rico following the damage caused by the 2017 hurricanes.

“Our first half performance positions ICF well for continued growth in 2019. Our contract backlog increased sequentially to $2.4 billion, and our business development pipeline was $6.3 billion, representing substantial year-on-year increases across key client categories,” Mr. Kesavan noted.

Second Quarter 2019 Results

Second quarter 2019 total revenue was $366.7 million, representing 13.1 percent growth over the $324.3 million reported in the second quarter of 2018. Service revenue increased 9.2 percent year-over-year to $252.3 million, from $231.0 million. Net income was $14.6 million in the second quarter, up 7.3 percent from $13.6 million in the second quarter of 2018. Diluted earnings per share amounted to $0.76, a 7.0 percent increase from $0.71 per diluted share in the prior year quarter.

Non-GAAP EPS increased 21.3 percent to $0.97 per share from $0.80 per share in the year ago quarter. EBITDA¹ was $30.2 million, up 10.5 percent from $27.3 million reported in the second quarter of 2018. Adjusted EBITDA¹ was $32.7 million, 19.5 percent above the $27.4 million reported in the comparable quarter of 2018. Second quarter 2019 adjusted EBITDA margin on service revenue expanded by 110 basis points to 13.0 percent from 11.9 percent in the 2018 second quarter.

Backlog and New Business Awards

Total backlog was $2.4 billion at the end of the second quarter of 2019. Funded backlog was $1.0 billion, or approximately 43 percent of the total backlog. The total value of contracts awarded in the 2019 second quarter was $403.1 million, resulting in a trailing-twelve-month (TTM) book-to-bill ratio of 1.15.

Government Revenue Second Quarter 2019 Highlights

Revenue from government clients was $245.7 million, up 17.8 percent year-over-year.

• U.S. federal government revenue increased by 1.2 percent year-on-year to $141.2 million, compared to $139.5 million in the year ago quarter. Federal government revenue accounted for 38 percent of total revenue, compared to 43 percent of total revenue in the second quarter of 2018.
• U.S. state and local government revenue increased by 111.1 percent year-on-year to $72.9 million, driven by our disaster recovery work. State and local government clients represented 20 percent of total revenue, significantly ahead of the 11 percent of total revenue accounted for in the 2018 second quarter.
• International government revenue was $31.7 million, compared to $34.6 million in the year-ago quarter, and accounted for 9 percent of total revenue, compared to 11 percent in the second quarter of 2018. On a constant currency basis, international government revenue was down an estimated 2.6 percent.

Key Government Contracts Awarded in the Second Quarter

ICF was awarded more than 100 U.S. federal contracts and task orders and almost 300 additional contracts from U.S. state and local and international governments with an aggregate value of $280.9 million. Notable awards won in the second quarter included:

• Disaster recovery: A contract modification to continue providing hazard mitigation and related services in Puerto Rico that are part of disaster recovery activities associated with Hurricanes Irma and Maria.
• Technical support: A recompete contract with the U.S. Environmental Protection Agency to provide technical support to the National Center for Environmental Assessment.
• Program support: A contract with a U.S. federal agency to support the launch of in-school youth apprenticeship programs.
• Strategic communications: A recompete contract with the National Institutes of Health to provide communications and media services related to health education.
• Survey research: A recompete contract with the New York State Department of Health to provide survey support for the Behavioral Risk Factor Surveillance System of the U.S. Centers for Disease Control.
• Cybersecurity and resilience: A recompete contract with the Maryland Administrative Office of the Courts to provide enterprise cybersecurity support.

Subsequent to the end of the second quarter, the Company was awarded a $25 million, three-year federally-funded contract to assist with CDBG housing recovery programs in Puerto Rico associated with hurricanes Irma and Maria.

Commercial Revenue Second Quarter 2019 Highlights

• Commercial revenue was $121.0 million, up 4.6 percent from the $115.7 million reported in last year’s second quarter. Commercial revenue accounted for 33 percent of total revenue compared to 35 percent of total revenue in the 2018 second quarter.
• Energy markets, which include energy efficiency programs, represented 45 percent of commercial revenue. Marketing services accounted for 46 percent of commercial revenue.

Key Commercial Contracts Awarded in the Second Quarter 2019

Commercial sales were $122.1 million in the second quarter of 2019. ICF was awarded more than 750 commercial projects globally during the second quarter including:

In Energy Markets:

• A recompete contract with a northeastern U.S. utility to support its portfolio of energy efficiency programs.
• A contract with a midwestern U.S. utility to support its commercial and industrial energy efficiency programs.
• A contract with a North American energy agency to support implementation of business, non-profit, and institutional energy savings programs.

In Marketing Services:

• A recompete contract with a U.S. health insurer to provide marketing services.
• A contract with a U.S. health insurer to provide program rollout and design thinking support services.
• A contract with a U.S. pharmaceutical company to provide additional corporate communications and related services.

Dividend Declaration

On August 1, 2019, ICF declared a quarterly cash dividend of $0.14 per share, payable on October 15, 2019 to shareholders of record on September 13, 2019.

Summary and Outlook

“ICF continued to execute well in the first half of this year, leveraging our domain expertise to take advantage of growth opportunities across our government and commercial client sets. Year-to-date operating results, recent wins and pipeline activity support our expectations for substantial growth in 2019 and beyond. Consequently, we have raised the midpoints for our guidance ranges for revenues and earnings. We now expect 2019 revenues to range from $1.475 billion to $1.5 billion, GAAP EPS to be between $3.80 and $3.95, exclusive of special charges, and Non-GAAP EPS to be in the range of $4.10 to $4.25. Operating cash flow is projected to be in the range of $100 million to $120 million.

“We were pleased to announce today via a separate press release that our Board of Directors has approved a succession plan that calls for the appointment of John Wasson, President, to the additional position of Chief Executive Officer and Board Member, and that I will move to Executive Chairman effective October 1, 2019. This represents a seamless succession at ICF, ensuring that we have the continuity of leadership needed to continue on our growth path,” Mr. Kesavan concluded.

^{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.↩}