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¹ Non-GAAP EPS, Service Revenue, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA Margin on Service Revenue are non-GAAP measurements. A reconciliation of all non-GAAP measurements to the most applicable GAAP number is set forth below. Special charges are items that were included within our consolidated statements of comprehensive income but are not indicative of ongoing performance and have been presented net of applicable U.S. GAAP taxes. The presentation of non-GAAP measurements may not be comparable to other similarly titled measures used by other companies.

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands, except per share amounts)

2019

2018

2019

2018

Revenue

$                  366,717

$  324,315

$  707,971

$  627,095

Direct costs

235,053

206,565

451,002

395,391

Operating costs and expenses:

Indirect and selling expenses

101,450

90,410

197,969

180,069

Depreciation and amortization

5,595

4,045

10,357

8,514

Amortization of intangible assets

2,270

4,212

4,514

Total operating costs and expenses

109,122

96,725

212,538

193,097

Operating income

22,542

21,025

44,431

38,607

Interest expense

(2,934)

(2,167)

(5,387)

(3,833)

Other income (expense)

186

(318)

(226)

(214)

Income before income taxes

19,794

18,540

38,818

34,560

Provision for income taxes

5,183

4,923

8,889

8,526

Net income

$                    14,611

$    13,617

$    29,929

$    26,034

Earnings per Share:

Basic

$                        0.78

$        0.72

$        1.59

$        1.39

Diluted

$                        0.76

$        0.71

$        1.56

$        1.36

Weighted-average Shares:

Basic

18,805

18,806

18,815

18,738

Diluted

19,133

19,209

19,213

19,208

Cash dividends declared per common share

$                        0.14

$        0.14

$        0.28

$        0.28

Other comprehensive loss, net of tax

(2,853)

(3,317)

(2,570)

(1,708)

Comprehensive income, net of tax

$                    11,758

$    10,300

$    27,359

$    24,326

ICF International, Inc. and Subsidiaries

Reconciliation of Non-GAAP financial measures⁽²⁾ 

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands, except per share amounts)

2019

2018

2019

2018

Reconciliation of Service Revenue

Revenue

$ 366,717

$ 324,315

$  707,971

$  627,095

Subcontractor and other direct costs ⁽³⁾

(93,330)

(214,280)

(172,212)

Service revenue

$ 252,336

$ 230,985

$  493,691

$  454,883

Reconciliation of EBITDA and Adjusted EBITDA

Net income

$   14,611

$   13,617

$    29,929

$    26,034

Other (income) expense 

(186)

318

226

214

Interest expense

2,934

2,167

5,387

3,833

Provision for income taxes

5,183

4,923

8,889

8,526

Depreciation and amortization

7,672

6,315

14,569

13,028

EBITDA

30,214

27,340

59,000

51,635

Adjustment related to impairment of intangible assets ⁽⁴⁾

1,728

—

1,728

—

Special charges related to acquisition expenses ⁽⁵⁾

—

44

—

106

Special charges related to severance for staff realignment ⁽⁶⁾

701

—

1,155

655

Special charges related to facilities consolidations and office closures ⁽⁷⁾

69

—

69

—

Adjustment related to bad debt reserve ⁽⁸⁾

—

—

—

2,498

44

2,170

761

$   32,712

$   27,384

$    61,170

$    52,396

EBITDA Margin Percent on Revenue ⁽⁹⁾

8.2%

8.4%

8.3%

8.2%

EBITDA Margin Percent on Service Revenue ⁽⁹⁾

12.0%

11.8%

12.0%

11.4%

Adjusted EBITDA Margin Percent on Revenue ⁽⁹⁾

8.9%

8.4%

8.6%

8.4%

Adjusted EBITDA Margin Percent on Service Revenue ⁽⁹⁾

13.0%

11.9%

12.4%

11.5%

Reconciliation of Non-GAAP Diluted EPS

Diluted EPS

$       0.76

$       0.71

$        1.56

$        1.36

Adjustment related to impairment of intangible assets

0.09

—

0.09

—

Special charges related to severance for staff realignment

0.04

—

0.06

0.03

Special charges related to facility consolidations and office closures

0.05

—

0.05

—

Adjustment related to bad debt reserve

—

—

(0.04)

—

Amortization of intangibles

0.11

0.12

0.22

0.24

Income tax effects ⁽¹⁰⁾

(0.08)

(0.03)

(0.09)

(0.07)

Non-GAAP EPS

$       0.97

$       0.80

$        1.85

$        1.56

⁽²⁾These tables provide reconciliations of non-GAAP financial measures to the most applicable GAAP numbers. 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 GAAP. Other companies may define similarly titled non-GAAP measures differently and, accordingly, care should be exercised in understanding how we define these measures. 

⁽³⁾Subcontractor and Other Direct Costs is Direct Costs excluding Direct Labor and Fringe Costs.

⁽⁴⁾Adjustment related to impairment of intangible assets: The Company recognized impairment expense of $1.7 million in the second quarter of 2019 related to intangible assets associated with a historical business acquisition.

⁽⁵⁾Special charges related to acquisition expenses: These costs are mainly related to closed and anticipated-to-close acquisitions, consisting primarily of consultant and other outside third-party costs and amortization of deferred consideration payments, discounted as part of the acquisition.

⁽⁶⁾ Special charges related to severance for staff realignment: These costs are mainly due to involuntary employee termination benefits for Company officers or groups of employees who have been notified that they will be terminated as part of a consolidation or reorganization.  

⁽⁷⁾ Special charges related to facilities consolidation and office closure: These costs are exit costs associated with terminated 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.

⁽⁸⁾ Adjustment related to bad debt reserve: During 2018, we established a bad debt reserve for amounts due from a utility client that had filed for bankruptcy and included the reserve as an adjustment due to its relative size. The adjustment reflects a favorable revision of our prior estimate of collectability based on third party interest in acquiring the receivables.

⁽⁹⁾ EBITDA Margin Percent and Adjusted EBITDA Margin Percent were calculated by dividing the non-GAAP measure by the corresponding revenue.

⁽¹⁰⁾ Income tax effects were calculated using an effective U.S. GAAP tax rate of 26.2% and 26.6% for the three months ended June 30, 2019 and 2018, respectively, and 22.9% and 24.7% for the six months ended June 30, 2019 and 2018, respectively.

ICF International, Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2019

December 31, 2018

(in thousands, except share and per share amounts)

(Unaudited)

Assets

Current Assets:

Cash and cash equivalents

$                           6,304

$                               11,694

Contract receivables, net

276,982

230,966

Contract assets

141,960

126,688

Prepaid expenses and other assets

16,733

16,253

Income tax receivable

12,194

6,505

Total Current Assets

454,173

392,106

Property and Equipment, net

54,455

48,105

Other Assets:

Restricted cash - non-current

—

1,292

Goodwill

719,117

715,644

Other intangible assets, net

29,548

35,494

Operating lease - right-of-use assets

132,715

—

Other assets

23,762

21,221

Total Assets

$                    1,413,770

$                          1,213,862

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts payable

$                         95,068

$                             102,599

Contract liabilities

33,435

33,494

Operating lease liabilities - current

29,238

—

Accrued salaries and benefits

47,636

44,103

Accrued subcontractors and other direct costs

41,275

58,791

Accrued expenses and other current liabilities

27,311

39,072

Total Current Liabilities

273,963

278,059

Long-term Liabilities:

Long-term debt

288,544

200,424

Operating lease liabilities - non-current

116,940

—

Deferred rent

—

13,938

Deferred income taxes

42,079

40,165

Other long-term liabilities

25,607

20,859

Total Liabilities

747,133

553,445

Contingencies (Note 15)

Stockholders' Equity:

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

—

—

Common stock, par value $.001; 70,000,000 shares authorized; 22,722,494 and 22,445,576 shares issued as of June 30, 2019 and December 31, 2018, respectively; 18,758,986 and 18,817,495 shares outstanding as of June 30, 2019 and December 31, 2018, respectively

23

22

Additional paid-in capital

335,345

326,208

Retained earnings

511,095

486,442

Treasury stock

(164,705)

(139,704)

Accumulated other comprehensive loss

(15,121)

(12,551)

Total Stockholders' Equity

666,637

660,417

Total Liabilities and Stockholders' Equity

$                    1,413,770

$                          1,213,862

ICF International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

June 30,

2019

2018

(in thousands)

Cash Flows from Operating Activities

Net income

$                      29,929

$                    26,034

Adjustments to reconcile net income to net cash used in operating
   activities:

Bad debt expense

304

638

Deferred income taxes

2,872

598

Non-cash equity compensation

7,865

5,347

Depreciation and amortization

14,569

13,027

Facilities consolidation reserve

(134)

(127)

Amortization of debt issuance costs

254

256

Impairment of long-lived assets

1,728

—

Other adjustments, net

(450)

485

Changes in operating assets and liabilities:

Net contract assets and liabilities

(15,508)

(19,658)

Contract receivables

(46,212)

(6,609)

Prepaid expenses and other assets

(1,609)

(7,115)

Accounts payable

(7,569)

(11,283)

Accrued salaries and benefits

3,535

(1,378)

Accrued subcontractors and other direct costs

(17,479)

(17,280)

Accrued expenses and other current liabilities

(11,460)

3,757

Income tax receivable and payable

(8,733)

(7,315)

Other liabilities

152

(1,102)

Net Cash Used in Operating Activities

(47,946)

(21,725)

Cash Flows from Investing Activities

Capital expenditures for property and equipment and capitalized software

(14,516)

(9,397)

Payments for business acquisitions, net of cash received

(1,819)

(11,838)

Net Cash Used in Investing Activities

(16,335)

(21,235)

Cash Flows from Financing Activities

Advances from working capital facilities

378,474

284,773

Payments on working capital facilities

(290,354)

(247,378)

Payments on capital expenditure obligations

(1,621)

(3,131)

Debt issue costs

—

(21)

Proceeds from exercise of options

429

3,533

Dividends paid

(5,278)

(2,635)

Net payments for stockholder issuances and buybacks

(24,158)

(8,597)

Net Cash Provided by Financing Activities

57,492

26,544

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

107

(249)

Decrease in Cash, Cash Equivalents, and Restricted Cash

(6,682)

(16,665)

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

12,986

24,266

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

$                      6,304

$                      7,601

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for:

Interest

$                      4,697

$                      3,641

Income taxes

$                    15,426

$                    11,490

Non-cash investing and financing transactions:

Capital expenditure obligations

$                           —

$                      6,121

ICF International, Inc. and Subsidiaries

Supplemental Schedule⁽¹¹⁾

Revenue by client markets

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Energy, environment, and infrastructure

46%

41%

46%

41%

Health, education, and social programs

36%

41%

36%

41%

Safety and security

8%

8%

8%

8%

Consumer and financial services

10%

10%

10%

10%

Total

100%

100%

100%

100%

Revenue by client type

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

U.S. federal government

38%

43%

39%

44%

U.S. state and local government

20%

11%

19%

10%

International government

9%

11%

8%

10%

Government

67%

65%

66%

64%

Commercial

33%

35%

34%

36%

Total

100%

100%

100%

100%

Revenue by contract mix

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Time-and-materials

46%

39%

46%

40%

Fixed-price

40%

42%

40%

41%

Cost-based

14%

19%

14%

19%

Total

100%

100%

100%

100%

⁽¹¹⁾As is shown in the supplemental schedule, 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.