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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-33045

 

ICF International, Inc.

(Exact name of Registrant as Specified in its Charter)

 

 

Delaware

 

22-3661438

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1902 Reston Metro Plaza, Reston VA

 

20190

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (703) 934-3000

9300 Lee Highway, Fairfax, VA 22031

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock

ICFI

NASDAQ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 28, 2022, there were 18,843,895 shares outstanding of the registrant’s common stock.

 

 


 

ICF INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q FOR THE

PERIOD ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets at September 30, 2022 (Unaudited) and December 31, 2021

3

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2022 and 2021

4

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021

5

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

33

 

 

PART II. OTHER INFORMATION

34

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ICF International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 

(in thousands, except share and per share amounts)

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,483

 

 

$

8,254

 

Restricted cash

 

 

1,993

 

 

 

12,179

 

Contract receivables, net

 

 

282,271

 

 

 

237,684

 

Contract assets

 

 

196,811

 

 

 

137,867

 

Prepaid expenses and other assets

 

 

30,612

 

 

 

42,354

 

Income tax receivable

 

 

11,979

 

 

 

10,825

 

Total Current Assets

 

 

532,149

 

 

 

449,163

 

Property and Equipment, net

 

 

85,295

 

 

 

52,053

 

Other Assets:

 

 

 

 

 

 

Goodwill

 

 

1,190,450

 

 

 

1,046,760

 

Other intangible assets, net

 

 

135,932

 

 

 

79,645

 

Operating lease - right-of-use assets

 

 

163,438

 

 

 

177,417

 

Other assets

 

 

50,496

 

 

 

44,496

 

Total Assets

 

$

2,157,760

 

 

$

1,849,534

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

20,500

 

 

$

10,000

 

Accounts payable

 

 

128,528

 

 

 

105,652

 

Contract liabilities

 

 

24,599

 

 

 

39,665

 

Operating lease liabilities - current

 

 

22,959

 

 

 

34,901

 

Finance lease liabilities - current

 

 

1,779

 

 

 

 

Accrued salaries and benefits

 

 

74,766

 

 

 

85,517

 

Accrued subcontractors and other direct costs

 

 

46,610

 

 

 

39,400

 

Accrued expenses and other current liabilities

 

 

52,249

 

 

 

61,496

 

Total Current Liabilities

 

 

371,990

 

 

 

376,631

 

Long-term Liabilities:

 

 

 

 

 

 

Long-term debt

 

 

681,197

 

 

 

411,605

 

Operating lease liabilities - non-current

 

 

187,481

 

 

 

191,805

 

Finance lease liabilities - non-current

 

 

13,270

 

 

 

 

Deferred income taxes

 

 

46,449

 

 

 

41,913

 

Other long-term liabilities

 

 

19,634

 

 

 

24,110

 

Total Liabilities

 

 

1,320,021

 

 

 

1,046,064

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 19)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

Preferred stock, par value $.001; 5,000,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, par value $.001; 70,000,000 shares authorized; 23,723,490 and 23,535,671 shares issued at September 30, 2022 and December 31, 2021, respectively; 18,833,688 and 18,876,490 shares outstanding at September 30, 2022 and December 31, 2021, respectively

 

 

23

 

 

 

23

 

Additional paid-in capital

 

 

396,962

 

 

 

384,984

 

Retained earnings

 

 

696,792

 

 

 

649,298

 

Treasury stock, 4,889,802 and 4,659,181 shares at September 30, 2022 and December 31, 2021, respectively

 

 

(241,896

)

 

 

(219,800

)

Accumulated other comprehensive loss

 

 

(14,142

)

 

 

(11,035

)

Total Stockholders’ Equity

 

 

837,739

 

 

 

803,470

 

Total Liabilities and Stockholders’ Equity

 

$

2,157,760

 

 

$

1,849,534

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(in thousands, except per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

467,777

 

 

$

394,060

 

 

$

1,304,355

 

 

$

1,165,063

 

Direct costs

 

 

307,295

 

 

 

254,175

 

 

 

834,358

 

 

 

732,903

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Indirect and selling expenses

 

 

118,290

 

 

 

99,940

 

 

 

350,145

 

 

 

316,100

 

Depreciation and amortization

 

 

5,297

 

 

 

4,665

 

 

 

15,198

 

 

 

14,663

 

Amortization of intangible assets

 

 

8,661

 

 

 

3,015

 

 

 

18,941

 

 

 

9,049

 

Total operating costs and expenses

 

 

132,248

 

 

 

107,620

 

 

 

384,284

 

 

 

339,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

28,234

 

 

 

32,265

 

 

 

85,713

 

 

 

92,348

 

Interest expense

 

 

(7,474

)

 

 

(2,550

)

 

 

(14,274

)

 

 

(7,845

)

Other income (expense)

 

 

887

 

 

 

81

 

 

 

616

 

 

 

(382

)

Income before income taxes

 

 

21,647

 

 

 

29,796

 

 

 

72,055

 

 

 

84,121

 

Provision for income taxes

 

 

2,542

 

 

 

9,406

 

 

 

16,691

 

 

 

25,068

 

Net income

 

$

19,105

 

 

$

20,390

 

 

$

55,364

 

 

$

59,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.01

 

 

$

1.08

 

 

$

2.94

 

 

$

3.13

 

Diluted

 

$

1.01

 

 

$

1.07

 

 

$

2.91

 

 

$

3.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average Shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,826

 

 

 

18,865

 

 

 

18,806

 

 

 

18,864

 

Diluted

 

 

19,009

 

 

 

19,061

 

 

 

19,001

 

 

 

19,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.14

 

 

$

0.14

 

 

$

0.42

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax

 

 

(1,555

)

 

 

(1,971

)

 

 

(3,107

)

 

 

1,241

 

Comprehensive income, net of tax

 

$

17,550

 

 

$

18,419

 

 

$

52,257

 

 

$

60,294

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(in thousands)

 

2022

 

 

2021

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income

 

$

55,364

 

 

$

59,053

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Provision for credit losses

 

 

91

 

 

 

11,324

 

Deferred income taxes

 

 

6,023

 

 

 

4,062

 

Non-cash equity compensation

 

 

10,023

 

 

 

9,756

 

Depreciation and amortization

 

 

34,139

 

 

 

23,712

 

Facilities consolidation reserve

 

 

(236

)

 

 

(225

)

Amortization of debt issuance costs

 

 

940

 

 

 

463

 

Impairment of long-lived assets

 

 

 

 

 

339

 

Other adjustments, net

 

 

474

 

 

 

1,818

 

Changes in operating assets and liabilities, net of the effects of acquisitions:

 

 

 

 

 

 

Net contract assets and liabilities

 

 

(72,619

)

 

 

(16,381

)

Contract receivables

 

 

(31,770

)

 

 

(6,688

)

Prepaid expenses and other assets

 

 

(11,991

)

 

 

(9,224

)

Operating lease assets and liabilities, net

 

 

(1,305

)

 

 

(4,743

)

Accounts payable

 

 

23,394

 

 

 

5,653

 

Accrued salaries and benefits

 

 

(13,971

)

 

 

10,377

 

Accrued subcontractors and other direct costs

 

 

9,441

 

 

 

(36,436

)

Accrued expenses and other current liabilities

 

 

(476

)

 

 

17,002

 

Income tax receivable and payable

 

 

(1,667

)

 

 

(3,490

)

Other liabilities

 

 

742

 

 

 

(1,609

)

Net Cash Provided by Operating Activities

 

 

6,596

 

 

 

64,763

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

Capital expenditures for property and equipment and capitalized software

 

 

(17,323

)

 

 

(12,279

)

Payments for business acquisitions, net of cash acquired

 

 

(238,991

)

 

 

 

Proceeds from working capital adjustments related to prior business acquisition

 

 

2,911

 

 

 

 

Net Cash Used in Investing Activities

 

 

(253,403

)

 

 

(12,279

)

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

Advances from working capital facilities

 

 

1,358,335

 

 

 

559,830

 

Payments on working capital facilities

 

 

(1,074,888

)

 

 

(593,775

)

Receipt of restricted contract funds

 

 

13,525

 

 

 

194,504

 

Payment of restricted contract funds

 

 

(23,358

)

 

 

(227,700

)

Debt issue costs

 

 

(4,852

)

 

 

 

Proceeds from exercise of options

 

 

412

 

 

 

2,773

 

Dividends paid

 

 

(7,912

)

 

 

(7,923

)

Net payments for stock issuances and buybacks

 

 

(21,105

)

 

 

(18,695

)

Payments on business acquisition liabilities

 

 

(1,132

)

 

 

(682

)

Net Cash Provided by (Used in) Financing Activities

 

 

239,025

 

 

 

(91,668

)

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

 

 

(2,175

)

 

 

(501

)

 

 

 

 

 

 

 

Decrease in Cash, Cash Equivalents, and Restricted Cash

 

 

(9,957

)

 

 

(39,685

)

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period

 

 

20,433

 

 

 

81,987

 

Cash, Cash Equivalents, and Restricted Cash, End of Period

 

$

10,476

 

 

$

42,302

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

13,595

 

 

$

7,882

 

Income taxes

 

$

14,384

 

 

$

25,062

 

Non-cash investing and financing transactions:

 

 

 

 

 

 

Tenant improvements funded by lessor

 

$

20,253

 

 

$

 

Acquisition of property and equipment through finance lease

 

$

15,027

 

 

$

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

Notes to Consolidated Financial Statements

(Unaudited)

(dollar amounts in tables in thousands, except share and per share data)

NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Basis of Presentation

The accompanying consolidated financial statements include the accounts of ICF International, Inc. (“ICFI”) and its principal subsidiary, ICF Consulting Group, Inc. (“Consulting,” and together with ICFI, the “Company”), and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). Consulting is a wholly owned subsidiary of ICFI. ICFI is a holding company with no operations or assets other than its investment in the common stock of Consulting. All other subsidiaries of the Company are wholly owned by Consulting. All significant intercompany transactions and balances have been eliminated.

Nature of Operations

The Company provides professional services and technology-based solutions, including management, marketing, technology, and policy consulting and implementation services, in the areas of energy, environment, and infrastructure; health, education, and social programs; safety and security; and consumer and financial. The Company offers a full range of services to clients throughout the entire life cycle of a policy, program, project, or initiative, from research and analysis, assessment and advice to design and implementation of programs and technology-based solutions, and the provision of engagement services and programs.

The Company’s major clients are U.S. federal government departments and agencies, most significantly the Department of Health and Human Services, Department of State, and Department of Defense. The Company also serves U.S. state (including territories) and local government departments and agencies, international governments, and commercial clients worldwide. Commercial clients include airlines, airports, electric and gas utilities, health care companies, banks and other financial services companies, transportation, travel and hospitality firms, non-profit associations, manufacturing firms, retail chains, and distribution companies. The term “federal” or “federal government” refers to the U.S. federal government, and “state and local” or “state and local government” refers to U.S. state (including territories) and local governments, unless otherwise indicated.

The Company, incorporated in Delaware, is headquartered in Reston, Virginia. The Company maintains additional offices throughout the world, including more than 50 offices in the U.S. and U.S. territories and more than 20 offices in key markets outside the U.S., including offices in the United Kingdom, Belgium, China, India, and Canada.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Areas of the consolidated financial statements where estimates may have the most significant effect include contractual and regulatory reserves, valuation and lives of tangible and intangible assets, contingent consideration related to business acquisitions, impairment of goodwill and long-lived assets, accrued liabilities, revenue recognition and costs to complete fixed-price contracts, bonus and other incentive compensation, stock-based compensation, reserves for tax benefits and valuation allowances on deferred tax assets, provisions for income taxes, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ from management's estimates.

Interim Results

The unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in financial statements, prepared in accordance with U.S. GAAP, to be condensed or omitted. In management’s opinion, the unaudited consolidated financial statements contain all adjustments that are of a normal recurring nature, necessary for a fair presentation of the results of operations and financial position of the Company for the interim periods presented. The Company reports operating results and financial data in one operating segment and reporting unit. Operating results for the three and nine month periods ended September 30, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2021 and the notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 25, 2022.

 

6


 

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

 

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease accounting and financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The provisions of this ASU are elective and apply to all entities, subject to meeting certain criteria, that have debt or hedging contracts, among other contracts, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Entities can elect to not apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. Also, entities can elect various optional expedients that would allow it to continue to apply hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. This guidance was effective beginning on March 12, 2020 and entities may elect to apply the amendments prospectively through December 31, 2022.

During the third quarter of 2022, the Company amended certain interest rate swap contracts to change the benchmark rate from LIBOR to term Secured Overnight Financing Rate (“SOFR”) based interest pricing conventions. Contemporaneously, the Company adopted ASU 2020-04 and elected to apply the optional expedient to consider the amended swap contracts as a continuation of the existing arrangements. The optional expedient did not result in a material impact on the Company’s operating results, financial position, or cash flows.

 

NOTE 2 – RESTRICTED CASH

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets for the periods presented to the total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021:

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

 

Beginning

 

 

Ending

 

 

Beginning

 

 

Ending

 

Cash and cash equivalents

 

$

8,254

 

 

$

8,483

 

 

$

13,841

 

 

$

7,883

 

Restricted cash(1)

 

 

12,179