ICF International(ICFI) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited consolidated financial statements and management's discussion of financial condition and results of operations Item 1. Financial Statements Presents unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with notes detailing accounting policies and key financial changes Consolidated Balance Sheets Summarizes the company's financial position, showing assets, liabilities, and equity at specific points in time | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total Assets | $1,615,524 | $1,396,034 | $219,490 | 15.7% | | Total Current Assets | $419,041 | $434,717 | $(15,676) | (3.6%) | | Goodwill | $905,101 | $719,934 | $185,167 | 25.7% | | Other intangible assets, net | $66,558 | $25,829 | $40,729 | 157.7% | | Total Liabilities | $910,421 | $681,483 | $228,938 | 33.6% | | Long-term debt | $440,928 | $164,261 | $276,667 | 168.4% | | Total Stockholders' Equity | $705,103 | $714,551 | $(9,448) | (1.3%) | Consolidated Statements of Comprehensive Income Details the company's revenues, expenses, and net income over specific reporting periods | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Revenue | $353,987 | $366,717 | $(12,730) | (3.5%) | | Operating income | $22,782 | $22,542 | $240 | 1.1% | | Net income | $13,656 | $14,611 | $(955) | (6.5%) | | Basic EPS | $0.73 | $0.78 | $(0.05) | (6.4%) | | Diluted EPS | $0.72 | $0.76 | $(0.04) | (5.3%) | | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :------- | | Revenue | $712,225 | $707,971 | $4,254 | 0.6% | | Operating income | $39,101 | $44,431 | $(5,330) | (12.0%) | | Net income | $24,268 | $29,929 | $(5,661) | (18.9%) | | Basic EPS | $1.29 | $1.59 | $(0.30) | (18.9%) | | Diluted EPS | $1.27 | $1.56 | $(0.29) | (18.6%) | Consolidated Statements of Cash Flows Reports the cash generated and used by operating, investing, and financing activities | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Net Cash Provided by (Used in) Operating Activities | $10,801 | $(47,946) | $58,747 | | Net Cash Used in Investing Activities | $(262,105) | $(16,335) | $(245,770) | | Net Cash Provided by Financing Activities | $254,366 | $57,492 | $196,874 | | Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $2,582 | $(6,682) | $9,264 | Notes to Consolidated Financial Statements Provides detailed explanations and disclosures for the figures presented in the consolidated financial statements NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS Describes ICF International's professional services, client markets, U.S. GAAP basis, and recent accounting standard adoptions - The Company provides professional services and technology-based solutions to government and commercial clients, including management, marketing, technology, and policy consulting and implementation services[17] - Major clients include U.S. federal government departments and agencies (e.g., Department of Health and Human Services, Department of State, Department of Defense), U.S. state and local governments, international governments, and commercial clients worldwide[18] - The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), in Q1 2020, resulting in a $0.5 million cumulative-effect adjustment to opening retained earnings[28] NOTE 2 – CONTRACT RECEIVABLES, NET Contract receivables, net, decreased by $36.8 million due to reduced billable amounts and increased allowance for doubtful accounts | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Billed and billable | $229,327 | $264,682 | $(35,355) | | Allowance for doubtful accounts | $(4,948) | $(3,506) | $(1,442) | | Contract receivables, net | $224,379 | $261,176 | $(36,797) | NOTE 3 – GOODWILL Goodwill increased by $185.2 million, primarily driven by the Incentive Technology Group (ITG) acquisition | Metric | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Balance as of December 31, 2019 | $719,934 | | Goodwill resulting from business combination - ITG | $188,369 | | Effect of foreign currency translation | $(3,202) | | Balance as of June 30, 2020 | $905,101 | NOTE 4 – LONG-TERM DEBT Long-term debt increased to $450.9 million, mainly due to a new $200.0 million term loan and increased revolving credit for the ITG acquisition | Debt Type | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Term Loan | $197,500 | $0 | $197,500 | | Revolving Credit | $256,292 | $165,444 | $90,848 | | Total before debt issuance costs | $453,792 | $165,444 | $288,348 | | Unamortized debt issuance costs | $(2,864) | $(1,183) | $(1,681) | | Total Long-term Debt | $450,928 | $164,261 | $286,667 | | Average Interest Rate (Total) | 2.74% | 3.59% | (0.85%) | - On March 3, 2020, the Company amended its Credit Facility to add a new $200.0 million term loan facility and increase the revolving line of credit to $600.0 million, extending the maturity to March 3, 2025[32] - As of June 30, 2020, the Company had $453.8 million in long-term debt outstanding and $340.9 million in unused borrowing capacity under the Credit Facility[35] NOTE 5 – LEASES The company holds operating leases for facilities and equipment, with ROU assets of $139.2 million and total operating lease liabilities of $154.9 million | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total operating lease right-of-use assets | $139,189 | $133,965 | | Total operating lease liabilities | $154,949 | $151,750 (calculated from current and non-current) | | Rent Expense Type | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :---------------------- | :---------------------------------------- | :---------------------------------------- | | Operating lease costs | $18,770 | $17,505 | | Short-term lease costs | $873 | $1,003 | | Variable lease costs | $1 | $184 | | Total rent expense | $19,644 | $18,692 | - As of June 30, 2020, the Company had additional operating leases not yet commenced with a potential lease liability of $129.1 million, anticipated to commence over the next three years[39] NOTE 6 – OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss increased to $23.4 million, mainly due to foreign currency translation and interest rate hedge fair value changes | Component | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------------------------------ | :----------------------------- | :------------------------------- | | Foreign Currency Translation Adjustments | $(15,209) | $(10,995) | | Gain on Sale of Interest Rate Hedge Agreement | $1,368 | $1,634 | | Change in Fair Value of Interest Rate Hedge Agreements | $(9,590) | $(2,783) | | Total Accumulated Other Comprehensive Loss | $(23,431) | $(12,144) | - The Company expects to reclassify $0.7 million net gains related to the Gain on Sale of Interest Rate Hedge Agreement and $3.7 million net losses related to the Change in Fair Value of Interest Rate Hedge Agreement from accumulated other comprehensive loss into earnings during the next 12 months[43] NOTE 7 – STOCKHOLDERS' EQUITY Total stockholders' equity decreased to $705.1 million, influenced by net income, equity compensation, dividends, and stock buybacks | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Stockholders' Equity | $705,103 | $714,551 | | Net income (six months) | $24,268 | N/A (period-specific) | | Equity compensation (six months) | $6,344 | N/A (period-specific) | | Dividends declared (six months) | $(5,273) | N/A (period-specific) | | Net payments for stock issuances and buybacks (six months) | $(23,024) | N/A (period-specific) | | Accumulated other comprehensive loss | $(23,431) | $(12,144) | NOTE 8 – RESTRICTED CASH Cash, cash equivalents, and restricted cash increased from $6.5 million to $9.1 million, with no non-current restricted cash | Metric | Beginning of Period 2020 (in thousands) | End of Period 2020 (in thousands) | | :-------------------------------------------------------------------------------- | :------------------------------------ | :------------------------------ | | Cash and cash equivalents | $6,482 | $9,064 | | Restricted cash - non-current | $0 | $0 | | Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | $6,482 | $9,064 | NOTE 9 – REVENUE RECOGNITION Revenue decreased 3.5% for three months but increased 0.6% for six months, driven by federal government growth offset by commercial declines | Client Market (3 Months) | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Energy, environment, and infrastructure | $151,481 | $166,520 | (9.0%) | | Health, education, and social programs | $148,528 | $134,346 | 10.6% | | Consumer and financial services | $22,538 | $35,821 | (37.1%) | | Client Type (3 Months) | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | % Change | | :----------------------- | :----------------------------- | :----------------------------- | :------- | | U.S. federal government | $170,748 | $141,253 | 20.9% | | U.S. state and local government | $57,982 | $73,101 | (20.7%) | | Commercial | $107,159 | $120,746 | (11.3%) | | Contract Mix (3 Months) | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | % Change | | :---------------------- | :----------------------------- | :----------------------------- | :------- | | Time-and-materials | $168,489 | $167,009 | 0.9% | | Fixed price | $123,970 | $146,967 | (15.7%) | | Cost-based | $61,528 | $52,741 | 16.7% | | Contract Balances | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | % Change | | :------------------------ | :----------------------------- | :------------------------------- | :------- | | Contract assets | $150,577 | $142,337 | 5.8% | | Contract liabilities | $(30,135) | $(37,413) | (19.5%) | | Net contract assets (liabilities) | $120,442 | $104,924 | 14.8% | - The Company had $1.5 billion in unfulfilled performance obligations as of June 30, 2020, expected to be satisfied in one to two years[51] NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The company uses fixed interest rate swaps as cash flow hedges, including a new $100.0 million swap entered in February 2020 - On February 20, 2020, the Company entered into a $100.0 million floating-to-fixed interest rate swap, designated as a cash flow hedge, with a fixed rate of 1.294% per annum from February 28, 2020, to February 28, 2025[53][54] NOTE 11 – INCOME TAXES Effective income tax rates increased due to non-deductible losses, with unrecognized tax benefits rising to $2.7 million and $6.4 million in deferred Social Security taxes | Period | Effective Tax Rate 2020 | Effective Tax Rate 2019 | | :-------------------------- | :---------------------- | :---------------------- | | Three Months Ended June 30 | 29.0% | 26.2% | | Six Months Ended June 30 | 24.6% | 22.9% | | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Unrecognized tax benefits | $2,700 | $200 | | Accrued penalty and interest | $100 | $100 | - The Company deferred payment of approximately $6.4 million of employer Social Security taxes during the quarter ended June 30, 2020, under the CARES Act[60] NOTE 12 – ACCOUNTING FOR STOCK COMPENSATION The 2018 Omnibus Incentive Plan had 1,095,772 shares available for grant, with $4.0 million in stock-based compensation expense for the quarter - As of June 30, 2020, approximately 1,095,772 shares were available for grant under the 2018 Omnibus Plan[62] - During the six months ended June 30, 2020, the Company granted 166,051 RSUs, 112,479 CSRSUs, and 55,264 PSAs[63] | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Stock-based compensation expense | $4,000 | $5,900 | | Unrecognized Compensation Expense (June 30, 2020) | Amount (in thousands) | Weighted-Average Period | | :------------------------------------------------ | :-------------------- | :---------------------- | | RSUs | $17,900 | 2.2 years | | CSRSUs | $9,400 | 1.9 years | | PSAs | $3,800 | 1.6 years | NOTE 13 – FAIR VALUE Deferred compensation investments totaled $14.4 million and interest rate swap liabilities were $13.0 million, both Level 2 fair value measurements | Financial Instrument (June 30, 2020) | Total (in thousands) | Location on Balance Sheet | | :----------------------------------- | :------------------- | :------------------------ | | Deferred compensation investments | $14,435 | Other assets | | Deferred compensation plan liabilities | $14,353 | Other long-term liabilities | | Interest rate swaps | $13,044 | Other long-term liabilities | NOTE 14 – BUSINESS COMBINATION The company acquired ITG for $255.0 million, resulting in $188.4 million in goodwill and $47.3 million in other intangible assets - On January 31, 2020, the Company acquired Incentive Technology Group, LLC (ITG) for $255.0 million[67] - The acquisition resulted in a preliminary allocation of approximately $188.4 million to goodwill and $47.3 million to other intangible assets[68] - The weighted average amortization period for the acquired intangible assets is 5.7 years[68] NOTE 15 – EARNINGS PER SHARE Diluted EPS decreased to $0.72 for three months and $1.27 for six months, with certain awards excluded from calculations | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | | Basic earnings per share | $0.73 | $0.78 | | Diluted earnings per share | $0.72 | $0.76 | | Dilutive effect of stock options, RSUs, and performance shares | 191 | 328 | | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Basic earnings per share | $1.29 | $1.59 | | Diluted earnings per share | $1.27 | $1.56 | | Dilutive effect of stock options, RSUs, and performance shares | 285 | 398 | - For the three months ended June 30, 2020, 19,755 weighted-average shares were excluded from EPS calculation as anti-dilutive, and for the six months, 19,881 shares were excluded[71] NOTE 16 – SHARE REPURCHASE PROGRAM The $100.0 million share repurchase program had $51.4 million remaining, with its Rule 10b5-1 plan terminated due to COVID-19 - As of June 30, 2020, $51.4 million remained available for share repurchases under the program[73] - The Rule 10b5-1 plan element of the share repurchase program was terminated on March 13, 2020, due to uncertainties associated with the COVID-19 pandemic[73] NOTE 17 – SUBSEQUENT EVENTS The board approved a $0.14 per share cash dividend, and the company continues to assess the uncertain impacts of COVID-19 - On August 4, 2020, the Company's board of directors approved a $0.14 per share cash dividend, payable October 13, 2020[74] - The Company is continuously assessing the financial impacts of COVID-19 on its business, customers, employees, and capital markets, with future impacts remaining uncertain[75] NOTE 18 – CONTINGENCIES The company faces a $220.2 million lawsuit from the State of Louisiana regarding the Road Home Program, which it believes lacks merit - The State of Louisiana filed an administrative demand and lawsuit seeking approximately $220.2 million in alleged overpayments from the Road Home Program against ICF Emergency Management Services, L.L.C., a subsidiary of the Company[77][78] - The Company believes the claim has no merit and intends to vigorously defend its position, thus no liability has been recorded as of June 30, 2020[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and outlook, covering COVID-19 impacts, revenue, costs, liquidity, and strategic focus FORWARD-LOOKING STATEMENTS Outlines forward-looking statements and key risks, including government contract dependence, COVID-19 impacts, and acquisition integration challenges - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[80] - Key risk factors include dependence on government contracts, changes in federal government budgeting, impacts of COVID-19, results of government audits, dependence on cyclical commercial sectors, difficulties in integrating acquisitions, and the Road Home contract lawsuit[80] Impacts of the COVID-19 Pandemic COVID-19 created uncertainty, impacting commercial services and leading to staff adjustments and deferred employer Social Security taxes - Government clients, accounting for approximately 69% of revenues for the six months ended June 30, 2020, have largely continued to require services despite postponements and travel challenges[84] - Commercial marketing services, representing less than 12% of total revenues, were impacted by travel restrictions and deferral/cancellation of marketing events[85] - The Company has implemented staff reductions, furloughs, and temporary wage reduction programs and deferred approximately $6.4 million of employer Social Security taxes under the CARES Act[86][87] OVERVIEW AND OUTLOOK ICF provides professional services across four markets, anticipating long-term demand and focusing on client relationships, larger engagements, and strategic acquisitions - The Company provides advisory, program implementation, analytics, digital, and engagement services to government and commercial clients[89] - Long-term demand for services is expected to grow due to concerns about clean energy, health promotion, natural disaster relief, and homeland security[91] - Strategic priorities include leveraging digital and client engagement capabilities, enhancing client relationships, seeking larger engagements, and evaluating strategic acquisition opportunities such as the recent ITG acquisition[92] CRITICAL ACCOUNTING POLICIES AND ESTIMATES Financial statements rely on critical accounting policies and estimates, with management monitoring COVID-19 impacts on goodwill and intangible asset fair values - Critical accounting policies and estimates include revenue recognition, impairment of goodwill and other intangible assets, income taxes, and stock-based compensation[95] - The Company is monitoring COVID-19 impacts on goodwill and intangible asset fair values; future sustained impacts could result in material impairment recognition[97][98] RECENT ACCOUNTING PRONOUNCEMENTS Refers to Note 1 for recent accounting pronouncements, including ASU 2020-04 on Reference Rate Reform - Recent accounting pronouncements are discussed in Note 1, including ASU 2020-04 on Reference Rate Reform, which the Company is currently evaluating for impact[29][99] SELECTED KEY METRICS The company tracks revenue by client markets, types, and contract mix to evaluate operations and business nature - Key metrics tracked include revenue by client market (breadth of expertise), client type (diversity of client base), and contract mix (degree of performance risk)[100] RESULTS OF OPERATIONS Revenue decreased 3.5% for three months but increased 0.6% for six months, while net income declined due to increased amortization and expenses Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 Compares financial performance for the three months ended June 30, 2020, against the same period in 2019 | Metric | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Revenue | $353,987 | $366,717 | $(12,730) | (3.5%) | | Direct Costs | $223,407 | $235,053 | $(11,646) | (5.0%) | | Operating Income | $22,782 | $22,542 | $240 | 1.1% | | Interest expense | $(3,908) | $(2,934) | $(974) | 33.2% | | Net Income | $13,656 | $14,611 | $(955) | (6.5%) | - Revenue decrease was primarily due to a $13.6 million decrease from commercial clients (especially consumer and financial services, impacted by COVID-19) and decreases in state/local and international government clients, partially offset by a $29.5 million increase from federal government clients (including ITG acquisition)[103] - Amortization of intangible assets increased by $1.4 million (67.5%) due to the ITG acquisition[107] Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 Compares financial performance for the six months ended June 30, 2020, against the same period in 2019 | Metric | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Revenue | $712,225 | $707,971 | $4,254 | 0.6% | | Direct Costs | $454,023 | $451,002 | $3,021 | 0.7% | | Operating Income | $39,101 | $44,431 | $(5,330) | (12.0%) | | Interest expense | $(7,433) | $(5,387) | $(2,046) | 38.0% | | Net Income | $24,268 | $29,929 | $(5,661) | (18.9%) | - Revenue increase was driven by a $52.9 million increase from federal clients (including ITG acquisition), offset by decreases in commercial and state/local government contracts[113] - Operating income decreased by 12.0% due to a constant gross margin, increased amortization of intangible assets, and higher indirect and selling expenses[118] NON-GAAP MEASURES Presents non-GAAP measures like Service Revenue, EBITDA, and Non-GAAP Diluted EPS, used by management to evaluate operational performance Service Revenue Defines and reconciles service revenue, a non-GAAP measure excluding subcontractor and other direct costs - Service revenue represents revenue less subcontractor and other direct costs, considered a key source of profit from services provided by employees[122] | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenue | $353,987 | $366,717 | | Subcontractor and other direct costs | $(92,789) | $(114,381) | | Service revenue | $261,198 | $252,336 | | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | | Revenue | $712,225 | $707,971 | | Subcontractor and other direct costs | $(195,625) | $(214,280) | | Service revenue | $516,600 | $493,691 | EBITDA and Adjusted EBITDA Defines and reconciles EBITDA and Adjusted EBITDA, non-GAAP measures for evaluating operating performance - EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate operating performance, with Adjusted EBITDA further eliminating impacts of certain non-recurring items[124][125] | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net income | $13,656 | $14,611 | | EBITDA | $31,325 | $30,214 | | Adjusted EBITDA | $32,501 | $32,712 | | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income | $24,268 | $29,929 | | EBITDA | $55,676 | $59,000 | | Adjusted EBITDA | $60,466 | $61,170 | Non-GAAP Diluted Earnings per Share Defines and reconciles non-GAAP diluted EPS, excluding specific non-recurring and non-cash items - Non-GAAP diluted EPS excludes the impact of impairment of intangible assets, acquisition expenses, severance, facility costs, bad debt reserve adjustments, amortization of intangible assets, and income tax effects[132] | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | | Diluted EPS | $0.72 | $0.76 | | Non-GAAP EPS | $0.89 | $0.97 | | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :----------------------------- | :----------------------------- | | Diluted EPS | $1.27 | $1.56 | | Non-GAAP EPS | $1.71 | $1.85 | LIQUIDITY AND CAPITAL RESOURCES Liquidity was impacted by a $288.3 million Credit Facility draw for the ITG acquisition, with management confident in sufficient liquidity despite COVID-19 Liquidity and Borrowing Capacity Discusses the company's liquidity position, borrowing capacity, and strategies for managing financial resources - The Company increased its borrowing capacity by $200.0 million through a new term loan facility in March 2020, drawing upon the Credit Facility to fund the ITG acquisition and working capital needs[134] - Management believes internally generated funds, available bank borrowings, and cash on hand will provide sufficient liquidity to fund ongoing operations, capital expenditures, acquisitions, dividends, and share repurchases[137] - A $100.0 million floating-to-fixed interest rate swap was entered into on February 20, 2020, to hedge variable rate indebtedness[146] Cash Flow Analyzes cash flows from operating, investing, and financing activities, highlighting significant changes and drivers | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net Cash Provided by (Used in) Operating Activities | $10,801 | $(47,946) | | Net Cash Used in Investing Activities | $(262,105) | $(16,335) | | Net Cash Provided by Financing Activities | $254,366 | $57,492 | - Operating cash flows improved significantly to $10.8 million provided in 2020 from $47.9 million used in 2019, primarily due to a decrease in contract receivables[148] - Investing activities used $262.1 million, largely due to the $253.1 million ITG acquisition[149] - Financing activities provided $254.4 million, mainly from net advances on the Credit Facility[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks, including potential impacts of COVID-19 on interest rates and foreign currency fluctuations - The COVID-19 outbreak may affect interest rates and cause foreign currency fluctuations, impacting market risk[151] Item 4. Controls and Procedures CEO and CFO concluded disclosure controls were effective, with no significant changes in internal controls over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020[152] - No significant changes in internal controls over financial reporting were identified[152] - Control systems provide reasonable, but not absolute, assurance due to inherent limitations and resource constraints[153] PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings The company is involved in various legal matters, including the Road Home Program lawsuit, but expects no material adverse financial impact - The Company is involved in various legal matters, including the Road Home Program lawsuit, but believes ultimate liability will not have a material adverse effect on its financial position, results of operations, or cash flows[156] Item 1A. Risk Factors Updates risk factors, emphasizing potential adverse impacts of health epidemics like COVID-19 on demand, staffing, and financial results - New risk factors include those related to health epidemics and pandemics like COVID-19, which may materially adversely affect demand for services, staffing, client decision-making, global business conditions, and capital access[157][160][161] - The pandemic could cause delays in client performance, including timely payments, and affect the Company's workforce due to illness, quarantines, or government actions[159][160] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 791 common shares from employees at $64.87 per share for tax withholding obligations | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :---------------- | :----------------------------- | :--------------------------- | | May 1 - May 31 | 791 | $64.87 | | Total (3 months) | 791 | $64.87 | - These repurchases were from employees to pay required withholding taxes related to the settlement of restricted stock units and performance-based share awards[162] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported by the company - No defaults upon senior securities were reported[164] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[165] Item 5. Other Information No other information was reported under this item - No other information was reported[166] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including Credit Facility amendments, CEO/CFO certifications, and iXBRL financial statements - Exhibits include the First Amendment to Fifth Amended and Restated Business Loan and Security Agreement, CEO and CFO certifications, and financial statements in iXBRL format[167]