ICF Reports Fourth Quarter and Full Year 2021 Results

Fourth Quarter Highlights:

Total Revenue Was $388 Million; Service Revenue¹ Increased 4.3% to $273 Million
Diluted EPS Was $0.63, Inclusive of $0.43 of Tax-Effected Facility and M&A Charges
Non-GAAP EPS¹ Was $1.19
Adjusted EBITDA Margin on Service Revenue¹ Was 13.9%
Contract Awards of $652 Million, Up 24% for a Book-to-Bill Ratio of 1.68

Full Year Highlights:

Total Revenue Was $1.55 Billion; Service Revenue Increased 6.4% to $1.11 Billion
Diluted EPS Was $3.72, Inclusive of $0.57 of Tax-Effected Facility and M&A Charges
Non-GAAP EPS Was $4.82
Adjusted EBITDA Margin on Service Revenue Was 14.4%
Record Contract Awards of $2.25 Billion, Up 15% for a Book-to-Bill Ratio of 1.45
Operating Cash Flow of $110 Million

—Backlog and Business Development Pipeline at Record Year-End Levels—

—2022 Guidance Anticipates Double-Digit Revenue Growth and Strong
Margin Performance Inclusive of Continued Growth Investments—

ICF (NASDAQ:ICFI), a global consulting and digital services provider, reported results for the fourth quarter and full year ended December 31, 2021.

Commenting on the results, John Wasson, chairman and chief executive officer, said, “Our fourth quarter operating results were in line with our expectations, capping a year of strong performance. As anticipated, service revenue was similar to that of the third quarter, led by strong growth in our government and commercial energy client categories. In the fourth quarter, we continued to benefit from our expanded capabilities in key growth areas, namely IT modernization/digital transformation, public health, disaster management and utility consulting, as well as climate, environment and infrastructure. Together, annual revenues from these markets increased over 10% and accounted for approximately 65% of our full year 2021 service revenue.

“ICF reported exceptional margins in 2021 with adjusted EBITDA to service revenue reaching 13.9% for the fourth quarter and 14.4% for the full year. Both full year and fourth quarter performance reflected a favorable business mix, high utilization and lower facility-related costs, together with pandemic-related expense savings. While certain operating expense items will increase with the return of pre-pandemic activities, we are confident in our ability to progressively increase normalized EBITDA margins over the next several years through a combination of scale, lower facility costs and other operating efficiencies.

“Both the fourth quarter and full year were periods of record contract wins for ICF, bringing our book-to-bill ratios to 1.68 and 1.45, respectively. Approximately two-thirds of the value of the contracts we won in 2021 represented new business, a clear indication of how well aligned ICF’s subject matter expertise and implementation capabilities are with trends in market demand and client spending.

“In the fourth quarter, we were pleased to announce the acquisition of Creative Systems and Consulting, which we completed at the start of 2022. Creative is a premier provider of IT modernization and digital transformation solutions to U.S. federal agencies that brings substantial expertise in Salesforce and Microsoft platforms, which complements our leading ServiceNow and Appian capabilities. We expect this acquisition to provide significant opportunities for revenue synergies over time as ICF now will offer leading practices supporting the most widely adopted low-code/no-code platforms in the federal government.”

Fourth Quarter 2021 Results

Fourth quarter 2021 total revenue was $388.0 million compared to $434.3 million in the fourth quarter of 2020, which included approximately $65 million of low margin pass-through revenue tied to the completion of a large commercial marketing contract. Service revenue was $273.4 million, up 4.3% year-over-year from $262.2 million. Net income totaled $12.1 million and diluted EPS was $0.63 per share in the 2021 fourth quarter, inclusive of tax-effected special charges of $0.43 related to facilities and M&A. This compares to $12.8 million and $0.67 per share last year, which included $0.56 of tax-effected special charges.

Adjusted EBITDA¹ was $38.0 million, equivalent to adjusted EBITDA margin on service revenue of 13.9%. This compares to adjusted EBITDA of $44.9 million in the fourth quarter of 2020, equivalent to an adjusted EBITDA margin on service revenue of 17.1%, which reflected lower SG&A and fringe benefit-related expenses associated with the pandemic. 2021 fourth quarter EBITDA was $26.8 million, compared to $30.3 million a year ago. Non-GAAP EPS was $1.19 per share, compared to the $1.36 per share reported in the fourth quarter of 2020.

Full Year 2021 Results

2021 total revenue was $1.55 billion, an increase of 3.1% from $1.51 billion reported a year ago. Service revenue increased 6.4% year-over-year to $1.11 billion, from $1.04 billion in 2020. Full year 2021 net income was $71.1 million, or $3.72 per diluted share, inclusive of $0.63 of tax-effected special charges, of which $0.57 were facility and M&A-related charges. This compares to net income of $55.0 million reported in 2020, or $2.87 per diluted share, inclusive of $0.79 of tax-effected special charges.

Non-GAAP EPS was $4.82 per share, up 15.6% from $4.17 per share. EBITDA increased 16.3% to $142.9 million, compared to $122.9 million reported in 2020. Adjusted EBITDA was $159.6 million, representing an 11.5% increase over $143.2 million in 2020. The 2021 adjusted EBITDA margin on service revenue was 14.4%, compared to 13.7% in 2020.

Operating cash flow was $110 million in 2021.

Backlog and New Business Awards

Total backlog was $3.2 billion at the end of the fourth quarter of 2021. Funded backlog was $1.6 billion, or approximately 50% of the total backlog. The total value of contracts awarded in the 2021 fourth quarter was $652 million, up 24% year-on-year for a quarterly book-to-bill ratio of 1.68. Trailing-twelve-month contract awards totaled $2.25 billion for a book-to-bill ratio of 1.45.

Government Revenue Fourth Quarter 2021 Highlights

Revenue from government clients was $272.6 million, up 9.2% year-over-year.

U.S. federal government revenue was $181.7 million, 9.8% above the $165.5 million reported in the year-ago quarter. Federal government revenue accounted for 47% of total revenue, compared to 38% of total revenue in the fourth quarter of 2020.
U.S. state and local government revenue increased 19.5% to $60.4 million, from $50.5 million in the year-ago quarter. State and local government clients represented 15% of total revenue, compared to 12% in the fourth quarter of 2020.
International government revenue was $30.5 million, compared to $33.7 million in the year-ago quarter. International government revenue remained constant year-on-year at 8% of total revenue.

Key Government Contracts Awarded in the Fourth Quarter 2021

ICF was awarded more than 100 U.S. federal contracts and task orders and more than 200 additional contracts from U.S. state and local and international governments with an aggregate value of approximately $485 million. Notable awards won in the fourth quarter 2021 included:

Disaster Management

A recompete contract with a value of over $80 million to provide FEMA grant management support.

Cybersecurity

A new multiyear contract with a value greater than $75 million with a U.S. federal government agency to provide cybersecurity and resilience planning, partnership engagement and communications services.

Digital Transformation/IT Modernization

A new contract with a value of $30.3 million with a U.S. federal agency to continue to support the modernization of its federal assisted acquisition services system.
A new subcontract with a value of $8.8 million to provide IT modernization services for the U.S. Department of Defense, Deputy Assistant Secretary of Defense for Military Community and Family Policy.

Communications

A recompete framework contract with a value of $35.0 million with a directorate of the European Commission to support information and communications campaigns for the European Union.

Program Evaluation and Technical Assistance

A new contract with a value of $23.6 million with the U.S. Department of Health and Human Services Administration for Children and Families to conduct audits and provide technical assistance to care providers for one of its programs.

Energy and Environment

Two contract modifications with a combined value of $17.5 million with an office of the U.S. Department of Energy to continue to provide technical, information technology and management support.
A new task order with a value of $8.7 million to provide site planning and permitting services for the Sites Reservoir Project in California.

Commercial Revenue Fourth Quarter 2021 Highlights

Commercial revenue was $115.4 million, accounting for 30% of total revenue, compared to $184.6 million, or 43% of total revenue, in the year-ago quarter. The fourth quarter of 2020 included approximately $65 million of pass-through revenue tied to a large commercial marketing contract that was completed in the quarter.

Energy markets, which include energy efficiency programs, represented 62% of commercial revenue.
Marketing services accounted for 28% of commercial revenue, primarily reflecting lower pass-through revenues.

Key Commercial Contracts Awarded in the Fourth Quarter 2021

ICF was awarded commercial projects valued at more than $165 million during the quarter including:

Energy Markets

A recompete contract with Con Edison of New York to manage and significantly expand implementation of its residential energy efficiency portfolio.
A contract extension with Entergy Mississippi to expand implementation of its residential and commercial energy efficiency portfolios.
A sole source, recompete contract with a Northeastern U.S. utility to continue to support its energy efficiency program portfolio.

Marketing Services

A new multimillion-dollar contract with a mid-Atlantic U.S. energy company to serve as agency of record, providing marketing and advertisement services to each of its operating utilities.
Multiple new awards to continue to provide public relations and social media marketing services to a U.S. floor care products manufacturer.
Multiple new awards and modifications to provide loyalty program support services to a U.S. hospitality chain.

Dividend Declaration

On February 23, 2022, ICF declared a quarterly cash dividend of $0.14 per share, payable on April 13, 2022, to shareholders of record on March 25, 2022.

2021 Recognitions

ICF received several important recognitions in 2021:

For the sixth straight year, Forbes included ICF on its list of “America’s Best Management Consulting Firms,” and ICF was also included on Forbes list of “America’s Best Employers for Diversity.”
ICF was recognized as one of the “Best Places to Work” for parents working remotely.
ICF was named to the CDP (formerly the Climate Disclosure Project) Climate Change “A” List and was recognized with a Climate Leadership Award for goal setting by The Center for Climate and Energy Solutions and The Climate Registry.
ICF was named an Appian Trusted Delivery Partner for the Public Sector.
ICF Next was named a “Strong Performer” by Forrester Research in its report, The Forrester Wave™: Customer Database & Engagement Agencies, Q1 2021.

Summary and Outlook

“Last year was a period of significant achievement for ICF. Our service revenue growth rate was substantially higher than in 2020, reflecting excellent execution on existing contracts and demonstrating our strong positioning in key growth markets, where we continue to build our capabilities, backlog and pipeline. These accomplishments have laid the foundation for even stronger growth in 2022.

“Looking ahead, we expect 2022 to be a year of double-digit service revenue growth, driven by high single-digit organic growth and the benefit of our Creative acquisition. Business trends are anticipated to be similar to those of 2021, with revenue growth from our government and commercial energy clients more than offsetting lower comparisons in commercial marketing services, where activity has not recovered to pre-pandemic levels. Specifically, we expect service revenue for full year 2022 to range from $1.225 billion to $1.275 billion, representing year-on-year growth of over 12% at the midpoint. Pass-through revenues are anticipated at approximately 28% of total revenue in 2022, implying total revenue of $1.7 billion to $1.76 billion.

“EBITDA is expected to range from $160 million to $172 million, inclusive of continued organic investments in people, recruiting, technology and expanded business development capabilities and tools to ensure we take full advantage of the strong long-term demand trends in our growth markets. Based on current visibility, adjusted EBITDA is expected to range from $168 million to $180 million, equivalent to an adjusted EBITDA margin on service revenue of 13.9% at the midpoints of the ranges. This represents a 50-basis point expansion from the 13.4% we reported pre-pandemic in 2019. The difference between EBITDA and adjusted EBITDA guidance is primarily due to the add-back of a non-cash rent expense of approximately $8 million associated with our new Reston, Virginia, headquarters. GAAP EPS is projected at $4.15 to $4.45, and non-GAAP EPS is expected to range from $5.15 to $5.45, representing increases of 15% and 10%, respectively, over 2021. Operating cash flow is expected to be approximately $130 million in 2022.

“We expect the positive trends underlying our 2022 guidance to remain in place over the coming years given spending priorities across our government and commercial client sets and ICF’s domain knowledge, cross-cutting implementation skills and expanded scale. The great majority of our work in any given year involves helping clients address critical environmental and social issues, which has enabled ICF to attract and retain professionals who are committed to making a positive impact on society. On our part, we are committed to providing those professionals with a collaborative working environment that meets the highest standards of corporate responsibility. We encourage you to visit our website to learn more about our achievements in this area,” Mr. Wasson concluded.

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.

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