ICF International(ICFI) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the period ended September 30, 2023, detailing the balance sheet, income statement, and cash flow statement, alongside notes, highlighting a 7.2% Q3 revenue increase, improved operating cash flow to $45.6 million, and total assets of $2.06 billion Consolidated Financial Statements (Balance Sheet, Income Statement, Cash Flow) The consolidated financial statements show total assets at $2.055 billion, Q3 2023 revenue at $501.5 million with net income of $23.7 million, and nine-month operating cash flow significantly improved to $45.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $477,408 | $466,718 | | Total Assets | $2,055,120 | $2,092,258 | | Total Current Liabilities | $369,177 | $415,992 | | Total Liabilities | $1,161,790 | $1,239,047 | | Total Stockholders' Equity | $893,330 | $853,211 | Consolidated Income Statement Highlights (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $501,519 | $467,777 | $1,484,886 | $1,304,355 | | Operating Income | $31,901 | $28,234 | $95,399 | $85,713 | | Net Income | $23,740 | $19,105 | $60,450 | $55,364 | | Diluted EPS | $1.25 | $1.01 | $3.19 | $2.91 | Consolidated Cash Flow Highlights (Nine Months Ended, in thousands) | Cash Flow Activity | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $45,552 | $6,596 | | Net Cash Used in Investing Activities | $(3,389) | $(253,403) | | Net Cash (Used in) Provided by Financing Activities | $(47,064) | $239,025 | Notes to Consolidated Financial Statements Notes detail that government clients comprise 76% of revenue, CMY Solutions was acquired for $32.6 million, the effective tax rate decreased to 9.4%, and total long-term debt is $538.4 million - Government clients (U.S. federal, state, local, and international) accounted for 76% of total revenue for both the nine months ended September 30, 2023 and 2022[38] - On May 1, 2023, the Company acquired CMY Solutions, LLC for $32.6 million in cash. On July 21, 2023, it entered an agreement to sell its U.S. commercial marketing business for initial cash considerations of $49.5 million, resulting in a pre-tax gain of $2.4 million[62][64] - The effective tax rate for the nine months ended September 30, 2023, was 9.4%, a significant decrease from 23.2% in the prior-year period. This was primarily due to the restructuring of Canadian entities and the winddown of its UK commercial marketing business[47][48][130] - As of September 30, 2023, the company had $538.4 million in total long-term debt outstanding before issuance costs, with an average interest rate of 6.6%[34] - For the nine months ended September 30, 2023, the company repurchased 180,000 shares for $18.1 million. As of September 30, 2023, $93.7 million remained available for share repurchases under the program[70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses operational performance, highlighting a 7.2% Q3 2023 revenue increase, a positive long-term outlook, Q3 Adjusted EBITDA of $54.3 million, and $465.8 million in available borrowing capacity Overview and Outlook Management expresses a positive long-term outlook driven by demand in key markets and a strategy focused on enhancing client relationships, pursuing larger contracts, and strategic acquisitions - The company's strategy is to enhance client relationships, seek larger engagements spanning the entire program life cycle, and complete strategic acquisitions[84] - Management believes long-term demand will be driven by heightened concerns about the environment, clean energy, health promotion, disaster recovery, and homeland security threats[83] Results of Operations This section details financial results, showing Q3 2023 revenue growth of 7.2% to $501.5 million and net income up 24.3%, with nine-month revenue increasing 13.8% to $1.48 billion Q3 2023 vs. Q3 2022 Financial Results (in thousands) | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $501,519 | $467,777 | 7.2% | | Operating Income | $31,901 | $28,234 | 13.0% | | Net Income | $23,740 | $19,105 | 24.3% | Nine Months 2023 vs. 2022 Financial Results (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $1,484,886 | $1,304,355 | 13.8% | | Operating Income | $95,399 | $85,713 | 11.3% | | Net Income | $60,450 | $55,364 | 9.2% | - The 7.2% revenue increase in Q3 was driven by growth from U.S. state and local government ($11.5 million), commercial ($10.0 million), and U.S. federal government ($7.7 million) clients. The Energy, Environment, Infrastructure, and Disaster Recovery market grew by 14.4%[110][111] - The 13.8% revenue increase for the nine-month period was driven by growth from U.S. federal government ($104.1 million), commercial ($43.4 million), and U.S. state and local government ($37.5 million) clients. The Health and Social Programs market grew by 21.3%[121][122] Non-GAAP Measures The company presents non-GAAP measures, with Q3 2023 Adjusted EBITDA at $54.3 million and Non-GAAP Diluted EPS at $1.81, providing a clearer view of operational performance Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $23,740 | $19,105 | $60,450 | $55,364 | | EBITDA | $49,198 | $43,025 | $143,106 | $120,290 | | Adjusted EBITDA | $54,279 | $50,605 | $156,206 | $136,626 | Reconciliation to Non-GAAP Diluted EPS | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | U.S. GAAP Diluted EPS | $1.25 | $1.01 | $3.19 | $2.91 | | Non-GAAP Diluted EPS | $1.81 | $1.61 | $4.81 | $4.23 | Liquidity and Capital Resources The company maintains a strong liquidity position with $465.8 million in available borrowing capacity, improved Days Sales Outstanding to 73 days, and positive operating cash flow of $45.6 million - As of September 30, 2023, the company had $465.8 million in available borrowing capacity under its Credit Facility[142] - Days Sales Outstanding (DSO) improved to 73 days at September 30, 2023, from 87 days at September 30, 2022, partly due to a receivables purchase agreement and improved collection efforts[149] - For the nine months ended September 30, 2023, net cash from operating activities was $45.6 million, a significant increase from $6.6 million in the prior year period[155][156] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the company's market risk disclosures since its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes in the disclosures regarding market risk since the company's last Annual Report[159] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no significant changes in internal controls identified - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[160] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal matters but does not anticipate any material adverse effect on its financial position, results of operations, or cash flows - The company does not expect ongoing legal proceedings to have a material adverse effect on its financial results[164] Item 1A. Risk Factors No material changes have occurred in the company's risk factors since its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes in the risk factors since the company's last Annual Report[165] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section details share repurchase activity, noting no repurchases under the publicly announced program during Q3 2023, with only 91 shares purchased for tax withholding - During the three months ended September 30, 2023, the company did not repurchase any shares under its publicly announced stock repurchase program[166] Other Items (3, 4, 5, 6) This section covers remaining disclosures, including no defaults on senior securities, no mine safety disclosures, and the adoption of Rule 10b5-1 trading plans by the CEO and COO - In August 2023, the CEO, John Wasson, and the COO, James Morgan, each adopted a Rule 10b5-1 trading plan for the potential sale of company shares[170][171] - The company reports no defaults upon senior securities (Item 3) and that mine safety disclosures are not applicable (Item 4)[168][169]