ICF International Inc

Previous wording

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 and/or debt ceiling 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 means 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 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 ongoing operations, potential acquisitions, customary capital expenditures, and other working capital requirements.

Current wording

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 and/or debt ceiling 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 means 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 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.

Previous wording

Revenue. The increase in revenue of $11.2 million was driven by $6.4 million, $4.6 million, and $1.7 million from our U.S. federal government, international government, and U.S. state and local government clients, respectively, offset by a decrease of $1.5 million from our commercial clients. Our revenue from client markets were impacted by varying amounts by our exit from the commercial marketing and events business during 2023 and resulted in the following changes:

Current wording

Revenue. The increase in revenue was driven by $5.2 million, $3.8 million, $2.5 million, and $0.4 million from our commercial, U.S. state and local government, international government, and U.S. federal government clients, respectively. Our revenue from client markets was impacted in varying amounts by our exit from the commercial marketing and events businesses during 2023. The following were changes in revenue from our various client markets:

Previous wording

Revenue from the Security and Other Civilian & Commercial client market, which decreased from the first quarter of 2023 by $13.7 million, or 14.7%, led by decreases of $17.2 million and $1.6 million from our commercial and international government clients, respectively, which were offset by an increase of $5.1 million from U.S. federal government clients, and also offset by

Current wording

Security and Other Civilian & Commercial client market decreased $6.3 million, or 6.9%, in the second quarter of 2024 compared to 2023. The decrease was primarily driven by our exit from the commercial marketing and events businesses during 2023 resulting, in part, by decreases of $11.8 million and $1.0 million from commercial and international government clients, respectively, offset by an increase of $6.4 million from U.S. federal government clients.

Previous wording

Revenue includes subcontractor & other direct costs, which decreased $11.5 million, or 8.7%, from the first quarter of 2023 and totaled $120.5 million and $132.0 million for the three months ended March 31, 2024 and 2023, respectively, and the margin on such costs.

Current wording

Revenue for the three months ended June 30, 2024 includes subcontractor and other direct costs, which decreased $4.9 million, or 3.5%, from the second quarter of 2023 and totaled $132.8 million and $137.7 million for the three months ended June 30, 2024 and 2023, respectively, and the margin on such costs.

Previous wording

Direct Costs. The decrease of $2.0 million in direct costs was driven by a decrease of $11.5 million in our subcontractor & other direct costs, primarily as a result of our exit from the commercial marketing and events business during 2023, offset by an increase of $9.4 million in our direct labor and associated fringe benefit costs. Our subcontractor & other direct costs as a percentage of direct costs were 38.8% and 42.2% for the three months ended March 31, 2024 and 2023, respectively. Our direct labor & related fringe benefit costs as a percentage of direct costs were 61.2% and 57.8% for the three months ended March 31, 2024 and 2023, respectively. Our subcontractor & other direct costs as a percentage of revenue were 24.4% and 27.3% for the three months ended March 31, 2024 and 2023, respectively, and our direct labor & related fringe benefit costs as a percentage of revenue were 38.4% and 37.4% for the three months ended March 31, 2024 and 2023, respectively. Our total direct costs as a percentage of revenue were 62.8% for the three months ended March 31, 2024, compared to 64.7% for the three months ended March 31, 2023.

Current wording

Direct Costs. The increase of $3.9 million in direct costs was driven by an increase in direct labor and related fringe benefit costs which reflected the growth in the business, offset by a decrease in subcontractor and other direct costs primarily as a result of our exit from the commercial marketing and events business during 2023. For the three months ended June 30, 2024 and 2023, direct labor and related fringe benefit costs as a percentage of direct costs were 59.7% and 57.7%, respectively, and subcontractor and other direct costs as a percentage of direct costs were 40.3% and 42.3%, respectively. As a percentage of revenue, direct labor and related fringe benefit costs were 38.4% and 37.5%, respectively, and subcontractor and other direct costs were 25.9% and 27.5%, respectively, for the three months ended June 30, 2024 and 2023. Total direct costs as a percentage of revenue were 64.3% for the three months ended June 30, 2024, compared to 65.1% for the three months ended June 30, 2023.

Previous wording

Amortization of intangible assets. The decrease of $0.9 million in amortization of intangible assets was primarily due to the divestiture of our U.S. commercial marketing business in the third quarter of 2023 that resulted in fewer intangible assets in the first quarter of 2024 compared to 2023.

Current wording

Amortization of intangible assets. The decrease in amortization of intangible assets was primarily due to the divestiture of our U.S. commercial marketing business in the third quarter of 2023 that resulted in fewer intangible assets in the second quarter of 2024 compared to 2023.

Previous wording

Interest, net. The decrease of $1.2 million in interest, net, was primarily from a decrease of our average debt balance to $508.8 million for the three months ended March 31, 2024 compared to $634.3 million for the same period in 2023. We utilize floating-to-fixed interest rate swap agreements to hedge the variable interest portion of our debt. For the three months ended March 31, 2024, settlements of the swap agreements reduced our interest expense, net, by $1.7 million compared to $1.4 million for the same period in 2023. Inclusive of the impact of the swap agreements, our interest expense for the three months ended March 31, 2024 was $7.2 million compared to $8.8 million for 2023 and our interest rate inclusive of the swap agreements was 5.6% for the three months ended March 31, 2024 compared to 5.5% for 2023.

Current wording

Interest, net. The decrease of $2.4 million in interest, net, was primarily from a decrease of our average debt balance to $493.7 million for the three months ended June 30, 2024, compared to $668.8 million for the same period in 2023, as well as an increase in utilization of our Master Receivables Purchase Agreement (the “MRPA”) with MUFG Bank, Ltd. (“MUFG”). Use of floating-to-fixed interest rate swap agreements to hedge the variable interest portion of our debt reduced our interest expense by $1.7 million compared to $1.8 million for the same period in 2023. Inclusive of the impact of the swap agreements, our interest expense for the three months ended June 30, 2024 was $6.7 million compared to $9.4 million for 2023 and our interest rate inclusive of the swap agreements was 5.3% for the three months ended June 30, 2024 compared to 5.5% for 2023.

Previous wording

Provision for Income Taxes. Our effective income tax rate for the three months ended March 31, 2024 and 2023 was 20.4% and 23.5%, respectively. The decrease in the effective income tax rate was primarily due to the impact of windfall tax benefits relating to equity-based compensation that vested during the quarter partially offset by non-deductible executive compensation, and an additional valuation allowance on excess foreign tax credits generated during the quarter.

Current wording

Provision for Income Taxes. Our effective income tax rate for the three months ended June 30, 2024 and 2023 was 26.3% and 4.4%, respectively. The increase in the effective income tax rate was primarily due to the impact of tax planning strategy regarding the ownership structure of our Canadian subsidiaries implemented during the second quarter of 2023.

Previous wording

Indirect and selling expenses. For the three months ended March 31, 2024, our indirect and selling expenses increased $5.4 million, or 4.3%, compared to the prior year. As a percentage of revenue, our indirect and selling expenses increased to 26.1% from 25.6%. The increase in indirect and selling expenses was primarily due to higher compensation costs.

Current wording

Indirect and selling expenses. The increase in indirect and selling expenses of $5.9 million, or 2.4%, was primarily due to higher compensation costs offset by lower general and administrative costs for the six months ended June 30, 2024 compared to 2023. However, indirect and selling expenses as a percentage of revenue were consistent at 25.5% for the six months ended June 30, 2024 compared to 25.4% for 2023.

Previous wording

Depreciation and amortization. The decrease of $0.7 million in our depreciation and amortization was primarily due to fewer capital assets as a result of the divestiture of our U.S. commercial marketing business in the third quarter of 2023.

Current wording

Depreciation and amortization. The decrease in our depreciation and amortization was primarily due to fewer capital assets as a result of the divestiture of our U.S. commercial marketing business in the third quarter of 2023.

Previous wording

Other income (expense). The change in other income (expense) of $2.2 million was primarily from a gain of $1.7 million that was recognized after the release of an escrow the 2023 divestiture of our U.S. commercial marketing business.

Current wording

Other income (expense). The change in other income (expense) included a gain of $1.7 million during the six months ended June 30, 2024 that was recognized after the release of an escrow originating from the 2023 divestiture of our U.S. commercial marketing business, and to a lesser degree the impact of changes in foreign currency exchange rates.

Previous wording

The following tables provide reconciliations of financial measures that are not calculated in accordance with generally accepted accounting principles in the U.S. to their most comparable U.S. GAAP measures (“non-GAAP”). While we believe that these non-GAAP financial measures provide additional information to investors and 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 as similarly named measures are unlikely to be comparable across different companies.

Current wording

The following tables provide reconciliations of financial measures that are not calculated in accordance with generally accepted accounting principles in the U.S. to their most comparable U.S. GAAP measures (“non-GAAP”). While we believe that these non-GAAP financial measures provide additional information to investors and may be useful in evaluating our financial information and assessing ongoing trends to better understand our operations, 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, thus limiting their use for comparability.

Previous wording

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 (“Adjusted EBITDA”). 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.

Current wording

Earnings before interest, tax, and depreciation and amortization (“EBITDA”) is a measure we use to evaluate operating performance. 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 (“Adjusted EBITDA”). 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 we expect them to recur as part of our normal business on a regular basis.

Previous wording

Income tax effects were calculated using the effective tax rate, adjusted for certain discrete items, if any, of 20.4% and 23.5% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Income tax effects were calculated using the effective tax rate, adjusted for certain discrete items, if any, of 26.3% and 25.6% for the three months ended June 30, 2024 and 2023, respectively, and 23.4% and 24.6% for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

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 our cash and cash equivalents at hand, cash flow from operations, and borrowings. Our primary source of borrowings is from our Credit Facility with a syndicate of multiple commercial banks, as described in “Note 5– Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. As of March 31, 2024, we had $541.3 million available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program.

Current wording

Liquidity and Borrowing Capacity. In addition to cash and cash equivalents on hand and cash generated from operations, our primary source of liquidity is from our Credit Facility with a syndicate of multiple commercial banks, as described in “Note 5– Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. As of June 30, 2024, we had $575.9 million available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program.

Previous wording

We have entered into floating-to-fixed interest rate swap agreements for a total notional value of $275.0 million to hedge a portion of our floating rate Credit Facility. The swap agreements will expire in 2025 and 2028, respectively, and we may consider entering into additional swap agreements as these existing hedges expire. As of March 31, 2024, the percentage of our fixed-rate debt to floating-rate debt was 58%.

Current wording

We have entered into floating-to-fixed interest rate swap agreements for a total notional value of $275.0 million to hedge a portion of our floating-rate Credit Facility. The swap agreements will expire in 2025 and 2028, respectively, and we may consider entering into additional swap agreements as these existing hedges expire. As of June 30, 2024, the percentage of our fixed-rate debt to floating-rate debt was 63%.

Previous wording

There are other conditions, such as the ongoing wars in Ukraine and the Middle East, 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. 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 ongoing 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.

Current wording

There are other conditions, such as the ongoing wars in Ukraine and the Middle East, and the sustained 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. 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 ongoing operations, customary capital expenditures, 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.

Previous wording

Dividends. We have historically paid quarterly cash dividends to our shareholders of record at $0.14 per share. Total dividend payments during the three months ended March 31, 2024 were $2.6 million.

Current wording

Dividends. We have historically paid quarterly cash dividends to our shareholders of record at $0.14 per share. Total dividend payments during the six months ended June 30, 2024 were $5.3 million.

Previous wording

Cash Flow. The following table sets forth our sources and uses of cash for the three months ended March 31, 2024 and 2023:

Current wording

Cash Flow. The following table sets forth our sources and uses of cash for the six months ended June 30, 2024 and 2023:

Previous wording

Cash used in Operating Activities decreased $6.8 million as a result of favorable impact of working capital changes and the timing of servicing the receivables sold to MUFG Bank, Ltd., under our Master Receivables Purchase Agreement (the “MRPA”). See “Note 3 - Contract Receivables, Net” in the “Notes to Consolidated Financial Statements” in this Quarterly Report for additional details on the sale of receivables under the MRPA.

Current wording

Cash provided by operating activities increased by $30.8 million to $50.6 million as a result of higher net income, the favorable impact of working capital changes, and the timing of servicing the receivables sold to MUFG under the MRPA. See “Note 3 – Contract Receivables, Net” in the “Notes to Consolidated Financial Statements” in this Quarterly Report for additional details on the sale of receivables under the MRPA.

Previous wording

Cash used in investing activities decreased by $3.4 million due to reduced capital expenditures and cash received in connection with the 2023 divestiture of our U.S. commercial marketing business.

Current wording

Cash used in investing activities decreased by $37.1 million due to reduced capital expenditures, timing of acquisitions, and cash received in connection with the 2023 divestiture of our U.S. commercial marketing business.