ICF International(ICFI) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION The first part presents the unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of comprehensive income, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items for ICF International, Inc. and its subsidiaries Consolidated Balance Sheets The consolidated balance sheets show the company's financial position at September 30, 2020, compared to December 31, 2019, highlighting changes in assets, liabilities, and stockholders' equity | (in thousands) | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------ | | ASSETS | | | | Total Current Assets | $410,579 | $434,717 | | Property and Equipment, net | $62,020 | $58,237 | | Goodwill | $906,999 | $719,934 | | Other intangible assets, net | $63,200 | $25,829 | | Total Assets | $1,607,471 | $1,396,034 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total Current Liabilities | $305,747 | $337,982 | | Total Liabilities | $880,560 | $681,483 | | Total Stockholders' Equity | $726,911 | $714,551 | | Total Liabilities and Stockholders' Equity | $1,607,471 | $1,396,034 | Consolidated Statements of Comprehensive Income The consolidated statements of comprehensive income provide a comparative view of the company's financial performance for the three and nine months ended September 30, 2020 and 2019, detailing revenue, expenses, net income, and earnings per share | (in thousands, except per share amounts) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $360,315 | $373,918 | $1,072,540 | $1,081,889 | | Operating income | $28,250 | $28,664 | $67,351 | $73,095 | | Net income | $17,871 | $19,630 | $42,139 | $49,559 | | Basic Earnings per Share | $0.95 | $1.04 | $2.24 | $2.63 | | Diluted Earnings per Share | $0.94 | $1.02 | $2.20 | $2.58 | | Comprehensive income, net of tax | $21,542 | $16,349 | $34,523 | $43,708 | Consolidated Statements of Cash Flows The consolidated statements of cash flows outline the cash generated from or used in operating, investing, and financing activities for the nine months ended September 30, 2020 and 2019, showing a significant increase in cash from operating and financing activities in 2020 | (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $95,171 | $6,364 | | Net Cash Used in Investing Activities | $(266,000) | $(24,255) | | Net Cash Provided by Financing Activities | $172,707 | $12,631 | | Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $1,755 | $(5,534) | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $8,237 | $7,452 | Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, specific account balances, and other relevant financial information NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS This note describes the company's business as a provider of professional services and technology-based solutions to government and commercial clients across four key markets, outlining its primary services and the use of estimates in financial reporting - 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] - Key client markets include energy, environment, and infrastructure; health, education, and social programs; safety and security; and consumer and financial services[17] - The Company adopted ASU 2016-13, resulting in a cumulative-effect adjustment of $0.5 million to opening retained earnings[28] NOTE 2 – CONTRACT RECEIVABLES, NET This note details the composition of contract receivables, net, including billed and billable amounts and the allowance for doubtful accounts, showing a decrease in net contract receivables from December 31, 2019, to September 30, 2020 | (in thousands) | September 30, 2020 | December 31, 2019 | | :-------------------------- | :------------------- | :------------------ | | Billed and billable | $235,431 | $264,682 | | Allowance for doubtful accounts | $(5,154) | $(3,506) | | Contract receivables, net | $230,277 | $261,176 | NOTE 3 – GOODWILL This note outlines the changes in the carrying amount of goodwill, primarily driven by the acquisition of Incentive Technology Group (ITG) during the nine-month period ended September 30, 2020 | | Amount (in thousands) | | :------------------------------------------ | :---------------------- | | Balance as of December 31, 2019 | $719,934 | | Goodwill resulting from business combination – ITG | $188,253 | | Effect of foreign currency translation | $(1,188) | | Balance as of September 30, 2020 | $906,999 | NOTE 4 – LONG-TERM DEBT This note details the company's long-term debt, including a new term loan facility and an increased revolving line of credit under the Credit Facility, primarily to finance the ITG acquisition | Debt Type | September 30, 2020 (Outstanding Balance, in thousands) | December 31, 2019 (Outstanding Balance, in thousands) | | :------------------------ | :--------------------------------------- | :-------------------------------------- | | Term Loan | $195,000 | $0 | | Revolving Credit | $180,000 | $165,444 | | Total before debt issuance costs | $375,000 | $165,444 | | Unamortized debt issuance costs | $(2,720) | $(1,183) | | Total Debt | $372,280 | $164,261 | - On March 3, 2020, the Company amended its Credit Facility, adding a new $200.0 million term loan facility and increasing the revolving line of credit to $600.0 million[32][33] - As of September 30, 2020, the Company had $375.0 million long-term debt outstanding and was in compliance with its financial covenants, including an Interest Coverage Ratio of not less than 3.00 to 1.00 and a Leverage Ratio of not more than 4.00 to 1.00 (with a step-up to 4.25 to 1.0)[34][35] NOTE 5 – LEASES This note provides details on the company's operating leases for facilities and equipment, including right-of-use assets, liabilities, rent expense, and future minimum lease payments | (in thousands) | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------ | | Total operating lease right-of-use assets | $138,582 | $133,965 | | Total operating lease liabilities | $157,555 | $151,750 (implied from current/non-current) | | Operating lease costs (3 months) | $9,605 | $9,256 | | Operating lease costs (9 months) | $28,375 | $26,762 | - Future minimum lease payments under non-cancellable leases totaled $174.9 million as of September 30, 2020[39] - The Company had an additional operating lease not yet commenced with a potential liability of $117.4 million, anticipated to start in 2022[39] NOTE 6 – OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS This note details the components of other comprehensive income (loss) and accumulated other comprehensive loss, including foreign currency translation adjustments, gains on interest rate hedge agreements, and changes in the fair value of interest rate hedges for both three and nine-month periods | (in thousands) | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :------------------------------------------------ | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Total current period other comprehensive (loss) income | $3,671 | $(3,281) | $(7,616) | $(5,851) | | Accumulated other comprehensive (loss) income at period end | $(19,760) | $(18,402) | $(19,760) | $(18,402) | NOTE 7 – STOCKHOLDERS' EQUITY This note presents a comprehensive breakdown of changes in stockholders' equity for the three and nine months ended September 30, 2020 and 2019, covering net income, other comprehensive income, equity compensation, stock option exercises, share buybacks, and dividends | (in thousands) | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :-------------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Balance at beginning of period | $705,103 | $666,637 | $714,551 | $660,417 | | Net income | $17,871 | $19,630 | $42,139 | $49,559 | | Other comprehensive income (loss) | $3,671 | $(3,281) | $(7,616) | $(5,851) | | Equity compensation | $3,128 | $3,817 | $9,472 | $11,682 | | Net payments for stock issuances and buybacks | $(223) | $(143) | $(23,247) | $(24,301) | | Dividends declared | $(2,639) | $(2,622) | $(7,912) | $(7,898) | | Balance at end of period | $726,911 | $685,502 | $726,911 | $685,502 | - The effective tax rate for the three months ended September 30, 2020, was 27.2% (2019: 23.6%), and for the nine months, it was 25.7% (2019: 23.2%)[43] NOTE 8 – RESTRICTED CASH This note reconciles cash and cash equivalents with restricted cash as reported in the consolidated balance sheets and statements of cash flows for the nine months ended September 30, 2020 and 2019 | (in thousands) | 2020 (Beginning) | 2020 (Ending) | 2019 (Beginning) | 2019 (Ending) | | :------------------------------------------------------------------------------------------------ | :--------------- | :-------------- | :--------------- | :-------------- | | Cash and cash equivalents | $6,482 | $8,237 | $11,694 | $7,452 | | Restricted cash - non-current | $0 | $0 | $1,292 | $0 | | Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | $6,482 | $8,237 | $12,986 | $7,452 | NOTE 9 – REVENUE RECOGNITION This note disaggregates revenue by client market, client type, and contract mix for the three and nine months ended September 30, 2020 and 2019, also detailing changes in contract assets and liabilities Revenue by Client Markets | Client Markets (in thousands) | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :-------------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Energy, environment, and infrastructure | $148,286 (41%) | $170,640 (46%) | $451,404 (42%) | $485,925 (45%) | | Health, education, and social programs | $159,508 (44%) | $143,433 (38%) | $457,553 (43%) | $408,712 (38%) | | Safety and security | $29,281 (8%) | $29,416 (8%) | $89,978 (8%) | $88,249 (8%) | | Consumer and financial services | $23,240 (7%) | $30,429 (8%) | $73,605 (7%) | $99,003 (9%) | | Total | $360,315 (100%) | $373,918 (100%) | $1,072,540 (100%) | $1,081,889 (100%) | Revenue by Client Type | Client Type (in thousands) | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :--------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | U.S. federal government | $175,093 (49%) | $148,339 (40%) | $501,496 (47%) | $421,696 (39%) | | U.S. state and local government | $51,589 (14%) | $71,505 (19%) | $170,617 (16%) | $209,993 (19%) | | International government | $20,299 (6%) | $28,003 (7%) | $61,421 (6%) | $86,839 (8%) | | Commercial | $113,334 (31%) | $126,071 (34%) | $339,006 (31%) | $363,361 (34%) | | Total | $360,315 (100%) | $373,918 (100%) | $1,072,540 (100%) | $1,081,889 (100%) | Net Contract Assets (Liabilities) | (in thousands) | September 30, 2020 | December 31, 2019 | $ Change | % Change | | :-------------------------- | :------------------- | :------------------ | :--------- | :--------- | | Contract assets | $139,860 | $142,337 | $(2,477) | -1.7% | | Contract liabilities | $(36,473) | $(37,413) | $940 | (2.5%) | | Net contract assets (liabilities) | $103,387 | $104,924 | $(1,537) | -1.5% | NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES This note explains the company's use of derivative instruments, specifically fixed interest rate swaps, to manage interest rate risk on variable rate borrowings - The Company uses fixed interest rate swaps to convert a portion of variable interest rate payments to fixed payments, designated as cash flow hedges[52] - On February 20, 2020, a new floating-to-fixed interest rate swap for $100.0 million notional amount was entered, with a fixed rate of 1.294% per annum from February 28, 2020, to February 28, 2025[53] NOTE 11 – INCOME TAXES This note provides information on the company's effective tax rates, unrecognized tax benefits, and the impact of COVID-19 tax-relief programs, including the deferral of employer Social Security taxes under the CARES Act | Period | Effective Tax Rate | | :-------------------------------- | :------------------- | | Three Months Ended Sep 30, 2020 | 27.2% | | Three Months Ended Sep 30, 2019 | 23.6% | | Nine Months Ended Sep 30, 2020 | 25.7% | | Nine Months Ended Sep 30, 2019 | 23.2% | - The Company deferred approximately $13.5 million of employer Social Security taxes during the nine months ended September 30, 2020, under the CARES Act[60] NOTE 12 – ACCOUNTING FOR STOCK COMPENSATION This note details the 2018 Omnibus Incentive Plan, including the types of awards granted (RSUs, CSRSUs, PSAs) and the associated stock-based compensation expense, specifying shares available and unrecognized expense - The 2018 Omnibus Plan allows for granting 1,600,000 shares, with approximately 1,112,118 shares available for grant as of September 30, 2020[62] | Period | Stock-based Compensation Expense (in millions) | | :-------------------------------- | :--------------------------------------------- | | Three Months Ended Sep 30, 2020 | $4.5 | | Three Months Ended Sep 30, 2019 | $6.5 | - Unrecognized compensation expense totaled approximately $15.1 million for RSUs, $8.4 million for CSRSUs, and $3.0 million for PSAs as of September 30, 2020[64] NOTE 13 – FAIR VALUE This note presents the fair value measurements of financial instruments on a recurring basis, categorized by Level 1, Level 2, and Level 3 inputs, for September 30, 2020, and December 31, 2019 | (in thousands) | September 30, 2020 (Total) | December 31, 2019 (Total) | | :---------------------------------------------------------------- | :--------------------------- | :-------------------------- | | Assets: | | | | Forward contract agreements | $9 | $733 | | Deferred compensation investments in cash surrender life insurance | $15,117 | $15,020 | | Total Assets | $15,126 | $15,753 | | Liabilities: | | | | Deferred compensation plan liabilities | $15,299 | $14,855 | | Interest rate swaps | $12,179 | $3,811 | | Total Liabilities | $27,478 | $18,666 | NOTE 14 – BUSINESS COMBINATION This note details the acquisition of Incentive Technology Group, LLC (ITG) on January 31, 2020, for $255.0 million, resulting in significant goodwill and other intangible assets - On January 31, 2020, the Company acquired ITG for $255.0 million, enhancing its federal government business with cloud-based platform services[67] - The acquisition resulted in $188.3 million in goodwill and $47.3 million in other intangible assets, with a weighted average amortization period of 5.7 years[68] NOTE 15 – EARNINGS PER SHARE This note explains the calculation of basic and diluted earnings per share (EPS), detailing weighted-average shares outstanding and the dilutive effect of stock options, RSUs, and performance shares | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $17,871 | $19,630 | $42,139 | $49,559 | | Weighted-average number of basic shares outstanding | 18,853 | 18,799 | 18,841 | 18,810 | | Dilutive effect of stock options, RSUs, and performance shares | 233 | 370 | 270 | 398 | | Weighted-average number of diluted shares outstanding | 19,086 | 19,169 | 19,111 | 19,208 | | Basic earnings per share | $0.95 | $1.04 | $2.24 | $2.63 | | Diluted earnings per share | $0.94 | $1.02 | $2.20 | $2.58 | NOTE 16 – SHARE REPURCHASE PROGRAM This note describes the company's share repurchase program, which authorizes repurchases up to $100.0 million, noting the termination of its Rule 10b5-1 plan due to COVID-19 uncertainties - The share repurchase program authorizes repurchases up to $100.0 million, subject to Credit Facility limitations[73] - The Rule 10b5-1 plan element was terminated on March 13, 2020, due to COVID-19 uncertainties[73] - As of September 30, 2020, $51.4 million remained available for share repurchases[73] NOTE 17 – SUBSEQUENT EVENTS This note discloses subsequent events, including a board-approved cash dividend and the ongoing assessment of the COVID-19 pandemic's impact on the company's future financial position - On November 5, 2020, the board approved a $0.14 per share cash dividend, payable January 12, 2021[74] - The Company is continuously monitoring and assessing the impact of the COVID-19 pandemic on its business, customers, employees, and financial results[75] NOTE 18 – CONTINGENCIES This note addresses legal matters, specifically the ongoing Road Home Program litigation where the State of Louisiana seeks approximately $220.2 million in alleged overpayments, which the company believes lacks merit - The Company is involved in various legal matters, including a lawsuit by the State of Louisiana seeking $220.2 million related to the Road Home Program[77][78] - The Company believes the Road Home claim has no merit and intends to vigorously defend its position, thus no liability has been recorded[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity, offering insights into performance drivers, critical accounting policies, and the impact of external factors like the COVID-19 pandemic Forward-Looking Statements This subsection serves as a cautionary statement regarding forward-looking information, highlighting known and unknown risks that could cause actual results to differ materially from expectations - Forward-looking statements involve 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 government spending, effects of COVID-19, audit results, cyclical commercial work, and integration challenges from acquisitions[80] Impacts of the COVID-19 Pandemic This section details the significant uncertainty and potential adverse effects of the COVID-19 pandemic on the company's operations, balance sheet, results, and cash flows, discussing mitigation strategies - COVID-19 creates significant uncertainty, potentially impacting operations, balance sheet, results, and cash flows, with adverse effects on staff health, travel, client decision-making, and spending priorities[83] - Government clients (69% of revenue) have shown continuity, while commercial marketing services (less than 12% of revenue) were impacted by travel restrictions and event cancellations[84][85] - Management actions include remote work, staff reductions, furloughs, temporary wage reductions, and deferral of $13.5 million in employer Social Security taxes under the CARES Act[86][87] Overview and Outlook This section provides an overview of the company's professional services and technology-based solutions, its four key client markets, and primary service offerings, outlining long-term growth opportunities and strategic acquisitions - The Company provides professional services and technology-based solutions in Energy, Environment, and Infrastructure; Health, Education, and Social Programs; Safety and Security; and Consumer and Financial Services[88][94] - Primary services include Advisory, Program Implementation, Analytics, Digital, and Engagement Services[94] - Long-term demand for services is expected to grow due to critical societal and natural resource issues, with a focus on leveraging digital and client engagement capabilities and strategic acquisitions like ITG[91][92] Critical Accounting Policies and Estimates This section highlights critical accounting policies and estimates, including revenue recognition, impairment of goodwill and other intangible assets, income taxes, and stock-based compensation, emphasizing ongoing monitoring of COVID-19 impacts - Critical accounting policies include revenue recognition, impairment of goodwill and other intangible assets, income taxes, and stock-based compensation[95] - Goodwill and long-lived assets are tested for impairment annually or when circumstances indicate; no impairment was recognized for the period ended September 30, 2020, but COVID-19 impacts are being monitored[97][98] Recent Accounting Pronouncements This section refers to Note 1 for a discussion of recent accounting standards and their impact on the consolidated financial statements Selected Key Metrics This section explains that the company tracks revenue by client markets, client type, and contract mix to evaluate operations and understand business nature, with significant variances discussed in the revenue section of results of operations Results of Operations This section provides a detailed comparative analysis of the company's financial performance for the three and nine months ended September 30, 2020, versus 2019, covering revenue, direct costs, operating expenses, and net income Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 Revenue decreased by 3.6% to $360.3 million, primarily due to a $12.7 million decrease in commercial clients, partially offset by an increase in federal government clients from the ITG acquisition, while operating income slightly decreased | (dollars in thousands) | Sep 30, 2020 | Sep 30, 2019 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Revenue | $360,315 | $373,918 | $(13,603) | (3.6%) | | Direct Costs | $223,288 | $238,158 | $(14,870) | (6.2%) | | Operating Income | $28,250 | $28,664 | $(414) | (1.4%) | | Net Income | $17,871 | $19,630 | $(1,759) | (9.0%) | - Revenue decreased by $13,603 thousand (3.6%), driven by a $12,700 thousand decrease in commercial clients (travel-related markets impacted by COVID-19) and a $900 thousand decrease in government clients, partially offset by a $26,700 thousand increase in federal government clients (including ITG acquisition)[104] - Direct costs decreased by $14,870 thousand (6.2%), primarily due to a $21,100 thousand decrease in subcontractor and other direct costs, leading to an improvement in gross margin (direct costs as a percent of revenue decreased to 62.0% from 63.7%)[105] Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Revenue for the nine months decreased by 0.9% to $1,072.5 million, with a $24.3 million decrease in commercial clients offset by a $15.0 million increase in government revenue, largely from federal clients including ITG, leading to a 15.0% decrease in net income | (dollars in thousands) | Sep 30, 2020 | Sep 30, 2019 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Revenue | $1,072,540 | $1,081,889 | $(9,349) | (0.9%) | | Direct Costs | $677,311 | $689,160 | $(11,849) | (1.7%) | | Operating Income | $67,351 | $73,095 | $(5,744) | (7.9%) | | Net Income | $42,139 | $49,559 | $(7,420) | (15.0%) | - Revenue decreased by $9,349 thousand (0.9%), primarily due to a $24,300 thousand decrease in commercial clients (consumer and financial services impacted by COVID-19), offset by a $15,000 thousand increase in government revenue, driven by a $79,800 thousand increase in federal clients (including ITG acquisition)[114][115] - Direct costs decreased by $11,849 thousand (1.7%), mainly from a $39,800 thousand decrease in subcontractor and other direct costs, improving gross margin (direct costs as a percent of revenue decreased to 63.2% from 63.7%)[116] Non-GAAP Measures This section presents non-GAAP financial measures, including Service Revenue, EBITDA, Adjusted EBITDA, and Non-GAAP Diluted Earnings per Share, providing reconciliations to their most directly comparable GAAP measures Service Revenue Service revenue, a non-GAAP measure, represents revenue less subcontractor and other direct costs, providing insight into revenue generated from services provided by employees, showing increases for both three and nine-month periods in 2020 | (in thousands) | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :------------------------------ | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Revenue | $360,315 | $373,918 | $1,072,540 | $1,081,889 | | Subcontractor and other direct costs | $(95,592) | $(116,710) | $(291,217) | $(330,990) | | Service revenue | $264,723 | $257,208 | $781,323 | $750,899 | EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate operating performance, with Adjusted EBITDA excluding specific non-recurring or non-operational items, showing increases for both three and nine-month periods in 2020 | (in thousands) | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :---------------------------------------------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Net income | $17,871 | $19,630 | $42,139 | $49,559 | | EBITDA | $36,904 | $35,630 | $92,580 | $94,630 | | Total special charges | $858 | $360 | $5,648 | $2,530 | | Adjusted EBITDA | $37,762 | $35,990 | $98,228 | $97,160 | Non-GAAP Diluted Earnings per Share Non-GAAP diluted EPS, a non-GAAP measure, excludes the impact of certain items like impairment, acquisition expenses, severance, facility costs, bad debt reserve adjustments, and amortization of intangibles. For the three months ended September 30, 2020, Non-GAAP EPS was $1.10, and for the nine months, it was $2.81 | | Sep 30, 2020 (3 Months) | Sep 30, 2019 (3 Months) | Sep 30, 2020 (9 Months) | Sep 30, 2019 (9 Months) | | :---------------------------------------------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Diluted EPS | $0.94 | $1.02 | $2.20 | $2.58 | | Amortization of intangibles | $0.18 | $0.10 | $0.52 | $0.32 | | Non-GAAP EPS | $1.10 | $1.12 | $2.81 | $2.96 | Liquidity and Capital Resources This section discusses the company's liquidity, borrowing capacity, and financial condition, including changes in cash flows, debt, and working capital, highlighting the impact of the ITG acquisition and improved collections Liquidity and Borrowing Capacity The company's liquidity was enhanced by the First Amendment to the Credit Facility in March 2020, which increased borrowing capacity to fund the ITG acquisition and working capital, with expectations to meet short-term needs - The Credit Facility was amended in March 2020, adding a $200.0 million term loan and increasing borrowing capacity to fund the ITG acquisition and working capital[132][133] - The company expects to meet liquidity requirements through cash flow from operations, available bank borrowings, and cash on hand, despite uncertainties from the COVID-19 pandemic[134][135] Financial Condition The company's financial condition saw contract receivables decrease due to improved collections, reducing Days Sales Outstanding (DSO) to 83 days, while goodwill, other intangible assets, and long-term debt increased significantly due to the ITG acquisition - Contract receivables, net, decreased to $230.3 million from $261.2 million, primarily due to improved collections from disaster relief and international business[137][138] - Days-sales-outstanding (DSO) decreased from 94 days (Sep 30, 2019) to 83 days (Sep 30, 2020)[138] - Goodwill and other intangible assets increased due to the ITG acquisition, adding $188.3 million in goodwill and $47.3 million in intangible assets[140] - Long-term debt increased to $375.0 million from $165.4 million, primarily from net draws on the Credit Facility to fund the ITG acquisition[142] Share Repurchase Program The company's share repurchase program, authorizing up to $100.0 million, saw the termination of its Rule 10b5-1 plan on March 13, 2020, due to COVID-19 uncertainties, with $51.4 million remaining available - The Rule 10b5-1 plan element of the share repurchase program was terminated on March 13, 2020, due to COVID-19 uncertainties[146] - During the nine months ended September 30, 2020, 206,820 shares were repurchased at an average price of $80.41 per share[146] - As of September 30, 2020, $51.4 million remained available for share repurchases under the program[146] Dividends This section lists the cash dividends declared per common share for 2020, with a consistent $0.14 per share approved quarterly | Dividend Declaration Date | Dividend Per Share | | :------------------------ | :------------------- | | February 27, 2020 | $0.14 | | May 5, 2020 | $0.14 | | August 4, 2020 | $0.14 | | November 5, 2020 | $0.14 | Cash Flow Operating activities provided $95.2 million in cash for the nine months ended September 30, 2020, a significant increase from $6.4 million in 2019, driven by decreased contract receivables and deferred employer payroll taxes, while investing activities used $266.0 million primarily for the ITG acquisition | (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :---------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $95,171 | $6,364 | | Net Cash Used in Investing Activities | $(266,000) | $(24,255) | | Net Cash Provided by Financing Activities | $172,707 | $12,631 | | Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $1,755 | $(5,534) | - Operating cash flows increased significantly due to decreased contract receivables (improved collections) and the deferral of $13.5 million in employer payroll taxes under the CARES Act[148] - Investing activities used $266.0 million, primarily for the $253.1 million ITG acquisition and $12.9 million in capital expenditures[149] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section notes that there have been no material changes to market risk disclosures since the last annual report, except for the broad effects of the COVID-19 outbreak, which may impact interest rates and cause 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 This section addresses the effectiveness of the company's disclosure controls and procedures and internal controls over financial reporting, concluding that they were effective as of the reporting period Disclosure Controls and Procedures and Internal Controls Over Financial Reporting The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the reporting period, ensuring timely and accurate reporting of information to the SEC - The CEO and CFO concluded that disclosure controls and procedures were effective for ensuring timely and accurate reporting[153] Limitations on the Effectiveness of Controls This subsection acknowledges that all control systems have inherent limitations, providing only reasonable, not absolute, assurance that objectives are met, and that misstatements due to error or fraud may occur and not be detected - Control systems provide reasonable, but not absolute, assurance that objectives are met due to inherent limitations and resource constraints[154] PART II. OTHER INFORMATION The second part provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The company is involved in various legal matters in the ordinary course of business but believes that any ultimate liability will not have a material adverse effect on its financial position, results of operations, or cash flows - The Company believes that any ultimate liability from ongoing legal matters will not materially adversely affect its financial position, results of operations, or cash flows[157] Item 1A. Risk Factors This section updates the risk factors from the Annual Report, specifically adding new risks related to health epidemics and pandemics like COVID-19, which may materially adversely affect demand for services, staffing, client payments, and access to capital - New risk factors include those related to health epidemics and pandemics (e.g., COVID-19), which may adversely affect demand for services, staffing, client decision-making, and global business conditions[158][159] - The pandemic could impact the workforce, subcontractors, and suppliers, potentially leading to an inability to perform contracts efficiently and delays in client payments[160][161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the company's share repurchase activity for the three months ended September 30, 2020, noting the purchase of 3,086 shares from employees for tax withholding obligations | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------- | :------------------------------- | :--------------------------- | | July 1 - July 31 | — | — | | August 1 - August 31 | 3,086 | $72.29 | | September 1 - September 30 | — | — | | Total | 3,086 | $72.29 | - The shares purchased were from employees to pay required withholding taxes related to the settlement of restricted stock units and performance-based share awards[163] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - No defaults upon senior securities were reported[165] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[166] Item 5. Other Information This section states that there is no other information to report - No other information to report[167] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including amendments to the Credit Facility, officer certifications, and financial statements in iXBRL format - Key exhibits include the First Amendment to the Fifth Amended and Restated Business Loan and Security Agreement, officer certifications (31.1, 31.2, 32.1, 32.2), and financial statements in iXBRL format (101)[168]