ICF International(ICFI) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Q1 2020 unaudited financials show total assets at $1.68 billion driven by the ITG acquisition, revenue at $358.2 million, and net income at $10.6 million, alongside increased debt and negative operating cash flow Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | (in thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,684,023 | $1,396,034 | | Cash and cash equivalents | $58,661 | $6,482 | | Goodwill | $905,177 | $719,934 | | Total Liabilities | $993,267 | $681,483 | | Long-term debt | $506,979 | $164,261 | | Total Stockholders' Equity | $690,756 | $714,551 | - Goodwill increased by $185.2 million, primarily due to the acquisition of Incentive Technology Group (ITG)[10][32] - Long-term debt increased significantly to $517.0 million from $164.3 million, mainly to finance the ITG acquisition[10][33] Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (Unaudited) | (in thousands, except per share) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Revenue | $358,238 | $341,254 | | Operating income | $16,319 | $21,889 | | Net income | $10,612 | $15,318 | | Diluted EPS | $0.55 | $0.80 | - Revenue increased by 5.0% year-over-year, while operating income decreased by 25.4% and net income decreased by 30.7%[12][101] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Unaudited) | (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($15,232) | ($12,688) | | Net Cash Used in Investing Activities | ($257,725) | ($9,358) | | Net Cash Provided by Financing Activities | $325,874 | $14,444 | - Cash used in investing activities significantly increased due to a $253.0 million payment for the acquisition of ITG[15][135] - Cash provided by financing activities increased substantially due to net advances of $354.6 million from the credit facility, primarily to fund the ITG acquisition[15][136] Notes to Consolidated Financial Statements - On January 31, 2020, the Company acquired Incentive Technology Group, LLC (ITG) for $255.0 million, resulting in $188.3 million of goodwill and $47.3 million of other intangible assets[67][68] - On March 3, 2020, the Company amended its Credit Facility, adding a new $200.0 million term loan and increasing the total facility to $800.0 million ($200M term, $600M revolving). Total debt outstanding was $520.0 million as of March 31, 2020[33] - The company had $1.5 billion in unfulfilled performance obligations as of March 31, 2020, which it expects to satisfy, on average, in one to two years[54] - A quarterly cash dividend of $0.14 per share was approved on May 5, 2020[75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported Q1 2020 revenue growth of 5.0% to $358.2 million, a 25.4% decline in operating income to $16.3 million due to acquisition costs, and increased Days Sales Outstanding to 88 days, while monitoring COVID-19 impacts - The company is monitoring the impact of the COVID-19 pandemic, noting that while government work has seen continuity, commercial marketing services, representing less than 15% of 2019 revenue, will likely be impacted[84][85][86] Q1 2020 vs Q1 2019 Performance | (dollars in thousands) | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $358,238 | $341,254 | $16,984 | 5.0% | | Direct Costs | $230,616 | $215,949 | $14,667 | 6.8% | | Operating Income | $16,319 | $21,889 | ($5,570) | (25.4%) | | Net Income | $10,612 | $15,318 | ($4,706) | (30.7%) | - The increase in revenue was driven by a $14.6 million increase in government client revenue, particularly from U.S. federal government clients[101] - Operating income decreased primarily due to increased indirect and selling expenses, costs related to the ITG acquisition, and higher amortization of intangible assets[103][105][106] Reconciliation of Diluted EPS to Non-GAAP Diluted EPS | | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Diluted EPS | $0.55 | $0.80 | | Special charges & Amortization | $0.34 | $0.09 | | Income tax effects | ($0.06) | ($0.02) | | Non-GAAP EPS | $0.83 | $0.87 | - Days-sales-outstanding (DSO) increased to 88 days for Q1 2020 from 83 days in Q4 2019, largely due to slow payments from disaster relief and rebuild efforts. Excluding these efforts, DSO was 78 days[126] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in its market risk disclosures since its last Annual Report on Form 10-K - There have been no material changes in the disclosures discussed in the section entitled "Quantitative and Qualitative Disclosures About Market Risk" in Part II, Item 7A of the company's Annual Report[137] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the period, with no significant changes to internal controls over financial reporting during the quarter - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[138] - No significant changes in internal controls over financial reporting occurred during the quarter[138] PART II. OTHER INFORMATION Legal Proceedings The company faces a $220.2 million claim from the State of Louisiana regarding the Road Home Program, which it believes lacks merit and has not recorded as a liability, alongside other ordinary course legal matters - The company is involved in a lawsuit with the State of Louisiana, which is seeking approximately $220.2 million in alleged overpayments related to the Road Home Program contract that ended in 2009[78][79] - The company believes the claim has no merit, intends to defend its position vigorously, and has not recorded a liability as of March 31, 2020[79] Risk Factors A new risk factor highlights potential material adverse effects from health epidemics like COVID-19 on demand, workforce, client decision-making, and global business conditions - A new risk factor was added concerning health epidemics and pandemics, such as COVID-19, which may have material adverse effects on the business[143] - Specific risks include impacts on demand for services, availability of staff and partners, slowdown of client decision-making, and potential reprioritization of client spending[143][144][145] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2020, the company repurchased 310,139 shares at an average price of $77.34 per share, including 206,820 shares under its repurchase program and 103,319 shares for tax withholding obligations Share Repurchase Activity for Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Jan 2020 | 74,269 | $90.33 | 41,800 | | Feb 2020 | 64,317 | $81.96 | 64,317 | | Mar 2020 | 171,553 | $69.99 | 100,703 | | Total | 310,139 | $77.34 | 206,820 | - During the quarter, 206,820 shares were repurchased under the stock repurchase program. The company also repurchased 103,319 shares from employees to satisfy tax withholding obligations[148][149] Defaults Upon Senior Securities None reported - None[150] Mine Safety Disclosures Not applicable - Not applicable[151] Other Information None reported - None[152] Exhibits The report lists several exhibits filed, including the First Amendment to the company's Business Loan and Security Agreement, certifications by the Principal Executive Officer and Principal Financial Officer, and iXBRL data files - Key exhibits filed include the First Amendment to the Fifth Amended and Restated Business Loan and Security Agreement, and certifications from the CEO and CFO pursuant to Sarbanes-Oxley[153]