ICF International Inc

(Unaudited)

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

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation

The accompanying consolidated financial statements are 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. Intercompany transactions and balances have been eliminated. The terms “federal” or “federal government” refer to the U.S. federal government, and “state and local” or “state and local government” refer to U.S. state (including territories) and local governments, unless otherwise indicated.

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, and the reported amounts of revenue and expenses. Key estimates include estimates related to variable consideration on contracts with customers, costs to complete fixed-price contracts, bonus and other incentive compensation, reserves for tax benefits and valuation allowances on deferred tax assets, collectability of receivables, valuation and useful lives of acquired tangible and intangible assets, impairment of goodwill and long-lived assets, and contingencies. 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 annual 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 inone operating segment and reporting unit. Operating results for the three-month and the nine-month periods ended September 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2023 and the notes thereto included in the Company’s Annual Report on Form 10-K.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

Segment Reporting

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07: Improvements to Reportable Segment Disclosures to update reportable segment disclosure requirements for public entities under the Accounting Standards Codification (“ASC”). ASU 2023-07 enhances the current segment reporting disclosures of Topic 280 by requiring disclosure of significant segment expenses that are regularly reviewed by the Chief Operating Decision Maker (the “CODM”), the amount and description of other segment items, and interim disclosures of each reportable segment’s profit or loss and assets. ASU 2023-07 also requires public entities that have a single reportable segment to provide all of the disclosures required in Topic 280, as amended. ASU 2023-07 is effective for the Company for the fiscal year ending December 31, 2024 and interim periods within the 2025 fiscal year on a retrospective basis, with early adoption permitted. The Company expects to adopt the amendments of ASU 2023-07 for the fiscal year ending December 31, 2024, but does not expect the adoption to have a material impact, if any, on the consolidated financial statements.

Income Taxes

In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which requires greater disaggregation of income tax rates and amounts paid by entities. ASU 2023-09 specifically requires all entities to disclose, on an annual basis, disaggregated domestic and foreign pre-tax income or loss from continuing operations and the disaggregated income tax expense or benefit by federal, state, and foreign components, and a tabular rate reconciliation, using both percentages and reporting currency amounts, of eight specific categories as well as any individual reconciling items that are equal to or greater than 5% of a threshold computed by multiplying pretax income or loss from continuing operations by the applicable federal rate. Additionally, the amendments also require disclosure of income taxes paid disaggregated by federal, state, and foreign jurisdictions as well as any individual jurisdictions over 5% of the total income taxes paid. ASU 2023-09 is effective for the Company for the fiscal year ending December 31, 2025, with early adoption permitted. The amendments may be adopted on a prospective or retrospective basis. The Company is currently evaluating the impact of the adoption of ASU 2023-09 but does not expect the adoption to have a material impact, if any, on the consolidated financial statements.

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 thenine months ended September 30, 2024 and 2023:

NOTE 3 – CONTRACT RECEIVABLES, NET

Contract receivables, net consisted of the following:

The Company sells certain billed contract receivables in accordance with its Master Receivables Purchase Agreement (the “MRPA”) with MUFG Bank, Ltd. (“MUFG”). The contract receivables that are sold without recourse and where the Company does not retain any ongoing financial interest in the transferred receivables, other than providing servicing activities, are accounted for as sales under ASC 860, Transfers and Servicing (“ASC 860”). Consequently, these contract receivables are derecognized from the Company’s consolidated balance sheets at the date of the sale, and the cash received from MUFG is presented as part of cash flows from operating activities.

The following is a reconciliation of billed contract receivables sold to MUFG that were eligible and accounted for as sales under ASC 860, including billed contract receivables sold to MUFG and collected from customers on behalf of MUFG during thenine months ended September 30, 2024 and 2023, and the balance of billed contract receivables not yet collected from customers as of September 30, 2024 and 2023, respectively:

(1)

The beginning balances represent billed contract receivables that were previously sold and derecognized by the Company but have not yet been collected from customers as of January 1,2024 and 2023, respectively.

(2)

For thenine months ended September 30, 2024 and 2023, the Company recorded net inflows of$9.4 million and$27.9 million, respectively, in its cash flows from operating activities from the sale of billed contract receivables.

(3)

The ending balances represent billed contract receivables that were sold and derecognized by the Company but have not yet been collected from customers as of September 30, 2024 and 2023, respectively.

The following is a reconciliation of cash collections from customers of billed contract receivables previously sold to MUFG that were eligible and accounted for as sales under ASC 860, including collections from customers on behalf of MUFG of previously sold billed contract receivables and remittances of cash collections to MUFG during thenine months ended September 30, 2024 and 2023, and the balance of cash collected but not yet remitted to MUFG as of September 30, 2024 and 2023, respectively:

(1)

The beginning balances represent cash collected from customers on behalf of MUFG for billed contract receivables that were previously sold and derecognized by the Company but have not yet been remitted to MUFG as of January 1,2024 and 2023, respectively.

(2)

For thenine months ended September 30, 2024 and 2023, the Company recorded net inflows of$9.5 million and$4.3 million, respectively, in its cash flows from operating activities from the collection of billed contract receivables that were sold but not yet remitted to MUFG.

(3)

The ending balances are included as part of “Accrued expenses and other current liabilities” on the Company’s consolidated balance sheets.

The Company services the receivables sold by collecting cash and remitting it to MUFG. The related servicing fee received from MUFG was immaterial.

The aggregate impact of the sale of billed contract receivables on the Company’s operating cash flows was$18.9 million and$32.2 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company also sold certain billed contract receivables to MUFG that did not qualify as sales under ASC 860. Consequently, the cash received from and remitted back to MUFG is presented as cash from financing activities within “Proceeds from other short-term borrowings” and “Repayments of other short-term borrowings” on the Company’s consolidated statements of cash flows.

At September 30, 2024 and December 31, 2023, the amounts due to MUFG for cash collected and not yet remitted for billed contract receivables sold that did not qualify as sales under ASC 860 totaled$2.7 million and$6.9 million, respectively. These amounts are included as part of “Accrued expenses and other current liabilities” on the Company’s consolidated balance sheets.

NOTE 4 – LEASES

At September 30, 2024, the Company had operating and finance leases for facilities and equipment with remaining terms ranging from 1 to 14 years. Future minimum lease payments under non-cancellable operating and finance leases as of September 30, 2024 were as follows:

NOTE 5 – DEBT

At September 30, 2024 and December 31, 2023, debt consisted of:

As of September 30, 2024, the Company had$588.2 million of unused borrowing capacity under the $600.0 million revolving line of credit under a credit agreement with a group of lenders (the “Credit Facility”). The unused borrowing capacity is inclusive of outstanding letters of credit totaling$1.8 million. The average interest rate on borrowings under the Credit Facility was 6.8% for the nine months ended September 30, 2024 and 6.7% for the twelve months ended December 31, 2023, respectively. Inclusive of the impact of floating-to-fixed interest rate swaps (see “Note 7– Derivative Instruments and Hedging Activities”), the average interest rate was 5.4% for the nine months ended September 30, 2024 and 5.6% for the twelve months ended December 31, 2023, respectively.

Future contractual repayments of debt principal are as follows:

NOTE 6 – REVENUE RECOGNITION

Disaggregation of Revenue

The Company disaggregates revenue from clients 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.

Contract Assets and Liabilities

Contract assets consist of unbilled receivables on contracts where revenue recognized exceeds the amount billed. Contract liabilities result from advance payments received on a contract or from billings in excess of revenue recognized.

The following table summarizes the contract assets and liabilities as of September 30, 2024 and December 31, 2023:

The increase in net contract assets (liabilities) is primarily due to the timing difference between the performance of services and billings to customers. During the nine months ended September 30, 2024 and 2023, the Company recognized$17.1 million and$17.3 million in revenue related to the contract liabilities balance at December 31, 2023 and 2022, respectively.

Unfulfilled Performance Obligations

The Company had$1.4 billion in unfulfilled performance obligations (“UPO”) as of September 30, 2024. The Company expects to recognize the remaining UPO as revenue of approximately 8% by December 31,2024,65% by December 31,2025, and the remainder thereafter.

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

At September 30, 2024, the Company had floating-to-fixed interest rate swap agreements for an aggregate notional amount of $275.0 million, of which $100.0 million will mature on February 28, 2025, $75.0 million will mature on February 28, 2028, and $100.0 million will mature on June 27, 2028. The Company has designated the swap agreements as cash flow hedges. See “Note 5– Debt” for details on the impact of the swap agreements on the Company’s interest rates. See “Note 12– Fair Value” for the fair value of these swaps.

NOTE 8– INCOME TAXES

A reconciliation of the Company’s statutory rate to the effective tax rate for the three and nine months ended September 30, 2024 and 2023 is as follows:

The prior year tax adjustments, uncertain tax position and tax credits recognized during the three and nine months ended September 30, 2024 and 2023 are both primarily related to the Research & Experimentation (“R&E”) credits.

The Company’s effective income tax rate was higher for the three months and nine months ended September 30, 2024 as compared to the three months and nine months ended September 30, 2023 primarily due torestructuring of the ownership of the Company’s Canadian entities and the deduction for worthless stock related to the wind-down of the Company’s commercial marketing business in the United Kingdom (the “U.K.”) during the second and the third quarters of 2023, respectively, which reduced the Company’s 2023 effective tax rate.

NOTE 9 – STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss as of September 30, 2024 and 2023 included the following:

(1) The Company expects to reclassify$1.1 million of gains related to the Change in Fair Value of Interest Rate Hedge Agreements from accumulated other comprehensive (loss) income into earnings during the next 12 months.

Share Repurchases

The Company repurchased shares under the $200.0 million share repurchase program authorized by the Company’s board of directors. In addition, the Company repurchased shares in connection with the vesting of restricted stock units (“RSUs”) and performance share awards (“PSAs”)granted to employees. Repurchases for thethree and nine months ended September 30, 2024 and 2023 are as follows:

NOTE 10 – STOCK-BASED COMPENSATION

The Company’s 2018 Amended and Restated Omnibus Incentive Plan (the “2018 A&R Omnibus Plan”) allows the Company to grant up to 2,050,000 total shares of common stock to officers, key employees, and non-employee directors. As of September 30, 2024, the Company had approximately 1,018,803 shares available for grant under the 2018 A&R Omnibus Plan.

The following awards were granted during thethree and nine months ended September 30, 2024 and 2023:

The total stock-based compensation expense was$6.6 million and$19.3 million for the three and nine months ended September 30, 2024, respectively, and$5.2 million and$15.9 million for the three and nine months ended September 30, 2023, respectively. The unrecognized compensation expense at September 30, 2024 was$34.0 million, which is expected to vest over the next 1.5 years.

NOTE 11 – 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 (“U.S. GAAP Diluted EPS”) considers the potential dilution that could occur if the Company’s common stock options, RSUs, and PSAs were exercised or converted into the Company’s common 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 September 30, 2024, the PSAs granted during the year ended December 31, 2022 met the related performance conditions for the initial performance period and were included in the calculation of U.S. GAAP Diluted EPS. However, the PSAs granted during the year ended December 31, 2023 and during the nine months ended September 30, 2024 have not yet completed their initialtwo-year performance period and therefore were excluded from the calculation of U.S. GAAP Diluted EPS.

EPS, including the dilutive effect of stock awards for each period reported is summarized below:

A total of 324 and 190 shares of restricted stock awards were excluded from the calculation of EPS for thethree and nine months ended September 30, 2024 because they were anti-dilutive. There wereno shares excluded for thethree and nine months ended September 30, 2023.

NOTE 12 – FAIR VALUE

Financial instruments measured at fair value on a recurring basis and their location within the accompanying consolidated balance sheets are as follows:

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company had open standby letters of credit totaling$1.8 million at both September 30, 2024 and December 31, 2023, respectively. Open standby letters of credit reduce the Company’s borrowing capacity under the Credit Facility.

Guarantees

At September 30, 2024 and December 31, 2023, the Company had $6.5 million and $7.9 million, respectively, of bank guarantees for facility leases and contract performance obligations.

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.