ICF International(US:ICFI)2023-03-01 11:03Part I Business ICF International, Inc. provides professional services and technology-based solutions to government (76% of 2022 revenue) and commercial clients Revenue and Total Backlog (in millions) | Metric | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | :--- | | Revenue | $1,780.0 | $1,553.0 | $1,506.9 | | Total Backlog | $3,856.2 | $3,198.9 | $2,897.6 | - The company's primary services cover the entire project life cycle, including Advisory, Program Implementation, Analytics, Digital, and Engagement Services22 Client Type Revenue Percentage | Client Type | 2022 Revenue % | 2021 Revenue % | 2020 Revenue % | | :--- | :--- | :--- | :--- | | Government | 76% | 71% | 65% | | Commercial | 24% | 29% | 35% | Largest Government Clients Revenue Percentage | Largest Government Clients | 2022 Revenue % | 2021 Revenue % | 2020 Revenue % | | :--- | :--- | :--- | :--- | | Dept. of Health and Human Services | 23% | 20% | 17% | | Dept. of State | 6% | 5% | 5% | | Dept. of Defense | 4% | 5% | 6% | Backlog (in millions) | Backlog (in millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Funded | $1,786.9 | $1,593.5 | $1,522.3 | | Unfunded | $2,069.3 | $1,605.4 | $1,375.3 | | Total Backlog | $3,856.2 | $3,198.9 | $2,897.6 | - As of December 31, 2022, the company had approximately 9,000 employees globally, with an overall employee turnover of 20.6% for 20222490 Risk Factors The company faces significant risks from its heavy reliance on government contracts, challenges in integrating acquisitions, cybersecurity threats, and international operational risks - A majority of revenue is derived from U.S. government contracts (76% in 2022), making the company vulnerable to changes in government spending, budget delays, and shutdowns169799 - Fixed-price contracts, which accounted for 45% of 2022 revenue, expose the company to risks of cost overruns and reduced profitability if costs are not accurately estimated and controlled118119 - Acquisitions present integration challenges and risks of goodwill impairment, with goodwill and purchased intangibles accounting for approximately 64% of total assets as of December 31, 2022138140 - The company faces continuous and evolving cybersecurity risks, including threats to its systems and sensitive client data, which could lead to liability and reputational harm131167168 - International operations are subject to risks including the negative effects of Brexit on UK and EU business, geopolitical instability such as the war in Ukraine, and foreign currency fluctuations127162164 Unresolved Staff Comments The company reports no unresolved staff comments from the U.S. Securities and Exchange Commission - None173 Properties The company leases all its office space globally, including its corporate headquarters in Reston, Virginia - The company leases approximately 1.4 million square feet of office space in over 82 locations globally175 - The corporate headquarters in Reston, Virginia, comprises approximately 208,274 square feet under a lease extending through May 2039174 Legal Proceedings The company is involved in various legal matters in the ordinary course of business, with a specific litigation resolved in February 2023 without material impact - The company is involved in various legal matters arising in the ordinary course of business, which are not expected to have a material adverse effect on its financial position176 - Litigation related to the Road Home contract with the State of Louisiana was resolved on February 17, 2023, with the impact not being material to the company's consolidated financial statements177492 Mine Safety Disclosures This item is not applicable to the company - Not applicable178 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, pays quarterly dividends, and maintains a share repurchase program with $111.9 million remaining available as of December 31, 2022 - The company's common stock is traded on the NASDAQ Global Select Market under the ticker symbol "ICFI"181 - A share repurchase program is in place with an authorized aggregate of up to $200.0 million, with approximately $111.9 million remaining available for repurchases as of December 31, 2022191270 - During the three months ended December 31, 2022, the company did not repurchase any shares under its publicly announced share repurchase program191 Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2022, revenue grew 14.6% to $1.78 billion, while operating income declined 2.0% and net income fell 9.7% due to increased amortization, higher interest expenses, and lower gross margins Results of Operations Financial Performance (in millions) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $1,780.0 | $1,553.0 | +14.6% | | Operating Income | $108.8 | $110.9 | -2.0% | | Net Income | $64.2 | $71.1 | -9.7% | - Revenue growth was primarily driven by a $245.3 million increase from U.S. federal government clients and a $25.2 million increase from U.S. state and local government clients238 - Operating income as a percentage of revenue decreased to 6.1% in 2022 from 7.1% in 2021, mainly due to lower gross margins, higher indirect expenses, and increased amortization from recent acquisitions245 - Net interest expense increased by 133.2% to $23.3 million, driven by higher average debt balances to fund acquisitions and a rise in average interest rates from 1.6% in 2021 to 3.3% in 2022246 - The effective income tax rate for 2022 was 23.5%, a decrease from 28.9% in 2021248 Non-GAAP Measures Non-GAAP Adjusted EBITDA (in thousands) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net income | $64,243 | $71,132 | $54,959 | | EBITDA | $157,178 | $142,044 | $122,133 | | Total Adjustments | $34,658 | $16,985 | $20,514 | | Adjusted EBITDA | $191,836 | $159,029 | $142,647 | Non-GAAP Diluted EPS | Per Share Data | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | U.S. GAAP Diluted EPS | $3.38 | $3.72 | $2.87 | | Non-GAAP Diluted EPS | $5.77 | $4.82 | $4.17 | - Adjustments to derive non-GAAP measures primarily include impairment of long-lived assets, acquisition-related expenses, severance costs, facilities consolidation costs, and amortization of intangibles254258 Liquidity and Capital Resources Cash Flow Summary (in thousands) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $162,206 | $110,205 | | Net cash used in investing activities | ($258,844) | ($194,481) | | Net cash provided by financing activities | $90,371 | $23,233 | - As of December 31, 2022, the company had $556.3 million of outstanding debt and $440.0 million of available borrowing capacity under its Credit Facility260264 - Cash used in investing activities in 2022 included $237.3 million for the acquisitions of SemanticBits and Blanton274 - The company declared and paid cash dividends of $0.14 per share each quarter during 2022271 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include interest rate fluctuations on variable-rate debt and foreign currency exchange rate risk, mitigated by interest rate swaps - The company is exposed to interest rate risk on its variable-rate debt, where a 1% increase in interest rates would have increased 2022 interest expense by approximately $5.9 million277 - To manage interest rate risk, the company had four interest rate swap agreements with a total aggregate notional amount of $200.0 million as of December 31, 2022277 - The company is subject to foreign currency exchange rate risk, with a 10% increase or decrease in the value of the U.S. dollar against all currencies estimated to impact revenue by approximately 1%, or $13.5 million279 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, excluding recent acquisitions - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2022283 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022284 - The assessment of internal controls excluded the 2022 acquisitions of SemanticBits and Blanton, which together represented 1.2% of total assets and 3.8% of total revenues for the year285 Part III Directors, Executive Officers, Corporate Governance, and Other Matters Information for Items 10 through 14 is incorporated by reference from the company's Proxy Statement for the 2023 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Proxy Statement for the 2023 Annual Meeting of Stockholders294295296297298 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed with the Form 10-K, noting the omission of certain schedules - This item contains the list of financial statements included in the report, such as the Consolidated Balance Sheets and Statements of Comprehensive Income300 - A detailed list of exhibits filed with the report is provided, including corporate governance documents, material contracts, and certifications302 Financial Statements and Notes Note 2 - Summary of Significant Accounting Policies The company's significant accounting policies include revenue recognition, goodwill impairment testing, leases, capitalized software, stock-based compensation, and income taxes - Revenue is primarily recognized over time, and for fixed-price contracts, the company uses a percentage-of-completion method based on the ratio of actual costs incurred to total estimated costs356360 - Goodwill is tested for impairment annually as of October 1, with no impairment required for 2022 based on a qualitative assessment for its single aggregated reporting unit374375 - The company operates in a single reportable segment providing professional services, with revenue from U.S. federal government clients representing 55% of total revenue in 2022392393 Note 10 - Long-Term Debt As of December 31, 2022, the company had $556.3 million in total long-term debt and amended its credit agreement in May 2022, extending maturity to May 2027 Debt Components (in millions) | Debt Component | Outstanding Balance (Dec 31, 2022, in millions) | | :--- | :--- | | Term Loan | $288.8 | | Delayed-Draw Term Loan | $220.0 | | Revolving Credit | $52.6 | | Total before debt issuance costs | $561.4 | - On May 6, 2022, the company amended and restated its credit agreement, extending the maturity to May 6, 2027, and increasing its borrowing capacity417 - As of December 31, 2022, the company had unused borrowing capacity of $545.4 million from its revolving line of credit, with $440.0 million available after considering financial limitations420 Note 11 – Revenue Recognition The company disaggregates revenue by client market, type, and contract mix, with $1.5 billion in unfulfilled performance obligations as of December 31, 2022 Revenue by Client Market (2022, in thousands) | Revenue by Client Market (2022) | Amount (in thousands) | Percentage | | :--- | :--- | :--- | | Health, education, and social programs | $906,081 | 51% | | Energy, environment, and infrastructure | $664,996 | 37% | | Safety and security | $129,357 | 7% | | Consumer and financial | $79,530 | 5% | Revenue by Contract Mix (2022, in thousands) | Revenue by Contract Mix (2022) | Amount (in thousands) | Percentage | | :--- | :--- | :--- | | Fixed-price | $802,804 | 45% | | Time-and-materials | $713,581 | 40% | | Cost-based | $263,579 | 15% | - As of December 31, 2022, the company had $1.5 billion in unfulfilled performance obligations, which it expects to satisfy over the next two years427 Note 16 – Business Combinations In 2022, the company acquired SemanticBits for $220.0 million and Blanton & Associates, adding digital modernization capabilities and goodwill - On July 13, 2022, the company acquired SemanticBits, LLC for a preliminary purchase price of $220.0 million in cash467468 - The SemanticBits acquisition resulted in the recognition of $159.7 million in goodwill and $64.1 million in intangible assets469 - On September 1, 2022, the company acquired Blanton & Associates, an environmental consulting firm, resulting in $9.7 million of goodwill and $11.4 million of intangible assets465 Note 20 - Commitments and Contingencies The company has contingent liabilities from letters of credit and guarantees, with a long-standing litigation resolved in February 2023 without material financial impact - As of December 31, 2022, the company was contingently liable under $2.0 million in open standby letters of credit and $9.2 million in guarantees489 - Litigation with the State of Louisiana concerning the Road Home Program, which concluded in 2009, was resolved on February 17, 2023, with the resolution not having a material impact on the company's financial statements491492