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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act.
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Title of each class |
Trading Symbols(s) |
Name of each exchange on which registered |
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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. ☒
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). ☒
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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).
As of July 29, 2022, there were
ICF INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE
PERIOD ENDED JUNE 30, 2022
TABLE OF CONTENTS
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3 |
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Item 1. |
3 |
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Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021 |
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4 |
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Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
31 |
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Item 4. |
31 |
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32 |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
ICF International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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(in thousands, except share and per share amounts) |
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June 30, 2022 |
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December 31, 2021 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Contract receivables, net |
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Contract assets |
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Prepaid expenses and other assets |
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Income tax receivable |
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Total Current Assets |
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Property and Equipment, net |
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Other Assets: |
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Goodwill |
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Other intangible assets, net |
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Operating lease - right-of-use assets |
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Other assets |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
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Current portion of long-term debt |
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$ |
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$ |
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Accounts payable |
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Contract liabilities |
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Operating lease liabilities - current |
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Accrued salaries and benefits |
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Accrued subcontractors and other direct costs |
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Accrued expenses and other current liabilities |
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Total Current Liabilities |
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Long-term Liabilities: |
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Long-term debt |
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Operating lease liabilities - non-current |
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Deferred income taxes |
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Other long-term liabilities |
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Total Liabilities |
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Commitments and Contingencies (Note 19) |
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Stockholders’ Equity: |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock, |
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Accumulated other comprehensive loss |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
ICF International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(in thousands, except per share amounts) |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Direct costs |
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Operating costs and expenses: |
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Indirect and selling expenses |
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Depreciation and amortization |
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Amortization of intangible assets |
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Total operating costs and expenses |
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Operating income |
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Interest expense |
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Other income (expense) |
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( |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Earnings per Share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average Shares: |
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Basic |
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Diluted |
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Cash dividends declared per common share |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income, net of tax |
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Comprehensive income, net of tax |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ICF International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six Months Ended |
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June 30, |
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(in thousands) |
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2022 |
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2021 |
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Cash Flows from Operating Activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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(Recovery of) provision for credit losses |
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Deferred income taxes |
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Non-cash equity compensation |
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Depreciation and amortization |
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Facilities consolidation reserve |
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Amortization of debt issuance costs |
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Impairment of long-lived assets |
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— |
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Other adjustments, net |
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Changes in operating assets and liabilities, net of the effects of acquisitions: |
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Net contract assets and liabilities |
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( |
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Contract receivables |
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( |
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Prepaid expenses and other assets |
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( |
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( |
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Operating lease assets and liabilities, net |
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( |
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( |
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Accounts payable |
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( |
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Accrued salaries and benefits |
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Accrued subcontractors and other direct costs |
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( |
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Accrued expenses and other current liabilities |
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( |
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Income tax receivable and payable |
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( |
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( |
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Other liabilities |
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( |
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Net Cash Provided by Operating Activities |
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Cash Flows from Investing Activities |
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Capital expenditures for property and equipment and capitalized software |
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( |
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( |
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Proceeds from working capital adjustments related to prior business acquisition |
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— |
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Net Cash Used in Investing Activities |
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( |
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( |
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Cash Flows from Financing Activities |
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Advances from working capital facilities |
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Payments on working capital facilities |
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Receipt of restricted contract funds |
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Payment of restricted contract funds |
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( |
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( |
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Debt issue costs |
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( |
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— |
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Proceeds from exercise of options |
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Dividends paid |
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( |
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( |
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Net payments for stock issuances and buybacks |
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( |
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( |
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Payments on business acquisition liabilities |
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( |
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( |
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Net Cash Used in Financing Activities |
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( |
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( |
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Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash |
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( |
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Decrease in Cash, Cash Equivalents, and Restricted Cash |
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( |
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( |
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Cash, Cash Equivalents, and Restricted Cash, Beginning of Period |
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Cash, Cash Equivalents, and Restricted Cash, End of Period |
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$ |
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$ |
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Supplemental Disclosure of Cash Flow Information |
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Cash paid during the period for: |
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Interest |
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$ |
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$ |
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Income taxes |
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$ |
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$ |
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Non-cash investing and financing transactions: |
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Tenant improvements funded by lessor |
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$ |
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$ |
— |
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The accompanying notes are an integral part of these consolidated financial statements.
5
Notes to Consolidated Financial Statements
(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 to government and commercial clients, 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 these clients throughout the entire life cycle of a policy, program, project, or initiative, from research and analysis and 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-profits/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 Fairfax, Virginia. The Company maintains additional offices throughout the world, including
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
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 the 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. The Company can elect to not apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. Also, the Company 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 the Company may elect to apply the amendments prospectively through December 31, 2022.
On May 6, 2022, the Company entered into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with a group of lenders to amend and restate in its entirety the Fifth Amended and Restated Business Loan and Security Agreement, entered into on March 3, 2020 (as amended, the “Existing Credit Agreement”; for additional information see Note 7—Long-Term Debt). The Restated Credit Agreement amended and restated the Existing Credit Agreement to include, among other things, replacing the LIBOR based interest pricing conventions with Secured Overnight Financing Rate (“SOFR”) based interest pricing conventions. The Company elected to apply the optional expedient that allows it to continue to qualify for the shortcut method to assess hedge effectiveness on the related LIBOR-based interest rate hedges (see Note 9—Derivative Instruments and Hedging Activities) and presumes perfect effectiveness. The optional expedient did not result in any impact on the Company’s operating results, financial position, or cash flows. The Company expects to amend the hedge contracts to a SOFR based interest index in the near future.
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 six months ended June 30, 2022 and 2021:
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June 30, 2022 |
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June 30, 2021 |
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Beginning |
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Ending |
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|
Beginning |
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|
Ending |
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||||
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Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Restricted cash(1) |
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|
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|
|
|
|
|
|
|
|
|
|
Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
NOTE 3 – CONTRACT RECEIVABLES, NET
Contract receivables, net consisted of the following:
|
|
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June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Billed and billable |
|
$ |
|
|
|
$ |
|
|
|
Allowance for expected credit losses |
|
|
( |
) |
|
|
( |
) |
|
Contract receivables, net |
|
$ |
|
|
|
$ |
|
|
7
NOTE 4 – GOODWILL
The changes in the carrying amount of goodwill during the six-months period ended June 30, 2022 were as follows:
|
Balance as of December 31, 2021 |
|
$ |
|
|
|
Measurement period adjustments - ESAC acquisition |
|
|
|
|
|
Measurement period adjustments - Creative Systems and Consulting acquisition |
|
|
|
|
|
Effect of foreign currency translation |
|
|
( |
) |
|
Balance as of June 30, 2022 |
|
$ |
|
|
|
|
|
NOTE 5 – LEASES
The Company has operating leases for facilities and equipment which have remaining terms ranging from
The Company’s lease cost is recognized on a straight-line basis over the lease term. Lease cost consists of the following:
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Three Months Ended |
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Six Months Ended |
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June 30, 2022 |
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June 30, 2021 |
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June 30, 2022 |
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June 30, 2021 |
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||||
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Operating lease cost |
|
$ |
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|
|
$ |
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|
|
$ |
|
|
|
$ |
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|
Short-term lease cost |
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Variable lease cost |
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Sublease income |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Total lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Future minimum lease payments under non-cancellable leases as of June 30, 2022 were as follows:
|
June 30, 2023 |
|
$ |
|
|
|
June 30, 2024 |
|
|
|
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|
June 30, 2025 |
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|
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June 30, 2026 |
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June 30, 2027 |
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|
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Thereafter |
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|
|
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|
Total future minimum lease payments |
|
|
|
|
|
Less: Interest |
|
|
( |
) |
|
Total lease liabilities |
|
$ |
|
|
|
|
|
|
|
|
|
Operating lease liabilities - current |
|
$ |
|
|
|
Operating lease liabilities - non-current |
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
Other information related to operating leases is as follows:
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash outflows for operating leases |
|
$ |
|
|
|
$ |
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Weighted-average remaining lease term |
|
|
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|
|
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Operating leases |
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|
Weighted-average discount rate |
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Operating leases |
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|
|
% |
|
|
|
% |
8
NOTE 6 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
At June 30, 2022 and December 31, 2021, accrued expenses and other current liabilities consisted of the following:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Deposits |
$ |
|
|
|
$ |
|
|
|
Restricted contract funds |
|
|
|
|
|
|
|
|
Accrued IT and software licensing costs |
|
|
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Accrued taxes and insurance premiums |
|
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Accrued facilities rental and lease exit costs |
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Accrued interest |
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Accrued professional services |
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Accrued dividends |
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Contingent and contractual liabilities from acquisitions |
|
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|
|
|
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|
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Interest rate swap liability - current |
|
— |
|
|
|
|
|
|
Forward contract agreements liability - current |
|
|
|
|
|
— |
|
|
Other accrued expenses and current liabilities |
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
$ |
|
|
|
$ |
|
|
NOTE 7 – LONG-TERM DEBT
At June 30, 2022 and December 31, 2021, debt consisted of:
|
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|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||
|
|
|
Average Interest Rate |
|
|
Outstanding Balance |
|
|
Average Interest Rate |
|
|
Outstanding Balance |
|
||||
|
Term Loan |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Revolving Credit |
|
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|
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|
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Total before debt issuance costs |
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||
|
Unamortized debt issuance costs |
|
|
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|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Long-term debt - non-current |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
On May 6, 2022, the Company entered into the Restated Credit Agreement with a group of lenders with (a) PNC Bank, National Association as the Administrative Agent and (b) PNC Capital Markets LLC, BOFA Securities, Inc., TD Securities (USA) LLC, Wells Fargo Securities, LLC and Citizens Bank, N.A., as joint lead arrangers. The various facilities under the Restated Credit Agreement are referred to as the “Credit Facility”, which the Restated Credit Agreement governs. The Restated Credit Agreement amended and restated the Existing Credit Agreement to, among other things, (a) maintain the existing $
9
Under the Restated Credit Agreement, the Company has the option to borrow funds under the Credit Facility at interest rates based on both term SOFR (i.e. 1, 3, or 6-month rates) and the Base Rate (as defined herein), at its discretion, plus their applicable margins. The Base Rate is a fluctuating rate of interest equal to the highest of (a) the Overnight Bank Funding Rate (as defined in the Restated Credit Agreement), plus
The Credit Facility is collateralized by substantially all the assets of the Company and its material domestic subsidiaries and requires that the Company remain in compliance with certain financial and non-financial covenants including, but not limited to the Consolidated Leverage Ratio and the Consolidated Interest Coverage Ratio. The Credit Facility also includes other terms and conditions, covenants, and other provisions of the Restated Credit Agreement that are materially consistent with the Existing Credit Agreement.
As of June 30, 2022, the Company had $
Future scheduled repayments of debt principal are as follows:
|
Payments due by |
|
Term Loan |
|
|
Revolving Credit |
|
|
Total |
|
|||
|
June 30, 2023 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
June 30, 2024 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
June 30, 2025 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
June 30, 2026 |
|
|
|
|
|
|
— |
|
|
|
|
|
|
May 6, 2027 (Maturity) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 8 – REVENUE RECOGNITION
Disaggregation of Revenue
The Company disaggregates revenue from clients, most of which is earned over time, into categories that depict how the nature, amount and uncertainty of revenue and cash flows are affected by economic and business factors. Those categories are client market, client type and contract mix. Client markets provide insight into the breadth of the Company’s expertise. In classifying revenue by client market, the Company attributes revenue from a client to the market that the Company believes is the client’s primary market. The Company also classifies revenue by the type of entity for which it does business, which is an indicator of the diversity of its client base. The Company attributes revenue generated as a subcontractor to a commercial company as government revenue when the ultimate client is a government agency or department. Disaggregation by contract mix provides insight in terms of the degree of performance risk that the Company has assumed. Fixed-price contracts are considered to provide the highest amount of performance risk as the Company is required to deliver a scope of work or level of effort for a negotiated fixed price. Time-and-materials contracts require the Company to provide skilled employees on contracts for negotiated fixed hourly rates. Since the Company is not required to deliver a scope of work, but merely skilled employees, it considers these contracts to be less risky than a fixed-price agreement. Cost-based contracts are considered to provide the lowest amount of performance risk since the Company is generally reimbursed for all contract costs incurred in performance of contract deliverables with only the amount of incentive or award fees (if applicable) dependent on the achievement of negotiated performance requirements.
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||||||||||||||||
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
Percent |
|
||||||||
|
Client Markets: |
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy, environment, and infrastructure |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
% |
|
Health, education, and social programs |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Safety and security |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Consumer and financial |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
% |
10
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||||||||||||||||
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
Percent |
|
||||||||
|
Client Type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal government |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
% |
|
U.S. state and local government |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
International government |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Total Government |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Commercial |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
% |
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||||||||||||||||
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
Percent |
|
||||||||
|
Contract Mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-and-materials |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
% |
|
Fixed price |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Cost-based |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
% |
Contract Balances:
Contract assets consist primarily of unbilled amounts resulting from long-term contracts when revenue recognized exceeds the amount billed often due to billing schedule timing. Contract liabilities result from advance payments received on a contract or from billings in excess of revenue recognized on long-term contracts due to billing schedule timing.
The following table summarizes the contract balances as of June 30, 2022 and December 31, 2021:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Contract assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
%) |
|
Net contract assets (liabilities) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
The net contract assets (liabilities) as of June 30, 2022 increased by $
Performance Obligations:
The Company had $
NOTE 9 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses interest rate swap arrangements (the “Swaps”) to manage or hedge its interest rate risk. Notwithstanding the terms of the Swaps, the Company is ultimately obligated for all amounts due and payable under the Credit Facility. The Company does not use such instruments for speculative or trading purposes.
The Company designated the Swaps as cash flow hedges. Derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged
11
transactions. Management intends that the Swaps remain effective and, on a quarterly basis, evaluates them to determine their effectiveness or ineffectiveness and records the change in fair value as an adjustment to other comprehensive income or loss.
A summary of interest rate swap derivatives designated as cash flow hedges as of June 30, 2022 are as follows:
|
|
|
Notional Amount |
|
|
Paid Fixed Interest |
|
|
Dates of Effected Cash Flows |
|||
|
Date of Interest Rate Swap Agreement |
|
($million) |
|
|
Rate% |
|
|
Beginning |
|
Ending |
|
|
September 30, 2016 (1) |
|
$ |
|
|
|
- |
|
|
|
|
|
|
August 31, 2017 |
|
$ |
|
|
|
|
|
|
|
|
|
|
August 8, 2018 |
|
$ |
|
|
|
|
|
|
|
|
|
|
August 8, 2018 |
|
$ |
|
|
|
|
|
|
|
|
|
|
February 20, 2020 |
|
$ |
|
|
|
|
|
|
|
|
|
|
(1) |
|
NOTE 10 – INCOME TAXES
The Company’s effective tax rate for the three months ended June 30, 2022 and 2021 was
The Company is subject to federal income tax as well as taxes in various state, local and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company’s
The total amount of unrecognized tax benefits as of June 30, 2022 and 2021 was $
The Company’s policy is not to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. The Company did
The Company has made no provision for deferred U.S. income taxes or additional foreign taxes on future unremitted earnings of its controlled foreign subsidiaries because the Company considers these earnings to be permanently invested.
NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss as of June 30, 2022 and 2021 included the following:
|
|
|
Three Months Ended June 30, 2022 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreements (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at March 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income (3) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Effect of taxes (4) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total current period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at June 30, 2022 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
12
|
|
|
Three Months Ended June 30, 2021 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreement (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at March 31, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current period other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income (3) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Effect of taxes (4) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total current period other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income at June 30, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Six Months Ended June 30, 2022 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreements (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at December 31, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current period other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income (3) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Effect of taxes (4) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total current period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Accumulated other comprehensive (loss) income at June 30, 2022 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||
|
|
|
Foreign Currency Translation Adjustments |
|
|
Gain on Sale of Interest Rate Hedge Agreement (1) |
|
|
Change in Fair Value of Interest Rate Hedge Agreement (2) |
|
|
Total |
|
||||
|
Accumulated other comprehensive (loss) income at December 31, 2020 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Current period other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before reclassifications |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive (loss) income (3) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Effect of taxes (4) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total current period other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income at June 30, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
(1) |
|
13
|
(2) |
|
|
(3) |
|
|
(4) |
|
NOTE 12 – STOCKHOLDERS’ EQUITY
Changes in stockholders’ equity for the three and six months ended June 30, 2022 and 2021 are as follows:
|
|
|
Three Months Ended June 30, 2022 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Payments for stock buybacks |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Three Months Ended June 30, 2021 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Payments for stock buybacks |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
Six Months Ended June 30, 2022 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Payments for stock buybacks |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
14
|
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Retained |
|
|
Treasury Stock |
|
|
Accumulated Other Comprehensive |
|
|
|
|
|
|||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Total |
|
||||||||
|
Balance at December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Payments for stock buybacks |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
NOTE 13 – ACCOUNTING FOR STOCK-BASED COMPENSATION
On April 4, 2018, the Company’s board of directors (the “board”) approved the 2018 Omnibus Incentive Plan (the “2018 Omnibus Plan”), which was subsequently approved by the Company’s stockholders and became effective on May 31, 2018 (the “Effective Date”). The 2018 Omnibus Plan replaced the previous 2010 Omnibus Incentive Plan (the “Prior Plan”). The 2018 Omnibus Plan was amended on May 28, 2020 to increase the number of shares available for issuance.
The 2018 Omnibus Plan, as amended, allows the Company to grant
During the six months ended June 30, 2022, the Company granted to its employees
The Company recognized stock-based compensation expense of $
NOTE 14 – BUSINESS COMBINATION
On
15
A prior acquisition’s purchase agreement included additional consideration in the form of warranty and indemnity hold back payments. As of June 30, 2022,
NOTE 15 – EARNINGS PER SHARE
The Company’s earnings per share (“EPS”) is computed by dividing reported net income by the weighted-average number of shares outstanding. Diluted EPS considers the potential dilution that could occur if common stock equivalents of stock options, RSUs, and PSAs were exercised or converted into stock. PSAs are included in the computation of diluted shares only to the extent that the underlying performance conditions: (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related performance period and the result would be dilutive under the treasury stock method.
As of June 30, 2022, the PSAs granted during the year ended December 31, 2020 met the related performance conditions for the initial performance period and were included in the calculation of diluted EPS. However, the PSAs granted during the year ended December 31, 2021 and during the six months ended June 30, 2022 have not yet completed their initial performance period and therefore were excluded in the calculation of diluted EPS. For the three months ended June 30, 2022 and 2021, there were
The dilutive effect of stock options, RSUs, and PSAs for each period reported is summarized below:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|||||||||
|
|
|
June 30, |
|
|
June 30, |
|
|||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
2021 |
|
||||
|
Net Income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of basic shares outstanding during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, RSUs, and performance shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of diluted shares outstanding during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
Diluted earnings per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
NOTE 16 – SHARE REPURCHASE PROGRAM
In September 2017, the board approved a share repurchase program that allows for share repurchases in the aggregate up to $
Purchases under this program may be made from time to time at prevailing market prices in open market purchases or in privately negotiated transactions pursuant to Rule 10b-18 under the Exchange Act and in accordance with applicable insider trading and other securities laws and regulations. The purchases are funded from existing cash balances and/or borrowings, and the repurchased shares are held in treasury and used for general corporate purposes. The timing and extent to which the Company repurchases its shares will depend on market conditions and other corporate considerations at the Company’s sole discretion.
During the fourth quarter of 2021, the board approved an updated Rule 10b5-1 plan element of the share repurchase program to repurchase a maximum of
For the six months ended June 30, 2022 and 2021, the Company used $
16
NOTE 17 – FAIR VALUE
Financial instruments measured at fair value on a recurring basis and their location within the accompanying consolidated balance sheets are as follows:
|
|
June 30, 2022 |
|
|
|
|||||||||||||
|
(in thousands) |
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Location on Balance Sheet |
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - current portion |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Prepaid expenses and other assets |
|
Interest rate swaps - long-term portion |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other assets |
|
Deferred compensation investments in cash surrender life insurance |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other assets |
|
Total |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contract agreements |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Accrued expenses and other current liabilities |
|
Deferred compensation plan liabilities |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other long-term liabilities |
|
Total |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|||||||||||||
|
(in thousands) |
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Location on Balance Sheet |
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contract agreements |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Prepaid expenses and other assets |
|
Deferred compensation investments in cash surrender life insurance |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other assets |
|
Total |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Other long-term liabilities |
|
Interest rate swaps - current portion |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
Interest rate swaps - long-term portion |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other long-term liabilities |
|
Total |
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
NOTE 18 – SUBSEQUENT EVENTS
Dividend
On
Acquisition of SemanticBits
On July 13, 2022, the Company completed the acquisition of SemanticBits, LLC (“Semantic”), a 450-person Virginia limited liability company. Originally founded in 2005, Semantic is a premier partner to U.S. federal health agencies for mission-critical digital modernization solutions, provides a full suite of scalable digital modernization services using open-source frameworks, including end-to-end agile scale development capabilities, cloud-native solutions, data analytics and human-centered designs. The acquisition is expected to provide synergies and scalabilities to support federal agencies with advanced IT solutions, digital modernization, and health expertise to solve complex challenges. The purchase price was $
17
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Litigation and Claims
The Company is involved in various legal matters and proceedings arising in the ordinary course of business. While these matters and proceedings cause it to incur costs, including, but not limited to, attorneys’ fees, the Company currently believes that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on its financial position, results of operations, or cash flows.
Road Home Contract
On June 10, 2016, the Office of Community Development (the “OCD”) of the State of Louisiana filed a written administrative demand with the Louisiana Commissioner of Administration against ICF Emergency Management Services, L.L.C. (“ICF Emergency”), a subsidiary of the Company, in connection with ICF Emergency’s administration of the Road Home Program (“Program”). The Program contract was a , $
The Program was primarily intended to help homeowners and landlords of small rental properties affected by Hurricanes Rita and Katrina. In its administrative demand, the OCD sought approximately $
Executive Chair Retirement
On November 15, 2020, the Company’s former Executive Chair gave notice of his retirement effective December 31, 2020. In connection with his retirement, the former Executive Chair is entitled to receive compensation and benefits as provided in his employment agreement for a termination of employment on the basis of “good reason.” As of June 30, 2022, there were PSAs totaling
18
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD-LOOKING STATEMENTS
Some of the statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” “would,” or similar words. You should read statements that contain these words carefully. The risk factors described in our filings with the Securities and Exchange Commission (the “SEC”), as well as any cautionary language in this Quarterly Report, provide examples of risks, uncertainties, and events that may cause actual results to differ materially from the expectations described in the forward-looking statements, including, but not limited to:
|
|
• |
Our dependence on contracts with United States (“U.S.”) federal, state and local, and international governments, agencies and departments for the majority of our revenue; |
|
|
• |
Changes in federal government budgeting and spending priorities; |
|
|
• |
Failure by Congress or other governmental bodies to approve budgets and debt ceiling increases in a timely fashion and related reduction in government spending; |
|
|
• |
Failure of the Administration and Congress to agree on spending priorities, which may result in temporary shutdowns of non-essential federal functions, including our work to support such functions; |
|
|
• |
Effects of the novel coronavirus disease (“COVID-19”), or any other future pandemic, and related national, state and local government actions and reactions on the health of our staff and that of our clients, the continuity of our and our clients’ operations, our results of operations and our outlook; |
|
|
• |
Results of routine and non-routine government audits and investigations; |
|
|
• |
Dependence of commercial work on certain sectors of the global economy that are highly cyclical; |
|
|
• |
Failure to realize the full amount of our backlog; |
|
|
• |
Risks inherent in being engaged in significant and complex disaster relief efforts and grants management programs involving multiple tiers of government in very stressful environments; |
|
|
• |
Risks resulting from expanding service offerings and client base; |
|
|
• |
Difficulties in identifying attractive acquisitions available at acceptable prices; |
|
|
• |
Acquisitions we undertake may present integration challenges, fail to perform as expected, increase our liabilities, and/or reduce our earnings; |
|
|
• |
The lawsuit filed by the State of Louisiana seeking approximately $220.2 million in alleged overpayments from the Road Home contract; and |
|
|
• |
Additional risks as a result of having international operations. |
Our forward-looking statements are based on the beliefs and assumptions of our management and the information available to our management at the time these disclosures were prepared. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. We undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
The terms “we,” “our,” “us,” and “the Company,” as used throughout this Quarterly Report, refer to ICF International, Inc. and its subsidiaries, unless otherwise indicated. 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 and local governments and the governments of U.S. territories. The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 25, 2022 (our “Annual Report”).
19
OVERVIEW AND OUTLOOK
We provide professional services and technology-based solutions to government and commercial clients, including management, marketing, technology, and policy consulting and implementation services. We help our clients conceive, develop, implement, and improve solutions that address complex business, natural resource, social, technological, and public safety issues. Our services primarily support clients that operate in four key markets:
|
|
• |
Energy, Environment, and Infrastructure; |
|
|
• |
Health, Education, and Social Programs; |
|
|
• |
Safety and Security; and |
|
|
• |
Consumer and Financial. |
We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative. Our primary services include:
|
|
• |
Advisory Services; |
|
|
• |
Program Implementation Services; |
|
|
• |
Analytics Services; |
|
|
• |
Digital Services; and |
|
|
• |
Engagement Services. |
Our clients utilize our services because we combine diverse institutional knowledge and experience with the deep subject matter expertise of our highly educated staff, which we deploy in multi-disciplinary teams. We believe that our domain expertise and the program knowledge developed from our research and analytic, and assessment and advisory engagements further position us to provide a full suite of services.
We report operating results and financial data as a single segment based on the consolidated information used by our chief operating decision-maker in evaluating the financial performance of our business and allocating resources. Our single segment represents our core business: professional services for government and commercial clients. Although we describe our multiple service offerings to clients that operate in four markets to provide a better understanding of the scope and scale of our business, we do not manage our business or allocate our resources based on those service offerings or client markets. Rather, on a project-by-project basis, we assemble the best team from throughout the enterprise to deliver highly customized solutions that are tailored to meet the needs of each client.
Notwithstanding the near-term impact of COVID-19 and its variants, we believe that, in the long-term, demand for our services will continue to grow as government, industry, and other stakeholders seek to address critical long-term societal and natural resource issues due to heightened concerns about the environment and use of clean energy and energy efficiency; health promotion, treatment, and cost control; the means by which healthcare can be delivered effectively on a cross-jurisdiction basis; natural disaster relief and rebuild efforts; and ongoing homeland security threats. In the wake of the major hurricanes (Harvey, Ida, Irma, Maria, Laura, and Michael) that devastated communities in Texas, Florida, North Carolina, Louisiana, the U.S. Virgin Islands, and Puerto Rico, the affected areas remain in various stages of relief and recovery efforts. We believe our prior and current experience with disaster relief and rebuild efforts, including those from Hurricanes Katrina and Rita and Superstorm Sandy, put us in a favorable position to continue to provide recovery and housing assistance, and environmental and infrastructure solutions, including disaster mitigation, on behalf of federal departments and agencies, state, territorial and local jurisdictions, and regional agencies.
We also see significant opportunity to further leverage our digital and client engagement capabilities across our commercial and government client base. Our future results will depend on the success of our strategy to enhance our client relationships and seek larger engagements that span the entire program life cycle, and to complete and successfully integrate additional strategic acquisitions. We will continue to focus on building scale in our vertical and horizontal domain expertise, developing business with both our existing government and commercial clients as well as new customers, and replicating our business model in selective geographies. In doing so, we will continue to evaluate strategic acquisition opportunities, such as our recent acquisitions of ITG in 2020, ESAC and Creative Systems and Consulting in 2021, and SemanticBits, LLC in the third quarter of 2022, that enhance our subject matter knowledge, broaden our service offerings, and/or provide scale in specific geographies.
Although we continue to see favorable long-term market opportunities, there are certain business challenges facing all government service providers. Administrative and legislative actions by the federal government to address changing priorities or in response to the budget deficit could have a negative impact on our business, which may result in a reduction to our revenue and profit and adversely affect cash flow. Similarly, the very nature of opportunities arising out of disaster recovery mean they can involve unusual challenges. Factors such as the overall stress on communities and people affected by disaster recovery situations, political complexities and challenges among involved government agencies, and a higher-than-normal risk of audits and investigations may
20
result in a reduction to our revenue and profit and adversely affect cash flow. However, we believe we are well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the federal government, as well as to state and local and international governments and commercial clients. We believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, potential acquisitions, customary capital expenditures, and other working capital requirements.
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization characterized the novel strain of coronavirus disease COVID-19 as a global pandemic. There continues to be significant uncertainty as to the effects of this pandemic on the global economy, which may impact, among other things, our operations, balance sheet, results of operations or cash flows. Adverse events such as health-related concerns about working in our offices or our client’s offices, the inability to travel, the potential impact on our employees, clients, subcontractors and other suppliers and business partners, a slow-down in customer decision-making that affects procurement cycles, a reprioritization of client spending, and other matters affecting the general work and business environment have harmed, and could continue to harm, our business and delay the implementation of our business strategy. We cannot fully anticipate all the ways in which the current global health crisis, economic disruption, and financial market conditions could adversely impact our business in the future. The long duration of the pandemic, the advent of new strains of the virus, and challenges faced in the vaccination of eligible individuals, continue to create uncertainty, and could have an adverse effect on our business, financial position, results of operations and/or cash flows.
We are primarily a service business, and our staffing, and that of our subcontractors, has been maintained, substantially on a work from home basis, fortunately with little COVID-19 illness among our staff. To date, we have experienced continuity in the majority of our work for our government clients, which accounted for approximately 75% of our revenues for both our three and six months ended June 30, 2022, respectively. There have been postponements of events and challenges around project work requiring travel and personal contact to perform services under the contracts, but overall, our government clients have continued to require our services. There has also been additional demand from federal agencies such as the Center for Disease Control and Prevention, the Department of Health and Human Services, and the Federal Emergency Management Agency, as well as state and local and international government agencies.
Of the remaining 25% of our total revenue for both our three and six months ended June 30, 2022, the majority was generated from commercial energy markets and commercial marketing services. In commercial energy, where we work primarily for utility clients, we have experienced trends similar to those with our government clients, although some aspects of energy efficiency programs have been altered to reduce direct interaction with consumers. The commercial marketing services include public event management and marketing technology, which was impacted based on the deferral or cancellation of marketing events. Some of our commercial clients perform work in travel-related markets and have been severely impacted by the COVID-19 pandemic and the restriction upon travel worldwide. As a result, we continue to monitor that business area closely. These two elements of commercial marketing services combined for 7% of our total company-wide revenues during each of the three and six months periods ended June 30, 2022, respectively.
We are monitoring the evolving situation related to the COVID-19 pandemic and continue to work with our stakeholders to assess further possible implications to our business and to take actions in an effort to mitigate adverse consequences. To protect employee health and safety while COVID-19 remains a threat, we continued to deliver a majority of our services to clients remotely. Additionally, in response to President Biden’s Executive Order 14042, which requires federal contractors to be vaccinated against COVID-19 by December 8, 2021 and later amended to January 4, 2022, we implemented a requirement for our U.S. employees to be fully vaccinated or receive an approved exemption/accommodation by November 30, 2021 regardless of employment type or work location—remote, hybrid, or on-site. We started our phased return to in-office work in the U.K. and China on a reduced capacity during the third quarter of 2021 and formally re-opened our offices in North America starting on April 25, 2022.
In 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed that allows for the deferral of payments of the employer portion of the Social Security tax. As permitted by the CARES Act, we deferred payment of approximately $20.9 million of employer Social Security taxes during the twelve months ended December 31, 2020, of which 50% has been repaid as of December 31, 2021 and the remaining 50% is expected to be repaid by the deadline of December 31, 2022.
As part of management actions to counter the impact of COVID-19, we have aligned our costs with anticipated revenues. In the U.S. and in our international operations, we used staff reductions, furloughs, and other temporary wage reduction programs in response to the pandemic during 2020. However, we did not have as many staff reductions, furloughs, or wage reductions as a result of COVID-19 after 2020. During 2020, we also participated in three international government subsidy programs whose objective was to encourage eligible companies to keep employees on the payroll during the COVID-19 pandemic. We minimally participated in two subsidy programs during the first quarter of 2021 but did not participate in such programs subsequently.
21
Employees and Offices:
We have approximately 8,000 full and part-time employees around the globe, including many recognized as thought leaders in their respective fields. We serve clients globally from our headquarters in the Washington, D.C. metropolitan area, our 50 regional offices throughout the U.S. and more than 20 offices in key regions outside the U.S., including offices in the United Kingdom, Belgium, China, India and Canada.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion of our financial condition and results of operations is based on our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make certain estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and our application of critical accounting policies, including revenue recognition, impairment of goodwill and other intangible assets, and income taxes. If any of these estimates, assumptions or judgments prove to be incorrect, our reported results could be materially affected. Actual results may differ significantly from our estimates under different assumptions or conditions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 2 – Summary of Significant Accounting Policies” in our Annual Report and “Note 1—Basis of Presentation and Nature of Operations” in the “Notes to Consolidated Financial Statements” in this Quarterly Report for further discussions of our significant accounting policies and estimates.
We periodically evaluate our critical accounting policies and estimates based on changes in U.S. GAAP and the current environment that may have an effect on our financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting standards are discussed in “Note 1—Basis of Presentation and Nature of Operations—Recent Accounting Pronouncements” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
SELECTED KEY METRICS
In order to evaluate operations, we track revenue by key metrics that provide useful information about the nature of our operations. Client markets provide insight into the breadth of our expertise. Client type is an indicator of the diversity of our client base. Revenue by contract mix provides insight in terms of the degree of performance risk that we have assumed. Significant variances in the key metrics are discussed under the revenue section of the results of operations. For further discussion see “Note 8—Revenue Recognition” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
The table below sets forth certain items from our unaudited consolidated statements of comprehensive income, the percentage of revenue for such items in the periods provided, and the period-over-period rate of change and percentage of revenue for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Year Change |
||||
|
|
|
Three Months Ended June 30, |
|
|
Three Months Ended |
|||||||||||||||||
|
|
|
Dollars |
|
|
Percentages |
|
|
June 30, 2021 and 2022 |
||||||||||||||
|
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Dollars |
|
|
Percent |
|||||
|
Revenue |
|
$ |
423,110 |
|
|
$ |
392,525 |
|
|
100.0% |
|
|
|
100.0 |
% |
|
$ |
30,585 |
|
|
7.8% |
|
|
Direct Costs |
|
|
268,905 |
|
|
|
246,646 |
|
|
63.6% |
|
|
|
62.8 |
% |
|
|
22,259 |
|
|
9.0% |
|
|
Operating Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect and selling expenses |
|
|
114,403 |
|
|
|
106,178 |
|
|
27.0% |
|
|
|
27.0 |
% |
|
|
8,225 |
|
|
7.7% |
|
|
Depreciation and amortization |
|
|
5,063 |
|
|
|
4,728 |
|
|
1.2% |
|
|
|
1.2 |
% |
|
|
335 |
|
|
7.1% |
|
|
Amortization of intangible assets |
|
|
4,963 |
|
|
|
3,019 |
|
|
1.2% |
|
|
|
0.8 |
% |
|
|
1,944 |
|
|
64.4% |
|
|
Total Operating Costs and Expenses |
|
|
124,429 |
|
|
|
113,925 |
|
|
29.4% |
|
|
|
29.0 |
% |
|
|
10,504 |
|
|
9.2% |
|
|
Operating Income |
|
|
29,776 |
|
|
|
31,954 |
|
|
7.0% |
|
|
|
8.2 |
% |
|
|
(2,178 |
) |
|
(6.8%) |
|
|
Interest expense |
|
|
(4,103 |
) |
|
|
(2,612 |
) |
|
(1.0%) |
|
|
|
(0.7 |
%) |
|
|
(1,491 |
) |
|
57.1% |
|
|
Other income (expense) |
|
|
98 |
|
|
|
(46 |
) |
|
|
— |
|
|
|
— |
|
|
|
144 |
|
|
(313.0%) |
|
Income before Income Taxes |
|
|
25,771 |
|
|
|
29,296 |
|
|
6.0% |
|
|
|
7.5 |
% |
|
|
(3,525 |
) |
|
(12.0%) |
|
|
Provision for Income Taxes |
|
|
7,374 |
|
|
|
8,984 |
|
|
1.7% |
|
|
|
2.3 |
% |
|
|
(1,610 |
) |
|
(17.9%) |
|
|
Net Income |
|
$ |
18,397 |
|
|
$ |
20,312 |
|
|
4.3% |
|
|
|
5.2 |
% |
|
$ |
(1,915 |
) |
|
(9.4%) |
|
22
Revenue. Revenue for the three months ended June 30, 2022 was $423.1 million, compared to $392.5 million for the three months ended June 30, 2021, representing an increase of $30.6 million or 7.8%. The increase in revenue was due to increases of $43.0 million and $5.6 million from our U.S. federal government and our U.S. state and local government clients, respectively, offset by decreases of $10.0 million and $8.0 million from our international government and our commercial clients, respectively. The $43.0 million increase of our U.S. federal government revenue was from increases of $37.9 million, $2.9 million, and $2.2 million in our health, education, and social program, safety and security, and energy, environment, and infrastructure client markets, respectively. The increase of $5.6 million from our U.S. state and local government clients was from increases of $4.1 million and $1.5 million in our health, education, and social programs and energy, environment, and infrastructure client markets, respectively. The decrease of $10.0 million in revenue from our international government clients was from a decrease of $11.5 million in our energy, environment, and infrastructure client market offset by increases of $0.9 million and $0.6 million from our safety and security and health, education, and social programs client markets, respectively. The decrease of $8.0 million from our commercial clients was from decreases of $7.5 million, $2.0 million, $2.0 million, $0.2 million and $0.1 million from our U.S. consumer and financial, U.S. health, education, and social programs, international energy, environment, and infrastructure, international consumer and financial, and U.S. safety and security client markets, respectively, offset by increases of $2.9 million and $0.7 million from our U.S. energy, environment, and infrastructure and international health, education, and social programs client markets, respectively.
Direct Costs. Direct costs for the three months ended June 30, 2022 were $268.9 million compared to $246.6 million for the three months ended June 30, 2021, an increase of $22.3 million or 9.0%. The increase in direct costs was driven by increases of $16.6 million in direct labor and associated fringe benefit costs and $5.7 million in subcontractor and other direct costs. The increases were attributable to higher headcounts, primarily as a result of our recent acquisitions of ESAC and Creative Systems and Consulting in the fourth quarter of 2021, that combined with additional work performed during the three months ended June 30, 2022 compared to the same period in 2021. Direct costs as a percent of revenue were 63.6% for the three months ended June 30, 2022, compared to 62.8% for the three months ended June 30, 2021. Direct labor and associated fringe benefit costs as a percentage of revenue was 36.0% and 34.5% for the three months ended June 30, 2022 and 2021, respectively, and subcontractor and other direct costs as a percentage of revenue was 27.6% and 28.3%, for the three months ended June 30, 2022 and 2021, respectively. Direct labor and associated fringe benefit costs as a percentage of direct costs was 56.6% and 54.9% for the three months ended June 30, 2022 and 2021, respectively, and subcontractor and other direct costs as a percentage of direct costs was 43.4% and 45.1% for the three months ended June 30, 2022 and 2021, respectively.
Indirect and selling expenses. Indirect and selling expenses for the three months ended June 30, 2022 was $114.4 million compared to $106.2 million for the three months ended June 30, 2021, an increase of $8.2 million or 7.7%. The increase in indirect and selling expenses was primarily due to investments related to growth initiatives resulting in an increase in indirect labor and associated fringe benefit costs of $6.2 million and $2.0 million increase in general and administrative costs. Indirect labor and associated fringe benefit costs increased due to higher headcounts compared to the prior year. The major drivers for the increase in administrative costs were higher contract labor and professional fees of $1.3 million each, respectively, travel expenses of $1.0 million, software licenses of $0.5 million, and insurance expense of $0.4 million, offset by a decrease in credit loss expense of $2.4 million compared to the same period in 2021. Indirect and selling expenses as a percent of revenue were unchanged at 27.0% for the three months ended June 30, 2022 and for the three months ended June 30, 2021.
Depreciation and amortization. Depreciation and amortization was $5.1 million for the three months ended June 30, 2022 compared to $4.7 million for the three months ended June 30, 2021. The increase in depreciation and amortization is the result of an increase in amortization expense of $0.8 million offset by a decrease in depreciation expense of $0.4 million.
Amortization of intangible assets. Amortization of intangible assets for the three months ended June 30, 2022 was $5.0 million compared to $3.0 million for the three months ended June 30, 2021. The $2.0 million increase was primarily due to amortization of intangible assets acquired in our acquisitions of ESAC and Creative Systems and Consulting in the fourth quarter of 2021.
Operating Income. Operating income was $29.8 million for the three months ended June 30, 2022 compared to $32.0 million for the three months ended June 30, 2021, a decrease of $2.2 million or 6.8%. The decrease in operating income was due to an increase in direct costs of $22.3 million, indirect and selling expenses of $8.2 million, amortization of intangible assets by $2.0 million, and depreciation and amortization expense of $0.3 million, offset by an increase in revenue of $30.6 million. Operating income as a percentage of revenue was 7.0% for the three months ended June 30, 2022, compared to 8.2% for the three months ended June 30, 2021, primarily due to the increase in amortization of intangible assets.
Interest expense. Interest expense was $4.1 million and $2.6 million for the three months ended June 30, 2022 and 2021, respectively. The increase of $1.5 million in interest expense was primarily due to our average debt balance of $488.5 million during the three months ended June 30, 2022 as compared to $363.5 million during the same period in 2021. In addition, our average interest rate on borrowings was 2.46% for the three months ended June 30, 2022 compared to 1.60% for 2021.
Other income (expense). Other income was $0.1 million for the three months ended June 30, 2022 and compared to less than $0.1 million other expense for the same period in 2021. The change of $0.1 million is not considered to be material.
Provision for Income Taxes. For the three months ended June 30, 2022, provision for income taxes was $7.4 million compared to $9.0 million for the three months ended June 30, 2021, a decrease of $1.6 million or 17.9%. The effective income tax rate for the three months ended June 30, 2022 and 2021 was 28.6% and 30.7%, respectively. The decrease in the effective income tax rate was
23
primarily due to windfall tax benefits of employee share-based compensation and foreign return-to-provision adjustments partially offset by non-deductible losses on investments and executive compensation.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The table below sets forth certain items from our unaudited consolidated statements of comprehensive income, the percentage of revenue for such items in the periods provided, and the period-over-period rate of change and percentage of revenue for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Year Change |
||||
|
|
|
Six Months Ended June 30, |
|
|
Six Months Ended |
|||||||||||||||
|
|
|
Dollars |
|
|
Percentages |
|
|
June 30, 2021 and 2022 |
||||||||||||
|
(dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
2021 |
|
|
Dollars |
|
|
Percent |
||||
|
Revenue |
|
$ |
836,578 |
|
|
$ |
771,003 |
|
|
100.0% |
|
|
100.0 |
% |
|
$ |
65,575 |
|
|
8.5% |
|
Direct Costs |
|
|
527,063 |
|
|
|
478,728 |
|
|
63.0% |
|
|
62.1 |
% |
|
|
48,335 |
|
|
10.1% |
|
Operating Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect and selling expenses |
|
|
231,855 |
|
|
|
216,160 |
|
|
27.7% |
|
|
28.0 |
% |
|
|
15,695 |
|
|
7.3% |
|
Depreciation and amortization |
|
|
9,901 |
|
|
|
9,998 |
|
|
1.2% |
|
|
1.3 |
% |
|
|
(97 |
) |
|
(1.0%) |
|
Amortization of intangible assets |
|
|
10,280 |
|
|
|
6,034 |
|
|
1.2% |
|
|
0.8 |
% |
|
|
4,246 |
|
|
70.4% |
|
Total Operating Costs and Expenses |
|
|
252,036 |
|
|
|
232,192 |
|
|
30.1% |
|
|
30.1 |
% |
|
|
19,844 |
|
|
8.5% |
|
Operating Income |
|
|
57,479 |
|
|
|
60,083 |
|
|
6.9% |
|
|
7.8 |
% |
|
|
(2,604 |
) |
|
(4.3%) |
|
Interest expense |
|
|
(6,800 |
) |
|
|
(5,295 |
) |
|
(0.8%) |
|
|
(0.6 |
%) |
|
|
(1,505 |
) |
|
28.4% |
|
Other expense |
|
|
(271 |
) |
|
|
(463 |
) |
|
— |
|
|
(0.1 |
%) |
|
|
192 |
|
|
(41.5%) |
|
Income before Income Taxes |
|
|
50,408 |
|
|
|
54,325 |
|
|
6.1% |
|
|
7.1 |
% |
|
|
(3,917 |
) |
|
(7.2%) |
|
Provision for Income Taxes |
|
|
14,149 |
|
|
|
15,662 |
|
|
1.7% |
|
|
2.0 |
% |
|
|
(1,513 |
) |
|
(9.7%) |
|
Net Income |
|
$ |
36,259 |
|
|
$ |
38,663 |
|
|
4.4% |
|
|
5.1 |
% |
|
$ |
(2,404 |
) |
|
(6.2%) |
Revenue. Revenue for the six months ended June 30, 2022 was $836.6 million, compared to $771.0 million for the six months ended June 30, 2021, an increase of $65.6 million or 8.5%. The increase in revenue was driven by increases of $86.0 million and $14.5 million from our U.S federal government and U.S. state and local government clients, respectively, offset by decreases of $20.0 million and $14.9 million from our international government and commercial clients, respectively. The increase of $86.0 million from our U.S. federal government clients was driven by $77.4 million, $6.9 million, and $1.7 million in revenue from our health, education, and social programs, energy, environment, and infrastructure, and safety and security client markets, respectively. The increase of $14.5 million in revenue from our U.S. state and local government clients was driven by $11.4 million and $3.1 million from our health, education, and social programs and energy, environment, and infrastructure client markets, respectively. The decrease of $20.0 million in revenue from our international government clients was from a decrease of $22.6 million from our energy, environment, and infrastructure client market offset by increases of $2.3 million and $0.3 million from our health, education, and social programs and safety and security client markets, respectively. Commercial clients revenue decreased by $14.9 million due to decreases of $12.1 million, $2.8 million, and $2.2 million from our U.S. consumer and financial, U.S. health, education, and social programs, and international energy, environment, and infrastructure client markets, respectively, offset by increases of $0.9 million, $0.8 million, $0.4 million, and $0.1 million from our international consumer and financial, U.S. energy, environment, and infrastructure, international health, education, and social programs, and international safety and security client markets, respectively.
Direct Costs. Direct costs for the six months ended June 30, 2022 were $527.1 million compared to $478.7 million for the six months ended June 30, 2021, an increase of $48.3 million or 10.1%. The increase in direct costs was driven by an increase of $32.7 million in direct labor and associated fringe benefit costs and $15.6 million in sub-contractor and other direct costs. Direct labor and associated fringe benefit costs increased primarily due to higher headcounts, primarily as a result of our recent acquisitions of ESAC and Creative Systems and Consulting in the fourth quarter of 2021, that combined with additional work performed during the six months ended June 30, 2022 compared to the same period in 2021. Direct labor and fringe benefit costs for the six months ended June 30, 2022 was 57.2% of direct costs compared to 56.1% for the six months ended June 30, 2021, and 36.0% as a percentage of revenue for the six months ended June 30, 2022 compared to 34.8% for the six months ended June 30, 2021. The increase in sub-contractor and other direct costs was primarily due to additional work performed during the six months ended June 30, 2022 compared to 2021. Sub-contractor and other direct costs as a percentage of total direct costs was 42.8% for the six months ended June 30, 2022 compared to 43.9% for the same period in 2021, and 27.0% as a percentage of revenue for the six months ended June 30, 2022 compared to 27.2% for the six months ended June 30, 2021. Direct costs as a percent of revenue increased to 63.0% for the six months ended June 30, 2022, compared to 62.1% for the six months ended June 30, 2021.
Indirect and selling expenses. Indirect and selling expenses for the six months ended June 30, 2022 were $231.9 million compared to $216.2 million for the six months ended June 30, 2021, an increase of $15.7 million or 7.3%. The increase in indirect and selling expenses was primarily due to investments related to growth initiatives resulting in increases of $15.3 million and $0.4 million
24
in indirect labor and associated fringe benefit costs and general and administrative expenses, respectively. The main driver for the increase in indirect labor and associated fringe benefit costs was a higher headcount at June 30, 2022 compared to June 30, 2021. Our general and administrative costs saw an increase of various expenses such as contract labor of $2.8 million, travel of $1.3 million, software licenses of $1.2 million, insurance of $1.0 million, professional fees of $0.8 million, recruiting $0.4 million, and other general expenses totaling $0.9 million, offset by a decrease in credit loss expense of $8.0 million. Indirect and selling expenses as a percent of revenue decreased to 27.7% for the six months ended June 30, 2022, compared to 28.0% for the six months ended June 30, 2021.
Depreciation and amortization. Depreciation and amortization was $9.9 million for the six months ended June 30, 2022 compared to $10.0 million for the six months ended June 30, 2021. The $0.1 million decrease is not considered to be material.
Amortization of intangible assets. Amortization of intangible assets for the six months ended June 30, 2022 was $10.3 million compared to $6.0 million for the six months ended June 30, 2021. The $4.2 million increase was primarily due to amortization of intangible assets acquired in our acquisitions of ESAC and Creative Systems and Consulting in the fourth quarter of 2021.
Operating Income. Operating income was $57.5 million for the six months ended June 30, 2022 compared to $60.1 million for the six months ended June 30, 2021, a decrease of $2.6 million or 4.3%. The change was largely due to increases in direct costs of $48.3 million, indirect and selling expenses of $15.7 million, and amortization of intangible assets of $4.2 million, offset by an increase in revenue of $65.6 million and a decrease in depreciation and amortization expense of $0.1 million. Operating income as a percentage of revenue decreased to 6.9% for the six months ended June 30, 2022, compared to 7.8% for the six months ended June 30, 2021, primarily due to the increase in amortization of intangible assets of $4.2 million.
Interest expense. For the six months ended June 30, 2022, interest expense was $6.8 million compared to $5.3 million for the six months ended June 30, 2021, an increase of $1.5 million or 28.4%. The increase in interest expense was primarily due to our average debt balance of $474.9 million during the six months ended June 30, 2022 as compared to $344.6 million during the same period in 2021. In addition, our average interest rate on borrowings was 1.93% for the six months ended June 30, 2022 compared to 1.74% for 2021.
Other expense. For the six months ended June 30, 2022 other expense was $0.3 million compared to $0.5 million for the six months ended June 30, 2021. The change of $0.2 million is not considered to be material.
Provision for Income Taxes. For the six months ended June 30, 2022, provision for income taxes was $14.1 million compared to $15.7 million for the six months ended June 30, 2021, a decrease of $1.5 million or 9.7%. The effective income tax rate for the six months ended June 30, 2022 and 2021 was 28.1% and 28.8%, respectively. The decrease in the effective income tax rate was primarily due to windfall tax benefits of employee share-based compensation and foreign return-to-provision adjustments partially offset by non-deductible losses on investments and executive compensation.
NON-GAAP MEASURES
These following tables provide reconciliations of financial measures that are not U.S. GAAP (“non-GAAP”) to the most applicable U.S. GAAP measures. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered supplemental in nature and not as a substitute for financial information prepared in accordance with U.S. GAAP. Other companies may define similarly titled non-GAAP measures differently and, accordingly, care should be exercised in understanding how we define these measures.
Service Revenue
Service revenue represents revenue less subcontractor and other direct costs (which include third-party materials and travel expenses). Service revenue is not a recognized term under U.S. GAAP and should not be considered an alternative to revenue as a measure of operating performance. This presentation of service revenue may not be comparable to other similarly titled measures used by other companies because other companies may use different methods to prepare similarly titled measures. We believe service revenue is a useful measure to investors since, as a consulting firm, a key source of our profit is revenue obtained from the services that we provide to our clients through our employees. For the three months ended June 30, 2022, service revenue was $306.3 million compared to $281.4 million for the three months ended June 30, 2021, an increase of $24.9 million or 8.9%. Service revenue was 72.4% and 71.7% of total revenue for the three months ended June 30, 2022 and 2021.
The table below presents a reconciliation of revenue to service revenue for the periods indicated:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Revenue |
|
$ |
423,110 |
|
|
$ |
392,525 |
|
|
$ |
836,578 |
|
|
$ |
771,003 |
|
|
Subcontractor and other direct costs |
|
|
(116,791 |
) |
|
|
(111,140 |
) |
|
|
(225,689 |
) |
|
|
(210,051 |
) |
|
Service revenue |
|
$ |
306,319 |
|
|
$ |
281,385 |
|
|
$ |
610,889 |
|
|
$ |
560,952 |
|
25
EBITDA and Adjusted EBITDA
Earnings before interest and other income and/or expense, tax, and depreciation and amortization (“EBITDA”) is a measure we use to evaluate operating performance. We believe EBITDA is useful in assessing ongoing trends and, as a result, may provide greater visibility in understanding our operations.
Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of the performance of our ongoing operations. We evaluate these adjustments on an individual basis based on both the quantitative and qualitative aspects of the item, including their size and nature as well as whether or not we expect them to occur as part of our normal business on a regular basis. We believe that the adjustments applied in calculating adjusted EBITDA are reasonable and appropriate to provide additional information to investors.
EBITDA and adjusted EBITDA are not recognized terms under U.S. GAAP and should not be used as alternatives to net income as a measure of operating performance. This presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures used by other companies because other companies may use different methods to prepare similarly titled measures. EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use as these measures do not include certain cash requirements such as interest payments, tax payments, capital expenditures and debt service.
The following table presents a reconciliation of net income to EBITDA and adjusted EBITDA for the periods indicated.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net income |
|
$ |
18,397 |
|
|
$ |
20,312 |
|
|
$ |
36,259 |
|
|
$ |
38,663 |
|
|
Other (income) expense |
|
|
(98 |
) |
|
|
46 |
|
|
|
271 |
|
|
|
463 |
|
|
Interest expense |
|
|
4,103 |
|
|
|
2,612 |
|
|
|
6,800 |
|
|
|
5,295 |
|
|
Provision for income taxes |
|
|
7,374 |
|
|
|
8,984 |
|
|
|
14,149 |
|
|
|
15,662 |
|
|
Depreciation and amortization |
|
|
10,026 |
|
|
|
7,747 |
|
|
|
20,181 |
|
|
|
16,032 |
|
|
EBITDA |
|
|
39,802 |
|
|
|
39,701 |
|
|
|
77,660 |
|
|
|
76,115 |
|
|
Adjustment related to impairment of long-lived assets (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
303 |
|
|
Special charges related to acquisitions (2) |
|
|
2,262 |
|
|
|
54 |
|
|
|
3,581 |
|
|
|
149 |
|
|
Special charges related to severance for staff realignment (3) |
|
|
185 |
|
|
|
318 |
|
|
|
1,411 |
|
|
|
809 |
|
|
Special charges related to facilities consolidations and office closures (4) |
|
|
— |
|
|
|
(61 |
) |
|
|
— |
|
|
|
139 |
|
|
Special charges related to the transfer to our new corporate headquarters (5) |
|
|
1,882 |
|
|
|
— |
|
|
|
3,764 |
|
|
|
— |
|
|
Special charges related to retirement of the Executive Chair (6) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
224 |
|
|
Total special charges and adjustments |
|
|
4,329 |
|
|
|
311 |
|
|
|
8,756 |
|
|
|
1,624 |
|
|
Adjusted EBITDA |
|
$ |
44,131 |
|
|
$ |
40,012 |
|
|
$ |
86,416 |
|
|
$ |
77,739 |
|
|
(1) |
Adjustment related to impairment of long-lived assets: We recognized impairment expense of $0.3 million in the first quarter of 2021 related to impairment of a right-of-use lease asset. |
|
(2) |
Special charges related to acquisitions: These costs consist primarily of consultants and other outside third-party costs and integration costs associated with our acquisitions and/or potential acquisitions. |
|
(3) |
Special charges related to severance for staff realignment: These costs are mainly due to involuntary employee termination benefits for our officers, and/or groups of employees who have been notified that they will be terminated as part of a consolidation or reorganization. |
|
(4) |
Special charges related to facilities consolidations and office closures: These costs are exit costs or gains associated with office lease contraction, terminated office leases, or full office closures. The exit costs include charges incurred under a contractual obligation that existed as of the date of the accrual and for which we will continue to pay until the contractual obligation is satisfied but with no economic benefit to us. |
|
(5) |
Special charges related to the transfer to our new corporate headquarters: These costs are additional rent as a result of us taking possession of our new corporate headquarters in Reston, Virginia, during the fourth quarter of 2021 while maintaining our current headquarters in Fairfax, Virginia. We intend to complete the transition to our new corporate headquarters by the end of 2022 when our Fairfax lease ends. |
|
(6) |
Special charges related to retirement of the former Executive Chair: Our former Executive Chair retired effective December 31, 2020. These costs relate to unvested equity awards that, as a result of his employment agreement, the departing officer was able to maintain certain equity awards beyond the date of employment. |
26
Non-GAAP Diluted Earnings per Share
Non-GAAP diluted earnings per share (“EPS”) represents diluted EPS excluding the impact of certain items such as impairment of long-lived assets, acquisition expenses, severance for staff realignment, facility consolidations and office closures, the change of our corporate headquarters, and an adjustment related to the retirement of the former Executive Chair (which are also excluded from adjusted EBITDA, as described further above), as well as the impact of amortization of intangible assets related to our acquisitions and income tax effects. While these adjustments may be recurring and not infrequent or unusual, we do not consider these adjustments to be indicative of the performance of our ongoing operations. Non-GAAP diluted EPS is not a recognized term under U.S. GAAP and is not an alternative to basic or diluted EPS as a measure of performance. This presentation of non-GAAP diluted EPS may not be comparable to other similarly titled measures used by other companies because other companies may use different methods to prepare similarly titled measures. We believe that the supplemental adjustments applied in calculating non-GAAP diluted EPS are reasonable and appropriate to provide additional information to investors.
The following table presents a reconciliation of diluted EPS to non-GAAP diluted EPS for the periods indicated:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|||||||||
|
|
|
June 30, |
|
|
June 30, |
|
|||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
2021 |
|
||||
|
Diluted EPS |
|
$ |
0.97 |
|
|
$ |
1.07 |
|
|
$ |
1.91 |
|
$ |
2.03 |
|
|
Adjustment related to impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
0.02 |
|
|
Special charges related to acquisitions |
|
|
0.12 |
|
|
|
— |
|
|
|
0.19 |
|
|
0.01 |
|
|
Special charges related to severance for staff realignment |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.07 |
|
|
0.04 |
|
|
Special charges related to facilities consolidations and office closures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
0.01 |
|
|
Special charges related to the transfer to our new corporate headquarters |
|
|
0.10 |
|
|
|
— |
|
|
|
0.20 |
|
|
— |
|
|
Special charges related to retirement of Executive Chair |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
0.01 |
|
|
Amortization of intangibles |
|
|
0.26 |
|
|
|
0.16 |
|
|
|
0.54 |
|
|
0.32 |
|
|
Income tax effects on amortization, special charges, and adjustments (1) |
|
|
(0.13 |
) |
|
|
(0.06 |
) |
|
|
(0.28 |
) |
|
(0.12 |
) |
|
Non-GAAP EPS |
|
$ |
1.33 |
|
|
$ |
1.19 |
|
|
$ |
2.63 |
|
$ |
2.32 |
|
|
(1) |
Income tax effects were calculated using an effective U.S. GAAP tax rate of 28.6% and 30.7% for the three months ended June 30, 2022 and 2021, respectively, and 28.1% and 28.8% for the six months ended June 30, 2022 and 2021, respectively. |
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Borrowing Capacity. Short-term liquidity requirements are created by our use of funds for working capital, capital expenditures, debt service, dividends and share repurchases. We expect to meet these requirements through a combination of cash flow from operations and borrowings. Our primary source of borrowings is from our Credit Facility, as described in “Note 7—Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. As of June 30, 2022, we had $438.1 million, or $410.9 million after taking into account the financial and performance-based limitations, available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program. Should the need arise, we intend to further increase our borrowing capacity in the future to provide us with adequate working capital to continue our ongoing operations.
In March 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic. Although we continue to face risks and uncertainties related to COVID-19 and its variants, to date we have not experienced any significant impacts on our liquidity and capital resources which remain available to us.
In addition to the continued COVID-19 pandemic, there are other conditions, such as the ongoing war in Ukraine and the recent increase in inflation, both in the U.S. and globally, that create uncertainty in the global economy, which in turn may impact, among other things, our ability to generate positive cash flows from operations and our ability to successfully execute and fund key initiatives in the near future. However, our current belief is that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations, customary capital expenditures and acquisitions, quarterly cash dividends, share repurchases and organic growth. Additionally, we continuously analyze our capital structure to ensure we have capital to fund future strategic acquisitions. We monitor the state of the financial markets on a regular basis to assess the availability and cost of additional capital resources from both debt and equity sources. We believe that we will be able to access these markets at commercially reasonable terms and conditions if, in the future, we need additional borrowings or capital.
27
Financial Condition. There were several changes in our consolidated balance sheet as of June 30, 2022 compared to the consolidated balance sheet as of December 31, 2021. The more significant changes are discussed below.
Cash and cash equivalents decreased to $6.1 million as of June 30, 2022, from $8.3 million on December 31, 2021 and restricted cash decreased to $2.4 million as of June 30, 2022 from $12.2 million on December 31, 2021. These balances and the changes to the balances of cash and cash equivalents and restricted cash are further discussed in “Cash Flow” below and in “Note 2—Restricted Cash” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
Contract receivables, net of allowance for expected credit losses, as of June 30, 2022, decreased to $218.8 million from $237.7 million on December 31, 2021, primarily due to the timing of our billings and collection of clients’ invoices. Contract receivables are a significant component of our working capital and may be favorably or unfavorably impacted by our collection efforts, including timing from new contract startups, and other short-term fluctuations related to the payment practices of our clients.
Contract assets and contract liabilities represent revenue in excess of billings and billings in excess of revenue, respectively, both of which generally arise from revenue recognition timing and contractually stipulated billing schedules or billing complexity. At June 30, 2022, contract assets and contract liabilities were $190.5 million and $24.6 million, respectively, compared to $137.9 million and $39.7 million, respectively, at December 31, 2021.
Prepaid expenses and other assets decreased from $42.4 million at December 31, 2021 to $23.2 million at June 30, 2022, primarily from application of lease incentives allowances toward tenant improvements for our Reston office.
We evaluate our collections efforts using the days-sales-outstanding ratio (“DSO”), which we calculate by dividing total accounts receivable (contract receivables, net and contract assets, less contract liabilities), by revenue per day for the trailing 90-day period. DSO was 82 days for the quarter ended June 30, 2022, same as the 82 days for the quarter ended June 30, 2021. The DSO, excluding the Puerto Rico disaster relief and rebuild efforts due to complex reporting and billing requirements and therefore slow to pay our invoices, was 77 days for the quarter ended June 30, 2022 compared to 74 days for the quarter ended June 30, 2021.
Goodwill, as discussed in “Note 4—Goodwill” in the “Notes to Consolidated Financial Statements” in this Quarterly Report, decreased from $1,046.8 million at December 31, 2021 to $1,043.9 million at June 30, 2022 mainly due to a decrease of $5.0 million due to the impact of foreign currency translation offset by increases of $2.0 million and $0.1 million resulting from measurement period adjustments from our Creative Systems and Consulting and ESAC acquisitions. Other intangible assets decreased to $69.2 million at June 30, 2022 from $79.6 million on December 31, 2021 due to amortization of intangible assets related to prior acquisitions that we had made.
The decrease in our operating lease right-of-use assets from $177.4 million at December 31, 2021 to $164.6 million at June 30, 2022 was due to the amortization of right-of-use assets, and the decreases in our current and non-current operating lease liabilities from $34.9 million and $191.8 million at December 31, 2021, respectively, to $26.3 million at $186.0 million at June 30, 2022, respectively, due to rent payments.
Accounts payable decreased to $99.4 at June 30, 2022 from $105.7 million at December 31, 2021, and our accrued expenses totaled $176.6 million at June 30, 2022 as compared to $186.4 million at December 31, 2021. The changes in our accounts payable and accrued expenses are primarily due to the timing of invoices from our vendors and subcontractors for services rendered and subsequent payments of those invoices.
Long-term debt (exclusive of unamortized debt issuance costs) increased to $454.8 million on June 30, 2022 from $423.6 million on December 31, 2021, primarily due to the net advance on our Credit Facility of $31.2 million. The average debt balances on the Credit Facility for the three months ended June 30, 2022 and 2021 were $488.5 million and $363.5 million, respectively, and $474.9 and $344.6 million, respectively for the six months ended June 30, 2022 and 2021. The average interest rate on the Credit Facility, excluding any fees and unamortized debt issuance costs, for the three months ended June 30, 2022 and 2021 was 2.46% and 1.60%, respectively, and 1.93% and 1.74%, respectively. We generally utilize cash flow from operations as our primary source of funding and turn to our Credit Facility to fund any temporary fluctuations, such as increases in contract receivables, reductions in accounts payable and accrued expenses, purchase of treasury stock, payment of declared dividends, additional capital expenditures, and to meet funding requirements for new acquisitions.
The increase in accumulated other comprehensive loss of $1.6 million, net of taxes, was driven by a $9.0 million change, before taxes, in the value of certain foreign currencies relative to the U.S. dollar (primarily the British Pound, Euro and Canadian dollar) and $0.3 million in gains from the previous sale of an interest rate hedge reclassified to income, before taxes, offsets by a change in unrealized gains of $7.3 million in the fair value of the interest rate hedging instruments and $1.5 million in previously unrealized net losses reclassified to comprehensive income related to hedging instruments, before taxes. The net tax effects of the transactions totaled $1.0 million. See “Note 11—Accumulated Other Comprehensive Loss” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.
We have entered into floating-to-fixed interest rate swap agreements (the “Swaps”) with expiration dates through August 2023 and February 2025 for a total notional amount of $200.0 million in order to hedge a portion of our floating rate Credit Facility. As of June 30, 2022, the fair value of the Swaps was an unrealized gain of $4.9 million included in prepaid expenses and other assets on the balance sheet. See “Note 9—Derivative Instruments and Hedging Activities” and “Note 17—Fair Value” in the “Notes to
28
Consolidated Financial Statements” in this Quarterly Report. On a quarterly basis, management evaluates the Swaps to determine their effectiveness and record the change in fair value of the Swaps as an adjustment to accumulated other comprehensive loss. Management intends that the Swaps remain effective.
We have explored various options for mitigating the risk associated with potential fluctuations in the foreign currencies in which we conduct transactions. We currently have forward contract agreements (“currency hedges”) in an amount proportionate to work anticipated to be performed under certain contracts in Europe. We recognize changes in the fair value of the currency hedges in our results of operations. We may increase the number, size, and scope of our currency hedges as we analyze options for mitigating our foreign exchange and interest rate risk. The current impact of the foreign currency hedges to the consolidated financial statements is immaterial.
Inflation. Our business and results of operations have not been materially affected by inflation and changing prices during the period presented and we do not expect to be materially affected in the future due to the nature of our business as a provider of professional services with contracts that can be negotiated with new prices.
Share Repurchase Program. The objective of our share repurchase program has been to offset dilution resulting from employee stock compensation. Under the program, purchases can be made from time to time at prevailing market prices in open market purchases or in privately negotiated transactions pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance with applicable insider trading and other securities laws and regulations. The timing and extent to which we repurchase our shares will depend upon market conditions and other corporate considerations, as may be considered in our sole discretion. The purchases will be funded from existing cash balances and/or borrowings, and the repurchased shares will be held in treasury and used for general corporate purposes. The Restated Credit Agreement permits share repurchases, provided the Company’s Consolidated Leverage Ratio, prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then applicable maximum Consolidated Leverage Ratio and subject to a net liquidity of $100.00 million. Additionally, the Company can make share repurchases up to $25 million per calendar year subject to no default.
In September 2017, the Company’s board of directors (the “board”) approved a share repurchase program that authorizes share repurchases in the aggregate up to $100.0 million. In November 2021, the board approved an increase to the share repurchase program to a new limit of $200.0 million, inclusive of the prior limit. During the fourth quarter of 2021, the board approved an updated Rule 10b5-1 plan element of the share repurchase program to repurchase a maximum of 165,000 shares or a total of $20.0 million, whichever is reached first. The plan commenced on December 20, 2021 and ended during the first quarter of 2022 with a total of 165,000 shares repurchased from December 20, 2021 to February 2, 2022 for a total of $16.3 million.
During the six months ended June 30, 2022, we repurchased 176,375 shares under this program at an average price of $96.18 per share. As of June 30, 2022, $111.9 million remained available for share repurchases.
Dividends. Cash dividends declared thus far in 2022 are as follows:
|
Dividend Declaration Date |
|
Dividend Per Share |
|
|
Record Date |
|
Payment Date |
|
|
February 23, 2022 |
|
$ |
0.14 |
|
|
March 25, 2022 |
|
April 13, 2022 |
|
May 4, 2022 |
|
$ |
0.14 |
|
|
June 10, 2022 |
|
July 14, 2022 |
|
August 3, 2022 |
|
$ |
0.14 |
|
|
September 9, 2022 |
|
October 13, 2022 |
29
Cash Flow. We consider cash on deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The following table sets forth our sources and uses of cash for the six months ended June 30, 2022 and 2021:
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
||
|
Net Cash Provided by Operating Activities |
|
$ |
6,409 |
|
|
$ |
6,341 |
|
|
Net Cash Used in Investing Activities |
|
|
(8,115 |
) |
|
|
(7,475 |
) |
|
Net Cash Used in Financing Activities |
|
|
(9,074 |
) |
|
|
(45,642 |
) |
|
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash |
|
|
(1,189 |
) |
|
|
699 |
|
|
Decrease in Cash, Cash Equivalents, and Restricted Cash |
|
$ |
(11,969 |
) |
|
$ |
(46,077 |
) |
Our operating cash flows are primarily affected by the overall profitability of our contracts, our ability to invoice and collect from our clients in a timely manner, and the timing of vendor and subcontractor payments in accordance with negotiated payment terms. We bill most of our clients on a monthly basis after services are rendered.
Operating activities provided $6.4 million in cash for the six months ended June 30, 2022 compared to $6.3 million for the six months ended June 30, 2021, a change of $0.1 million. The increase in cash flows from operations for the six months ended June 30, 2022 compared to the prior year was primarily due to lower net use of cash for our payables, expenses, and vendor payments offset by decrease in net income, inclusive of adjustments for non-cash expenses and higher contract assets and lower cash collections of our receivables.
Investing activities used cash of $8.1 million for the six months ended June 30, 2022, compared to $7.5 million for the six months ended June 30, 2021. Our cash flows used in investing activities during the six months ended June 30, 2022 were for capital expenditures for property and equipment and capitalized software offset by cash received as a result of working capital adjustment related to an acquisition we had previously made.
Our cash flows used in financing activities consisted primarily of debt and equity transactions. For the six months ended June 30, 2022, cash flows provided by financing activities was $9.1 million, consisting of net advances and payments on our Credit Facility totaling $31.3 million and proceeds from exercise of options of $0.2 million, offset by net payments for stock issuances and buybacks of $20.8 million, primarily representing shares repurchased under our share repurchase program, net receipts and payments of restricted contract funds of $9.6 million, payments of cash dividends totaling $5.3 million, payments of debt issuance costs of $4.8 million, and payments on business acquisition liabilities of $0.1 million. For the six months ended June 30, 2021, cash flows used in financing activities was $45.6 million. The cash flow was primarily from net advances and payments on our Credit Facility of $18.2 million and proceeds from exercise of options of $2.8 million, offset by net receipts and payments of restricted contract funds of $42.2 million, cash used for net payments for stock issuances and buybacks of $18.4 million, primarily representing shares repurchased under our share repurchase program, payments of cash dividends totaling $5.3 million, and payment on business acquisition liabilities of $0.7 million.
30
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.
|
Item 4. |
Controls and Procedures |
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting. As of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. We performed the evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have been no significant changes in our internal controls over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the periods covered by this Quarterly Report or, to our knowledge, in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and may not be detected.
31
PART II. OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
We are involved in various legal matters and proceedings arising in the ordinary course of business. While these matters and proceedings cause us to incur costs, including, but not limited to, attorneys’ fees, we currently believe that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on our financial position, results of operations, or cash flows.
|
Item 1A. |
Risk Factors |
There have been no material changes in the risk factors discussed in the section entitled “Risk Factors” disclosed in Part I, Item 1A of our Annual Report.
The risks described in our Annual Report are not the only risks that we encounter. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, and/or operating results.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Purchase of Equity Securities by Issuer. The following table summarizes our share repurchase activity for the three months ended June 30, 2022:
|
Period |
|
Total Number of Shares Purchased (1)(2) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
|
||||
|
April 1 - April 30 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
111,869,762 |
|
|
May 1 - May 31 |
|
|
502 |
|
|
$ |
98.02 |
|
|
|
— |
|
|
$ |
111,869,762 |
|
|
June 1 - June 30 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
111,869,762 |
|
|
Total |
|
|
502 |
|
|
$ |
98.02 |
|
|
|
— |
|
|
|
|
|
|
(1) |
The total number of shares purchased of 502 includes shares from employees to pay required withholding taxes related to the settlement of any restricted stock units in accordance with our applicable long-term incentive plan. |
|
(2) |
During the three months ended June 30, 2022, we repurchased 502 shares of common stock from employees in satisfaction of tax withholding obligations at an average price of $98.02 per share. |
|
(3) |
The current share repurchase program authorizes share repurchases in the aggregate up to $200.0 million. The Restated Credit Agreement permits share repurchases, provided the Company’s Consolidated Leverage Ratio, prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then applicable maximum Consolidated Leverage Ratio and subject to a net liquidity of $100.00 million. Additionally, the Company can make share repurchases up to $25 million per calendar year subject to no default. For additional information on the share repurchase program, see “Note 16 – Share Repurchase Program” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. |
|
Item 3. |
Defaults Upon Senior Securities |
None.
|
Item 4. |
Mine Safety Disclosures |
Not applicable.
|
Item 5. |
Other Information |
None.
32
|
Item 6. |
Exhibits |
|
Exhibit Number |
|
Exhibit |
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101 |
|
The following materials from the ICF International, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.* |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
* |
Submitted electronically herewith. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
ICF INTERNATIONAL, INC. |
||
|
|
|
|
|
|
August 4, 2022 |
By: |
|
/s/ John Wasson |
|
|
|
|
John Wasson |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
August 4, 2022 |
By: |
|
/s/ Barry Broadus |
|
|
|
|
Barry Broadus |
|
|
|
|
Chief Financial Officer (Principal Financial Officer) |
34