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Why Is ICF (ICFI) Down 5.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for ICF International (ICFI - Free Report) . Shares have lost about 5.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ICF due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

ICF International Misses on Q3 Earnings, Tops Revenues

ICF International reported mixed third-quarter 2018 results, with earnings missing the Zacks Consensus Estimate and revenues surpassing the same.

Non-GAAP EPS of $1.01 missed the consensus mark by a penny but improved 21.7% on a year-over-year basis. The improvement was mainly driven by strong operational efficiency and lower tax rate of 22.9% compared with 34.5% in the year-ago quarter.

Revenues came in at $333 million, which beat the consensus mark by $0.9 million and increased 9.1% year over year. The upside was mainly driven by growth from government clients. Pass-through revenues, primarily related to disaster recovery work in Puerto Rico as well as elevated communications and events work with the European Commission, were up 21.8% year over year. Service revenues rose 4.3% year over year to $231.3 million.

The company experienced year-over-year increase in state and local government business as well as international government work, which were partially offset by revenue decline from federal government clients.

ICF International continues to witness contract wins and growth in business development pipeline, a significant portion of which is represented by disaster recovery. In the reported quarter, the company gained a $5-million contract to provide on-the-job training services in the U.S. Virgin Islands affected by hurricanes in 2017.

The company looks well-poised to receive additional contracts in the state and local government clients on the back of recent buyout of DMS.

Let’s delve deeper in to the numbers

Revenues in Detail

Revenues from government clients of $222.3 million improved 14.1% year over year. U.S. federal government revenues of $139.9 million contributed 42% to total revenues. These revenues represented a significant portion of the company’s contract wins in the third quarter. U.S. state and local government revenues of $55.8 million contributed 17% to total revenues.

International government revenues summed $26.6 million and contributed 8% to total revenues. The company continues to perform well on the substantial backlog built over the last several years.

Commercial revenues totaled $110.7 million, almost in line with the year-ago quarter's tally. Energy markets contributed 48% to commercial revenues and delivered strong performance through energy efficiency as well as energy advisory parts of the business. Marketing services contributed 47% to commercial revenues. Wind-down of environmental services projects for utilities and aviation consulting projects hurt commercial revenues.

Backlog and Value of Contracts

Total backlog and funded backlog amounted to $2.5 billion and $1.3 billion at the end of the third quarter, respectively. The total value of contracts awarded was $647 million, up 61% year over year and representing a book-to-bill ratio of 1.45.

Operational Results

Adjusted EBITDA was $31.9 million, up 2.9% from the year-ago quarter's tally. Adjusted EBITDA margin was 13.8% of service revenues, down 20 basis points (bps) year over year. The decline in adjusted EBITDA was due to acquisition-related expenses, severance cost and facilities consolidation as well as office closures.

Balance Sheet

At the end of third quarter, cash and cash equivalents balance was $5.8 million compared with $6.3 million at the end of the previous quarter. The company had long-term debt of $232.5 million compared with $243.6 million in the prior quarter.

ICF International spend $11.4 million of cash in operating activities and $6.2 million on capex in the quarter. The company purchased 138,537 shares for $8.6 million and paid dividends of $5.3 million in the first nine months of 2018. It declared a quarterly cash dividend of 14 cents per share, payable Jan 16, 2019 to shareholders of record on Dec 7, 2018.

2018 Outlook

ICF International reaffirmed 2018 revenue and EPS guidance. The company expects total revenues between $1.295 billion and $1.335 billion. The midpoint of the range is equivalent to 7% year-over-year growth.

Non-GAAP EPS is expected in the $3.70-$3.90 band. Depreciation and amortization expenses are expected in the range of $17-$18 million for 2018. Additionally, amortization of intangibles is anticipated in the range of $9.5-$10 million. Full-year interest expenses will be in the range of $8.5-$9 million. Capital expenditures for 2018 are expected in the range of $24-$26 million. The full-year effective tax rate is estimated around 25%.

The company anticipates operating cash flow between $80 million to $100 million compared with the previous estimate of $100 million to $110 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, ICF has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, ICF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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