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ICF International (ICFI) Q2 Earnings Miss, 2018 View Up

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ICF International, Inc. (ICFI - Free Report) reported mixed second-quarter 2018 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same.

Non-GAAP EPS of 80 cents missed the consensus mark by 10 cents but improved 9.6% on a year-over-year basis. The improvement was mainly driven by the lower tax rate of 26.6% in the reported quarter compared with 40% in the year-ago quarter.

Revenues totaled $324 million, which outpaced the consensus mark by $9 million and increased 5.8% year over year. The upside can be attributed to growth from both government as well as commercial clients. Pass-through revenues, mostly related to international government business, were up 14.6% year over year. Service revenues rose 2.7% year over year to $231 million.

Shares of ICF rallied 3.7% since the earnings release. Year to date, shares have gained a massive 45.3%, outperforming the industry’s 13.3% rally.

The company experienced significant increase in international government work and stable revenue performance from federal, state and local government clients in the second quarter. In the commercial business category, demand remained strong across the markets it serves.

ICF continues to witness contract wins and growth in business development pipeline, a significant portion of which is represented by disaster recovery. This, in turn, has helped the company to raise its full-year earnings and revenue guidance. In the reported quarter, ICF gained a large contract by the government of Puerto Rico to assist with hurricane recovery work therein.

The company looks well-poised for additional contract wins in the federal government market because of the increased fiscal 2018 and 2019 civilian agency budgets, which were approved earlier this year. In the second half of 2018, ICF anticipates RFPs to be issued by civilian agency clients.

Concurrent with the earnings release, ICF announced that it has agreed to acquire disaster planning and recovery services firm — DMS Disaster Consultants. This buyout should improve the company’s disaster response, recovery and preparedness offerings, and help it further expand into the state and local government markets.

Let’s delve deeper in to the numbers

Revenues in Detail

Revenues from government clients improved 5.5% year over year to $208.7 million. U.S. federal government revenues of $138.9 million accounted for 43% of total revenues. These revenues represented a significant portion of the company’s contract wins in the second quarter. U.S. state and local government revenues of $35.3 million recorded 11% of total revenues.

International government revenues summed $34.5 million and contributed 7% to total revenues. The company is executing well on its existing contracts and expanding its pipeline by working with European Union clients.

Commercial revenues totaled $115.7 million, up 6.5% from the year-ago tally. Energy markets accounted for 48% of commercial revenues and delivered strong performance through energy efficiency and energy advisory parts of the business. Marketing services accounted for 43% of commercial revenues. This business is gaining wallet share from existing clients through strong performance and effective cross selling.

Backlog and Value of Contracts

Total backlog and funded backlog amounted to a respective $2.2 billion and $1.1 billion at the end of the second quarter. The total value of contracts awarded was $590 million, up a huge 74% year over year and representing a book-to-bill ratio of 1.82.

Margins and Net Income

Adjusted EBITDA was $27.4 million compared with $29.9 million in the year-ago quarter. Adjusted EBITDA margin was 11.9% of service revenues, down 140 basis points (bps) year over year. The decline in adjusted EBITDA can be primarily attributed to significant marketing investments for pursuing disaster recovery opportunities.

Balance Sheet

At the end of second quarter, cash and cash equivalents balance was $6.3 million compared with $19.3 million at the end of the previous quarter. The company had long-term debt of $243.6 million compared with $231.5 million in the prior quarter.

ICF used $15.9 million of cash in operating activities and spend $6.2 million on capex. The company purchased 90,252 shares for $5 million and paid dividends of $2.6 million in the first half of 2018. It declared a quarterly cash dividend of 14 cents per share, payable Oct 16, 2018 to shareholders of record on Sep 7, 2018.

2018 Outlook

ICF raised its 2018 revenue and EPS guidance. The company now expects total revenues between $1.295 billion and $1.335 billion compared with $1.245 billion and $1.285 billion anticipated earlier. The raised guidance is above the Zacks Consensus Estimate, which is pegged at $1.27 billion. The midpoint of the range is equivalent to 7% year-over-year growth, up from 2.9% growth rate expected previously.

Non-GAAP EPS is expected to be in the $3.70-$3.90 band compared with the previous expectation of $3.60-$3.80. The mid-point of the raised guidance is above the Zacks Consensus Estimate of $3.74.

The company continues anticipating operating cash flow between $100 million and $110 million for 2018.

Zacks Rank & Upcoming Releases

ICF currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Business Services sector are keenly awaiting second-quarter earnings reports from key players like Dun & Bradstreet Corporation (DNB - Free Report) , Delphi Technologies (DLPH - Free Report) and Worldpay (WP - Free Report) . While Dun & Bradstreet and Delphi Technologies will report their quarterly numbers on Aug 8, Worldpay will release results on Aug 9.

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