ICF International(ICFI) - 2019 Q4 - Annual Report

Revenue Sources and Client Relationships - Approximately 38% of the company's revenue in 2019 was derived from federal government contracts, with 27% from state and local governments and international governments[89] - Commercial clients contributed approximately 35%, 36%, and 38% of revenue in 2019, 2018, and 2017 respectively, indicating a growing reliance on these clients[105] - The company’s client relationships and professional reputation are critical for winning new contracts and renewing existing ones, impacting revenue stability[94] Risks Related to Government Contracts - The company faced risks related to government budgeting and spending priorities, which could lead to delays or cancellations of expected funding[86] - Changes in government spending priorities could lead to delayed payments or failure to pay, affecting cash flow[90] - The company’s contracts may allow clients to terminate or modify them at their convenience, which could adversely affect revenue[104] Financial Performance and Cost Management - The company derived 38%, 39%, and 39% of its revenue from fixed-price contracts in 2019, 2018, and 2017 respectively, exposing it to risks of cost overruns[103] - The unpredictability of earnings could increase on fixed-price contracts if the company cannot accurately estimate and control contract costs[101] - The company may not receive revenue corresponding to the full amount of its backlog, which could adversely affect revenue and operating results[99] Compliance and Regulatory Risks - The company is subject to various compliance risks, including potential civil and criminal penalties for failing to adhere to complex laws and regulations[110] - The company must ensure compliance with various privacy and data protection laws, which could result in substantial costs and affect operational results[131] - The company may incur significant penalties under Privacy and Data Protection Laws, including fines up to 4% of annual worldwide revenue for non-compliance[131] International Operations and Market Risks - International operations expose the company to risks such as currency fluctuations and compliance with foreign laws, which could adversely affect profitability[122] - The U.K.'s exit from the EU may disrupt operations and create uncertainties regarding trade and regulatory environments[123] - Ongoing uncertainties surrounding Brexit could negatively impact customer and investor confidence, leading to market volatility[125] Cybersecurity and Technology Risks - The company faces continuous and evolving cybersecurity risks, with high-profile data breaches highlighting a hostile information security environment[127] - The company’s success in competitive digital marketing services depends on its ability to develop and integrate new technologies and respond to rapid changes in technology[134] Financial Instruments and Debt Management - The company had an aggregate of $165.4 million of outstanding indebtedness under a credit facility maturing on May 17, 2022, which increased due to the January 2020 acquisition of ITG[141] - Changes affecting the availability of LIBOR may impact the company’s financial instruments and future financing efforts[145] - A 1% increase in interest rates would increase interest expense by approximately $2.7 million, impacting annual net income and operating cash flows by a comparable amount[290] Board Governance and Dividend Policy - The company’s board of directors is divided into three classes, making it more difficult for stockholders to change the composition of the board[142] - The board of directors has the discretion to declare future dividends, which are subject to factors such as future earnings and cash flows[147] - Future dividends are not assured, and incorrect market expectations regarding dividends may negatively affect stock price[147] Interest Rate and Currency Risks - The company is exposed to fluctuations in interest rates for borrowings under the Credit Facility and foreign exchange rate risk[289] - The company uses interest rate swap arrangements to hedge interest rate risk, not for speculative purposes[290] - The company held approximately $7.1 million in cash in foreign bank accounts to mitigate foreign currency conversion risks[290] - A 10% increase or decrease in the value of the U.S. dollar against all currencies would have an estimated impact on revenue of approximately 1.3%, or $17.7 million[290]