ICFI

ICF International, Inc. 10-Q Summary: Quarter Ended March 31, 2010

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for ICF International, Inc. (ICFI) for the three-month period ended March 31, 2010. ICFI provides management, technology, and policy professional services to government, commercial, and international clients. Key markets include energy, environment, infrastructure; health, human services, and social programs; and homeland security and defense. The company serves primarily U.S. federal government agencies, which accounted for 72% of revenue in this period.

Key Financial Metrics

Margins: Operating margin was 5.8% in Q1 2010, down from 6.4% in Q1 2009. Net margin was 3.1% compared to 3.7% in the prior year.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 10.5% year-over-year. This growth was driven by the inclusion of results from two 2009 acquisitions (Macro International Inc. and Jacob & Sundstrom) and organic growth in other contracts.
• Revenue Mix Shift: The conclusion of the "Road Home" contract (State of Louisiana) in June 2009 reduced state and local government revenue from 39% of total revenue in Q1 2009 to 10% in Q1 2010. Conversely, U.S. federal government revenue share increased from 43% to 72%.
• Expense Increases: Operating costs rose 16.8% year-over-year. Depreciation and amortization increased 71.1% and 76.4% respectively, primarily due to assets from the 2009 acquisitions.
• Profitability: Despite revenue growth, Net Income declined 7.9% to $5.4 million. This was due to higher operating expenses (including $0.6 million in unusual severance costs), increased interest expense, and a higher effective tax rate (40.8% vs. 37.8% in 2009).
• Debt Reduction: The company reduced long-term debt by $10.0 million during the quarter, utilizing operating cash flows to pay down its revolving credit facility.

Outlook, Risks, and Management Commentary

• Outlook: Management expects future results to depend on enhancing client relationships, securing larger engagements, and successfully integrating acquisitions. The company continues to evaluate acquisition opportunities.
• Liquidity: As of March 31, 2010, the company had $138.7 million in unused borrowing capacity under its $350 million credit facility. Management believes internal funds and available borrowings are sufficient to fund operations and future acquisitions.
• Risks: Key risks include dependence on government contracts (72% of revenue), potential budget delays by Congress, and the economic downturn affecting commercial sectors (air transportation and energy). The company also notes risks related to the integration of acquisitions and the potential for contract cancellations.
• Subsequent Events: On April 1, 2010, the company entered into a new 12-year, 8-month lease for its Washington, D.C. headquarters with a total commitment of approximately $89.3 million. Additionally, a new lease for the Eye Street location was signed.

Investor Verification Checklist

• Verify the sustainability of the 72% revenue concentration in U.S. federal government contracts and potential impacts of federal budget cycles.
• Confirm the integration progress and financial contribution of the Macro International and Jacob & Sundstrom acquisitions.
• Review the impact of the new long-term lease commitments ($89.3 million total) on future cash flow and operating expenses.
• Assess the company's ability to maintain operating margins given the increased amortization of intangible assets from recent acquisitions.
• Monitor the status of the "Road Home" contract conclusion and the company's success in replacing that revenue stream with other state/local or commercial work.