UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
For the Transition Period From to
Commission File Number: 001-33045
ICF INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1902 Reston Metro Plaza
Reston, VA
(Address of principal executive offices)
22-3661438
(IRS Employer
Identification Number)
20190
(Zip Code)
Registrant’s telephone number, including area code:
(703) 934-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Trading Symbols(s)
ICFI
Name of each exchange on which registered
The NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
☒ Accelerated filer
☐ Smaller reporting company
Emerging growth company
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed
second fiscal quarter was approximately $2,309 million based upon the closing price per share of $124.39, as quoted on the NASDAQ Global Select Market on June 30, 2023. Shares of the
outstanding common stock held by each executive officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of February 23, 2024, 18,715,376 shares of the registrant’s common stock, $0.001 par value, were outstanding.
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to
security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Proxy Statement for the 2024 Annual Meeting of Stockholders expected to be held in June 2024.
TABLE OF CONTENTS
PART I
ITEM 1.
Business
ITEM 1A.
Risk Factors
ITEM 1B.
Unresolved Staff Comments
ITEM 1C.
Cybersecurity
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4.
Mine Safety Disclosures
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6.
[Reserved]
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
ITEM 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
PART III
ITEM 10.
Directors, Executive Officers, and Corporate Governance
ITEM 11.
Executive Compensation
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
ITEM 14.
Principal Accountant Fees and Services
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
ITEM 16.
Form 10-K Summary
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FORWARD-LOOKING STATEMENTS
Some of the statements in this Annual Report on Form 10-K constitute forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results,
levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements
expressed or implied by such forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “anticipate,”
“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” “would,” or similar words. You should read statements that
contain these words carefully. The risk factors described in Item 1A of Part I of this Annual Report on Form 10-K captioned “Risk Factors,” or otherwise
described in our filings with the Securities and Exchange Commission (“SEC”), as well as any cautionary language in this Annual Report on Form 10-K,
provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from the expectations we describe in our forward-
looking statements, including, but not limited to:
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Our dependence on contracts with United States (“U.S.”) federal, state and local, and international governments, agencies, and departments
for the majority of our revenue;
Changes in federal government budgeting and spending priorities;
Failure by Congress or other governmental bodies to approve budgets and debt ceiling increases in a timely fashion and related reductions in
government spending;
Failure of the presidential administration (the “Administration”) and Congress to agree on spending priorities, which may result in temporary
shutdowns of non-essential federal functions, including our work to support such functions;
Results of routine and non-routine government audits and investigations;
Dependence of our commercial work on certain sectors of the global economy that are highly cyclical;
Failure to realize the full amount of our backlog;
Risks inherent in being engaged in significant and complex disaster relief efforts and grant management programs involving multiple tiers of
government in very stressful environments;
Risks resulting from expanding our service offerings and client base;
Difficulties in identifying attractive acquisitions available at acceptable prices;
Acquisitions we undertake presenting integration challenges, failing to perform as expected, increasing our liabilities, and/or reducing our
earnings; and
Additional risks as a result of having international operations.
Our forward-looking statements are based on the beliefs and assumptions of our management and the information available to our management at
the time these statements were prepared. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee future
results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of
the date of this Annual Report on Form 10-K. We undertake no obligation to update these forward-looking statements, even if our situation changes in the
future.
The terms “we,” “our,” “us,” and “the Company,” as used throughout this Annual Report on Form 10-K, refer to ICF International, Inc. and its
consolidated subsidiaries, unless otherwise indicated. The term “federal” or “federal government” refers to the U.S. federal government, and “state and
local” or “state and local government” refers to U.S. state (including U.S. territories) and local governments, unless otherwise indicated.
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ITEM 1. BUSINESS
COMPANY OVERVIEW
PART I
ICF International, Inc. was formed in 1999 as a Delaware limited liability company under the name ICF Consulting Group Holdings, LLC. It was
formed to purchase our principal operating subsidiary, which was founded in 1969, from a larger services organization. We converted to a Delaware
corporation in 2003 and changed our name to ICF International, Inc. in 2006. We completed our initial public offering in September 2006.
We provide professional services and technology-based solutions, including management, technology, and policy consulting and implementation
services. We help our clients conceive, develop, implement, and improve solutions that address complex business, natural resource, social, technological,
and public safety issues. Our services primarily support clients that operate in three key markets:
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Energy, Environment, Infrastructure, and Disaster Recovery;
Health and Social Programs; and
Security and Other Civilian & Commercial.
We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative. Our primary
services include:
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Advisory Services. We research critical policy, industry, and stakeholder issues, trends, and behavior. We measure and evaluate results and
their impact and, based on those assessments, provide strategic planning and advice to our clients on how to navigate societal, market,
business, communication, and technology challenges.
Program Implementation Services. We identify, define, and implement policies, plans, programs, and business tools that make our clients’
organizations more effective and efficient. Our comprehensive, end-to-end solutions are implemented through a wide range of standard and
customized methodologies designed to match our clients’ business context.
Analytics Services. We conduct survey research and collect and analyze wide varieties and large volumes of data to understand critical issues
and options for our clients and provide actionable business intelligence. We provide information and data management solutions that allow
for integrated, purpose-driven data usage.
Digital Services. We design, develop, and implement cutting-edge technology systems and business tools that are key to our clients’ mission
or business performance, and include solutions to optimize the customer and citizen experience for our clients. We provide cybersecurity
solutions that support the full range of cybersecurity missions and protect evolving IT infrastructures in the face of relentless threats and
modernize IT systems core to our clients’ operations.
Engagement Services. We inform and engage our clients’ constituents, customers, and employees to drive behavior and outcomes through
public relations, branding and marketing, multichannel and strategic communications, and reputation issues management. Our engagement
services frequently rely on our digital design and implementation skills, such as web and app development.
We perform work for both government and commercial clients. Our government clients include U.S. federal agencies, state and local governments,
as well as governments outside the U.S. Our commercial clients include both U.S. and international clients. Our clients utilize our services because we offer
a combination of deep subject matter expertise, technical solutions, and institutional experience which contribute to our solutions being beneficial. We
believe that our domain expertise and the program knowledge developed from our advisory engagements further position us to provide our full suite of
services.
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We report operating results and financial data in one operating and reportable segment. We generated revenue of $1,963.2 million, $1,780.0 million,
and $1,553.0 million during the years ended December 31, 2023, 2022, and 2021, respectively. Our total backlog was approximately $3,777.8 million,
$3,856.2 million, and $3,198.9 million at December 31, 2023, 2022, and 2021, respectively.
As of December 31, 2023, we had approximately 9,000 full-time and part-time employees around the globe, including many recognized as thought
leaders in their respective fields. We serve clients globally from our headquarters in the Washington, D.C. metropolitan area, our 55 regional offices
throughout the U.S., and 15 offices outside the U.S., including offices in the United Kingdom (“U.K.”), Belgium, India, and Canada.
OUR COMPANY INFORMATION
Our principal executive office is located at 1902 Reston Metro Plaza, Reston, Virginia 20190, and our telephone number is (703) 934-3000. We
maintain an internet website at www.icf.com. We make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), Code of Business and Ethics, and other information related to us, free of charge, on this site as soon as reasonably practicable after we
electronically file those documents with, or otherwise furnish them to, the SEC. Our internet website and the information contained therein or connected
thereto are not intended to be incorporated into this Annual Report on Form 10-K. The SEC also maintains an internet website that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
MARKET OPPORTUNITY, SERVICES, AND SOLUTIONS
Complex, long-term market factors, which include geopolitical, technological, environmental, and demographic trends, are changing the way people
live and their priorities, and the way government and industry operate and interact. We are all affected not only by the increasing breadth and invasiveness
of change, but also by its velocity. These factors have significant impacts on the markets in which our clients operate.
In addition to these market-based factors, developments across all of our markets are increasing the demand for advisory services that drive our
business. These trends include increased government focus on environmental initiatives; efficiency and mission performance management; generational
changes; the emphasis on transparency and accountability; and an increased demand for combining domain knowledge of client missions and programs
with innovative technology-enabled solutions. We see growth opportunities for technology-based solutions involving analytics, digital services, and
strategic communications across all of our markets.
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We believe that demand for our services will continue as government, industry, and other stakeholders seek to understand and respond to these and
other factors. We expect that our government clients will continue to utilize professional services firms with relevant domain expertise to assist with
designing new programs, enhancing existing ones, offering transformational solutions, and deploying innovative information and communications
technology. In addition, commercial organizations affected by these programs will need to understand such changes, as well as their implications, in order
for them to plan appropriately. More broadly, we believe our commercial clients will demand innovative services and solutions that can help them connect
with customers and stakeholders in an increasingly connected and crowded marketplace. We also see opportunities to further leverage our digital and client
engagement capabilities across our commercial and government client base. We believe that our institutional knowledge and subject matter expertise are a
distinct competitive advantage in providing our clients with practical, innovative solutions, which are directly applicable to their mission or business, and
deploying them quickly with the right resources. Moreover, we believe we will be able to leverage the domain expertise and program knowledge we have
developed through advisory assignments and our experience with program management, technology-based solutions, and engagement projects to win larger
engagements, which generally lead to increasing returns on business development investment and promote higher employee utilization. Rapid changes in
technology, including the omnipresent influence of mobile, social, and cloud technologies, also demand new ways of communicating, evaluating, and
implementing programs, and we are focused on leveraging our expertise in technology to capitalize on those changes.
Our future results will depend on the success of our strategy to capitalize on our competitive strengths, including our success in maintaining our
long-standing client relationships, to seek larger engagements across the program life cycle and to complete and successfully integrate strategic
acquisitions. We will continue to focus on: building scale in vertical and horizontal domain expertise; developing business with both our government and
commercial clients; and replicating our business model geographically in selected regions of the world. In doing so, we will continue to evaluate strategic
acquisition opportunities that enhance our subject matter knowledge, broaden our service offerings, and/or provide scale in specific markets and/or
geographies.
Although we continue to see favorable long-term market opportunities, there are certain near-term challenges facing all government service
providers. Administrative and legislative actions by governments to address changing priorities could have a negative impact on our business, which may
result in a reduction to our revenue and profit and adversely affect cash flow. Geopolitical factors could result in changing government priorities; however,
we believe we are well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the U.S. federal
government as well as to state and local and international governments and commercial clients.
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Energy, Environment, Infrastructure, and Disaster Recovery
For decades, we have advised our clients on energy and environmental issues, including the impact of human activity on natural resources, and have
helped develop solutions for infrastructure-related challenges. In addition to addressing government policy and regulation in these areas, our work focuses
on industries that are affected by these policies and regulations, particularly in those industries most heavily involved in the use and delivery of energy.
Significant factors affecting suppliers, users, and regulators of energy are driving private and public sector demand for professional services firms,
including:
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Changing power markets, increasingly diverse sources of supply including distributed energy resources and an increased demand for more
carbon-free sources of energy and/or energy storage;
The changing role of the U.S. in the world’s energy markets;
Ongoing efforts to upgrade energy infrastructure to meet new power, transmission, environmental, and cybersecurity requirements and to
enable more distributed forms of generation and greater reliance on more distant electricity generation;
Changing public policy, regulations, and incentives, including those established by the Inflation Reduction Act (the “IRA”), surrounding the
modernization of and investment in an upgraded energy infrastructure, including new business models that may accompany those changes;
The need to manage energy demand and increase efficient energy use in an era of environmental concerns, especially regarding carbon and
other emissions; and
The disruption of global energy markets and supplies, involving natural gas in particular, that have emerged as a result of the invasion of
Ukraine by Russia.
We assist energy enterprises worldwide in their efforts to analyze, develop, and implement strategies related to their business operations and the
interrelationships of those operations with the environment and applicable government regulations. We utilize our policy expertise, deep industry
knowledge, and proprietary modeling tools to advise government and commercial clients on key topics related to electric power, traditional fuels, and
renewable sources of energy. Our areas of expertise include power market analysis and modeling, transmissions analysis, power engineering and substation
design, flexible load and distribution system management, electric system reliability standards, energy asset valuation and due diligence, regulatory and
litigation support, fuels market analysis, air regulatory strategy, and renewable energy and green power project implementation. Our acquisition of CMY
Solutions, LLC (“CMY”), a power engineering firm, in 2023 has brought consulting, engineering, and power systems design skills that add value to our
existing mix of capabilities.
We also assist commercial and government clients in designing, implementing, and evaluating demand side management programs, both for
residential and for commercial and industrial sectors. Utility companies must balance the changing demand for energy with a price-sensitive,
environmentally-conscious consumer base. We help utilities meet these needs, guiding them through the entire life cycle of energy efficiency and related
demand-side management and electrification programs, including policy and planning, determining technical requirements, and program implementation
and improvement.
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Carbon emissions have been an important focus of federal government regulation, international governments, many state and local governments, and
multinational corporations around the world. Reducing or offsetting greenhouse gas (“GHG”) emissions continues to be the subject of both public and
private sector interest, and the regulatory landscape in this area is still evolving. The need to address carbon and other harmful emissions has significantly
changed the way the world’s governments and industries interact and continues to be one of the drivers of interest in energy efficiency. Moreover, how
government and business adapt to the effects of climate change continues to be of global importance. We support governments at the federal and state and
local levels, including providing comprehensive support to the National Science and Technology Council’s Global Change Research Program. Additionally,
we support ministries and agencies of the government of the U.K. and the European Commission (the “E.C.”), as well as commercial clients, on these and
related issues.
We believe that demand for our services will continue to grow as government, industry, and other stakeholders seek to provide natural disaster
recovery and rebuilding. In the wake of the major hurricanes (Ian, Harvey, Ida, Idalia, Irma, Maria, Laura, and Michael) that devastated communities in
Texas, Florida, North Carolina, Louisiana, the U.S. Virgin Islands, and Puerto Rico, the affected areas remain in various stages of relief and recovery
efforts. Our prior experience with disaster relief and rebuild efforts, including after hurricanes Katrina and Rita and Superstorm Sandy, puts us in a
favorable position to provide recovery and housing assistance, and environmental and infrastructure solutions, including disaster mitigation, on behalf of
federal departments and agencies, state, territorial, and local jurisdictions, and regional agencies. We support ongoing disaster recovery and mitigation
efforts in a variety of U.S. states, territories, and local jurisdictions that have been affected by natural disasters including, but not limited to, hurricanes.
We also have decades of experience in designing, evaluating, and implementing environmental policies and environmental compliance programs for
energy, transportation (including aviation), and other infrastructure projects. A number of key issues are driving increased demand for the services we
provide in these areas, including:
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Increased focus on the proper stewardship of natural resources;
Changing precipitation patterns and drought that is affecting water infrastructure and availability;
Aging water, energy, and transportation infrastructure, particularly in the U.S.;
The increasing exposure of infrastructure to damage and interference by severe weather events influenced by a changing climate, and
therefore the need to become more resilient to those effects;
Past under-investment in transportation infrastructure that was the center of the Infrastructure Investment and Jobs Act passed by Congress
and signed by the President on November 15, 2021;
Economic and policy incentives for the implementation of carbon-free energy sources that were the centerpiece of the IRA passed by
Congress and signed into law by the President on August 16, 2022;
The increasing demand for businesses to respond to climate change and similar environmental, social, and governance priorities being
championed not only by the public sector, but also by investors, financing sources, business organizations, ratings agencies, and proxy
advisory firms; and
Changing patterns of economic development that require transportation systems and energy infrastructure to adapt to new patterns of demand.
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By leveraging our multi-disciplinary skills, which range from finance and economics to earth and life sciences, information technology, and program
management, we are able to provide a wide range of services that include complex environmental impact assessments, environmental management
information systems, air quality assessments, program evaluation, transportation and aviation planning and operational improvement, strategic
communications, and regulatory reinvention. Our acquisition of Blanton & Associates (“Blanton”) in September 2022 added to these skills and expanded
our geographic reach. We help clients deal specifically with the interrelated environmental, business, and social implications of issues surrounding all
transportation modes and infrastructure. From the environmental management of complex infrastructure engagements to strategic and operational concerns
of airlines and airports, our solutions draw upon our expertise and institutional knowledge in transportation, urban and land use planning, industry
management practices, financial analysis, environmental sciences, and economics.
Health and Social Programs
We also apply our expertise across our full suite of services in the areas of health and social programs. We believe that a confluence of factors will
drive an increased need for public and private focus on these areas, including, among others:
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Weaknesses in our public health and healthcare delivery systems exposed by the SARS-CoV-2 virus and the Coronavirus Disease 2019
(“COVID-19”);
Expanded healthcare services to underserved portions of the population;
Rising healthcare expenditures, which require the evaluation of the effectiveness and efficiency of current and new programs;
Rampant substance abuse and widespread social and health impacts of the opioid abuse epidemic;
The emphasis on improving the effectiveness of the U.S. and other countries’ educational systems;
The perceived declining performance of the U.S. educational system compared to other countries;
The need to digitally transform and modernize the technology infrastructure underpinning government operations;
Increased arrival of refugees to the U.S. requiring social and other support;
The need for greater transparency and accountability of public sector programs;
A continued high need for social support systems, in part due to an aging population, and the interrelated nature of health, housing,
transportation, employment, and other social issues;
A changing regulatory environment; and
Military personnel returning home from active duty with health and social service needs.
We believe we are well positioned to provide our services to help our clients develop and manage effective programs in the areas of health,
education, and social programs at the international, regional, national, and local levels. Our subject matter expertise includes public health, biomedical
research, healthcare quality, mental health, international health and development, health communications and associated interactive technologies, education,
child and family welfare needs, housing and communities, and substance abuse. Our combination of domain knowledge and our experience in information
technology-based applications provides us with strong capabilities in health and social programs informatics and analytics, which we believe will be of
increasing importance as the need to manage information grows. We partner with our clients in the government and commercial sectors to increase their
knowledge base, support program development, enhance program operations, evaluate program results, and improve program effectiveness.
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In the area of federal health, we support many agencies and programs within the U.S. Department of Health and Human Services (“HHS”),
including the National Institutes of Health (the “NIH”), the Centers for Disease Control and Prevention (the “CDC”), and the Centers for Medicare and
Medicaid Services (“CMS”) by conducting primary data collection and analyses, assisting in designing, delivering, and evaluating programs, managing
technical assistance centers, providing instructional systems, developing information technology applications, and managing information clearinghouse
operations. Our 2022 acquisition of SemanticBits, LLC (“SemanticBits”) brought substantial expertise in technology applications used in CMS to oversee
healthcare quality. Increasingly, we provide multichannel communications and messaging for public health programs. We also provide training and
technical assistance for early care and educational programs (such as Head Start), and health and demographic surveys in developing countries for the U.S.
Department of State (the “DoS”). In the area of social programs, we provide extensive training, technical assistance, and program analysis and support
services for a number of the housing programs of the U.S. Department of Housing and Urban Development (“HUD”) and state, territorial, and local
governments. In addition, we provide research, program design, evaluation, and training for educational initiatives at the federal and state level. We provide
similar services to a variety of U.K. ministries, as well as several Directorates-General of the E.C.
Security and Other Civilian & Commercial
We serve a number of other important government missions and commercial markets. These government missions range from Security (e.g., the
U.S. Departments of Defense (“DoD”), Homeland Security (“DHS”), and Justice (“DoJ”)) to a variety of other civilian government departments and
agencies.
Security programs continue to be a critical priority of the federal government, state and local governments, international governments (especially in
Europe), and in the commercial sector. We believe we are positioned to meet the following key safety concerns:
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Vulnerability of critical infrastructure to cyber and terrorist threats;
Increasing risks to enterprises’ reputations in the wake of a cyberattack;
Broadened homeland security concerns that include areas such as health, food, energy, water, and transportation;
Reassessment of the emergency management functions of homeland security in the face of natural disasters;
Safety issues around crime and at-risk behavior;
Increased dependence on private sector personnel and organizations in emergency response;
The need to ensure that critical functions and sectors are resilient and able to recover quickly after attacks or disasters in either the physical or
cyber realms; and
The challenges resulting from migrations and changing global demographics.
These security concerns create demand for government programs that can identify, prevent, and mitigate key cybersecurity issues and the societal
issues they cause.
In addition, the DoD is undergoing major transformations in its approach to strategies, processes, organizational structures, and business practices
due to several complex, long-term factors, including:
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The changing nature of global security threats, including cybersecurity threats;
Family issues associated with globally-deployed armed forces;
The increasing use of commercial cloud computing infrastructure and services to support the DoD enterprise; and
The increasing need for real-time information sharing and the global nature of conflict arenas.
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We provide key services to DoD, DHS, DoJ, and analogous Directorates-General at the E.C. We support DoD by providing high-end strategic
planning, analysis, and technology-based solutions around cybersecurity. We also provide the defense sector with critical infrastructure protection,
environmental management, human capital assessment, military community research, and technology-enabled solutions.
At the DHS, we assist in shaping and managing critical programs to ensure the safety of communities, developing critical infrastructure protection
plans and processes, and establishing goals and capabilities for national preparedness at all levels of government in the U.S. At the DoJ, we provide
technical and communications assistance to programs that help victims of crime and at-risk youths. At the E.C., we provide support and analytical services
related to justice and home affairs issues within the European context.
Other large federal departments and agencies, such as the U.S. Department of Agriculture and the U.S. Department of the Treasury, also face
important challenges that motivate them to transform their business processes and to modernize the associated technology systems. We support these
organizations with a variety of technology and program support services.
Across all of the areas described above we assist our clients in their growing efforts to ensure equity in their program operations, whether it is with
an environmental justice or a health equity focus, or some other perspective depending on the program being delivered.
COMPETITIVE STRENGTHS
We possess the following key business strengths:
We have a highly-educated professional staff with deep subject matter knowledge
We possess strong intellectual capital that provides us with a deep understanding of policies, processes, and programs across our clients’ markets.
Our thought leadership is based on years of training, experience, and education. We are able to apply our in-depth knowledge of our subject matter experts
and our experience developed over 45 years of providing advisory services to address the problems and issues our clients are facing. As of December 31,
2023, approximately 45% of our benefits-eligible staff held post-graduate degrees in diverse fields such as the social sciences, business and management,
physical sciences, public policy, human capital, information technology, mathematics, engineering, planning, economics, life sciences, and law. These
qualifications, and the complementary nature of our markets, enable us to deploy multi-disciplinary teams to identify, develop, and implement solutions that
are creative, pragmatic, and tailored to our clients’ specific needs.
We believe our diverse range of client markets, services, and projects provides a stimulating work environment for our employees that enhances
their professional development. The use of multi-disciplinary teams provides our staff with the opportunity to develop and refine common skills required in
many types of engagements. Our approach to managing people fosters collaboration and significant cross-utilization of the skills and experience of both
industry experts and other personnel who can develop creative solutions by drawing on their different experiences. The types of services we provide, and
the manner in which we do so, enable us to attract and retain talented professionals from a variety of backgrounds while maintaining a culture that fosters
teamwork and excellence.
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We have strong, long-standing relationships with clients across a diverse set of markets
The long-term relationships we maintain with many of our clients reflect our successful track record of fulfilling our clients’ needs. We have advised
the U.S. Environmental Protection Agency (“EPA”), the United States Agency for International Development (“USAID”), and HHS for more than 30 years,
the U.S. Department of Energy (“DoE”) for more than 25 years, DoD for more than 20 years, certain commercial clients in our energy markets for more
than 20 years, and the E.C. for more than 15 years, and we have multi-year relationships with many of our other clients in both our government and
commercial client base. We have numerous contacts at various levels within our clients’ organizations, ranging from key decision-makers to functional
managers. The long-standing nature and breadth of our client relationships adds greatly to our institutional knowledge, which, in turn, helps us carry out our
client engagements more effectively and maintain and expand such relationships. Our extensive experience working alongside our clients and client
contacts, together with our prime contractor position on a substantial majority of our contracts, gives us clearer visibility into future opportunities and
emerging requirements. We believe our balance between government civilian and defense agencies, our commercial presence, and the diversity of markets
in which our clients operate help mitigate the impact of policy or political shifts, as well as annual shifts in our clients’ budgets and priorities.
Our advisory services position us to capture a full range of engagements
We believe our advisory approach, which is based on our subject matter expertise combined with an understanding of our clients’ requirements and
objectives, is a significant competitive differentiator that helps us gain access to key client decision-makers during the initial phases of a policy, program,
project, or initiative. We use our expertise and understanding to formulate customized recommendations for our clients. We believe this domain expertise
and program knowledge, developed from our advisory engagements, further positions us to provide a full suite of services across the entire life cycle of a
particular policy, program, project, or initiative. As a result, we are able to understand our clients’ requirements and objectives as they evolve over time. We
then use this knowledge to provide continuous improvement across our entire range of services, which maintains the relevance of our recommendations.
Our technology-enabled solutions are driven by our subject matter expertise and creativity
Government and commercial decision-makers have become increasingly aware that, to be effective, technology-based solutions need to be
seamlessly integrated with people and processes. We possess a strong knowledge in information technology and a thorough understanding of organizational
behavior and human decision processes. In addition, as a result of our acquisitions of Incentive Technology Group, LLC (“ITG”) in January 2020, Creative
Systems and Consulting (“Creative Systems”) in December 2021, SemanticBits in July 2022, and ESAC in November 2022, we have strong partnerships
and experience in cloud-based technology platforms and open-source ecosystems that are central to our federal government clients’ technology
modernization agendas. This combination of skills, along with our domain knowledge, allows us to deliver technology-enabled solutions tailored to our
clients’ business and organizational needs with less start-up time required to understand client issues. In addition, many of our clients seek to deploy
cutting-edge solutions to communicate and transact with citizens, stakeholders, and customers in a multichannel environment, and doing so takes both our
constantly-refreshed technical know-how and world-class creativity.
Our proprietary tools, analytics, and methods allow us to deliver superior solutions to our clients
We believe our innovative, and often proprietary, analytics and methods are key competitive differentiators because they enhance our ability to
deliver customized solutions to our clients and enable us to deliver services in a more cost-effective manner than our competitors. For example, we have
developed industry-standard energy and environmental models that are used by governments and commercial entities around the world for energy planning
and air quality analyses and have also developed a suite of proprietary climate change tools to help the private sector develop strategies for complying with
GHG emission reduction requirements. In addition, we also have proprietary program management methodologies and services that we believe can help
clients improve performance measurement, support chief information officer and science and engineering program activities, and reduce security risks.
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We are led by an experienced management team
Our management team, consisting of 277 senior leaders with the title of vice president or higher, possesses extensive industry experience and had an
average tenure of 16.4 years with us as of December 31, 2023 (including prior service with companies we have acquired). This low turnover allows us to
retain institutional knowledge. Our managers are experienced both in marketing efforts and in successfully managing and executing our key services. Our
management team also has experience in acquiring other businesses and integrating those operations with our own. A number of our managers are industry-
recognized thought leaders. We believe that our management’s successful past performance and deep understanding of our clients’ needs have been and
will continue to be differentiating factors in competitive situations.
We have a broad global presence
We serve our clients with a global network of 55 regional offices throughout the U.S., and 15 offices in key markets outside the U.S., including
offices in the U.K., Belgium, India, and Canada. Our global presence also gives us access to many of the leading experts on a variety of issues from around
the world, allowing us to expand our knowledge base and areas of functional expertise. Over the years, we worked in dozens of countries, helping
government and commercial clients with energy, environment, infrastructure, healthcare, interactive technology/e-commerce, and air transport matters.
Although international operations present challenges in the form of inconsistent legal systems, differing levels of intellectual property protection, and trade
regulation issues, we believe our international operations will continue to play a significant role in our clients’ operations and in our platform.
STRATEGY
Our strategy to increase our revenue and shareholder value involves the following key elements:
Expand our commercial businesses
We plan to continue to pursue profitable commercial projects and we believe we have strong, global client relationships in both the commercial
energy and air transport markets. We continue to see growth opportunities in our current commercial business in the utility sector as well as significant
potential to expand our business in other commercial areas such as aviation and tourism.
We view the energy industry as a particularly attractive sector for us over the next decade due to concerns over controlling energy costs and limiting
climate and environmental impacts, increased state and federal regulation, the need for cleaner and more diverse sources of energy, and the concomitant
need for infrastructure to transport/transmit, store, and/or convert those new energy sources. Although we believe the utility industry will continue to be a
strong market for advisory services, particularly in light of the changing focus on regulatory actions and alternative energy sources, we intend to leverage
our existing relationships and institutional expertise to pursue and capture additional, and typically higher-margin, opportunities. For example, we believe
we can continue to expand our program- and technology-based services in areas such as assisting with the implementation of energy efficiency programs,
electrification and decarbonization initiatives, information technology applications, and environmental management services for larger utilities. The growth
of interest in sustainability and energy efficiency issues has created opportunities to offer these types of services to new clients beyond our traditional
sectors. We believe these factors, coupled with our expansive national and global footprint, will result in a greater number of engagements that will also be
larger in size and scope.
We expect that interest in energy advisory services will continue to expand as clients in a number of industries, including information service
providers and companies engaged in travel and tourism, seek to better understand their energy consumption options and the positive benefits of
demonstrating environmental stewardship. Our broad range of services to the aviation industry makes us well positioned to capitalize on significant
industry changes; substantial airline equipment upgrades to newer, more efficient aircraft models in a cost-constrained environment; testing and adoption of
Sustainable Aviation Fuels (“SAF”); and changes to airport business models and strategy as they place increasing importance on passenger experience.
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Replicate our business model across government and industry in selected geographies
We believe the services we provide to our energy, environment, and infrastructure market have strong growth potential in selected geographies. Our
domain expertise is well suited in Europe to meet the need for cutting-edge climate change, energy, and environmental solutions, particularly with our
offerings to the U.K. government and the E.C. We have also focused our geographic footprint, when prudent, by selectively closing or reducing the size of
offices which appear to be unlikely to generate profitable growth in the near to medium term, generally in nations or regions undergoing either economic or
political challenges.
Strengthen our technology-based offerings
In early 2020 we acquired ITG, which materially increased our skills and market presence in IT modernization, including the use of popular cloud-
based platforms to modernize legacy IT systems. In December 2021, we followed with the acquisition of Creative Systems, further extending our cloud
platform and open-source technology implementation skills. In 2022, we acquired SemanticBits, a leading provider of cloud-native open-source technology
systems with a strong client position in CMS. We are positioned to increase these services by expanding the technological underpinnings of our business,
while bringing cloud, business process automation, data management, and analytics offerings to our clients to better link them with citizens, consumers, and
other stakeholders.
Leverage advisory work into full life-cycle solutions
We plan to continue to leverage our advisory services and strong client relationships to increase our revenue by winning longer-term engagements.
These engagements could include: information services and technology-based solutions; project and program management; business process solutions; and
technical assistance and training. Our advisory services provide us with insight and understanding of our clients’ missions and goals. We believe the
domain expertise and program knowledge we develop from these advisory assignments position us to capture a greater portion of the resulting larger
engagements; however, we will need to undertake such expansion carefully to avoid actual, potential, and perceived conflicts of interest.
Defend, expand, and deepen our presence in core U.S. federal and state and local government markets
Changing and somewhat unpredictable political priorities at the U.S. federal, state, and local government levels have created challenging market
conditions for all competitors in the government services sector; however, we believe that the Biden administration provides renewed opportunities for
growth in many of the government mission areas, such as efforts to address infrastructure issues with the passing of the Infrastructure Investment and Jobs
Act in 2021, where we have expertise and long-standing relationships. We will focus not only on defending our current market footprint, but also on
innovating to continue expanding across key growth markets, such as U.S. federal government energy and climate-related programs, reengineering of U.S.
public health and research efforts, and cybersecurity initiatives, digital services, and disaster recovery work for state and local governments. We will
continue to provide innovative solutions that help our public sector clients do more with less. We will specifically target deeper penetration of those
agencies that currently procure services only from one or two of our service areas, and our acquisitions of ITG, Creative Systems, and SemanticBits, which
provide us with strong skills and market presence in technology modernization, will provide additional capabilities in this effort. We believe we can
leverage many of our long-term client relationships by introducing these existing clients, where appropriate, to our other services in order to better meet
their needs. For example, we introduce many of our advisory clients to our capabilities to provide associated information technology, cybersecurity, large-
scale program management, and strategic communications and digital services. We can also offer clients our extensive performance measurement, program
evaluation, and performance management services. Finally, having 55 offices across the U.S. allows us to focus more of our business development efforts
on addressing the needs of U.S. federal and state and local government agencies with operations outside of the Washington, D.C. metropolitan area.
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Pursue larger prime contract opportunities
We believe that continuing to expand our client engagements into services we offer as part of our end-to-end client solutions enables us to pursue
larger prime contract opportunities, which should provide a greater return on our business development efforts and allow for increased employee utilization.
We plan to continue to target larger and longer-term opportunities through greater emphasis on early identification of opportunities, strategic capture and
positioning, and enhanced brand recognition. We believe that the resulting increase in the scale, scope, and duration of our contracts will help us continue to
grow our business.
Pursue strategic acquisitions
We plan to augment our organic growth with selective, strategic acquisitions when the target company will enable us to obtain new clients, increase
our presence in attractive markets, obtain capabilities that complement our existing portfolio of services, and/or gain access to customer contracts;
provided, that the target company has cultural compatibility and we expect that the acquisition will have a positive financial impact. Our acquisition of
CMY in 2023 is an example of this approach.
These elements of our strategy permeate all of the Company and influence our day-to-day decisions. We believe that, collectively, they support the
overall long-term growth of the organization.
CLIENT AND CONTRACT MIX
Government clients (including U.S. federal, state and local, as well as international, governments) accounted for approximately 76%, 76%, and 71%
of our 2023, 2022, and 2021 revenue, respectively. Commercial clients (including U.S. and international clients) accounted for approximately 24%, 24%,
and 29% of our 2023, 2022, and 2021 revenue, respectively.
Our clients span a broad range of civilian and defense agencies and commercial enterprises. Commercial clients include non-profit organizations and
universities, while government clients include the World Bank and the United Nations. In general, a client is considered to be a government client if its
primary funding is from a government agency or institution. If we are a subcontractor, we classify the revenue based on the nature of the ultimate client
receiving the services.
In fiscal years 2023, 2022, and 2021, our largest three government clients by revenue were HHS, DoS, and DoD. The percentages of our total
revenue from these government clients are as follows:
Department of Health and Human Services
Department of State
Department of Defense
Total
2023
Year ended December 31,
2022
2021
26 %
5 %
3 %
34 %
23 %
6 %
4 %
33 %
20 %
5 %
5 %
30 %
There was no single commercial client with revenue equal to or greater than 2% of our total revenue for the 2023, 2022, and 2021 fiscal years,
respectively.
Most of our revenue is derived from prime contracts under which we work directly for the end customer. These accounted for approximately 89%,
91%, and 91% of our revenue for the 2023, 2022, and 2021 fiscal years, respectively.
Our contract periods typically extend from one month to five years, including option periods. Many of our government contracts provide for option
periods that may be exercised by the client. In 2023, 2022, and 2021, no single contract accounted for more than 2%, 3%, and 2% of our revenue for those
fiscal years, respectively. Our 10 largest contracts by revenue collectively accounted for approximately 14%, 15%, and 14% of our revenue in the 2023,
2022, and 2021 fiscal years, respectively.
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CONTRACT BACKLOG
We define total backlog as the future revenue we expect to receive from our contracts and other engagements. We generally include in our total
backlog the estimated revenue represented by contract options that have been priced, but not exercised. We do not include any estimate of revenue relating
to potential future delivery orders that might be awarded under our U.S. General Services Administration Multiple Award Schedule (“GSA Schedule”)
contracts, other Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracts, Master Service Agreements (“MSAs”), or other contract vehicles that are also
held by a large number of firms and under which potential future delivery orders or task orders might be issued by any of a large number of different
agencies, and are likely to be subject to a competitive bidding process. We do, however, include potential future work expected to be awarded under IDIQ
contracts that are available to be utilized by a limited number of potential clients and are held either by us alone or by a limited number of firms.
We include expected revenue in funded backlog when we have been authorized by the client to proceed under a contract up to the dollar amount
specified by our client, and this amount will be owed to us under the contract after we provide the services pursuant to the authorization. If we do not
provide services authorized by a client prior to the expiration of the authorization, we remove amounts corresponding to the expired authorization from
funded backlog. We do include expected revenue under an engagement in funded backlog when we do not have a signed contract, but only in situations
when we have received client authorization to begin or continue work and we expect to sign a contract for the engagement. In this case, the amount of
funded backlog is limited to the amount authorized. Our funded backlog does not represent the full revenue potential of our contracts because many
government clients, and sometimes other clients, authorize work under a particular contract on a yearly or more frequent basis, even though the contract
may extend over several years. Most of the services we provide to commercial clients are provided under fully funded contracts and task orders under
MSAs. As a consequence, our backlog attributable to these clients is typically reflected in funded backlog and not in unfunded backlog.
We define unfunded backlog as the difference between total backlog and funded backlog. Our estimate of unfunded backlog for a particular contract
is based, to a large extent, on the amount of revenue we have recently recognized on the particular contract under the assumption that future utilization will
be similar, our past experience in utilizing contract capacity on similar types of contracts, and our professional judgment. Accordingly, if contract utilization
is different from our expectations, the revenue eventually earned on a contract may be lower or higher than that implied by our estimate at a point in time or
during the life of a contract, of total backlog, including unfunded backlog. Although we expect our total backlog to result in revenue, the timing of revenue
associated with both funded and unfunded backlog will vary based on a number of factors, and we may not recognize revenue associated with a particular
component of backlog when anticipated, or at all. Our government clients generally have the right to cancel any contract, or ongoing or planned work under
any contract, at any time. In addition, there can be no assurance that revenue from funded or unfunded backlog will have similar profitability to previous
work or will be profitable at all. Generally speaking, we believe the risk that a particular component of backlog will not result in future revenue is higher
for unfunded backlog than for funded backlog.
Our funded and estimates of unfunded and total backlog were as follows at December 31:
(in millions)
Funded
Unfunded
Total backlog
$
$
2023
2022
2021
1,775.1
2,002.7
3,777.8
$
$
1,786.9
2,069.3
3,856.2
$
$
1,593.5
1,605.4
3,198.9
There were no awards included in our 2023, 2022, or 2021 backlog amounts that were under protest.
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BUSINESS DEVELOPMENT
Our business development efforts are critical to our organic growth. Our business development processes and systems are designed to enable agility
and speed-to-market over the business development life cycle, especially given the distinctions between commercial and government clients. Business
development efforts in priority market areas, which include some of our largest federal agency accounts (HHS, DoS, DoE, U.S. Department of
Transportation, and EPA), are executed through account teams. Each team participates in regular executive reviews of marketing plans and proposal
development processes. Our non-federal government clients are served by account leaders from operating units and coordinated by senior leaders with
industry experience where such coordination is deemed appropriate to enhance our business development success. This account-based approach allows
deep insight into the needs of current and future clients. It also helps us anticipate our clients’ evolving requirements over the coming 12 to 18 months and
position ourselves to meet those requirements. Each administrative group is responsible for maximizing sales in our existing accounts and finding
opportunities in closely-related accounts.
The corporate business development function also includes a market research and competitive intelligence group, a proposal group, and a strategic
capture unit. The marketing function engages in brand marketing and strategic marketing program development and execution to raise awareness of our
services and solutions across our markets, and to generate leads for further pursuit by sales personnel. The marketing function also executes corporate
communications campaigns to support specific lines of business. Our contracts and administration function supports bid price development in partnership
with the business development account teams.
COMPETITION
We operate in a highly competitive and fragmented marketplace and compete against a number of firms in each of our clients’ key markets. Some of
our principal competitors include: Abt Associates; Accenture; AECOM Technology Corporation; Booz Allen Hamilton Holding Corporation; CACI
International Inc.; CLEAResult Consulting, Inc.; Deloitte LLP; General Dynamics, Inc.; Guidehouse; HORNE; Leidos Holdings, Inc.; PA Consulting
Group; Science Applications International Corporation; Research Triangle Institute; Tetra Tech Inc.; and Westat, Inc. In addition, we have numerous
smaller competitors, many of which have narrower service offerings and serve niche markets. Some of our competitors are significantly larger than we are
and have greater access to resources and stronger brand recognition than we do.
We consider our principal competitive advantages to be long-standing client relationships, the good reputation and past performance of the firm,
client references, the technical knowledge and industry expertise of our employees, the quality of our services and solutions, the scope and scale of our
service offerings, and pricing.
INTELLECTUAL PROPERTY
We own a number of trademarks and copyrights, and internally-developed software that helps maintain our business and competitive position. Sales
and licenses of our intellectual property do not currently comprise a substantial portion of our revenue or profit. We rely on the technology and models,
proprietary processes, and other intellectual property we own or have the rights to use in our analyses and other work we perform for our clients. We use
these innovative, and often proprietary, software, analytical models, and tools throughout our service offerings. Our staff regularly maintains, updates, and
improves these software, models, and tools based on our corporate experience. In addition, we sometimes retain limited rights in software applications we
develop for clients. We use a variety of means to protect our intellectual property.
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HUMAN CAPITAL
As a global advisory and technology services provider, our human capital strategy is vital to our business. Our business depends substantially on
attracting, developing, and retaining a highly qualified workforce that provides excellent, effective, and efficient performance reflecting the vast
communities we serve. We have designed our human resources programs to enable a high-performing, diverse workforce to reach its full potential. We then
develop our employees to prepare them for critical roles; reward and support employees through pay, benefit, and perquisite programs that we believe are
competitive; and evolve and invest in technology, tools, and resources to empower employees to belong, grow, and thrive at ICF.
We employ approximately 9,000 employees, 86% of whom are employed full-time. Historically, we experience employee voluntary turnover that is
consistently below industry benchmarks. In 2023, our overall company turnover was 14.7% and 11.4% when excluding our on-call staff.
The results of our employee engagement survey reflect a strong culture that encourages our employees to stay and grow a career with ICF. We are
proud that 86% of respondents believe their values align with our values, and 87% feel they have a flexible schedule that meets their personal needs. Both
results were 16% above the industry average for professional services organizations.
Successful talent attraction and retention hinges on a healthy and recognizable employer brand. We leverage digital and social media with an
employee-first lens to distinguish us as a named employer of choice. Employee voices and perspectives are at the heart of all we share. In 2023, these
efforts delivered 7.7 million brand views of employer brand content and 5.3 million nurture emails to opt-in prospects in our candidate relationship
management system (“CRM” ), ultimately attracting more than 370,000 applicants. In the past year, we have been named on the best place to work lists of
both Forbes and Newsweek and a best place to work in Washington, D.C., by Built In, a community for startups and tech companies. We were also named a
best place to work for parents by Newsweek.
Once a new hire joins us, we set them up for long-term success with a robust onboarding program, including sessions focused on our purpose and
values and required compliance training. To further enhance this experience, new employees may participate in an optional peer coaching program to
connect with other employees throughout their first year. Over 750 employees participated in peer coaching throughout 2023, with 98% rating the
experience as “Very Helpful”.
Our diversity, equity, and inclusion objectives include attracting engaged, diverse talent and perspectives to build a workplace culture that fosters
inclusivity and reflects our communities. This year, we continued to grow our eight Employee Community Networks (“ECNs”) to enable internal and
external community-building, networking, mentoring, professional development, and business impact. Our Asian, Black, Diverse Abilities, First Nations
Indigenous People, Hispanic/Latinx, LGBTQIA+, Women, and Veterans ECNs provide forums for employees and allies with similar characteristics,
interests, and goals to connect. We are proud that about 25% of our employees participate in at least one ECN. We also continued our history of gender
equity, with 56% of our employees identifying as female. 55% of our people managers and 40% of our executives are female. 36% of our U.S. employees
self-identify as non-white, with the largest classifications being 11% Asian, 11% Black, and 9% Hispanic.
This commitment is garnering attention externally. We made Forbes’ “America's Top 500 Best Employers for Diversity” list again in 2023, our third
year in a row, ranking #14 (from #16 in 2022 and #127 in 2021).
Another pillar of culture and retention is helping our employees to achieve personal and career success. In 2023, we delivered digital and instructor-
led programs to build skills in various areas, including leadership inclusion, people management, project management, business development, finance,
technology, and innovation skills. To increase enterprise-wide access to industry-leading content, we also partner with LinkedIn Learning, Udemy, and
Microsoft for digital learning in self-paced programs. More than 164,000 hours of learning were consumed across these platforms in 2023.
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Our annual mentoring program, Mentor Connect, had its largest cohort in 2023, with nearly 650 mentoring pairs. This year’s key focus area was to
continue building our pipeline of tomorrow’s leaders. We expanded our leadership development curriculum and were able to triple our reach to emerging
leaders. In 2023, we had 410 seats allocated for leadership development programs at various career stages.
Another area of employee development is our intentional culture of continuous coaching and feedback through our Impact Conversations program.
In addition, our anytime feedback initiative and appreciation programs empower employees to receive (and give) feedback or kudos from peers, managers,
and leaders at any point during the year. In 2023, 99% of eligible employees received a performance appraisal with feedback from their manager on their
2022 performance.
Lastly, we enable employees to thrive personally and professionally, encouraging and empowering them to adopt mentally and physically healthy
lifestyles. When our employees are at their best, it impacts how they engage at work, their families, and their communities. In 2023, we continued to
encourage the importance of holistic wellbeing through our Be Well platform, with 41% of eligible employees enrolled. We conducted ten company-wide
challenges and led eleven global wellbeing-focused webinars with topics including “Creating a Healthier Lifestyle,” “Eating for Heart Health,” “Beyond
Worry – Supporting Yourself and Others,” “Suicide Prevention,” “Financial Freedom,” and more.
REGULATION
We provide our services to U.S. federal, and state and local governments, as well as international government clients, and we are therefore subject to
certain laws and regulations. Our failure to comply with the complex laws, rules, and regulations applicable to us could cause us to lose business and
subject us to a variety of penalties and sanctions. Additionally, we are subject to various routine and non-routine governmental and other reviews, audits,
and investigations, the results of which could affect our operating results and also subject us to penalties and sanctions. See “Item 1A. Risk Factors -
Compliance Risks” for a more detailed description of the regulatory and compliance risks we face.
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ITEM 1A. RISK FACTORS
The following discussion of “risk factors” sets forth some of the most significant factors that may adversely affect our business, operations, financial
position or future financial performance, reputation, and/or value of our stock. This information should be read in conjunction with the description of our
business, Management’s Discussion and Analysis, and the consolidated financial statements and related notes contained in this Annual Report on Form 10-
K. Because of the following factors, as well as other factors, whether known or unknown, affecting our business, operations, financial position or future
financial performance, reputation, and/or value of our stock, past financial performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate results or trends in future periods.
GOVERNMENT BUDGETING AND SPENDING PRIORITIES RISKS
The failure of Congress to approve appropriations bills in a timely manner for the federal government agencies and departments we support, or
the failure of the Administration and Congress to reach an agreement on fiscal issues, could delay and reduce spending, cause us to lose revenue
and profit, and affect our cash flow.
On an annual basis, Congress is required to approve appropriations bills that govern spending by each of the federal government agencies and
departments we support. When Congress is, or Congress and the Administration are, unable to agree on budget priorities or specifics, and thus unable to
pass annual appropriations bills on a timely basis, Congress typically enacts a continuing resolution. Continuing resolutions generally allow federal
government agencies and departments to operate at spending levels based on the previous fiscal year. When agencies and departments operate on the basis
of a continuing resolution, funding we expect to receive from clients for work we are already performing and for new initiatives may be delayed or
canceled. Congress and the Administration have from time to time failed to agree on a continuing resolution, resulting in temporary shutdowns of non-
essential federal government functions and our work on such functions. Thus, the failure by Congress and the Administration to enact appropriations bills
in a timely manner can result in the loss of revenue and profit when federal government agencies and departments are required to cancel or change existing
or new initiatives or the deferral of revenue and profit to later periods due to shutdowns or delays in implementing existing or new initiatives. There is also
the possibility that Congress will fail to raise the U.S. debt ceiling when necessary which, in addition to resulting in federal government shutdowns, could
significantly impact the U.S. and global economy, affecting the discretionary spending decisions of our non-governmental clients and affecting the capital
markets and our access to sources of liquidity on terms that are acceptable to us. The delayed funding or shutdown of many parts of the federal government,
including agencies, departments, programs, and projects we support, could have a substantial negative affect on our revenue, profit, and cash flows.
Budget compromises that may be needed for future fiscal years may continue to be extraordinarily difficult given the complicated grassroots
political environment, a closely divided Congress, an increasing federal deficit and debt load, and a challenged economy.
The budgets of many of our state and local government clients are also subject to similar divisions, risks, and uncertainties as are inherent in the
federal budget process.
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Government spending priorities may change in a manner adverse to our business.
We derived approximately 55%, 55%, and 47% of our revenue in 2023, 2022, and 2021, respectively, from contracts with federal government
clients, and approximately 21%, 21%, and 24% of our revenue from contracts with state and local governments and international governments in 2023,
2022, and 2021, respectively. Expenditures by our federal government clients may be restricted or reduced by Administration or Congressional actions, by
action of the Office of Management and Budget, by action of individual agencies or departments, or by other actions. In addition, many state and local
governments are not permitted to operate with budget deficits, and nearly all state and local governments face considerable challenges in balancing their
budgets. Accordingly, we expect that, due to changing government budgeting and spending priorities, including necessary balancing of defense spending
with civilian agency spending, and related disputes among Congress and the Administration, some of our government clients in the future may delay
payments due to us, eventually fail to pay what they owe us, and/or delay certain programs and projects. For some government clients, we may face a
difficult choice: turn down (or stop) work due to budget uncertainty with the risk of damaging a valuable client relationship or perform work with the risk
of not being paid in a timely fashion or perhaps at all. Federal, state and local government, and/or international government elections could also affect
spending priorities and budgets at all levels of government. In addition, increased government deficits and debt, both domestic and international, may lead
to reduced spending by agencies and departments on projects or programs we support.
RISKS RELATED TO THE CHANGING BUSINESS ENVIRONMENT IN WHICH WE OPERATE
As we develop new services, clients and practices, enter new lines of business, and focus more of our business on providing a full range of client
solutions, our operating risks increase.
As part of our corporate strategy, we are attempting to leverage our advisory services to sell our full suite of services across the life cycle of a policy,
program, project, or initiative and we are regularly searching for ways to provide new services to clients. In addition, we extend our services to new clients,
lines of business, and selected geographic locations, including outside the U.S., and to seek out cross-border opportunities. As we focus more on our
delivery of a full range of consulting services from advisory through implementation and attempt to develop new services, clients, practice areas, and lines
of business, these efforts could be unsuccessful and adversely affect our results of operations.
Such growth efforts place substantial additional demands on our management and staff, as well as on our information, financial, cash flow, and
administrative and operational systems. We may not be able to manage these demands successfully. Growth may require increased recruiting efforts,
business development, selling, marketing and other actions that are expensive and increase risk. We may need to invest more in our people and systems,
controls, compliance efforts, policies, and procedures than we anticipate. Further, we may need to enhance or modify our systems or processes, or transition
to more efficient or effective ones, and these changes and how we handle them may impact the business. Therefore, even if we do grow, the demands on
our people and systems, controls, compliance efforts, policies, and procedures may adversely affect the quality of our work, our operating margins, and our
operating results, at least in the short-term, and perhaps in the long-term.
Efforts involving a different focus, new services, new clients, new practice areas, new lines of business, and increasing internationalization include
risks associated with our inexperience and competition from mature participants in those areas. Our expansion of services may result in decisions that could
harm our profit and operating results. In particular, implementation and improvement services often relate to the development, implementation, and
improvement of critical infrastructure or operating systems that our clients may view as “mission critical”. If we fail to satisfy the needs of our clients in
providing these services, we could incur reputational damage and clients could claim significant costs and losses for which they could seek compensation
from us.
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RISKS RELATED TO THE GOVERNMENT CONTRACTS BUSINESS
Maintaining our client relationships and professional reputation is critical to our ability to successfully win new contracts and renew expired
contracts.
Our client relationships and professional reputation are key factors in maintaining and growing our business, revenue, and profit levels under
contracts with our clients. We continually bid for and execute new contracts, and our existing contracts regularly become subject to re-competition and
expiration. If we are not able to replace the revenue from these contracts, either through follow-on contracts or new contracts for those requirements or for
other requirements, our revenue and operating results may be adversely affected. On the expiration of a contract, we typically seek a new contract or
subcontractor role relating to that client to replace the revenue generated by the expired contract. There can be no assurance that those expiring contracts we
are servicing will continue after their expiration, that the client will re-procure those requirements, that any such re-procurement will not be restricted in a
way that would eliminate us from the competition (e.g., set asides for small businesses), or that we will be successful in any such re-procurements or in
obtaining subcontractor roles. Any factor that diminishes client relationships and/or professional reputation with federal, state and local, and international
government clients, as well as commercial clients, could make it substantially more difficult for us to compete successfully for new engagements and
qualified employees. To the extent our client relationships and/or professional reputation deteriorate, our revenue and operating results could be adversely
affected.
The diversity of the services we provide, and the clients we serve, may create actual, potential, and perceived conflicts of interest and business
conflicts that limit our growth and could lead to potential liabilities for us.
Because we provide services to a wide array of both government and commercial clients, occasions arise where, due to actual, potential, or
perceived conflicts of interest or business conflicts, we cannot perform work for which we are qualified. A number of our contracts contain limitations on
the work we can perform for others, for example, when we are assisting a government agency or department in developing regulations or enforcement
strategies. Actual, potential, and perceived conflicts limit the work we can do and, consequently, can limit our opportunity for growth and adversely affect
our operating results. In addition, if we fail to address actual or potential conflicts properly, or even if we simply fail to recognize a perceived conflict, we
may be in violation of our existing contracts, may otherwise incur liability, may lose future business for not preventing the conflict from arising, and our
reputation may suffer. Particularly as we continue to grow our commercial business, we anticipate that conflicts of interest and business conflicts will pose
a greater risk.
We derive significant revenue and profit from contracts awarded through a competitive bidding process, which can impose substantial costs on us,
and we will lose revenue and profit if we fail to compete effectively.
We derive significant revenue and profit from contracts that are awarded through competitive bidding processes. Competitive bidding imposes
substantial costs and presents a number of risks, including the:
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Substantial cost and managerial time and effort that we spend to prepare bids and proposals;
Need to estimate accurately the resources and costs that will be required to service any contracts we are awarded, sometimes in advance of
the final determination of their full scope;
Expense and delay that may arise if our competitors protest or challenge awards made to us pursuant to competitive bidding, as discussed
elsewhere; and
Opportunity cost of not bidding on and winning other contracts we may have otherwise pursued.
To the extent we engage in competitive bidding and are unable to win particular contracts, we not only incur substantial costs in the bidding process
that negatively affect our operating results, but we may lose the opportunity to operate in the market for the services provided under those contracts for a
number of years. Even if we win a particular contract through competitive bidding, our profit margins may be depressed, or we may even suffer losses as a
result of the costs incurred through the bidding process and the need to lower our prices to overcome competition.
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Our reliance on GSA Schedule and other IDIQ contracts creates the risk of volatility in our revenue and profit levels.
We believe that one of the elements of our success is our position as a prime contractor under GSA Schedule contracts and other IDIQ contracts, and
we believe this position is important to our ability to sell our services to federal government clients. However, these contract vehicles require us to compete
for each delivery order and task order, rather than having a more predictable stream of activity during the term of a multi-year contract. In addition, we may
spend considerable cost and managerial time and effort to prepare bids and proposals for contracts, delivery orders or task orders that we may not win.
There can be no assurance that we will continue to obtain revenue from such contracts at current levels, or in any amount, in the future. To the extent that
federal government agencies and departments choose to employ GSA Schedule contracts and other IDIQ contracts encompassing activities for which we
are not able to compete or provide services, we could lose business, which would negatively affect our revenue and profitability.
We may not receive revenue corresponding to the full amount of our backlog, or may receive it later than we expect, which could adversely affect
our revenue and operating results.
The calculation of backlog is conditioned on numerous uncertainties and estimates, and there can be no assurance that we will in fact receive the
amounts we have included in our backlog. Our assessment of a contract’s potential value is based on factors such as the amount of revenue we have
recently recognized on that contract under the assumption that future utilization will be similar, historical trends and our experience in utilizing contract
capacity on similar types of contracts, and our professional judgment. In the case of contracts that may be renewed at the option of the client, we generally
calculate backlog by assuming that the client will exercise all of its renewal options; however, the client may elect not to do so. In addition, federal
government contracts rely on Congressional appropriation of funding, which is typically provided only partially at any point during the term of federal
government contracts, and all or some of the work to be performed under a contract may require future appropriations by Congress and the subsequent
allocation of funding by the procuring agency or department to the contract.
Protests of contracts continue to be common in our industry. We do not include contract awards that are subject to a pending protest in our calculation
of backlog. If a contract previously included in backlog becomes the subject of a protest, we would adjust backlog to remove that amount and reassess
following resolution of the protest.
Our estimate of the portion of backlog that we expect to recognize as revenue in any future period may differ from actual results because the receipt
and timing of this revenue often depends on subsequent appropriation and allocation of funding and is subject to various contingencies, such as timing of
task orders and delivery orders, many of which are beyond our control. In addition, we may never receive revenue from some of the engagements that are
included in our backlog, and this risk is greater with respect to unfunded backlog. Although we adjust our backlog to reflect modifications to or renewals of
existing contracts, awards of new contracts, or approvals of expenditures, if we subsequently fail to realize revenue corresponding to our backlog, our
revenue and operating results could be adversely affected.
Our contracts may contain provisions that are unfavorable to us and permit our clients to, among other things, terminate our contracts partially
or completely at any time prior to completion.
Our contracts may contain provisions that allow our clients to terminate or modify these contracts at their convenience on short notice. If a client
terminates one of our contracts for convenience, we would only bill the client for work completed prior to the termination, plus any commitments and
settlement expenses that we may claim and the client agrees to pay, but not for any work not yet performed. In addition, many of our government contracts
and task and delivery orders are incrementally funded as appropriated funds become available. The reduction or elimination of such funding can result in
contract options not being exercised and further work on existing contracts and orders being curtailed. In any such event, we likely would have no right to
seek lost fees or other damages. In addition, certain contracts with international government clients may have more severe and/or different contract clauses
than what we are accustomed to with federal and state and local government clients, such as penalties for any delay in performance. If a client were to
terminate, decline to exercise options under, or curtail further performance under one or more of our major contracts, our revenue and operating results
could be adversely affected.
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Our relationships with other contractors are important to our business and, if disrupted, could cause us damage.
We derive a portion of our revenue from contracts under which we act as a subcontractor or from “teaming” arrangements in which we and other
contractors jointly bid on particular contracts, projects, or programs. As a subcontractor or team member, we often lack control over fulfillment of a
contract. Poor performance on the contract, whether resulting from our performance or the performance of another contractor, could tarnish our reputation,
result in a reduction of the amount of our work under, or termination of, that contract or other contracts, and cause us to not obtain future work, even when
we perform as required. Moreover, our revenue, profit and operating results could be adversely affected if any prime contractor or teammate does not pay
our invoices in a timely fashion, chooses to offer products or services of the type that we provide, teams with other companies to provide such products or
services, or otherwise reduces its reliance upon us for such products or services.
PROFITABILITY RISKS
Our inability to accurately estimate or control our costs on our fixed price contracts may result in a decrease of our operating margins, and in
some cases result in contract losses.
As described elsewhere in this Form 10-K, we have three principal types of contracts with our clients: fixed-price, time-and-materials and cost-
based. We derived 45%, 45%, and 41% of our total revenue from fixed-price contracts in 2023, 2022, and 2021, respectively. Under fixed-price contracts,
we receive a fixed price irrespective of the actual costs we incur and, consequently, we realize a profit on fixed-price contracts only if we can control our
costs and prevent cost overruns while meeting our contractual obligations.
Revenue recognition on fixed-price contracts requires us to make cost and scheduling estimates based on a number of assumptions, including
assumptions about availability of labor, equipment, materials, change in contractual scope, and future economic conditions, among others. While estimates
are inherently subjective and often change, we may experience contract cost overruns as a result of ambiguities in contract specifications, our inability to
meet service-level agreements, inflationary pressures, high demand for skilled labor, unanticipated technical problems, difficulties in obtaining permits or
approvals, changes in local laws or labor conditions, weather delays, inability of our vendors or subcontractors to perform, or for other reasons. Contract
cost overruns that are not reimbursed by our customers, would result in a loss for that project and, if the project is significant or if multiple projects are
impacted, such aggregate overruns may have a material adverse impact on our business and earnings.
Certain lines of business of our commercial work depend on certain sectors of the global economy that are highly cyclical, which can lead to
substantial variations in our revenue and profit from period to period.
Our commercial clients, which include clients outside the U.S., generated approximately 24%, 24%, and 29% of our revenue in 2023, 2022, and
2021, respectively. This reliance on commercial clients presents certain risks and challenges. For example, our commercial work is heavily concentrated in
industries which can be cyclical, such as: energy, air transportation, and environmental services. Demand for our services from our commercial clients has
historically declined when their industries have experienced downturns, and we expect a decline in demand for our services when these industries or their
customer bases experience downturns in the future.
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Our efforts to become involved in engagements that are greater in terms of size, scope and performance demands may result in increased
performance and credit risk.
As we expand our national and global footprint, we may become involved in a greater number of engagements that will be larger in size, scope and
complexity. The increase in size, scope, and complexity of the engagements in which we become involved in subjects us to the potential for a larger impact
of performance risk associated with larger and more challenging engagements and the credit risk associated with certain larger customers, particularly
among our commercial non-U.S. government and non-federal U.S. government clients. Our customers may face unexpected circumstances that adversely
impact their ability to pay their trade payables to us and we may face unexpected borrowing needs or losses as a result. Such circumstances could lead to
our commercial customers filing for bankruptcy. This can ultimately lead to variations in our profit from period to period. We regularly monitor the aging
of receivables and make assessments of the ability of customers to pay amounts due.
Our business could be adversely affected by delays caused by our competitors protesting contract awards received by us, which could stop our
work. Likewise, we may protest the contracts awarded to some of our competitors, a process that takes the time and energy of our management
and may result in additional legal and consultant costs.
Due in part to the competitive bidding process under which government contracts are awarded, we are at risk of incurring expenses and delays if one
or more of our competitors protest contracts awarded to us. Contract protests remain common in our industry and may result in a requirement to resubmit
offers for the protested contract or in the termination, reduction, or modification of the awarded contract. It can take many months to resolve contract
protests and, in the interim, the contracting government agency or department may suspend our performance under the contract pending the outcome of the
protest. Even if we prevail in defending the contract award, the resulting delay in the startup and funding of the work under these contracts may adversely
affect our operating results.
Moreover, in order to protect our competitive position, we may protest the contract awards of our competitors. This process takes the time and
energy of our executives and employees, is likely to divert management’s attention from other important matters and could cause us to incur additional
legal and consultant costs.
COMPLIANCE RISKS
We are subject to various routine and non-routine governmental and other reviews, audits and investigations, and unfavorable results could force
us to adjust previously reported operating results, affect future operating results, and subject us to a variety of penalties and sanctions.
Government departments and agencies we work for, including non-U.S., U.S. federal, and many state and local government clients, review, audit
and investigate our contract performance, pricing practices, cost structure, financial capability, and compliance with applicable laws, rules, and regulations.
We have experienced growth in services related to disaster recovery in recent years, and those activities, by their nature, may become politicized and
involve interaction with multiple tiers of national, state, territorial and local governments, subcontractors, and citizens that increase the risk of claims,
audits, investigations, reviews, monitoring and litigation. Any of these reviews, audits and investigations could raise issues that have significant adverse
effects, including, but not limited to, delayed payments, substantial adjustments to our previously reported operating results and substantial effects on future
operating results. If a government review, audit, or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties
and administrative sanctions, including termination of contracts, repayment of amounts already received under contracts, forfeiture of profits, suspension of
payments, fines, and suspension or debarment from doing business with government agencies and departments, any of which could adversely affect our
reputation, our revenue, our operating results, and/or the value of our stock. In addition, we could suffer serious harm to our reputation and our stock price
could decline if allegations of impropriety are made against us, whether true or not.
Federal government audits have been completed on our incurred contract costs only through 2019 for our NIH-cognizant indirect rates and through
2015 for our USAID-cognizant indirect rates. Audits for costs incurred on work performed since then have not yet been completed. In addition, non-audit
reviews may still be conducted on all of our government contracts, even for periods before 2015.
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PRIVACY, CYBERSECURITY, TECHNOLOGY, AND DATA PROTECTION RISKS
Our operations face continuous and evolving cybersecurity risks.
The continued occurrence of high-profile data breaches of other companies provides evidence of an external environment hostile to information
security. In particular, cybersecurity attacks are increasing in number and sophistication for the Company.
We face a constant risk of cybersecurity threats, whether from deliberate attacks or unintentional events, including computer viruses, attacks by
computer hackers, malicious code, cyber and phishing attacks, and other electronic security breaches such as unauthorized access to our and our clients’
systems. Any of these could lead to disruptions in critical systems, unauthorized releases of confidential or otherwise protected information, and/or
corruption of data. The so-called “insider threat,” the introduction of unauthorized data and changes into systems by employees and contractors, is an
increasingly present risk to be managed.
As a federal government contractor, we face a heightened risk of a security breach or disruption with respect to personally identifiable, controlled
unclassified information, classified, or otherwise protected data resulting from an attack by computer hackers, foreign governments, and/or cyber terrorists.
Improper disclosure of this information could harm our reputation and affect our relationships with business partners, lead to legal exposure, or subject us
to liability under laws, rules, and regulations that protect personal or other confidential data, resulting in increased costs or loss of revenue.
Although we devote significant resources to our cybersecurity programs and have implemented security measures to protect our systems and to
prevent, detect, and respond to cybersecurity incidents, we have been the target of these types of attacks in the past. We have not identified a material
adverse impact on our business or our financial results, individually or in the aggregate, due to being the target of prior cyber attacks. While we are
committed to threat detection and mitigation efforts to reduce such impact, there can be no assurance that our efforts will prevent such attacks or their
impact in the future.
As these security threats continue to evolve, we may be required to devote additional resources to protect, prevent, detect, and respond against
cybersecurity attacks, system disruptions, and security breaches. Moreover, we also rely in part on third-party software and information technology vendors
to run our information systems. Any failure of these third-party systems, which are outside of our control but still impact us, could have similar adverse
effects.
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Impermissible use, misuse or an improper disclosure of personal data or confidential information and breaches of, or disruptions to, our
information technology systems or those of our third-party providers, could adversely affect our business and could result in liability and harm to
our reputation.
We and our vendors process increasingly large amounts of sensitive personal data (collectively, “Personal Data”) concerning our existing and
potential employees, clients, client customers, vendors, or other third parties (collectively, “Data Subjects”), as well as handle confidential information on
our clients’ behalf. Therefore, we must ensure that we, as well as our vendors, can comply and demonstrate compliance with the various countries’ and U.S.
states’ privacy and data protection laws, rules, and regulations (collectively, “Privacy and Data Protection Law(s)”) in any location where we or our vendors
process Data Subjects’ Personal Data. Privacy and Data Protection Laws often vary significantly, and the changes to existing laws and adoption of new,
more rigorous laws occurs on an increasing basis. For example, the European Union’s (“E.U.”) General Data Protection Regulation (“GDPR”) requires us
to meet stringent requirements regarding (i) our access, use, disclosure, transfer, protection, or other processing of Personal Data; and (ii) the ability of Data
Subjects to exercise their related various rights such as to access, correct, or delete their Personal Data. The 2018 California Consumer Privacy Act
(“CCPA”), which went into effect January 2020, now imposes similar requirements. New privacy laws in California, Colorado, Virginia, and other states
took effect in 2023, with others likely to follow. Several privacy bills have also been introduced in Congress. Key markets in the Asia-Pacific region have
also recently adopted GDPR-like legislation, including China’s new Personal Information Protection Law. Failure to meet Privacy and Data Protection Law
requirements could result in significant civil penalties (including fines up to 4% of annual worldwide revenue under the GDPR) as well as criminal
penalties. Privacy and Data Protection Law requirements also confer a private right of action in some countries, including under the GDPR. We may incur
substantial costs associated with protecting Personal Data and maintaining compliance with the various Privacy and Data Protection Laws, including
restrictions on international data transfers, particularly in light of the increasing scrutiny by supervisory authorities. These costs could adversely affect our
results of operations. In addition, any inability, real or perceived, to adequately address privacy and data protection concerns, or to comply with applicable
Privacy and Data Protection Laws, policies, industry standards, or contractual obligations could result in additional cost and liability to us, damage our
reputation, negatively impact our ability to win new contracts or process Personal Data in certain geolocations, and otherwise adversely affect our business.
Systems and/or service failures could interrupt our operations, leading to reduced revenue and profit.
Any interruption in our operations or any systems failures, including, but not limited to: (i) the inability of our staff to perform their work in a timely
fashion, whether caused by limited access to and/or closure of our and/or our clients’ offices or otherwise; (ii) the failure of network, software, and/or
hardware systems; and (iii) other interruptions and failures, whether caused by us, a third-party service provider, unauthorized intruders/ hackers, computer
viruses, natural disasters, power shortages, terrorist attacks, or otherwise, could cause loss of data and interruptions or delays in our business or that of our
clients, or both. In addition, the failure or disruption of mail, communications and/or utilities could cause an interruption or suspension of our operations or
otherwise harm our reputation or business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may
occur as a result of any system or operational failure or disruption and, as a result, revenue, profits, and operating results could be adversely affected.
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We depend on our intellectual property and our failure to protect it could harm our competitive position.
Our success depends in part upon our internally developed technology and models, proprietary processes, and other intellectual property that we
incorporate in our products and utilize to provide our services. If we fail to protect our intellectual property, our competitors could market services or
products similar to our services and products, which could reduce demand for our offerings. Government clients typically retain a perpetual, worldwide,
royalty-free right to use the intellectual property we develop for them in a manner defined within government regulations, including providing it to other
government agencies or departments, as well as to our competitors in connection with their performance of government contracts. When necessary, we seek
authorization to use intellectual property developed for the government or to secure export authorization. Government clients may grant us the right to
commercialize software developed with government funding, but they are not required to do so. If we improperly use intellectual property that was even
partially funded by government clients, these clients could seek damages and royalties from us, sanction us, and prevent us from working on future
government contracts. Actions could also be taken against us if we improperly use intellectual property belonging to others besides our government clients.
In addition, there can be substantial costs associated with protecting our intellectual property, which can also have an adverse effect on our results of
operations.
RISKS RELATED TO ACQUISITIONS
When we undertake acquisitions, they may present integration challenges, fail to perform as expected, increase our liabilities, and/or reduce our
earnings.
One of our growth strategies is to make strategic acquisitions. When we complete acquisitions, it may be challenging and costly to integrate the
acquired businesses due to operating and integrating new accounting systems, differences in the locations of personnel and facilities, differences in
corporate cultures, disparate business models, or other reasons. If we are unable to successfully integrate acquired companies, our revenue and operating
results could suffer. In addition, we may not successfully achieve the anticipated cost efficiencies and synergies from these acquisitions. Also, our costs for
managerial, operational, financial, and administrative systems may increase and be higher than anticipated. During and following the integration of an
acquired business, we may experience attrition, including losing key employees and/or clients of the acquired business, which could adversely affect our
future revenue and operating results and prevent us from achieving the anticipated benefits of the acquisition.
The businesses we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover through due diligence or
underestimate prior to the consummation of the acquisition. These liabilities and/or issues may include the acquired business’ failure to comply with, or
other violations of, applicable laws, rules, or regulations or contractual or other obligations or liabilities. As the successor owner, we may be financially
responsible for, and may suffer harm to our reputation or otherwise be adversely affected by, such liabilities and/or issues. An acquired business also may
have problems with internal controls over financial reporting, which could in turn cause us to have material deficiencies or material weaknesses in our own
internal controls over financial reporting. These and any other costs, liabilities, issues, and/or disruptions associated with any past or future acquisitions,
and the related integration, could harm our operating results.
As a result of our acquisitions, we have substantial amounts of goodwill and intangible assets, and changes in business conditions could cause these
assets to become impaired, requiring write-downs that would adversely affect our operating results.
All of our acquisitions have involved purchase prices in excess of tangible asset values net of liabilities assumed, resulting in the creation of an
increased amount of goodwill and other intangible assets. As of December 31, 2023, goodwill and purchased intangibles accounted for approximately 61%
and 5%, respectively, of our total assets. Under U.S. generally accepted accounting principles, we do not amortize goodwill acquired in a purchase business
combination. We evaluate the recoverability of recorded goodwill annually, as well as when events or circumstances indicate there may be an impairment
or if we have a material change in reporting units. Although we have to date determined that goodwill has not been impaired, future events or changes in
circumstances that result in an impairment of goodwill or intangible assets would have a negative impact on our profitability and operating results.
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RISKS RELATED TO OUR CORPORATE AND CAPITAL STRUCTURE
Provisions of our charter documents and Delaware law may prevent or deter potential acquisition bids to acquire us and other actions that
stockholders may consider favorable, and the market price of our common stock may be lower as a result.
Our charter documents contain the following provisions that could have an anti-takeover effect:
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Our board of directors (the “Board”) is divided into three classes, making it more difficult for stockholders to change the composition of the
Board;
Directors may be removed only for cause;
Our stockholders are not permitted to call a special meeting of the stockholders;
All stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting or by a written consent signed
by all of our stockholders;
Our stockholders are required to comply with advance notice procedures to nominate candidates for election to our Board or to place
stockholders’ proposals on the agenda for consideration at stockholder meetings; and
The approval of the holders of capital stock representing at least two-thirds of our voting power is required to amend our indemnification
obligations, director classifications, stockholder proposal requirements, and director candidate nomination requirements set forth in our
amended and restated certificate of incorporation and amended and restated bylaws.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate
acquisitions. These provisions could discourage potential acquisition proposals; delay or prevent a change-in-control transaction; discourage others from
making tender offers for our common stock; and/or prevent changes in our management.
There are risks associated with our outstanding and future indebtedness which could reduce our profitability, limit our ability to pursue certain
business opportunities, and reduce the value of our stock.
At our discretion, we borrow funds from our various credit facilities (the “Credit Facility”) under a credit agreement with a group of lenders. As of
December 31, 2023, we had an aggregate of $430.4 million of outstanding indebtedness (net of unamortized debt issuance costs) that will mature on May 6,
2027. Subject to the limits contained in the agreements governing our Credit Facility, we may incur additional debt in the future to fund our ongoing
operations as well as acquisitions. Our ability to pay interest and repay the principal for our indebtedness from time to time, as well as meet our financial
and operating covenant requirements, is dependent upon our ability to, among other things, manage our business operations, and generate sufficient cash
flows to service such debt. If we are unable to comply with the terms of our financing agreements or obtain additional required financing, this could
ultimately result in a material adverse effect on our financial results and the value of our stock. Among other things, our debt could:
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Make it difficult to obtain additional financing for working capital, capital expenditures, acquisitions, or other general corporate purposes;
Result in a substantial portion of our cash flows from operations being dedicated to the payment of the principal and interest on our debt, as
well as used to make debt service payments;
Limit our flexibility in planning for, and reacting to, changes in our business and the marketplace;
Place us at a competitive disadvantage relative to other less leveraged firms; and
Increase our vulnerability to economic downturns and rises in interest rates.
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Should any of these or other unforeseen consequences arise, they could have an adverse effect on our business, financial condition, results of
operations, future business opportunities and/or ability to satisfy our obligations under our debt.
We cannot assure you that we will pay special or regular dividends on our stock in the future.
The Board has authorized, declared and paid regular dividends each quarter since 2018. The declaration of any future dividends and the
establishment of the per share amount, record dates and payment dates for any such future dividends are subject to the discretion of the Board taking into
account future earnings, cash flows, net income, dividend yield and other factors. Authorization of dividends by the Board is subject to
adherence/compliance with our Credit Facility. There can be no assurance that the board of directors will declare any dividends in the future. To the extent
that expectations by market participants regarding the potential payment, or amount, of any special or regular dividend prove to be incorrect, the price of
our common stock may be materially and negatively affected and investors that bought shares of our common stock based on those expectations may suffer
a loss on their investment.
GENERAL RISK FACTORS
Failure to identify, hire, train, and retain talented employees who are committed to our mission and vision could have a negative effect on our
reputation and our business.
Our business, which entails the provision of professional services to government and commercial clients, largely depends on our ability to attract and
retain qualified employees who are often in demand. Additionally, as our business continues to evolve, as we acquire new businesses, and as we provide a
wider range of services, we become increasingly dependent on the capabilities of our employees in order to meet the needs of our diverse client base. If we
are unable to recruit and retain a sufficient number of qualified employees that are committed to our mission and vision, we may incur higher costs related
to an increase in subcontractors, hiring, training, and retention.
We also rely on key senior members of management. As a result, effective succession planning is important to our long-term success. Failure to
ensure effective transfer of knowledge and smooth transitions involving these key employees could hinder our strategic planning and execution as well as
impair our ability to effectively serve our clients and maintain and grow our business. Such developments could adversely affect our future revenue and
operating results.
Changes to U.S. tax laws may adversely affect our financial condition or results of operation and create the risk that we may need to adjust our
accounting for these changes.
We are subject to taxation in the U.S. and in certain foreign jurisdictions in which we operate, and any changes to income tax laws and rules and
regulations could adversely affect our business and our results of operations.
Our failure to comply with complex laws, rules, and regulations could cause us to lose business and subject us to a variety of penalties and
sanctions.
We must comply with laws, rules, and regulations that affect how we do business with our government clients and impose added costs on our
business. Each government client has its own laws, rules, and regulations that affect its contracts. Some of the more significant laws and regulations
affecting the formation, administration, and performance of U.S. government contracts include:
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U.S. Federal Acquisition Regulation, as well as Cost Accounting Standards, and agency and department regulations analogous or
supplemental to federal regulation;
U.S. Foreign Corrupt Practices Act;
U.S. Truthful Cost or Pricing Data Act (formerly known as the Truth in Negotiations Act);
U.S. Procurement Integrity Act;
U.S. Civil False Claims Act and the False Statements Act; and
U.S. laws, rules, and regulations restricting (i) the use and dissemination of information classified for national security purposes, (ii) the
exportation of specified products, technologies, and technical data, and (iii) the use and dissemination of sensitive but unclassified data.
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Any failure to comply with applicable federal, and/or state and local government laws, rules, and regulations could subject us to civil and criminal
penalties and administrative sanctions, including termination of contracts, repayment of amounts already received under contracts, forfeiture of profits,
suspension of payments, fines, and suspension or debarment from doing business with federal and/or state and local government agencies and departments,
any of which could adversely affect our reputation, our revenue, our operating results, and/or the value of our stock.
In addition, the federal government and other governments with which we do business may change their procurement practices or adopt new
contracting laws, rules, or regulations that could be costly to satisfy or that could impair our ability to obtain new contracts and reduce our revenue and
profit, such as curtailing the use of services firms or increasing the use of firms with a “preferred status,” such as small businesses.
In addition to our U.S. operations, we also have a significant presence in key markets outside the U.S., including offices in the U.K., Belgium, India,
and Canada. Failure to abide by laws, rules, and regulations applicable to us because of our work outside the U.S., such as the U.K. Bribery Act 2010 and
the GDPR, could have similar effects to those described above.
Our international operations pose additional risks to our profitability and operating results.
We have offices in the U.K., Belgium, India, and Canada, among others, and expect to continue to have international operations and offices, some of
which are in economically developing countries that do not have a well-established business infrastructure. We also perform work in some countries where
we do not have a physical office. Some of the countries in which we work have a history of political instability or may expose our employees and
subcontractors to physical danger over and above pandemic-related risk. Expansion into selective new geographic regions requires considerable
management and financial resources, the expenditure of which may negatively impact our results, and we may never see any return on our investment.
Our international operations are subject to risks associated with operating in, and selling to and in, countries other than the U.S., that could, directly
or indirectly, adversely affect our international and domestic operations and our overall revenue, profit, and operating results including, but not limited to:
•
•
•
•
•
Compliance with the laws, rules, regulations, policies, legal standards, and enforcement mechanisms of the U.S. and the other countries in
which we operate, including bribery and anti-corruption laws, economic sanctions, trade restrictions, local tax and income laws, and local
labor and employment laws, which are sometimes inconsistent;
Restrictions on the ability to repatriate profits to the U.S. or otherwise move funds;
Potential personal injury to personnel who may be exposed to military conflicts and other hostile situations in foreign countries;
Expropriation and nationalization of our assets or those of our subcontractors, and other inabilities to protect our property rights; and/or
Difficulties in managing and staffing such operations, including obtaining work permits or visas, identifying qualified local employees,
operating according to different local labor laws and regulations, dealing with different local business cultures and practices, and collecting
contract receivables.
In addition, because of our work with international clients, certain of our revenues and costs are denominated in other currencies, then translated to
U.S. dollars for financial reporting purposes. Our revenues and profits may decrease as a result of currency fluctuations and devaluations and limitations on
the conversion of foreign currencies into U.S. dollars and in the conversion between foreign currencies. We may, from time to time, have forward contract
agreements (“hedges”) related to our operations in the U.K. to hedge the remeasurement between the Euro and the pound sterling. We recognize the
changes in the fair value of the economic hedges in our results of operations. We cannot be sure that our hedges will be successful in reducing the risks to
us of our exposure to foreign currency fluctuations and, in fact, the hedges may adversely affect our operating results.
31
Presently, there is active armed conflict across the territory of Ukraine as a result of a Russian invasion. The war has impacted member states of the
E.U. in a variety of ways, including through their provision of weapons, humanitarian supplies, and substantial financial support to Ukraine, and their
absorption of millions of Ukrainian refugees. While no E.U. member states have become active participants in the conflict, a number of them have greatly
increased their defense preparations and investments, reflecting a wholesale shift in the security environment on the continent. It is not currently foreseen
that an immediate diplomatic resolution to the conflict is likely. In such an environment, it is possible that E.U. spending priorities may shift suddenly, that
our current programs could be disrupted, and that our future opportunities could be diminished.
Health epidemics, pandemics, and similar outbreaks may have material adverse effects on our business, financial position, results of
operations, and/or cash flows.
We face various risks and uncertainties related to health epidemics, pandemics, and similar outbreaks. These risks relate to, among other things, the
demand for our services, the availability of our staffing and business partners, a possible slowdown of client decision-making as to our services, a
significant deterioration of global supply chains and other business conditions, and a possible reprioritization of spending by our clients.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
As discussed in the “Item 1A. Risk Factors – Privacy, Cybersecurity, Technology, and Data Protection Risks”, we face certain ongoing risks from
cybersecurity threats and recognize the critical importance of effective cybersecurity risk management in today's interconnected digital landscape. As part
of our commitment to safeguarding our operations, sensitive data, and stakeholder trust, we have implemented robust cybersecurity practices and
governance.
Cybersecurity Risk Management Program
We regularly assess and identify potential cybersecurity risks that could impact our business, financial condition, or reputation. Our risk assessment
process includes:
•
•
•
•
Enterprise Risk Management: We maintain an enterprise risk management process that embeds cybersecurity within the risk assessment
strategy.
Threat Landscape Analysis: We monitor emerging threats, vulnerabilities, and attack vectors relevant to our industry and business operations.
Risk Scenarios: We evaluate potential scenarios, with considerations to both internal and external threats, to understand their potential impact.
Risk Quantification: We assess the likelihood and potential financial, operational, and reputational impact of identified risks.
Our risk mitigation strategy focuses on measures to prevent, detect, and respond to cybersecurity incidents. The primary components of our risk
mitigation strategy include:
•
•
•
•
Security Controls: We maintain a comprehensive set of controls aligned with industry standards such as the National Institute of Standards
and Technology (“NIST”) and the International Organization of Standards (“ISO”) 27001 to protect our systems, networks, and data.
Incident Response Plan: We have a well-defined incident response plan that outline roles, responsibilities, and procedures for handling
cybersecurity incidents.
Employee Training and Awareness: We have training programs to ensure that our employees understand their role in maintaining a secure
environment and recognize potential threats.
Third-party Risk Assessment and Management: We assess and manage cybersecurity risks associated with our vendors, partners, and service
providers.
32
Our approach to information security follows a defense-in-depth methodology in which security is embedded throughout the system architecture.
Technical controls rely on proven technologies, such as network-based intrusion detection systems, next generation firewalls with advanced threat
detection, secure server networks, demilitarized zones, and endpoint detection and response capabilities. Security techniques, such as encryption at rest and
encryption in transit, are used to incorporate relevant practices. We undergo annual third-party security assessments such as security control compliance
reviews, incident response exercises, penetration testing, and red team drills to maintain the effectiveness of the security program.
Our critical corporate information systems are maintained in a commercial grade data center with climate controls, fire suppression, redundant
power, and several telecommunication options. The data center is designed to host mission-critical computer systems with fully redundant subsystems and
compartmentalized security zones. Our primary data center also undergoes independent assessment on an annual basis. Our computing infrastructures are
protected by multiple independent layers of security measures managed by the corporate information security department. Our approach to accessing
protected networks is based on the principle of least privilege.
Notwithstanding the vigorous approach we take to cybersecurity, we may not always be successful in preventing or mitigating a cybersecurity
incident that could have a material adverse effect on us. To date, we have not identified cybersecurity risks, threats, or incidents that have materially
affected us, including our operations, business strategy, results of operations, or financial conditions.
Cybersecurity Governance and Oversight
Our Board, directly or through its committees, is responsible for the oversight of the Company's overall enterprise risk management program that
includes cybersecurity risks. Our Audit Committee regularly reviews and evaluates cybersecurity risks and the procedures and policies implemented by
management to identify, manage, and mitigate such risks.
Management is responsible for day-to-day assessment and management of cybersecurity risks. Our Chief Information Officer (the “CIO”) has
primary oversight of material risks from cybersecurity threats. He has over 40 years of professional experience across various engineering, business and
management roles. Directly reporting to our CIO is our Deputy Chief Information Officer (“the Deputy CIO”), with over 30 years of experience leading
implementation of various IT infrastructure and systems, and our Chief Information Security Officer (the “CISO”), with over 20 years of specific cyber
security experience and is responsible for maintaining compliance with applicable security requirements. The CIO and the CISO have a combined tenure of
over 33 years with the Company in various progressive management roles in information systems and technology and information security.
The CIO and the CISO conducts regular meetings with the Audit Committee and the Board to communicate updates on cybersecurity risks,
incidents, and mitigation efforts. The CISO and our security staff provides ongoing support to internal operations and oversight to our systems that offer
services to our clients within our enterprise network. Our security staff is also augmented through an industry-recognized security operations center where
systems are continuously monitored.
ITEM 2. PROPERTIES
We lease our offices and do not own any real estate. As of December 31, 2023, we leased approximately 208,274 square feet of office space at our
corporate headquarters at 1902 Reston Metro Plaza, Reston, Virginia (in the Washington, D.C. metropolitan area) through May 2039 (the “Reston Office”).
The Reston Office houses a portion of our operations and almost all of our corporate functions, including most of our staff within executive management,
treasury, accounting, legal, human resources, business and corporate development, facilities management, information services, and contracts.
As of December 31, 2023, we had leases in place for approximately 970,843 square feet of office space in more than 70 office locations throughout
the U.S. and around the world, with various lease terms expiring over the next fifteen years. We continually review our need for office space, and we
believe that our current office space, as well as other future office space we expect to be able to obtain in the lease marketplace, will be sufficient to meet
our office space needs.
33
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal matters and proceedings arising in the ordinary course of business. While these matters and proceedings cause us to
incur costs, including, but not limited to, attorneys’ fees, we currently believe that any ultimate liability arising out of these matters and proceedings will
not have a material adverse effect on our financial position, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
34
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
PART II
Market Information
Our common stock trades on the NASDAQ Global Select Market under the symbol “ICFI.”
Holders
As of February 23, 2024, there were 26 registered holders of record of our common stock. This number is not representative of the number of
beneficial holders because many of the shares are held by depositories, brokers, or nominees.
Dividends
We currently expect to continue paying dividends comparable with our historic dividend payments. The declaration and payment of any dividends is
at the sole discretion of our Board and is not guaranteed. Our Credit Facility contains certain restrictions related to the payment of cash dividends, requiring
us to meet certain covenants prior to and after the declaration of any dividend.
35
Stock Performance Graph
The following graph compares the cumulative total stockholder return on our common stock from December 31, 2018 through December 31, 2023,
with the cumulative total return on (i) the NASDAQ Composite, (ii) the Russell 2000 stock index, and (iii) the S&P 1500 companies having GICS Code
2020 Commercial & Professional Services.
The comparison below assumes an initial investment of $100.00 on December 31, 2018 in which all dividends (if any) are reinvested and all returns
are market-cap weighted. The historical information set forth below is not necessarily indicative of future performance.
36
$
ICF International, Inc.
NASDAQ Composite
Russell 2000 Index
S&P Composite 1500
Commercial &
Professional Services
Year Ended December 31,
2018
2019
2020
2021
2022
2023
100.00 $
100.00
100.00
100.00
$
177.20
136.69
125.52
135.88
$
144.95
198.10
150.58
$
201.18
242.03
172.90
$
195.41
163.28
137.56
265.74
236.17
160.85
160.43
202.40
182.94
215.78
Recent Sales of Unregistered Securities
None.
Share Repurchase Program
In September 2017, the Board approved a share repurchase program that authorizes share repurchases in the aggregate up to $100.0 million. In
November 2021, the Board approved an increase to the share repurchase program to a new limit of $200.0 million, inclusive of the prior limit. During the
year ended December 31, 2023, we repurchased 180,000 shares under this program at an average price of $100.70 per share. As of December 31, 2023,
$93.7 million of authority remained available for share repurchases.
The objective of our share repurchase program is to offset dilution resulting from employee stock compensation. Under the program, purchases can
be made from time to time at prevailing market prices in open market purchases or in privately negotiated transactions pursuant to Rules 10b5-1 and 10b-18
under the Exchange Act, and in accordance with applicable insider trading and other securities laws and regulations. The timing and extent to which we
repurchase our shares will depend upon market conditions and other corporate considerations, as may be considered in our sole discretion. The purchases
will be funded from existing cash balances and/or borrowings and the repurchased shares will be held in treasury. Our Credit Facility permits annual share
repurchases of at least $25 million provided that the Company is not in default of its covenants, and higher amounts provided that our Consolidated
Leverage Ratio, prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then-applicable maximum Consolidated Leverage Ratio and
subject to a net liquidity of $100.0 million after giving effect to such purchases.
37
Repurchases of Equity Securities
The following table summarizes the share repurchase activity for the three months ended December 31, 2023 for our share repurchase plan and
shares purchased in satisfaction of employee tax withholding obligations related to the settlement of restricted stock units.
Period
October 1 – October 31
November 1 – November 30
December 1 – December 31
Total
Total
Number of
Shares
Purchased (a)
Average
Price Paid
per Share (a)
Total Number
of Shares Purchased
as Part of Publicly
Announced Plans
or Programs (b)
—
4,935
—
4,935
$
$
$
$
—
126.64
—
126.64
— $
— $
— $
—
Approximate Dollar
Value of Shares that
May Yet Be
Purchased
Under the Plans or
Programs (b)
93,743,956
93,743,956
93,743,956
a)
b)
The total number of shares purchased includes any shares repurchased pursuant to our share repurchase program described further in footnote
(b) below, as well as shares purchased from employees to pay required withholding taxes related to the settlement of restricted stock units in
accordance with our applicable long-term incentive plan. During the three months ended December 31, 2023, we repurchased 4,935 shares of
common stock from employees in satisfaction of tax withholding obligations at an average price of $126.64 per share.
The current share repurchase program authorizes share repurchases in the aggregate up to $200.0 million. Our Credit Facility permits annual
share repurchases of at least $25 million provided that the Company is not in default of its covenants, and higher amounts provided that our
Consolidated Leverage Ratio prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then-applicable maximum
Consolidated Leverage Ratio and subject to a net liquidity of $100.00 million. For additional information on the share repurchase program,
see “Note 18 - Share Repurchase Program” in our financial statements.
ITEM 6. [RESERVED]
38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item
8.“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties, and assumptions, such as statements of our plans, objectives, expectations, and intentions. The cautionary statements made
in this Annual Report on Form 10-K should be read as applying to all related forward-looking statements wherever they appear in this Annual Report on
Form 10-K. Our actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to
our actual results differing materially from those anticipated include those discussed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2022 items
and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which
was filed with the SEC on March 1, 2023, and is incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW AND OUTLOOK
We provide professional services and technology-based solutions, including management, technology, and policy consulting and implementation
services. We help our clients conceive, develop, implement, and improve solutions that address complex business, natural resource, social, technological,
and public safety issues. Our services primarily support clients that operate in four key markets:
•
•
•
Energy, Environment, Infrastructure, and Disaster Recovery;
Health and Social Programs; and
Security and Other Civilian & Commercial
We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative. Our
primary services include:
•
•
•
•
•
Advisory Services;
Program Implementation Services;
Analytics Services;
Digital Services; and
Engagement Services.
Our clients utilize our services because we combine diverse institutional knowledge and experience with the deep subject matter expertise of our
highly educated staff, which we deploy in multi-disciplinary teams. We have successfully worked with many of our clients for decades, with the result that
we have a thorough and nuanced perspective of their objectives and needs. We serve both governmental and commercial clients. Our government clients
include those from departments and agencies of the federal government, state and local governments, and international governments. Our government
efforts include work performed under subcontract agreements to commercial clients whose ultimate customers are government agencies and departments.
Our largest clients are U.S. federal government departments and agencies. Our federal government clients have included every cabinet-level
department, most significantly HHS, DoD, and DoS. Federal government clients generated approximately 55%, 55%, and 47% of our revenue in 2023,
2022, and 2021, respectively. State and local government clients generated approximately 16%, 15%, and 15% of our revenue in each of 2023, 2022, and
2021, respectively. International government clients generated approximately 5%, 6%, and 9% of our revenue in 2023, 2022, and 2021, respectively.
39
We also serve a variety of commercial clients worldwide, including: airlines, airports, electric and gas utilities, health care companies, banks and
other financial services companies, transportation, non-profits/associations, manufacturing firms, retail chains, and distribution companies. Our commercial
clients, which include clients outside the U.S., generated approximately 24%, 24%, and 29% of our revenue in 2023, 2022, and 2021, respectively. We
believe that our domain expertise and the program knowledge developed from our research and analytics, and assessment and advisory engagements further
position us to provide a full suite of services.
We report operating results and financial data as a single segment based on the consolidated information used by our chief operating decision-maker
in evaluating the financial performance of our business and allocating resources. Our single segment represents our core business: professional services to
our broad array of clients. Although we describe our multiple service offerings to clients that operate in three markets to provide a better understanding of
the scope and scale of our business, we do not manage our business or allocate our resources based on those service offerings or client markets. Rather, on a
project-by-project basis, we assemble the best team from throughout the enterprise to deliver highly customized solutions that are tailored to meet the needs
of each client.
We believe that, in the long-term, demand for our services will continue to grow as government, industry, and other stakeholders seek to address
critical long-term societal and natural resource issues due to heightened concerns about the environment and use of clean energy and energy efficiency;
health promotion, treatment, and cost control; the means by which healthcare can be delivered effectively on a cross-jurisdiction basis; natural disaster
relief and rebuild efforts; and ongoing homeland security threats. In the wake of the major hurricanes (Ian, Harvey, Ida, Idalia, Irma, Maria, Laura and
Michael) that devastated communities in Texas, Florida, North Carolina, Louisiana, the U.S. Virgin Islands, and Puerto Rico, the affected areas remain in
various stages of relief and recovery efforts. We believe our prior and current experience with disaster relief and rebuild efforts, including after hurricanes
Katrina and Rita and Superstorm Sandy, put us in a favorable position to continue to provide recovery and housing assistance, and environmental and
infrastructure solutions, including disaster mitigation, on behalf of federal departments and agencies, state, territorial, and local jurisdictions, and regional
agencies.
We also see significant opportunity to further leverage our digital and client engagement capabilities across our client base. Our future results will
depend on the success of our strategy to enhance our client relationships and seek larger engagements that span the entire program life cycle, and to
complete and successfully integrate additional strategic acquisitions. We will continue to focus on building scale in our vertical and horizontal domain
expertise, developing business with our existing clients as well as new customers, and replicating our business model in selective geographies. In doing so,
we will continue to evaluate strategic acquisition opportunities, such as our acquisitions of ESAC and Creative Systems in 2021, SemanticBits and Blanton
in 2022, and CMY in 2023 that enhance our subject matter knowledge, broaden our service offerings, gain access to or expand customer relationships,
and/or provide scale in specific geographies. Although we continue to see favorable long-term market opportunities, there are certain business challenges
facing all government service providers. Administrative and legislative actions by the federal government to address changing priorities or in response to
the budget deficit could have a negative impact on our business, which may result in a reduction to our revenue and profit and adversely affect cash flow.
Similarly, the very nature of opportunities arising out of disaster recovery means they can involve unusual challenges. Factors such as the overall stress on
communities and people affected by disaster recovery situations, political complexities and challenges among involved government agencies, and a higher-
than-normal risk of audits and investigations may result in a reduction to our revenue and profit and adversely affect cash flow; however, we believe we are
well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the federal government, as well as to state
and local and international governments and commercial clients. We believe that the combination of internally generated funds, available bank borrowings,
and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund ongoing operations, potential acquisitions,
customary capital expenditures, and other working capital requirements.
40
Our results of operations and cash flows may vary significantly from quarter to quarter depending on a number of factors, including, but not limited
to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Progress of contract performance;
Extraordinary economic events and natural disasters;
Number of billable days in a quarter;
Timing of client orders;
Timing of award fee notices;
Changes in the scope of contracts;
Variations in purchasing patterns under our contracts;
Federal and state and local governments’ and other clients’ spending levels;
Federal government shutdowns;
Timing of billings to, and collection of payments from, clients;
Timing of receipt of invoices from, and payments to, employees and vendors;
Commencement, completion, and termination of contracts;
Strategic decisions, such as acquisitions, consolidations, divestments, spin-offs, joint ventures, strategic investments, and changes in business
strategy;
Timing of significant costs and investments (such as bid and proposal costs and the costs involved in planning or making acquisitions);
Timing of events related to discrete tax items;
Our contract mix and use of subcontractors or the timing of other direct costs for which we may earn lower contract margin;
Changes in contract margin performance due to performance risks;
Additions to, and departures of, staff;
Changes in staff utilization;
Paid time off taken by our employees;
Level and cost of our debt;
Changes in accounting principles and policies; and/or
General market and economic conditions.
Because a significant portion of our expenses (such as personnel, facilities, and related costs) are fixed in the short-term, contract performance and
variation in the volume of activity, as well as in the number and volume of contracts commenced or completed during any year, may cause significant
variations in operating results from year to year. We generally have been able to price our contracts in a manner that accommodates the rates of inflation
experienced in recent years, although we cannot ensure that we will be able to do so in the future.
41
BUSINESS COMBINATIONS
A key element of our growth strategy is to pursue acquisitions. During the previous three fiscal years, we completed five acquisitions summarized as
follows:
ESAC – In November 2021, we acquired ESAC, one of the leading specialized providers of advanced health analytics, research data management,
and bioinformatics solutions to U.S. federal health agencies.
Creative Systems and Consulting – In December 2021, we acquired Creative Systems, a premier provider of IT modernization and digital
transformation solutions to U.S. federal agencies.
SemanticBits, LLC – In July 2022, we acquired SemanticBits, a premier partner to U.S. federal health agencies for mission-critical digital
modernization solutions.
Blanton & Associates – In September 2022, we acquired Blanton & Associates, an environmental consulting, planning, and project management
firm.
CMY Solutions, LLC – In May 2023, we acquired CMY, an engineering and automation solutions provider to utilities and organizations.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our discussion of financial condition and results of operations is based on our consolidated financial statements prepared in accordance with U.S.
generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make certain estimates,
assumptions, and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. If any of these estimates, assumptions or
judgments prove to be incorrect, our reported results could be materially affected. Actual results may differ significantly from our estimates under different
assumptions or conditions.
We believe that the estimates, assumptions, and judgments involved in the accounting practices described below have the greatest potential impact
on our financial statements and, therefore, consider them to be critical accounting policies. Significant accounting estimates are more fully described and
discussed in “Note 2 - Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements”.
Revenue Recognition
We generate our revenue by primarily providing services and technology-based solutions for clients. We enter into agreements with clients that
create enforceable rights and obligations and for which it is probable that we will collect the consideration to which we will be entitled as services and
solutions are provided to the client.
Our contracts may be partially funded, often incrementally in annual amounts. We determine the transaction price based on the history of funding,
the client's need for the program, the length of time before funding is available, and the client's intent and ability to fund and include the unfunded portion
of the contract if it is probable that it will be funded based on these criteria.
For contracts with multiple performance obligations and for customized solutions in which the pricing is based on specific negotiations with each
client, we use a cost-plus margin approach to estimate the standalone selling price of each performance obligation. We generally recognize revenue over
time as services and performance obligations are transferred to the client, based on the extent of progress towards satisfaction of the performance
obligation. The selection of the method used to measure progress requires judgment and, among other things, is dependent on the contract type selected by
the client during contract negotiation and the nature of the services and solutions to be provided.
For cost-based contracts, we recognize revenue as a single performance obligation based on contract costs incurred, as we become contractually
entitled to reimbursement of the contract costs, plus a most likely estimate of award or incentive fees earned on those costs even though final determination
of fees earned occurs after the contractually stipulated performance assessment period ends. For the years ended December 31, 2023, 2022, and 2021,
revenue from cost-based contracts totaled $265.3 million, $263.7 million, and $274.1 million, respectively.
42
For performance obligations requiring the delivery of a service for a fixed price, we use the ratio of actual costs incurred to total estimated costs at
completion (“EAC”) provided that costs incurred (an input method) represents a reasonable measure of progress towards the satisfaction of a performance
obligation, in order to estimate the portion of total revenue earned. Contract costs that are not reflective of our progress toward satisfying a performance
obligation are not included in the calculation of the measure of progress. We estimate the EAC by making certain assumptions and judgments such as the
level of efforts from internal staff and/or subcontractors and cost of materials needed to complete the tasks. Our cost estimate is based on our prior
experience and expertise in delivery of similar services, which allow us to make reasonable assumptions and estimates that are close to actual costs to
complete the obligations; however, changes in the scope or complexity of work, availability of materials needed, or performance could cause a change in
the EAC. We routinely review EACs for changes that could materially impact our measurement of progress toward completion of the performance
obligations and adjust our revenue in the period that the changes occur. When a contract EAC exceeds the contract value, we recognize the loss in the same
period of determination. For the years ended December 31, 2023, 2022, and 2021, our revenue from contracts in which we use EACs totaled $310.1
million, $287.4 million, and $253.6 million, respectively.
Our contracts may include variable considerations such as award fees and incentives that may increase or decrease the transaction price. The actual
amounts are typically determined and awarded at the end of a performance period and the final awarded amount is based on achieving certain performance
metrics, program milestones, or cost targets at the customer’s discretion. We estimate the most likely amount expected to achieve based on our prior history
in providing the services to the customer or, if no history exists, we constrain the variable consideration until the initial determination by the customer.
Fair Value of Acquired Assets from Business Combinations
Our consolidated balance sheets as of December 31, 2023 and 2022 include $94.9 million and $126.5 million, respectively, of net intangible assets
that were created through business acquisitions.
We allocate the purchase price of an acquired business to the tangible assets and separately identifiable intangible assets acquired, less liabilities
assumed, based on their respective fair values (except for contract assets and contract liabilities after the adoption of Accounting Standards Update 2021-
08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers). Such fair value assessment requires
us to make assumptions, judgments, and estimates such as, but not limited to, future cash flows, revenue growth, customer retention rates, and discount
rates based on information that exists at the date of the acquisition which may subsequently change. We recognize any adjustments to the preliminary
amounts that are identified during the measurement period which is twelve months or less from the date of the acquisition.
Accounting for Income Taxes
Our provisions for federal, state, and foreign income taxes are calculated from consolidated income based on current tax laws and any changes in tax
rates from the rates used previously in determining the deferred tax assets and liabilities from temporary differences between financial statement carrying
amounts and amounts on our tax returns.
We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or settled. We evaluate our ability to benefit from all deferred tax
assets and establish valuation allowances for amounts we believe are not more likely than not to be realized.
We use a more-likely-than-not recognition threshold based on the technical merits of the income tax position taken to evaluate uncertain tax
positions. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured in order to determine the tax benefit recognized in
the financial statements.
Recent Accounting Pronouncements
New accounting standards are discussed in “Note 2 - Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial
Statements”.
43
SELECTED KEY METRICS
In order to evaluate operations, we track revenue by key metrics that provide useful information about the nature of our operations. Client markets
provide insight into the breadth of our expertise. Client type is an indicator of the diversity of our client base. Revenue by contract mix provides insight in
terms of the degree of performance risk that we have assumed. Significant variances in the key metrics tables that are provided below are discussed under
the revenue section of the results of operations.
Client markets
The following table shows revenue generated from client markets as a percentage of total revenue for the periods indicated. For each client, we have
attributed all revenue from that client to the market we consider to be the client’s primary market, even if a portion of that revenue relates to a different
market. Certain minor revenue amounts reported in the prior years have been reclassified within key market categories based on our current view of the
client’s primary market in order to increase the comparability of the current year to prior years.
(dollars in thousands)
Client Markets:
Energy, environment, infrastructure, and disaster recovery
Health and social programs
Security and other civilian & commercial
Total
Year ended
December 31, 2023
Year ended
December 31, 2022
Year ended
December 31, 2021
Dollars
Percent
Dollars
Percent
Dollars
Percent
$
$
806,482
814,454
342,302
1,963,238
41 %
42 %
17 %
100 %
$
$
714,628
704,465
360,871
1,779,964
40 %
40 %
20 %
100 %
$
$
693,572
563,590
295,886
1,553,048
45 %
36 %
19 %
100 %
Our primary clients within the client markets are the agencies and departments of the federal government and commercial clients. Most of our
revenue is from contracts on which we are the prime contractor, which we believe provides us with strong client relationships. In 2023, 2022, and 2021,
approximately 89%, 91%, and 91% of our revenue, respectively, was from prime contracts.
Client type
The table below shows our revenue by type of client as a percentage of total revenue for the periods indicated. Certain immaterial revenue amounts
in the prior years have been reclassified due to minor adjustments and reclassification within client type.
(dollars in thousands)
Client Type:
U.S. federal government
U.S. state and local government
International government
Government
Commercial
Total
Contract mix
Year ended
December 31, 2023
Year ended
December 31, 2022
Year ended
December 31, 2021
Dollars
Percent
Dollars
Percent
Dollars
Percent
$
$
1,084,043
308,134
103,399
1,495,576
467,662
1,963,238
55 %
16 %
5 %
76 %
24 %
100 %
$
$
980,746
259,764
103,609
1,344,119
435,845
1,779,964
55 %
15 %
6 %
76 %
24 %
100 %
$
$
735,032
235,416
139,229
1,109,677
443,371
1,553,048
47 %
15 %
9 %
71 %
29 %
100 %
Contract mix varies from year to year due to numerous factors, including our business strategies and the procurement activities of our clients. Unless
the context requires otherwise, we use the term “contracts” to refer to contracts and any task orders or delivery orders issued under a contract. There are
three main types of contracts: time-and-materials contracts, fixed-price contracts, and cost-based contracts.
44
The following table shows the approximate percentage of our revenue for each of these types of contracts for the periods indicated. Certain
immaterial revenue amounts in the prior years have been reclassified due to minor adjustments and reclassification within contract mix.
(dollars in thousands)
Contract Mix:
Time-and-materials
Fixed-price
Cost-based
Total
Year ended
December 31, 2023
Year ended
December 31, 2022
Year ended
December 31, 2021
Dollars
Percent
Dollars
Percent
Dollars
Percent
$
$
812,430
885,465
265,343
1,963,238
41 % $
45 %
14 %
100 %
$
713,693
802,568
263,703
1,779,964
40 % $
45 %
15 %
100 %
$
633,135
645,809
274,104
1,553,048
41 %
41 %
18 %
100 %
Payments we received on cost-based contracts with the federal government are provisional payments subject to adjustment upon audit by the
government. Contract revenue for subsequent periods has been recorded in amounts that are expected to be realized on final audit and settlement of costs.
RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated statements of comprehensive income for the years ended December 31, 2023 and
2022 and expresses these items as a percentage of revenue for the periods indicated and the period-over-period rate of change in each of them. Our
discussion of the items for the years ended December 31, 2022 and 2021 can be found in our Annual Report on Form 10-K for the year ended December
31, 2022, which was filed with the SEC on March 1, 2023.
Revenue
Direct Costs:
Direct labor & related fringe
Subcontractors & other direct costs
Total Direct Costs
Operating Costs and Expenses
Indirect and selling expenses
Depreciation and amortization
Amortization of intangible assets
Total Operating Costs and Expenses
Operating Income
Interest, net
Other income (expense)
Income Before Income Taxes
Provision for Income Taxes
Net Income
Years Ended December 31, 2023 and 2022
(dollars in thousands)
Year Ended December 31,
2023
2022
2023
2022
Year to Year Change
2022 to 2023
Percentages
Dollars
Percent
1,779,964
100.0 %
100.0 % $
183,274
639,861
494,561
1,134,422
486,863
21,482
28,435
536,780
108,762
(23,281 )
(1,501 )
83,980
19,737
64,243
37.2 %
27.2 %
64.4 %
25.7 %
1.3 %
1.8 %
28.8 %
6.7 %
(2.0 )%
0.2 %
4.9 %
0.7 %
4.2 %
35.9 %
27.8 %
63.7 %
27.4 %
1.2 %
1.6 %
30.2 %
6.1 %
(1.3 )%
(0.1 )%
4.7 %
1.1 %
3.6 % $
90,461
40,135
130,596
18,299
3,795
7,026
29,120
23,558
(16,400 )
5,409
12,567
(5,802 )
18,369
10.3 %
14.1 %
8.1 %
11.5 %
3.8 %
17.7 %
24.7 %
5.4 %
21.7 %
70.4 %
(360.4 )%
15.0 %
(29.4 )%
28.6 %
$
1,963,238
Dollars
$
730,322
534,696
1,265,018
505,162
25,277
35,461
565,900
132,320
(39,681 )
3,908
96,547
13,935
82,612
$
$
45
Year ended December 31, 2023 compared to year ended December 31, 2022
Revenue. The growth in revenue of $183.3 million was driven by increases of $103.3 million from U.S. federal government clients, $48.4 million
from U.S. state and local government clients, and $31.8 million from commercial clients, respectively, offset by a decrease of $0.2 million from
international government clients.
Revenue from Health and Social Programs client market increased by $110.0 million, or 15.6%, driven by:
•
•
Increases of $97.4 million from U.S. federal government, $10.4 million from U.S. state and local government, and $2.5 million from
commercial client markets, respectively, offset by a
Decrease of $0.3 million from international government client market.
Revenue from Energy, Environment & Infrastructure and Disaster Recovery client market increased by $91.8 million, or 12.9%, due to:
•
•
Increases of $49.7 million from commercial, $37.6 million from U.S. state and local government, and $10.0 million from U.S. federal
government client markets, respectively, offset by a
Decrease of $5.5 million from international government client market due, in part, to the wind-down of the ICF NEXT U.K. business.
Revenue from Security and Other Civilian & Commercial client market saw a decrease of $18.6 million, or 5.1%, as a result of:
•
•
Decreases of $20.4 million from commercial, driven by the divestiture of the commercial marketing business, and $4.0 million from U.S.
federal government client markets, respectively, offset by
Increases of $5.5 million from international government and $0.3 million from U.S. state and local government client markets, respectively.
Direct costs. The increase in direct costs of $130.6 million was driven by additional direct labor and related fringe benefit costs of $90.5 million and
subcontractors and other direct costs of $40.1 million to support new and existing revenue-generating contracts. For the years ended December 31, 2023
and 2022, direct labor and related fringe benefit costs were 57.7% and 56.4% of total direct costs, respectively, and subcontractors and other direct costs
were 42.3% and 43.6% of total direct costs, respectively. The total direct costs as a percentage of revenue remained steady at 64.4% for the year ended
December 31, 2023 compared to 63.7% for 2022.
Indirect and selling expenses. The increase in indirect and selling expenses of $18.3 million for the year ended December 31, 2023 compared to
2022 was due to an additional $31.7 million in indirect labor and related fringe benefit costs offset by a decrease of $13.4 million in general and
administrative costs. As a percentage of total indirect and selling expenses, indirect labor and associated fringe costs were 71.1% and 67.2%, respectively,
and general and administrative costs were 28.9% and 32.8%, respectively, for the years ended December 31, 2023 and 2022. The increase in indirect labor
and associated fringe costs was a result of additional headcount from our recent acquisitions in 2022 and 2023 as well as additional labor resources to
support our growth. The decrease in our general and administrative costs was primarily from lower facilities expense that was, in part, attributed to our
Fairfax lease ending at the end of the 2022 fiscal year. As a percentage of revenue, indirect and selling expenses decreased to 25.7% for the year ended
December 31, 2023 compared to 27.4% for the year ended December 31, 2022.
Depreciation and amortization. The increase in depreciation and amortization of $3.8 million was driven by additional capital expenditure during
2023 and acceleration of depreciation of certain fixed assets associated with the exit of an office facility. The transition is expected to be completed in 2024.
Amortization of intangible assets. The increase in amortization of intangible assets was due to amortization of additional intangible assets acquired
from our acquisitions in the third and fourth quarter of 2022 and the second quarter of 2023.
46
Interest, net. The increase in interest, net was primarily due to higher average debt balance of $613.5 million in 2023 compared to $575.0 million in
2022, and higher average interest rate of 6.7% in 2023 compared to 3.3% in 2022. We utilize floating-to-fixed interest rate swap agreements to hedge the
variable interest portion of our debt. Our 2023 interest expense from our debt was reduced by $6.9 million from the swap agreements, compared to $0.5
million in additional interest expense added to 2022. Our average interest rate inclusive of the impact of the swap agreements was 5.6% for 2023 compared
to 3.7% for 2022.
Other income (expense). The increase in other income (expense) was primarily due to pre-tax gains of $2.5 million and $3.2 million from the
divestiture of our U.S. commercial marketing and Canadian mobile aggregation businesses in 2023.
Provision for income taxes. The effective income tax rate for the years ended December 31, 2023 and 2022 was 14.4% and 23.5%, respectively. The
decrease in provision for income taxes in 2023 was primarily due to tax credits, restructuring of the ownership of a Canadian subsidiary, the wind-down of
our U.K. commercial marketing business, and U.S. return-to-provision adjustments in connection with our federal income tax return filing, partially offset
by provisions for uncertain tax positions, and additional valuation allowance on certain tax attributes generated during the period.
NON-GAAP MEASURES
The following tables provide reconciliations of financial measures that are not calculated in accordance with generally accepted accounting
principles in the U.S. to their most comparable U.S. GAAP measures (“non-GAAP”). While we believe that these non-GAAP financial measures provide
additional information to investors and may be useful in evaluating our financial information, they should be considered supplemental in nature and not as a
substitute for financial information prepared in accordance with U.S. GAAP. Other companies may define similarly titled non-GAAP measures differently
and, accordingly, care should be exercised in understanding how we define these measures as similarly named measures are unlikely to be comparable
across different companies.
EBITDA and Adjusted EBITDA
Earnings before interest, tax, and depreciation and amortization (“EBITDA”) is a measure we use to evaluate operating performance. We believe
EBITDA is useful in assessing ongoing trends and, as a result, may provide additional visibility in understanding our operations.
Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of the performance
of our ongoing operations. We evaluate these adjustments on an individual basis based on both the quantitative and qualitative aspects of the item, including
their size and nature, as well as whether or not we expect them to occur as part of our normal business on a regular basis.
EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow as these measures do not include certain cash requirements such
as interest payments, tax payments, capital expenditures, and debt service.
47
The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated.
Net income
Interest, net
Provision for income taxes
Depreciation and amortization
EBITDA
Impairment of long-lived assets
Acquisition and divestiture-related expenses
Severance and other costs related to staff realignment
Charges for facility consolidations and office closures
Expenses related to the transfer to our new corporate headquarters
Expenses related to retirement of Executive Chair
Expenses related to our agreement for the sale of receivables
Pre-tax gain from divestiture of a business
(2)
(4)
(8)
(1)
(3)
(6)
(7)
(5)
Total adjustments
Adjusted EBITDA
Year ended December 31,
2023
2022
2021
82,612
39,681
13,935
60,738
196,966
7,666
4,759
6,366
3,187
—
—
—
(5,712 )
16,266
213,232
$
$
64,243 $
23,281
19,737
49,917
157,178
8,354
6,441
6,302
5,034
8,287
—
240
—
34,658
191,836 $
71,132
9,984
28,958
31,970
142,044
8,215
4,798
1,242
1,434
899
397
—
—
16,985
159,029
$
$
(1) Represents impairment of operating lease right-of-use and leasehold improvement assets associated with exit from certain facilities, and an intangible asset associated with exit of a business.
(2) These are primarily third-party costs related to acquisitions and potential acquisitions, integration of acquisitions, and separation of discontinued businesses or divestitures.
(3) These costs are mainly due to involuntary employee termination benefits for our officers, and employees who have been notified that they will be terminated as part of a business
reorganization or exit.
(4) These are exit costs associated with terminated leases or full office closures that we either (i) will continue to pay until the contractual obligations are satisfied but with no economic benefit
to us, or (ii) paid upon termination and cease-use of the leased facilities.
(5) These costs represent incremental non-cash lease expense associated with a straight-line rent accrual during the “free rent” period in the lease for our new corporate headquarters in Reston,
Virginia. We took possession of the new facility during the fourth quarter of 2021, while also maintaining and incurring lease costs for the former headquarters in Fairfax, Virginia. The
transition to the new corporate headquarters was completed in the fourth quarter of 2022.
(6) These costs include severance, pro rata incentive bonus, welfare benefits, and acceleration of equity awards we incurred under the departing officer’s severance agreement during the fourth
quarter of 2020. As a result of the employment agreement, the departing officer was able to maintain certain equity awards beyond his retirement date, including performance-based awards
that are subject to changes until they vest.
(7) These costs include legal and structuring fees related to our 2022 Master Receivables Purchase Agreement with MUFG Bank, Ltd. put in place for the sale of our receivables.
(8)
Includes pre-tax gain of $2.5 million and of $3.2 million from the divestitures of our U.S. commercial marketing and Canadian mobile text aggregation businesses.
Non-GAAP Diluted Earnings per Share
Non-GAAP diluted earnings per share (“Non-GAAP Diluted EPS”) represents diluted U.S. GAAP earnings per share (“U.S. GAAP Diluted EPS”)
excluding the impact of certain items noted above, and the impact of amortization of intangible assets and the related income tax effects. While these
adjustments may be recurring and not infrequent or unusual, we do not consider these adjustments to be indicative of the performance of our ongoing
operations. We believe that the supplemental adjustments provide additional information to investors.
48
The following table presents a reconciliation of U.S. GAAP Diluted EPS to Non-GAAP Diluted EPS for the periods indicated:
U.S. GAAP Diluted EPS
Impairment of long-lived assets
Acquisition and divestiture-related expenses
Severance and other costs related to staff realignment
Expenses related to facility consolidations and office closures
Expenses related to the transfer to our new corporate headquarters
Expenses related to retirement of Executive Chair
Expenses related to our agreement for the sale of receivables
Pre-tax gain from divestiture of a business
Amortization of intangibles
Income tax effects of the adjustments
Non-GAAP Diluted EPS
(1)
(2)
Year ended December 31,
2023
2022
2021
4.35
0.40
0.25
0.33
0.24
—
—
—
(0.30 )
1.87
(0.64 )
6.50
$
$
3.38
0.44
0.34
0.33
0.26
0.44
—
0.01
—
1.49
(0.92 )
5.77
$
$
3.72
0.43
0.25
0.06
0.08
0.05
0.02
—
—
0.65
(0.44 )
4.82
$
$
(1) These are exit costs related to actual office closures (previously included in Adjusted EBITDA) and accelerated depreciation related to fixed assets for planned office closures.
(2)
Income tax effects were calculated using the effective tax rate, adjusted for discrete items, if any, of 22.8%, 28.0% and 28.9% for the years ended December 31, 2023, 2022, and 2021,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Borrowing Capacity. Short-term liquidity requirements are created by our use of funds for working capital, capital expenditures, debt
service, dividends, and share repurchases. We expect to meet these requirements through a combination of our cash and cash equivalents at hand, cash flow
from operations and borrowings. Our primary source of borrowings is from our Credit Facility, as described in “Note 10 - Long-Term Debt” in the “Notes
to Consolidated Financial Statements” in this Annual Report on Form 10-K. As of December 31, 2023, we had $591.9 million of unused borrowing
capacity, or $575.5 million after taking into account the financial and performance-based limitations, available under the Credit Facility to fund our ongoing
operations, future acquisitions, dividend payments, and share repurchase program. Should the need arise, we intend to further increase our borrowing
capacity in the future to provide us with adequate working capital to continue our ongoing operations.
There are certain geo-political and macro-economic conditions, such as the ongoing wars in Ukraine and the the Middle East and the recent increase
in inflation, both in the U.S. and globally, that create uncertainty in the global economy, which in turn may impact, among other things, our ability to
generate positive cash flows from operations and our ability to successfully execute and fund key initiatives in the near future; however, our current belief
is that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity
and capital resources necessary to fund ongoing operations, customary capital expenditures and acquisitions, quarterly cash dividends, share repurchases
and organic growth. Additionally, we continuously analyze our capital structure to ensure we have capital to fund future strategic acquisitions. We continue
to monitor the state of the financial markets on a regular basis to assess the availability and cost of additional capital resources from both debt and equity
sources. We believe that we will be able to access these markets at commercially reasonable terms and conditions if, in the future, we need additional
borrowings or capital.
49
Material Cash Requirements from Contractual Obligations. As of December 31, 2023, contractual obligations that require a material use of cash
include repayments of our Credit Facility and operating lease obligations for facilities and equipment.
At December 31, 2023, our outstanding Credit Facility balance was $430.4 million, net of unamortized debt issuance costs, of which the principal
amounts of $26.0 million is due in 2024, $35.8 million in 2025, $39.0 million in 2026, and the remaining $333.3 million due upon maturity in 2027. We
borrow funds under the Credit Facility at interest rates based on both the SOFR (i.e., 1-, 3-, or 6-month rates) and a fluctuating Base Rate (see “Note 10 -
Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Annual Report). Assuming that our interest rate on the Credit Facility is the
same as on December 31, 2023, we anticipate our interest payments on the debt to be approximately $29.5 million in 2024, $27.5 million in 2025, $24.9
million in 2026, and $8.1 million in 2027 when our Credit Facility expires. The estimates do not take into account future drawdowns and repayments on the
debt or changes in the variable interest rate, and actual interest may be different.
As of December 31, 2023, we have operating leases for facilities and equipment with remaining terms ranging from 1 to 15 years. Our current and
long-term operating lease liabilities of $195.9 million at December 31, 2023 represent the present value of the minimum payments required under the non-
cancellable leases, and the actual cash payments total $241.1 million. The operating lease payment obligations by year are further discussed in “Note 7 -
Leases” in the “Notes to Consolidated Financial Statements”.
As of December 31, 2023, we also have finance leases for equipment and furniture with lease payment obligations through 2029 as discussed in
“Note 7 - Leases” in the “Notes to Consolidated Financial Statements”. The current and long-term finance lease liabilities at December 31, 2023 of $16.4
million represent the present value of the minimum payments totaling $18.1 million.
Inflation. Our business and results of operations have not been materially affected by inflation and changing prices during the period presented and
we do not expect to be materially affected in the future due to the nature of our business as a provider of professional services with contracts that can be
negotiated with new prices.
Dividends. Cash dividends declared in 2023 were as follows:
Declaration Date
February 28, 2023
May 9, 2023
August 3, 2023
November 2, 2023
Dividend Per Share
$
$
$
$
0.14
0.14
0.14
0.14
Record Date
March 24, 2023
June 9, 2023
September 8, 2023
December 8, 2023
Payment Date
April 13, 2023
July 14, 2023
October 13, 2023
January 12, 2024
Cash Flows. The following table summarizes our cash flows from the years ended December 31, 2023, 2022, and 2021.
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Decrease in cash, cash equivalents, and restricted cash
Year ended December 31,
2022
2023
2021
$
$
152,383 $
(3,673 )
(152,588 )
359
(3,519 ) $
162,206 $
(258,844 )
90,371
(1,198 )
(7,465 ) $
110,205
(194,481 )
23,233
(511 )
(61,554 )
Cash provided by operating activities for the year ended December 31, 2023 decreased by $9.8 million compared to 2022 primarily due to higher
interest and tax payments and the timing of collections of our billed receivables and payments of our operating liabilities.
50
Cash used in investing activities for the year ended December 31, 2023 decreased by $255.2 million compared to 2022 primarily due to higher usage
of cash to fund the acquisitions of SemanticBits and Blanton in 2022; 2023 was favorably impacted by the proceeds received from the divestiture of our
U.S. commercial marketing and Canadian mobile text aggregation businesses.
We used $152.6 million of cash in financing activities during the year ended December 31, 2023 compared to $90.4 million provided by financing
activities during 2022, a change of $243.0 million. The change was primarily due to higher net borrowings from our Credit Facility to fund the acquisitions
of SemanticBits and Blanton during 2022, and repayments of our term loan debt of $81.0 million during 2023 which includes $66.0 million in early
payment on the term loan principal balance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain financial market risks, the most predominant being fluctuations in interest rates for borrowings under the Credit Facility
and foreign exchange rate risk.
Borrowings under the Credit Facility accrue interest at variable rates. We monitor interest rate fluctuations and outlooks as an integral part of our
overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce potentially adverse effects of higher
interest rates on our results of operations. As part of this strategy, we use interest rate swap arrangements to hedge a portion of our interest rate risk that
effectively converts our variable rate debt to fixed rate debt. We do not use such instruments for speculative or trading purposes. Based on our borrowings
under the Credit Facility, a 1% increase in interest rates would have increased interest expense by approximately $6.1 million and would have decreased our
annual net income and operating cash flows by a comparable amount. At December 31, 2023, we had seven interest rate swap agreements with a total
aggregate notional amount of $275.0 million to hedge against changes in interest rates and offset potential increases in interest expense. See “Note 12 -
Derivative Instruments and Hedging Activities” in the “Notes to Consolidated Financial Statements”.
As a result of conducting business in currencies other than the U.S. dollar, we are subject to market risk with respect to adverse fluctuations in
currency exchange rates. In general, our currency risk is mitigated largely by matching costs with revenues in a given currency. However, our exposure to
fluctuations in other currencies against the U.S. dollar increases as a greater portion of our revenue is generated in currencies other than the U.S. dollar. We
may have hedges in place to mitigate our foreign exchange risk related to our operations in Europe; however, given the amount of business conducted
outside of the U.S, there is some risk that revenue and profits will be affected by foreign currency exchange rate fluctuations.
We use a sensitivity analysis to assess the impact of movement in foreign currency exchange rates on revenue. During the year ended December 31,
2023, 7% of our revenue was generated from our international operations based on the location to which a contract was awarded. As a result, a 10%
increase or decrease in the value of the U.S. dollar against all currencies would have an estimated impact on revenue of approximately 1%, or $13.1
million. Actual gains and losses in the future could differ materially from this analysis based on the timing and amount of both foreign currency exchange
rate movements and our actual exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of ICF International, Inc. and subsidiaries are provided in Part IV in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
51
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Based on an evaluation under the supervision and with the participation of the Company’s
management, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective as of December 31, 2023 to provide reasonable assurance that
information required to be disclosed in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within
the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal
executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting (as such term is defined as of December 31, 2023 in Exchange Act Rules 13a-15(f) and 15d-
15(f)). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth
in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on the assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 2023.
The Company’s independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on the Company’s internal control
over financial reporting, which appears herein.
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting,
and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP; (iii) that the Company’s receipts and expenditures are being made only in accordance with authorizations of the
Company’s management and directors; and (iv) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the financial statements.
Changes in Internal Control Over Financial Reporting. There were no material changes in our internal control over financial reporting during the
last quarter of 2023 which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the
Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations Over Internal Controls. A control system, no matter how well designed and operated, can provide only reasonable (not
absolute) assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent
limitations in any control system, misstatements due to error or fraud may occur and may not be detected. Also, any evaluations of the effectiveness of
controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
52
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
53
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be included in our Proxy Statement for the 2024 Annual Meeting of Stockholders (the “2024 Proxy
PART III
Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference.
54
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1)
Financial Statements
PART IV
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
Page
F-1
F-4
F-5
F-6
F-7
F-8
(2)
Financial Statement Schedules
The financial statement schedules have been omitted since the required information is not applicable or included in the consolidated financial
statements and accompanying notes included in this Form 10-K.
(3)
Exhibits
The following exhibits are included with this report or incorporated herein by reference:
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Exhibit
Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q, filed August 3,
2017).
Amended and Restated Bylaws of ICF International, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed
September 26, 2023).
Specimen common stock certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Form S-1/A (File No. 333-134018), filed
September 12, 2006).
See Exhibits 3.1 and 3.2, above, for provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws of the Company defining the rights of holders of common stock of the Company.
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (Incorporated by
reference to Exhibit 4.3 to the Company's Form 10-K, filed February 25, 2022).
2006 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.3 to the Company’s Form S-1 (File No. 333-134018), filed
May 11, 2006). +
ICF International, Inc. Nonqualified Deferred Compensation Plan, as amended and restated as of January 1, 2012 (Incorporated by
reference to Exhibit 10.2 to the Company’s Form 10-K, filed March 1, 2013). +
ICF International, Inc. Amended and Restated 2018 Omnibus Incentive Plan (Incorporated by reference to Exhibit A to the Company’s
Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, filed April 21, 2023). +
Form of Restricted Stock Unit Award under the 2018 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K, filed June 1, 2018). +
Form of Non-Employee Restricted Stock Unit Award under the 2018 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K, filed June 27, 2018). +
Form of CEO Performance Share Award Agreement (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K, filed June 1,
2018). +
Form of COO Performance Share Award Agreement (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K, filed June 1,
2018). +
Form of General Performance Share Award Agreement under the 2018 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.3
to the Company’s Form 8-K, filed June 1, 2018). +
55
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Form of Cash-Settled Restricted Stock Unit Award under the 2018 Omnibus Incentive Plan. (Incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K, filed June 1, 2018). +
Restated Severance Protection Agreement between John Wasson and ICF International, Inc. dated October 1, 2019 (Incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K, filed October 1, 2019).+
Amended Severance Letter Agreement by and between the Company and John Wasson, dated December 12, 2008 (Incorporated by
reference to Exhibit 10.4 to the Company’s Form 8-K, filed December 18, 2008). +
Employment Terms by and between the Company and James C. Morgan, dated June 8, 2012 (Incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q, filed August 6, 2012). +
Severance Benefit/Protection Agreement by and between the Company and James C. Morgan, dated June 8, 2012 (Incorporated by
reference to Exhibit 10.2 to the Company’s Form 10-Q, filed August 6, 2012). +
Severance Letter Agreement by and between the Company and Sergio J. Ostria, dated March 6, 2012 (Incorporated by reference to Exhibit
10.18 to the Company’s Form 10-K, filed on March 8, 2016). +
Amended and Restated Credit Agreement, dated May 6, 2022 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K,
filed May 6, 2022).
First Amendment to Amended and Restated Credit Agreement, dated May 17, 2023 (Incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K, filed May 19, 2023).
10.17
Second Amendment to Amended and Restated Credit Agreement, dated November 6, 2023. *
10.18
10.19
10.20
10.21
21.0
23.1
31.1
31.2
32.1
32.2
97.0
101
Lease Agreement between ICF Consulting Group, Inc. and CRS Plaza II, LLC, dated as of October 24, 2019 (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K, filed October 30, 2019).
Equity Purchase Agreement by and among Creative Systems and Consulting, L.L.C., Project Apple Holdings, LLC, Vanitha Khera, Vishal
Khera, and ICF Incorporated, L.L.C., dated December 13, 2021 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K/A,
filed December 17, 2021).
Equity Purchase Agreement by and among ICF Incorporated, L.L.C., SemanticBits, LLC, Ramprakash Chilukuri, Vinay Kumar, and
Ramprakash Chilukuri, as the Sellers’ Representative, dated June 8, 2022 (Incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K/A, filed July 1, 2022).
Separation Agreement and Release between Rodney Mark Lee, Jr. and the Company (Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K, filed December 4, 2023).
Subsidiaries of the Registrant.*
Consent of Grant Thornton LLP.*
Certificate of the Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).*
Certificate of the Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).*
Certifications of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
Certifications of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
Compensation Recovery Policy.*
The following materials from the ICF International, Inc. Annual Report on Form 10-K for the year ended December 31, 2023 formatted in
Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of
Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes
to Consolidated Financial Statements. *
56
104
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline XBRL
* Submitted electronically herewith.
+ Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit.
ITEM 16. FORM 10-K SUMMARY
None.
57
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
SIGNATURES
its behalf by the undersigned, thereunto duly authorized.
February 28, 2024
ICF INTERNATIONAL, INC.
By:
/s/ JOHN WASSON
John Wasson
Chair, President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ JOHN WASSON
John Wasson
/s/ BARRY BROADUS
Barry Broadus
/s/ RANJIT CHADHA
Ranjit Chadha
/s/ MARILYN CROUTHER
Marilyn Crouther
/s/ SCOTT SALMIRS
Scott Salmirs
/s/ Dr. SRIKANT M. DATAR
Dr. Srikant M. Datar
/s/ CHERYL W. GRISÉ
Cheryl W. Grisé
/s/ MICHAEL J. VAN HANDEL
Michael Van Handel
/s/ RANDALL MEHL
Randall Mehl
/s/ Dr. MICHELLE A. WILLIAMS
Dr. Michelle A. Williams
Title
Date
Chair, President, Chief Executive Officer, and Director
(Principal Executive Officer)
February 28, 2024
Chief Financial Officer
(Principal Financial Officer)
February 28, 2024
Principal Accounting Officer
February 28, 2024
Director
Director
Director
Director
Director
Director
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
February 28, 2024
Director
February 28, 2024
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
ICF International, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of ICF International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2023 and 2022, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2024 expressed an unqualified
opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required
to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on
the accounts or disclosures to which it relates.
Revenue recognition – estimates-at-completion
As described further in Note 2 to the consolidated financial statements, the Company recognizes revenue over time using a cost-input method on certain
contracts in which costs incurred represents a reasonable measure of progress toward satisfaction of a performance obligation and transfer of control to a
customer. Under the cost input method, revenue is recognized based on the proportion of total costs incurred to total estimated costs-at-completion (“EAC”).
A performance obligation’s EAC includes all direct costs such as level of effort from internal staff and/or subcontractors and costs of materials needed to
complete the tasks. The accounting for these contracts involves judgement, particularly as it relates to the process of estimating total costs to satisfy the
performance obligation. We identified the estimate of total costs to satisfy the performance obligations for contracts with revenue recognized using the cost
input method as a critical audit matter.
F-1
The principal considerations for our determination that the use of estimates-at-completion in recognizing revenue is a critical audit matter are the significant
management judgments involved in the initial creation and subsequent updates to the Company’s EAC and related profit recognized, which required
challenging and subjective auditor judgment in the execution of our procedures.
Our audit procedures in response to this matter included the following, among others:
•
•
•
Testing the design and operating effectiveness of controls related to management’s review of estimate-at-completion analyses and the
significant assumptions underlying the estimated total costs to complete
Testing management’s process for developing, revising and applying EAC, evaluating key inputs and assumptions by comparing them to
underlying support, including contract documents, rate of cost incurred to date, subcontractor agreements, customer correspondence,
documentation related to contractual milestones or other documentation, as applicable, that supports estimated costs
Performing a lookback analysis of certain contracts completed during the year ended December 31, 2023 and compared the final estimated
costs-at-completion to the estimate of costs throughout the contract life cycle to assess the Company’s ability to develop reasonable estimates
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2000.
Arlington, Virginia
February 28, 2024
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
ICF International, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of ICF International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements of the Company as of and for the year ended December 31, 2023, and our report dated February 28, 2024 expressed an unqualified
opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting”
(“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Arlington, VA
February 28, 2024
F-3
ICF INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash
Contract receivables, net
Contract assets
Prepaid expenses and other assets
Income tax receivable
Total Current Assets
Property and Equipment, net
Other Assets:
Goodwill
Other intangible assets, net
Operating lease - right-of-use assets
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
Accounts payable
Contract liabilities
Operating lease liabilities
Finance lease liabilities
Accrued salaries and benefits
Accrued subcontractors and other direct costs
Accrued expenses and other current liabilities
Total Current Liabilities
Long-term Liabilities:
Long-term debt
Operating lease liabilities - non-current
Finance lease liabilities - non-current
Deferred income taxes
Other long-term liabilities
Total Liabilities
Commitments and Contingencies (Note 20)
Stockholders’ Equity:
Preferred stock, par value $.001 per share; 5,000,000 shares
authorized; none issued
Common stock, $.001 par value; 70,000,000 shares authorized; 23,982,132 and 23,771,596 shares
issued; and 18,845,521 and 18,883,050 shares outstanding at December 31, 2023 and 2022,
respectively
Additional paid-in capital
Retained earnings
Treasury stock, 5,136,611 and 4,906,209 shares at December 31, 2023 and 2022, respectively
Accumulated other comprehensive loss
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
December 31, 2023
December 31, 2022
$
$
$
$
$
$
$
6,361
3,088
205,484
201,832
28,055
2,337
447,157
75,948
1,219,476
94,904
132,807
41,480
2,011,772
26,000
134,503
21,997
20,409
2,522
88,021
45,645
79,129
418,226
404,407
175,460
13,874
26,175
56,045
1,094,187
11,257
1,711
232,337
169,088
40,709
11,616
466,718
85,402
1,212,898
126,537
149,066
51,637
2,092,258
23,250
135,778
25,773
19,305
2,381
85,991
45,478
78,036
415,992
533,084
182,251
16,116
68,038
23,566
1,239,047
—
—
24
421,502
775,099
(267,155 )
(11,885 )
917,585
2,011,772
$
23
401,957
703,030
(243,666 )
(8,133 )
853,211
2,092,258
The accompanying notes are an integral part of these statements.
F-4
ICF International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
Revenue
Direct costs
Operating costs and expenses:
Indirect and selling expenses
Depreciation and amortization
Amortization of intangible assets
Total operating costs and expenses
Operating income
Interest, net
Other income (expense)
Income before income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
Other comprehensive (loss) income, net of tax
Comprehensive income, net of tax
2023
Years ended December 31,
2022
1,963,238
1,265,018
$
1,779,964
1,134,422
$
2021
1,553,048
979,570
505,162
25,277
35,461
565,900
132,320
(39,681 )
3,908
96,547
13,935
82,612
4.39
4.35
18,802
18,994
0.56
$
$
$
486,863
21,482
28,435
536,780
108,762
(23,281 )
(1,501 )
83,980
19,737
64,243
3.41
3.38
18,818
19,033
0.56
$
$
$
(3,752 )
78,860
$
2,902
67,145
$
430,572
19,478
12,492
462,542
110,936
(9,984 )
(862 )
100,090
28,958
71,132
3.77
3.72
18,868
19,124
0.56
3,071
74,203
$
$
$
$
$
The accompanying notes are an integral part of these statements.
F-5
ICF International, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands)
Balance at January 1, 2021
Net income
Other comprehensive income
Equity compensation
Exercise of stock options
Issuance of shares pursuant to employee stock purchase plan and vesting
of restricted stock units
Net payments for stock buybacks
Dividends declared
Balance at December 31, 2021
Net income
Other comprehensive income
Equity compensation
Exercise of stock options
Issuance of shares pursuant to employee stock purchase plan and vesting
of restricted stock units
Net payments for stock buybacks
Dividends declared
Balance at December 31, 2022
Net income
Other comprehensive loss
Equity compensation
Exercise of stock options
Issuance of shares pursuant to employee stock purchase plan and vesting
of restricted stock units
Net payments for stock buybacks
Dividends declared
Common Stock
Shares
Amou
nt
18,910
—
—
—
8
$
23
—
—
—
—
222
(264 )
—
—
—
—
18,876
—
—
—
19
23
$
—
—
—
—
235
(247 )
—
—
—
—
18,883
—
—
—
8
$
23
—
—
—
—
185
(230 )
—
1
—
—
Addition
al
Paid-in Retained
Treasury Stock
$
Capital
369,05
8
—
—
13,230
233
Earnings Shares Amount
588,73
$
1
71,132
—
—
—
$
4,395
—
—
—
—
(196,74
5 )
—
—
—
—
$
2,463
—
—
384,98
4
—
—
13,171
602
$
3,200
—
—
401,95
7
—
—
14,861
279
—
—
(10,565 )
649,29
8
$
64,243
—
—
—
—
—
(10,511 )
703,03
$
0
82,612
—
—
—
4,405
—
—
421,50
2
—
—
(10,543 )
775,09
9
$
—
264
—
$
$ 4,659
—
—
—
—
—
247
—
$
4,906
—
—
—
—
—
230
—
5,136
$
—
(23,055 )
—
(219,80
0 )
—
—
—
—
—
(23,866 )
—
(243,66
6 )
—
—
—
—
—
(23,489 )
—
(267,15
5 )
Accumulate
d
Other
Comprehens
ive
Loss
$
$
$
(14,106 )
—
3,071
—
—
—
—
—
(11,035 )
—
2,902
—
—
—
—
—
(8,133 )
—
(3,752 )
—
—
—
—
—
$
(11,885 )
Total
746,96
$
1
71,132
3,071
13,230
233
2,463
(23,055 )
(10,565 )
803,47
0
$
64,243
2,902
13,171
602
3,200
(23,866 )
(10,511 )
853,21
$
1
82,612
(3,752 )
14,861
279
4,406
(23,489 )
(10,543 )
917,58
5
$
Balance at December 31, 2023
18,846
$
24
$
The accompanying notes are an integral part of these statements.
F-6
ICF International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Deferred income taxes and unrecognized income tax benefits
Non-cash equity compensation
Depreciation and amortization
Facilities consolidation reserve
Amortization of debt issuance costs
Impairment of long-lived assets
Gain on divestiture of a business
Other adjustments, net
Changes in operating assets and liabilities, net of the effect of acquisitions:
Net contract assets and liabilities
Contract receivables
Prepaid expenses and other assets
Operating lease assets and liabilities, net
Accounts payable
Accrued salaries and benefits
Accrued subcontractors and other direct costs
Accrued expenses and other current liabilities
Income tax receivable and payable
Other liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Capital expenditures for property and equipment and capitalized software
Payments for business acquisitions, net of cash acquired
Proceeds from working capital adjustments related to prior business acquisition
Proceeds from divestiture of a business
Net Cash Used in Investing Activities
Cash Flows from Financing Activities
Advances from working capital facilities
Payments on working capital facilities
Proceeds from other short-term borrowings
Repayments of other short-term borrowings
Receipt of restricted contract funds
Payment of restricted contract funds
Debt issuance costs
Payments of principal portion of finance leases
Proceeds from exercise of options
Dividends paid
Net payments for stockholder issuances and buybacks
Payments on business acquisition liabilities
Net Cash (Used in) Provided by Financing Activities
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash
Decrease in Cash, Cash Equivalents, and Restricted Cash
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period
Cash, Cash Equivalents, and Restricted Cash, End of Period
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
Income taxes
Non-cash investing and financing transactions:
Share repurchases transacted but not settled and paid
Tenant improvements funded by lessor
Acquisition of property and equipment through finance lease
Years ended December 31,
2023
2022
2021
$
82,612
$
64,243 $
71,132
1,164
(17,634 )
14,861
60,738
—
1,996
7,666
(7,590 )
(1,368 )
(38,422 )
20,939
18,579
3,544
(1,489 )
2,175
(269 )
(4,757 )
9,277
361
152,383
(22,337 )
(32,664 )
—
51,328
(3,673 )
1,245,198
(1,372,474 )
48,532
(41,653 )
7,672
(8,084 )
—
(2,438 )
279
(10,537 )
(19,083 )
—
(152,588 )
359
248
7,428
13,171
49,917
(317 )
1,305
8,412
—
1,283
(41,634 )
19,732
(20,737 )
(1,466 )
30,003
(3,337 )
6,965
24,742
(1,526 )
3,774
162,206
(24,475 )
(237,280 )
2,911
—
(258,844 )
1,583,936
(1,446,125 )
—
—
15,721
(25,959 )
(4,907 )
—
602
(10,547 )
(21,218 )
(1,132 )
90,371
(1,198 )
(3,519 )
12,968
9,449
$
(7,465 )
20,433
12,968 $
10,912
8,816
13,230
31,970
(302 )
617
7,901
—
1,099
3,069
(19,021 )
4,529
(5,481 )
13,479
(5,616 )
(38,575 )
26,697
(12,802 )
(1,449 )
110,205
(19,932 )
(174,549 )
—
—
(194,481 )
881,037
(773,264 )
—
—
264,214
(319,990 )
—
—
2,848
(10,565 )
(20,040 )
(1,007 )
23,233
(511 )
(61,554 )
81,987
20,433
34,093
26,190
$
$
—
568
337
$
$
$
22,782 $
16,476 $
— $
20,253 $
18,319 $
10,331
34,132
552
—
—
$
$
$
$
$
$
The accompanying notes are an integral part of these statements.
F-7
ICF International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(dollar amounts in tables in thousands, except share and per share data)
NOTE 1 - BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation
The accompanying consolidated financial statements include the accounts 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.
Nature of Operations
The Company provides professional services and technology-based solutions, including management, technology, and policy consulting and
implementation services, in the areas of energy, environment, infrastructure, and disaster recovery; health and social programs; security and other civilian &
commercial. The Company offers a full range of services to clients throughout the entire life cycle of a policy, program, project, or initiative, from research
and analysis, assessment and advice, to design and implementation of programs and technology-based solutions, and the provision of engagement services
and programs.
The Company’s major customers are U.S. federal government departments and agencies. The Company also serves U.S. state (including territories)
and local government departments and agencies, international governments, and commercial clients worldwide. Commercial clients primarily include
airlines, airports, electric and gas utilities, health care companies, banks and other financial services companies. 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.
The Company, incorporated in Delaware, is headquartered in Reston, Virginia. It maintains additional offices throughout the world, including 55
offices in the U.S. and U.S. territories and 15 offices in key markets outside the U.S., including offices in the United Kingdom (“U.K.”), Belgium, India,
and Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 at the date of the consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting periods. Areas of the consolidated financial statements where estimates may have the most
significant effect include contractual and regulatory reserves, valuation and lives of tangible and intangible assets, contingent consideration related to
business acquisitions and divestitures, impairment of goodwill and long-lived assets, accrued liabilities, revenue recognition (including estimates of
variable considerations in determining the total contract price and allocation of performance obligations), the remaining costs to complete fixed-price
contracts, bonus and other incentive compensation, stock-based compensation, reserves for tax benefits and valuation allowances on deferred tax assets,
provisions for income taxes, collectability of receivables, and loss accruals for litigation. Actual results experienced by the Company may differ from
management’s estimates.
F-8
Revenue Recognition
The Company primarily provides services and technology-based solutions for clients that operate in a variety of markets and the solutions may span
the entire program life cycle, from initial research and analysis to the design and implementation of solutions. The Company enters into agreements with
clients that create enforceable rights and obligations and for which it is probable that the Company will collect the consideration to which it will be entitled
as services and solutions are transferred to the client. Except in certain narrowly defined situations, the Company’s agreements with its clients are written
and revenue is generally not recognized on oral or implied arrangements. The Company recognizes revenue based on the consideration specified in the
applicable agreement and excludes from revenue amounts collected on behalf of third parties. Accordingly, sales and similar taxes which are collected on
behalf of third parties are excluded from the transaction price.
The Company evaluates whether two or more agreements should be accounted for as one single contract and whether combined or single
agreements should be accounted for as more than one performance obligation. For most contracts, the client requires the Company to perform a number of
tasks in providing an integrated output for which the client has contracted, and, hence, contracts of this type are tracked as having only one performance
obligation since a substantial part of the Company’s promise is to ensure the individual tasks are incorporated into a combined output in accordance with
contract requirements. When contracts have multiple performance obligations, the Company allocates the total transaction price to each performance
obligation based on the estimated relative standalone selling prices of the promised services underlying each performance obligation. The Company
generally provides customized solutions in which the pricing is based on specific negotiations with each client, and, in these cases, the Company uses a
cost-plus margin approach to estimate the standalone selling price of each performance obligation. Certain contracts contain award fees, incentive fees or
other provisions that can either increase or decrease the transaction price. These variable amounts are generally awarded at the completion of a
contractually stipulated performance assessment period based on the achievement of performance metrics, program milestones or cost targets, and the
amount awarded may be subject to client discretion. Variable consideration is estimated based on the most likely amount. Once the Company selects a
method to estimate variable consideration, it applies that method consistently. Estimates of variable consideration will be constrained only to the extent that
it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
The Company evaluates contractual arrangements to determine whether revenue should be recognized on a gross versus net basis. The Company’s
assessment is based on the nature of the contractual obligation to the client. In most cases, the Company itself agrees to provide specified services to the
client as a principal and revenue is recognized on a gross basis. In certain instances, the Company acts as an agent and merely arranges for another party to
provide services to the client and revenue is recognized on a net basis in reflection of the fact that the Company does not control the goods or services
provided to the client by the other party.
Long-term contracts typically contain billing terms that provide for invoicing monthly or upon completion of milestones, and payment on a net 30-
day basis. Therefore, the timing of billings and cash receipts may differ from the timing of revenue recognition resulting in either contract assets or contract
liabilities. Exceptions to monthly billing terms are to ensure that the Company performs satisfactorily rather than representing a significant financing
component. For cost-based contracts, the Company’s performance is evaluated during a contractually-stipulated performance period and, while contract
costs may be billed on a monthly basis, the Company is generally permitted to bill for incentive or award fees only after the completion of the performance
assessment period, which may occur quarterly, semi-annually or annually, and after the client completes the performance assessment. Fixed-price contracts
may provide for milestone billings based on the attainment of specific project objectives rather than for billing on a monthly basis. Moreover, contracts may
require retention or hold backs that are paid at the end of the contract to ensure that the Company performs in accordance with requirements. The Company
does not assess whether a contract contains a significant financing component if the Company expects, at contract inception, that the period between
payment by the client and the transfer of promised services to the client will be one year or less.
The Company generally recognizes revenue over time as control is transferred to a client, based on the extent of progress towards satisfaction of the
performance obligation. The selection of the method used to measure progress requires judgment and is dependent, among other factors, on the contract
type and the nature of the services provided.
For time-and-materials contracts, the Company uses the right-to-invoice practical expedient to recognize revenue earned based on hours worked in
contract performance at negotiated billing rates. Fixed-price level-of-effort contracts are substantially similar to time-and-materials contracts except that the
Company is required to deliver a specified level of effort over a stated period of time. For these contracts, the Company determines the revenue earned
using contract hours worked at negotiated bill rates as the Company delivers the contractually required workforce.
For cost-based contracts, the Company uses the right-to-invoice practical expedient to recognize revenue based on the amount to which the
Company has a contractual right to invoice. For series-services performance obligations, the Company measures progress using either a cost input measure,
a time-elapsed output measure, or the right to invoice practical expedient. Award or incentive fees are allocated to the distinct periods in which they relate
to and recognized in that period.
F-9
For certain fixed-price contracts, the Company uses the percentage-of-completion method to estimate the amount of revenue, based on the ratio of
actual costs incurred to total estimated costs, provided that costs incurred (an input method) represents a reasonable measure of progress towards the
satisfaction of a performance obligation and transfer of control to the customer. This method provides a faithful depiction of the transfer of value to the
client when the Company is satisfying a performance obligation that entails integration of tasks for a combined output, which requires the Company to
coordinate the work of employees, subcontractors and delivery of other contract costs. Contract costs that are not reflective of the Company’s progress
toward satisfying a performance obligation are not included in the calculation of the measure of progress. When this method is used, the changes in
estimated costs to complete the obligations result in adjustments to revenue on a cumulative catch-up basis, which causes the effect of revised estimates for
prior periods to be recognized in the current period. Changes in these estimates may routinely occur over contract performance for a variety of reasons,
which include: changes in contract scope; changes in contract cost estimates due to unanticipated cost growth or reassessments of risks impacting costs;
changes in estimated incentive or award fees; or performing better or worse than previously estimated. For fixed-price contracts in which the estimated cost
to perform exceeds the consideration to be received, the Company accrues for the entire estimated loss during the period in which the loss is determined by
recording additional direct costs.
In some fixed-price service contracts, the Company performs services of a recurring nature, such as maintenance and other services of a “stand
ready” nature. For these contracts, the Company has the right to consideration in an amount that corresponds directly with the value that the client has
received. Therefore, the Company records revenue on a time-elapsed basis to reflect the transfer of control to the client throughout the contract.
Contracts may be modified to reflect changes in contract specifications and requirements, and these changes may create new enforceable rights and
obligations. Modifications that are for services that are not distinct from the existing agreement due to the significant integration service that the Company
provides are accounted for as part of an existing performance obligation. The effect of these modifications on the transaction price and the Company’s
measure of progress in fulfilling the performance obligation to which they relate is recognized as an adjustment to revenue on a cumulative catch-up basis.
Revenue from modifications that create new, distinct performance obligations is recognized based on the Company’s progress in fulfilling the requirements
of the new obligations.
For performance obligations that are satisfied over time, the Company recognizes the cost to fulfill contracts when incurred, unless the costs are
within the scope of another topic in which case the guidance of that topic is applied. The Company evaluates incremental costs of obtaining a contract and,
if they are recoverable from the client and relate to a specific future contract, they are deferred and recognized over contract performance or the estimated
life of the customer relationship if renewals are expected. The Company expenses these costs when incurred if the amortization period is one year or less.
Unfulfilled performance obligations represent amounts expected to be earned on non-cancellable contracts or those that the are cancellable but the
Company has determined to have substantive termination penalties, and do not include the value of negotiated, unexercised contract options, which are
classified as marketing offers. Indefinite delivery/indefinite quantity and similar arrangements provide a framework for the client to issue specific tasks,
delivery or purchase orders in the future and these arrangements are considered marketing offers until a specific order is executed.
Some of the Company’s contracts include variable consideration, which requires the Company to estimate and, as necessary, revise the most likely
amounts that will be earned over the respective performance assessment periods. For these obligations, changes in estimates result in cumulative catch-up
adjustments and may have a significant impact on earnings during a given period.
The Company’s operating cycle for long-term contracts may be greater than one year and is measured by the average time between the inception and
completion of those contracts. Contract-related assets and liabilities are classified as current assets and current liabilities.
Cash and Cash Equivalents
The Company considers cash on deposit and any highly liquid investments with original maturities of three months or less when purchased to be
cash and cash equivalents.
F-10
Restricted Cash
The Company has restricted cash representing amounts held in escrow accounts and/or not readily available due to contractual restrictions.
Contract receivables, net
Contract receivables represent amounts billed and due from clients in accordance with respective contractual terms. The amounts due are stated at
their net realizable value. The Company estimates an allowance for estimated credit loss to reflect the amount of receivables that will not be collected. The
Company considers a number of factors in estimating the amount of the allowance, including knowledge of a client’s financial condition, its historical
collection experience, and other factors relevant to assessing the collectability of the receivables. The Company writes off specific contract receivables
when such amounts are determined to be uncollectible.
Property and Equipment
Property and equipment are carried at cost and are depreciated using the straight-line method over their estimated useful lives, which range from two
to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the economic life of the improvement or the related lease
term.
Goodwill and Indefinite-Lived Assets
Goodwill represents the excess of the purchase consideration over the fair value of net assets of businesses acquired. Goodwill and any intangible
assets acquired in a business combination that are deemed to have an indefinite useful life are not amortized, but instead are reviewed for impairment
annually, or more frequently if impairment indicators arise. Intangible assets with estimable useful lives are amortized over such lives and reviewed for
impairment if impairment indicators arise.
The Company performs its annual goodwill impairment test as of October 1 of each year. As its business is highly integrated and all of its
components have similar economic characteristics, the Company has concluded it has one aggregated reporting unit at the consolidated entity level which it
perform the assessment at. The Company have the option to perform a qualitative assessment that determines if it is more likely than not that the estimated
fair value of goodwill is greater than its carrying value and, if so, the Company may conclude that no impairment exists. If the Company concludes that an
impairment exist, a quantitative test is performed by comparing the reporting unit’s fair value to the carrying amount and recognizing the difference as an
impairment loss.
Long-Lived Assets
The Company reviews its long-lived assets, including property and equipment, operating lease right-of-use (“ROU”) assets, and definite-lived
intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the long-lived asset group may not be
fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the long-lived asset group being
evaluated, a loss is recognized for any excess of the carrying amount over the fair value of the asset group.
During the years ended December 31, 2023, 2022, and 2021, the Company recognized impairment losses of $6.8 million, $8.4 million, and $7.9
million, respectively, related to operating facility lease right-of-use assets and leasehold improvements. During the year ended December 31, 2023, the
Company recognized an impairment loss of $0.9 million related to an amortizable customer-related intangible asset from a prior acquisition. The
impairment losses were included in indirect and selling expenses on the Company's consolidated statements of comprehensive income.
F-11
Leases
The Company leases facilities and property and equipment. The Company determines if an arrangement is a lease at its inception and recognizes a
right-of-use asset and lease obligation for all leases greater than twelve months based on the present value of the future minimum lease payments as of the
commencement date, excluding any lease incentives and initial costs incurred to obtain the lease. Since most lease agreements do not provide an implicit
rate, the Company uses its incremental borrowing rate as of the commencement date, based on publicly available yields adjusted for company-specific
considerations and terms, in estimating the present value of future payments.
Lease terms, for the purpose of determining each lease’s present value, include options to extend or terminate the lease if it is reasonably certain and
economically reasonable that the Company will exercise that option. Lease costs from minimum lease payments are recognized on a straight-line basis over
the lease term.
The leases may contain both lease and non-lease components, which are generally accounted for separately. For office equipment leases (primarily
copier leases), the Company elected to account for the lease and non-lease components as a single lease component and not recognize right-of-use assets
and lease liabilities for leases with a term less than twelve months.
Operating leases are included in operating lease right-of-use assets and operating lease liabilities (current and non-current) and finance leases are
included in property and equipment, net and finance lease liabilities (current and non-current) on the consolidated balance sheets.
Capitalized Software
The Company capitalizes certain costs to develop enhancements and upgrades to internal-use software that are incurred subsequent to the
preliminary project stage. Amortization expense is recorded on a straight-line basis over the expected economic life of the software, typically lasting three
to five years. As of December 31, 2023, and 2022, capitalized software, net of accumulated amortization, totaled $12.8 million and $19.0 million,
respectively, and is included as part of “other assets” on the consolidated balance sheets.
Stock-based Compensation
The Company recognizes stock-based compensation expense to employees and non-employee directors, including grants of stock options, restricted
stock awards, restricted stock units (“RSUs”), and cash-settled restricted stock units (“CSRSUs”) on a straight-line basis over the requisite service period,
which is generally the vesting period. The Company recognizes expense for performance-based share awards (“PSAs”), which have both performance and
service conditions, on a straight-line basis over the three-year performance period. Non-employee director awards are granted annually for Board-related
services and therefore expensed over the service period.
Stock-based compensation expense is based on the estimated fair value of the instruments on the grant date and the estimated number of shares the
Company ultimately expects will vest. The Company estimates the rate of future forfeitures based on factors which include the historical forfeiture
experience for each applicable employee class. In addition, the estimation of PSAs that will ultimately vest requires judgment based on the performance
and market conditions that will be achieved over the performance period. Changes to these estimates are recorded as a cumulative adjustment in the period
estimates are revised.
The fair value of stock options, restricted stock awards, RSUs, PSAs, and non-employee director awards is estimated based on the fair value of a
share of common stock at the grant date. The fair value of PSAs is estimated using a Monte Carlo simulation model.
CSRSUs are settled only in cash payments. The cash payment is based on the fair value of the Company’s stock price at the vesting date, calculated
by multiplying the number of CSRSUs vested by the Company’s closing stock price on the vesting date, subject to a maximum payment cap and a
minimum payment floor. The Company treats these awards as liability-classified awards, and, therefore, accounts for them at fair value estimated based on
the closing price of the Company’s stock at the reporting date.
Derivative Instruments
Derivative instruments include interest rate swaps, foreign currency hedges, and forward contracts. Derivative instruments designated as cash flow
hedges are recorded on the consolidated balance sheets at fair value as of the reporting date and reclassified to earnings in the period that the hedged
instruments affect earnings, and the effective portion of the hedge is recorded in other comprehensive income (loss) (“AOCI”), net of tax, on the
consolidated statements of comprehensive income. Management reviews the effectiveness of the hedges on a quarterly basis.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company evaluates its ability to benefit from
all deferred tax assets and establishes valuation allowances for amounts it believes will more likely than not be unrealizable. For uncertain tax positions, the
Company uses a more-likely-than-not recognition threshold based on the technical merits of the income tax position taken. Income tax positions that meet
the more-likely-than-not recognition threshold are measured in order to determine the tax benefit recognized in the financial statements. Penalties, if
probable and reasonably estimable, and interest expense related to uncertain tax positions are not recognized as a component of income tax expense but
recorded separately in indirect expenses and interest expense, respectively.
F-12
Treasury Shares
Treasury shares are accounted for under the cost method.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) includes foreign currency translation adjustments due to fluctuation in foreign currency exchange rates, the gain
on the sale of an interest rate hedge agreement designated as a cash flow hedge, and the changes in fair value of interest rate agreements designated as cash
flow hedges, net of taxes. The financial positions and results of operations of the Company’s foreign subsidiaries are based on the local currency as the
functional currency and are translated to U.S. dollars for financial reporting purposes. Assets and liabilities of the subsidiaries are translated at the exchange
rate in effect at each balance sheet date. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation
adjustments are reported in accumulated other comprehensive loss included in stockholders’ equity in the Company’s consolidated balance sheets.
Acquisition-Related Costs
Costs related to acquisitions include professional fees for legal, financial, and other advisory services and are expensed in the period that they are
incurred.
Segment, Customer, and Geographic Information
The Company operates in one segment based on the consolidated information used by its chief operating decision-maker, currently the Chief
Executive Officer, in evaluating the financial performance of its business and allocating resources. This single segment represents the Company’s core
business, which is providing professional services. Although the Company disaggregates its revenue by client markets and client types, the Company does
not manage its business or allocate resources based on client market or type.
No customer accounted for 10% or more of the Company’s revenue during the years ended 2023, 2022, and 2021.
The Company provides services to U.S. and international clients, and revenue is attributed to a particular geographic area based on the
administrative location of the client that awarded the contract. The Company’s revenue generated from international clients as a percentage of total revenue
was approximately 7%, 8%, and 11% for the years 2023, 2022, and 2021, respectively.
At December 31, 2023 and 2022, long-lived assets held internationally were 6% and 7% of total long-lived assets, respectively.
Foreign currency expense, net of impact of hedges, was $1.2 million, $0.2 million, and $0.6 million, for the years ended December 31, 2023, 2022
and 2021, respectively.
Fair Value
The Company measures and reports certain financial assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and
Disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants on the measurement date. Generally, fair value is based on observable quoted market prices or derived from observable market data when such
market prices or data are available. ASC 820 establishes a three-level hierarchy used to estimate fair value by which each level is categorized based on the
priority of the inputs used to measure fair value:
•
•
•
Level 1: Quoted prices that are available in active markets for identical assets or liabilities;
Level 2: Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates and yield curves that are
observable at commonly quoted intervals, and implied volatilities); and inputs derived principally from or corroborated by observable market
data by correlation or other means; and
Level 3: Uses inputs that are unobservable and require the Company to make certain assumptions and require significant estimation and
judgment from management to use in pricing the fair value of the assets and liabilities.
Certain financial instruments, including cash and cash equivalents, contract receivables, and accounts payable are carried at cost, which, due to their
short maturities, approximates their fair values. The carrying value of the Company's long-term debt approximates the estimated fair value for debt with
similar terms, interest rates, and remaining maturities currently available to companies with similar credit ratings (Level 2).
Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,
derivative financial instruments, and contract receivables.
F-13
The Company’s domestic bank accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation. As of December 31, 2023, the
Company had $0.3 million in its accounts that exceeded the insured limit. The majority of the Company’s cash transactions are processed through one U.S.
commercial bank. Cash held domestically in excess of daily requirements is primarily used to reduce any amounts outstanding under the Company’s Credit
Facility.
As of December 31, 2023 and 2022, the Company held approximately $8.5 million and $8.4 million, respectively, of cash and restricted cash in
foreign bank accounts.
The Company enters into derivative financial instruments with financial institutions that meet certain credit guidelines and limits its risks by
continuously monitoring the credit rating of the institutions.
The Company’s receivables consist principally of amounts due from agencies and departments of the federal government, state and local
governments, and international governments, as well as from commercial organizations. The credit risk, with respect to federal and other government
clients, is limited due to the creditworthiness of the respective governmental entity. Amounts due for work performed as a subcontractor also represent
limited credit risk when the client is performing as the prime contractor on a government contract due to the ultimate creditworthiness of the end client.
Receivables from commercial clients generally pose a greater credit risk, and, as a result, are subject to ongoing monitoring. The Company extends credit in
the normal course of operations and does not require collateral from its clients.
The Company’s contracts with the federal government are subject to audit by agencies and departments of the federal government. Such audits
determine, among other things, whether adjustments to invoices previously rendered are required under regulations as well as the underlying terms of each
respective contract.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Facilitation of the
Effects of Reference Rate Reform on Financial Reporting. The standard is intended to provide temporary optional expedients and exceptions to the U.S.
GAAP guidance on contract modifications and hedge accounting to ease accounting and financial reporting burdens related to the expected market
transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The provisions of this ASU
are elective and apply to all entities, subject to meeting certain criteria, that have debt or hedging contracts, among other contracts, that reference LIBOR or
another reference rate expected to be discontinued because of reference rate reform. Entities can elect to not apply certain modification accounting
requirements to contracts affected by reference rate reform if certain criteria are met. Also, entities can elect various optional expedients that would allow
them to continue to apply hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. This guidance was
effective beginning on March 12, 2020 and entities may elect to apply the amendments prospectively through December 31, 2022, the sunset date. In
December 2022, the FASB issued ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 which extended the sunset
date from December 31, 2022 to December 31, 2024.
The Company completed its adoption of the provisions of ASU 2020-04 during the second quarter of 2023 upon amendment of its last interest rate
swap from LIBOR-based to SOFR-based pricing. The adoption did not have a material impact on the Company's consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
Segment Reporting
In November 2023, the FASB issued ASU 2023-07: Improvements to Reportable Segment Disclosures, that required additional segment disclosures
for public entities currently required under the Segment Reporting (Topic 280) of the Accounting Standards Codification (“ASC”). ASU 2023-07 enhances
the current segment reporting disclosures of Topic 280 by requiring significant segment expenses that are regularly provided to the Chief Operating
Decision Maker (the “CODM”), the amount and description of other segment items, and interim disclosures of reportable segment's profit or loss and
assets. ASU 2023-07 also requires public entities that have a single reportable segment to provide all the disclosures required in Topic 280, as amended.
The ASU is effective for the Company for the 2024 fiscal year and interim periods within the 2025 fiscal year on a retrospective basis, with early adoption
permitted. The Company is currently evaluating the impact of the adoption of ASU 2023-07 but does not expect the adoption to have a material impact, if
any, on the consolidated financial statements.
F-14
Income Taxes
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures, that require greater disaggregation of
income tax rate 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 2025 fiscal year, 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 3 - RESTRICTED CASH
The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the consolidated balance sheets at
December 31, 2023 and 2022 to the total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows for the years ended
December 31, 2023, 2022, and 2021:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash shown in the
consolidated statement of cash flows
(1)
2023
Beginning Ending
$
$
11,257
1,711
6,361
3,088
2022
2021
Beginning Ending
$
$
8,254
12,179
Beginning Ending
11,257
1,711
$
$
13,841
68,146
8,254
12,179
$
12,968
$
9,449
$
20,433
$
12,968
$
81,987
$
20,433
(1) Under a contract with a customer that commenced in the fourth quarter of fiscal year 2020, the Company received advance payments to be used to pay providers
of services to the customer, a separate third party. The advanced payments are treated as restricted cash - current as the Company is required under the contract to
distribute the advanced funds to the third-party providers of services or return the advanced funds to the customer. Because the Company receives the advance
payments from the customer, which must be refunded to the customer or remitted to a third party, the cash receipts are treated as liabilities rather than receipts for the
provision of goods or services. Therefore, these cash receipts are presented in the consolidated statements of cash flows as financing cash inflows, “Receipt of
restricted contract funds,” with the subsequent payments classified as financing cash outflows, “Payment of restricted contract funds.”
NOTE 4 - CONTRACT RECEIVABLES, NET
Contract receivables, net consisted of the following as of December 31:
Billed and billable
Allowance for expected credit losses
Contract receivables, net
2023
2022
$
$
210,919
(5,435 )
205,484
$
$
238,449
(6,112 )
232,337
On December 23, 2022, the Company entered into a Master Receivables Purchase Agreement (the “MRPA”) with MUFG Bank, Ltd. (“MUFG”) for
the sale from time to time of certain eligible billed receivables. The receivables are sold without recourse and the Company does not retain any ongoing
financial interest in the transferred receivables other than providing servicing activities. The Company accounts for the transfers as sales under ASC 860,
Transfers and Servicing, derecognizes the receivables from its consolidated balance sheets at the date of the sale, and includes the cash received from
MUFG as part of cash flows from operating activities on its consolidated statement of cash flows.
During the years ended December 31, 2023 and 2022, the Company received $309.4 million and $10.0 million under the MRPA, of which $28.7
million and $6.2 million, respectively, was collected but not remitted to MUFG. For the years ended December 31, 2023 and 2022, the discount on the sale
of receivables under the MRPA totaled $1.1 million and less than $0.1 million, respectively, and is included as part of “indirect and selling expenses” on the
consolidated statements of comprehensive income.
F-15
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Leasehold improvements
Software
Furniture and office equipment
Computer equipment
Accumulated depreciation and amortization
Total property and equipment, net
2023
2022
54,398 $
16,897
29,773
44,661
145,729
(69,781 )
75,948 $
58,131
17,926
28,800
45,541
150,398
(64,996 )
85,402
$
$
Depreciation and amortization expense for the years ended December 31, 2023, 2022, and 2021 totaled $25.3 million, $21.5 million, and $19.5
million, respectively.
NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the fiscal years ended December 31 were as follows:
Balance as of January 1, 2023
Add: Goodwill resulting from business combinations
Less: Goodwill resulting from business divestitures
Effect of foreign currency translation
Balance as of December 31, 2023
2023
2022
$
$
1,212,898 $
21,133
(16,921 )
2,366
1,219,476 $
1,046,760
171,415
—
(5,277 )
1,212,898
See “Note 16 – Acquisitions and Divestitures” for the details of the business combination and divestiture resulting in the changes in goodwill.
Other Intangible Assets
Intangible assets with definite lives are primarily amortized over periods ranging from approximately 1 to 9 years. The weighted-average period of
amortization for all intangible assets, calculated as of December 31, 2023, is 5.7 years. The customer-related intangible assets, which consist of customer
contracts, backlog, and non-contractual customer relationships, are being amortized based on estimated cash flows and respective estimated economic
benefit of the assets. The weighted-average period of amortization of the customer-related intangibles calculated as of December 31, 2023 is 5.7 years.
Intangible assets related to developed technology are being amortized on an accelerated basis over a weighted-average period, calculated as of December
31, 2023, of 9.6 years. Intangible assets with an indefinite life consist of a domain name.
Other intangibles consisted of the following at December 31:
Customer-related
Developed technology
Trade name
Total amortizable intangible assets
Intangible with indefinite life
Total other intangible assets
$
$
Gross
Carrying
Value
2023
Accumulated
Amortization
Net Carrying
Value
185,723
3,902
1,280
190,905
94
190,999
$
$
F-16
(93,911 )
(904 )
(1,280 )
(96,095 )
—
(96,095 )
$
$
91,812
2,998
—
94,810
94
94,904
Customer-related
Developed technology
Trade name
Total amortizable intangible assets
Intangible with indefinite life
Total other intangible assets
Gross
Carrying
Value
2022
Accumulated
Amortization
Net Carrying
Value
$
$
240,591
4,480
1,180
246,251
94
246,345
$
$
(118,412 )
(512 )
(884 )
(119,808 )
—
(119,808 )
$
$
122,179
3,968
296
126,443
94
126,537
Aggregate amortization expense for the years ended December 31, 2023, 2022, and 2021, was approximately $35.5 million, $28.4 million, and
$12.5 million, respectively. The estimated future amortization expense relating to intangible assets is as follows:
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
NOTE 7 – LEASES
$
$
32,992
32,074
18,533
3,407
2,047
5,757
94,810
The Company has operating and finance leases for facilities and equipment which have remaining terms ranging from 1 to 15 years. The leases may
include options to extend the lease periods for up to 5 years at rates approximating market rates and/or options to terminate the leases within 1 year. The
leases may include a residual value guarantee or a responsibility to return the property to its original state of use. A limited number of leases contain
provisions that provide for rental increases based on consumer price indices. The change in lease cost resulting from changes in these indices was included
within variable lease cost.
The Company’s lease cost is recognized on a straight-line basis over the lease term and is primarily included within indirect and selling expenses on
the consolidated statements of comprehensive income. Lease cost consisted of the following:
Operating lease cost
Finance lease cost - amortization of right-of-use assets
Finance lease cost - interest
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Year Ended December 31,
2023
2022
2021
25,037 $
2,040
602
669
222
(28 )
28,542 $
37,889 $
598
179
509
146
(92 )
39,229 $
35,469
—
—
453
43
—
35,965
$
$
Future minimum lease payments under non-cancellable operating and finance leases as of December 31, 2023 were as follows:
December 31, 2024
December 31, 2025
December 31, 2026
December 31, 2027
December 31, 2028
Thereafter
Total future minimum lease payments
Less: Interest
Total
Operating
Finance
25,419 $
26,621
22,899
18,578
15,926
131,690
241,133
(45,264 )
195,869 $
3,041
3,041
3,041
3,041
2,985
2,966
18,115
(1,719 )
16,396
$
$
F-17
Other information related to operating and finance leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Property and equipment obtained in exchange for finance lease liabilities
Weighted-average remaining lease term - operating leases
$
$
$
Operating leases
Finance leases
Weighted-average discount rate - operating leases
Operating leases
Finance leases
Year Ended December 31,
2023
2022
20,368 $
18,590 $
338
11.6
6.0
3.6 %
3.4 %
40,123
13,906
18,319
11.7
7.0
3.3 %
3.4 %
The change in operating lease right-of-use assets and lease liabilities are presented within cash flows from operating activities on the consolidated
statements of cash flows.
During the years ended December 31, 2023 and 2022, the Company ceased use of office facilities and recorded impairment of $6.8 million and $8.4
million, respectively, related to operating lease right-of-use asset and leasehold improvement, and accrued other future lease-related expenses of $3.2
million and $4.9 million, respectively. The amounts are included as part of indirect and selling expenses on the Company's consolidated statements of
comprehensive income.
NOTE 8 - ACCRUED SALARIES AND BENEFITS
Accrued salaries and benefits consisted of the following at December 31:
Bonuses, liability-classified awards, and commissions
Salaries
Paid time off and leave
Medical
Payroll taxes and withholdings
Other
Total accrued salaries and benefits
2023
2022
$
$
27,371 $
32,604
16,415
5,685
976
4,970
88,021 $
NOTE 9 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following at December 31:
Deposits
Restricted contract funds
IT and software licensing costs
Taxes and insurance premiums
Facilities rental and lease exit costs
Interest
Professional services
Dividends
Cash collected not yet remitted to purchaser of billed receivables
Other accrued expenses and current liabilities
Total accrued expenses and other current liabilities
F-18
2023
2022
$
$
20,246 $
2,036
583
7,010
2,754
3,218
1,943
2,636
28,675
10,028
79,129 $
26,930
31,142
16,144
5,833
1,363
4,579
85,991
32,384
1,701
1,609
6,633
2,043
363
3,617
2,631
6,164
20,891
78,036
NOTE 10 - LONG-TERM DEBT
On May 6, 2022, the Company entered into the Restated Credit Agreement with a group of lenders with (a) PNC Bank, National Association as the
Administrative Agent and (b) PNC Capital Markets LLC, BOFA Securities, Inc., TD Securities (USA) LLC, Wells Fargo Securities, LLC and Citizens
Bank, N.A., as joint lead arrangers. The various facilities under the Restated Credit Agreement are referred to as the “Credit Facility”. The Restated Credit
Agreement amended and restated the Company’s prior credit agreement (the “Existing Credit Agreement”) to, among other things: (a) maintain the existing
$600 million revolving credit facility (together and inclusive of a $75 million swing line sublimit and $100 million sublimit for letters of credit); (b)
increase the existing term loan facility from $200 million to $300 million; (c) provide for a new delayed draw term loan facility of $400 million; (d)
maintain the existing incremental credit facility to make, subject to approval of the lenders making such loans, incremental term or revolving credit loan(s)
in the aggregate principal amount of not more than $300 million; (e) increase the maximum Consolidated Leverage Ratio (as such term is defined in the
Restated Credit Agreement) from 4.00 to 1.00 to 4.50 to 1.00 (with temporary increases to 5.00 to 1.00 for the three fiscal quarters following a “Material
Permitted Acquisition”, as such term is defined in the Restated Credit Agreement); (f) maintain the minimum Consolidated Interest Coverage Ratio (as
such term is defined in the Restated Credit Agreement) of 3.00 to 1.00; (g) increase the foreign currency debt limit in Euro and Sterling Pounds from $30
million equivalent to $200 million equivalent; (h) modify LIBOR based interest pricing conventions with SOFR based interest pricing conventions; (i)
extend the maturity date of the Credit Facility until May 6, 2027; (j) incorporate various provisions and conventions encouraged by the Loan Syndication
and Trade Association; and (k) modify certain definitions and certain covenants.
Under the Restated Credit Agreement, the Company may, at its discretion, borrow funds under the Credit Facility at interest rates based on both term
SOFR (i.e., 1, 3, or 6-month rates) and the Base Rate (as defined herein), plus their applicable margins. The Base Rate is a fluctuating rate of interest equal
to the highest of (a) the Overnight Bank Funding Rate (as defined in the Restated Credit Agreement), plus 0.5%, (b) the Prime Rate (as defined in the
Restated Credit Agreement) and (c) the Daily Simple SOFR Rate (as defined in the Restated Credit Agreement) plus 1%, all as then adjusted to include the
Applicable Margin (as defined in the Restated Credit Agreement) as then in effect (and as determined pursuant to the then-current Consolidated Leverage
Ratio). For the years ended December 31, 2023 and 2022, the average interest rate on borrowings under the Credit Facility was 6.7% and 3.3%,
respectively. Inclusive of the impact of floating-to-fixed interest rate swaps (see “Note 12 – Derivative Instruments and Hedging Activities”), the average
interest rate was 5.6% and 3.7% for the years ended December 31, 2023 and 2022, respectively.
The Credit Facility is collateralized by substantially all the assets of the Company and its material domestic subsidiaries and requires that the
Company remain in compliance with certain financial and non-financial covenants including, but not limited to the Consolidated Leverage Ratio and the
Consolidated Interest Coverage Ratio. As of December 31, 2023, the Company was in compliance with its covenants. The Credit Facility also includes
other terms and conditions, covenants, and other provisions of the Restated Credit Agreement that are materially consistent with the Existing Credit
Agreement.
As of December 31, 2023, the Company had $430.4 million (net of unamortized debt issuance costs) of long-term debt outstanding from the Credit
Facility, unused delayed draw term loan facility of $180.0 million (available through January 5, 2024), and unused borrowing capacity of $591.9 million
from the available $600.0 million revolving line of credit under the Credit Facility. The unused borrowing capacity is inclusive of five outstanding letters of
credit totaling $1.8 million. Considering the financial, performance-based limitations, available borrowing capacity was $575.5 million as of December 31,
2023.
As of December 31, 2023 and 2022, long-term debt consisted of the following:
Term Loan
Delayed-Draw Term Loan
Revolving Credit
Total before debt issuance costs
Unamortized debt issuance costs
Current portion of long-term debt
Long-term debt - non-current
Total
December 31, 2023
December 31, 2022
Average
Interest Rate
Outstanding
Balance
Average
Interest Rate
Outstanding
Balance
$
$
$
$
207,750
220,000
6,340
434,090
(3,683 )
430,407
26,000
404,407
430,407
3.3%
$
$
$
$
288,750
220,000
52,616
561,366
(5,032 )
556,334
23,250
533,084
556,334
6.7%
F-19
Future scheduled repayments of debt principal are as follows:
Payments due by
Term Loan
Delayed-Draw
Term Loan
Revolving Credit
Total
December 31, 2024
December 31, 2025
December 31, 2026
December 31, 2027
Total
Debt Issuance Cost
$
$
15,000 $
20,625
22,500
149,625
207,750 $
11,000 $
15,125
16,500
177,375
220,000 $
— $
—
—
6,340
6,340 $
26,000
35,750
39,000
333,340
434,090
The Company’s debt issuance costs are amortized over the term of indebtedness. The balance of net debt issuance costs at December 31, 2023 and
2022 were $3.7 million and $5.0 million, respectively. Amortization of debt issuance costs totaling $2.0 million, $1.3 million, and $0.6 million was
recorded for each of the years ended December 31, 2023, 2022, and 2021, respectively, and was included as part of interest expense.
NOTE 11 – 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.
Client markets provide insight into the breadth of the Company’s expertise. In classifying revenue by client market, the Company attributes revenue
from a client to the market that the Company believes is the client’s primary market. The Company also classifies revenue by the type of client for which it
does business, which is an indicator of the diversity of its client base. The Company attributes revenue generated as a subcontractor to the market or type of
the ultimate client. Disaggregation by contract mix provides insight in terms of the degree of performance risk that the Company has assumed. Fixed-price
contracts are considered to provide the highest amount of performance risk as the Company is required to deliver a scope of work or level of effort for a
negotiated fixed price. Time-and-materials contracts require the Company to provide skilled employees for negotiated fixed hourly rates. Since the
Company is not required to deliver a scope of work, but merely skilled employees, it considers these contracts to be less risky than a fixed-price agreement.
Cost-based contracts are considered to provide the lowest amount of performance risk since the Company is generally reimbursed for all contract costs
incurred in performance of contract deliverables with only the amount of incentive or award fees (if applicable) dependent on the achievement of negotiated
performance requirements.
The Company's revenue by client markets, type, and contract mix are in the following tables. Certain immaterial revenue amounts in the prior years
have been reclassified due to minor adjustments and reclassification.
Client Markets:
Energy, environment, infrastructure, and disaster recovery
Health and social programs
Security and other civilian & commercial
Total
Client Type:
U.S. federal government
U.S. state and local government
International government
Total Government
Commercial
Total
Year ended December 31,
2023
2022
2021
806,482 $
814,454
342,302
1,963,238 $
714,628 $
704,465
360,871
1,779,964 $
693,572
563,590
295,886
1,553,048
Year ended December 31,
2023
2022
2021
1,084,043 $
308,134
103,399
1,495,576
467,662
1,963,238 $
980,746 $
259,764
103,609
1,344,119
435,845
1,779,964 $
735,032
235,416
139,229
1,109,677
443,371
1,553,048
$
$
$
$
F-20
Contract Mix:
Time-and-materials
Fixed-price
Cost-based
Total
Contract Assets and Liabilities:
Year ended December 31,
2023
2022
2021
$
$
812,430 $
885,465
265,343
1,963,238 $
713,693 $
802,568
263,703
1,779,964 $
633,135
645,809
274,104
1,553,048
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 on long-term contracts.
The following table summarizes the contract balances as of December 31, 2023 and December 31, 2022:
Contract assets
Contract liabilities
Net contract assets (liabilities)
December 31, 2023
December 31, 2022
Change
$
$
201,832 $
(21,997 )
179,835 $
169,088 $
(25,773 )
143,315 $
32,744
3,776
36,520
The net contract assets (liabilities) as of December 31, 2023 increased by $36.5 million as compared to December 31, 2022, primarily due to the
timing difference between the performance of services and billings to and payments from customers. There were no material changes to contract balances
due to impairments or credit losses during the period. During the years ended December 31, 2023 and 2022, the Company recognized $17.8 million and
$27.4 million in revenue related to the contract liabilities balance at December 31, 2022 and 2021, respectively.
Unfulfilled Performance Obligations:
The Company had $1.4 billion in remaining unfulfilled performance obligations (“UPO”) as of December 31, 2023. The Company expects to
recognize the remaining UPO as revenue of approximately 57% by December 31, 2024, 77% by December 31, 2025, and the remaining thereafter.
NOTE 12 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses interest rate swap agreements (the “Swaps”) to manage its variable interest rate risk associated with its borrowings under the
Credit Facility. The Company does not use such instruments for speculative or trading purposes.
At December 31, 2023, the Company had floating-to-fixed interest rate swaps 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 Swaps as cash flow hedges.
For the years ended December 31, 2023 and 2022, the effect of the Swaps on the Company’s financial statements are as follows:
Cash Flow Hedging Derivatives
Total Gain (Loss) Recorded to AOCI
Amount of (Gain) or Loss
Reclassified from AOCI into
Income
Interest Rate Swaps
$
(45 )
$
11,445 $
(6,982 )
$
(248 )
As of December 31, 2023, the net amount of realized losses from the hedge agreements expected to be reclassified from AOCI into earnings within
the next twelve months is $4.8 million.
2023
Year Ended December 31,
2022
2023
2022
F-21
NOTE 13 - INCOME TAXES
The domestic and foreign components of income before provision for income taxes are as follows for the years ended December 31:
Domestic
Foreign
Income before income taxes
2023
2022
2021
$
$
83,742 $
12,805
96,547 $
80,372 $
3,608
83,980 $
97,884
2,206
100,090
Income tax expense consisted of the following for the years ended December 31:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Income tax expense
2023
2022
2021
$
$
28,108 $
10,380
2,247
40,735
(20,279 )
(6,915 )
394
(26,800 )
13,935 $
8,413 $
2,686
1,661
12,760
4,264
3,607
(894 )
6,977
19,737 $
15,961
3,494
687
20,142
4,724
4,395
(303 )
8,816
28,958
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and income tax purposes.
F-22
Deferred tax assets (liabilities) consisted of the following at December 31:
2023
2022
Deferred Tax Assets
Allowance for expected credit losses
Accrued paid time off
Foreign net operating loss carryforward
State net operating loss carryforward
Stock-based compensation
Deferred compensation
Foreign tax credits
Federal and state tax credits
Foreign exchange
Foreign deferred
Accrued bonus
Capital loss
Facilities impairment
Capitalized research expenses
Accrued liabilities and other
Lease liabilities
Less: Valuation Allowance
Total Deferred Tax Assets
Deferred Tax Liabilities
Retention
Prepaid expenses
Payroll taxes
Unbilled revenue
Depreciation
Amortization
Deferred gain and other
Lease assets - Right-of-Use
Total Deferred Tax Liabilities
Total Net Deferred Tax Liability
$
$
1,213 $
3,039
—
500
5,523
5,765
8,035
686
3,591
441
5,830
1,054
3,092
47,019
2,682
58,538
147,008
(9,021 )
137,987
—
—
(725 )
(284 )
(2,128 )
(107,201 )
(2,202 )
(51,622 )
(164,162 )
(26,175 ) $
1,404
2,801
229
502
1,586
4,692
7,236
384
4,532
875
5,696
—
2,650
990
5,523
56,695
95,795
(7,607 )
88,188
(407 )
(366 )
(697 )
(409 )
(270 )
(99,045 )
(2,561 )
(52,471 )
(156,226 )
(68,038 )
The Company measures certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is
27.0%.
On December 20, 2017, the U.S. Congress passed the Tax Cuts and Job Act of 2017 (the “TCJA”) which was signed into law on December 22,
2017, and was generally effective beginning January 1, 2018. The TCJA changed the provision for deduction of allowable research and development costs
under the Internal Revenue Code (the “IRC”). Effective for tax years beginning after January 1, 2022, research and development costs are required to be
capitalized and amortized over a period of five years for domestic and fifteen years for foreign research and development for income tax purposes. As a
result of the capitalization, the Company recognized an increase of $28.1 million in deferred tax asset for the year ended December 31, 2023.
As of December 31, 2023, the cumulative foreign tax credit carryforward balance increased by approximately $0.8 million and the valuation
allowance required increased by approximately $0.8 million. No additional income taxes have been provided for on any remaining undistributed foreign
earnings not subject to the transition tax. No additional deferred income taxes have been provided for the $4.9 million of additional unfavorable outside
basis differences inherent in these foreign entities as of December 31, 2023 because these amounts continue to be permanently reinvested in foreign
operations.
F-23
As of December 31, 2023, the Company has net operating loss (“NOL”) carryforwards for state income tax purposes of approximately $6.5 million,
which expire in 2034. The Company acquired these NOLs as a result of its purchase of a business in November 2014. IRC Section 382 imposes an annual
limitation on the use of a corporation’s NOLs, tax credits and other carryovers after an “ownership change” occurs. Section 382 imposes an annual
limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs and credits. In general, the
annual limitation is determined by multiplying the value of the corporation’s stock immediately before the ownership change (subject to certain
adjustments) by the applicable long-term tax-exempt rate. Any unused portion of the annual limitation is available for use in future years until such NOLs
are scheduled to expire (in general, NOLs may be carried forward 15 to 20 years). The Company established a valuation allowance of approximately $0.5
million against the portion of the deferred tax asset which it is more-likely-than-not that it will not be recoverable (e.g. expiration of the statute of
limitations, etc.)
As of December 31, 2023, the Company had gross federal and state income tax credit carryforwards of approximately $0.7 million, which expire
between 2024 and 2034. A deferred tax asset of approximately $0.7 million, net of federal benefit, has been established related to these state income tax
credit carryforwards as of December 31, 2023.
The need to establish valuation allowances for deferred assets is based on a more-likely-than-not threshold that the benefit of such assets will be
realized in future periods. Appropriate consideration has been given to all available evidence, including historical operating results, projections of taxable
income, and tax planning alternatives. The Company concluded that a valuation allowance of $0.5 million was required for tax attributes related to
specified state jurisdictions and an additional $8.0 million valuation allowance is required against our U.S. foreign tax credit carryforwards.
The total amount of unrecognized tax benefits as of December 31, 2023 and 2022 was $24.1 million and $0.1 million, respectively, which includes
$9.0 million and $0.1 million, respectively, of tax positions that, if recognized, would impact the effective rate. The unrecognized tax benefits and the
related accrued interest are part of other long-term liabilities on the Company’s consolidated balance sheets.
The components of unrecognized tax benefits, excluding penalty and interest, are as follows at December 31:
2023
2022
U.S. transfer pricing
India transfer pricing
Section 41 tax credit
Section 174 expense capitalization
Total
The unrecognized tax benefit reconciliation, excluding penalty and interest, is as follows:
Unrecognized tax benefits at January 1, 2021
Decrease attributable to tax positions taken during the current period
Unrecognized tax benefits at December 31, 2021
Decrease attributable to tax positions taken during the current period
Unrecognized tax benefits at December 31, 2022
Increase attributable to tax positions taken during a prior period
Increase attributable to tax positions taken during the current period
Unrecognized tax benefits at December 31, 2023
$
$
$
145
164
8,736
15,086
24,131
$
$
145
—
—
145
811
(361 )
450
(305 )
145
19,845
4,141
24,131
The Company’s 2020 through 2022 tax years remain subject to examination by the Internal Revenue Service for federal tax purposes. Certain
significant state and foreign tax jurisdictions are also either currently under examination or remain open under the statutes of limitation and subject to
examination for the tax years from 2019 to 2022.
Although the Company believes it has adequately provided for all uncertain tax positions, amounts asserted by taxing authorities could be greater
than the Company’s accrued position. Accordingly, additional provisions on federal, state, and foreign income tax related matters could be recorded in the
future as revised estimates are made or the underlying matters are effectively settled or otherwise resolved. Conversely, the Company could settle positions
with the tax authorities for amounts lower than have been accrued. The Company believes it is reasonably possible that, during the next 12 months, the
Company’s liability for uncertain tax positions may not change.
F-24
The Company’s provision for income taxes differs from the federal statutory rate. The differences between the statutory rate and the Company’s
provision are as follows for the years ended December 31:
2023
2022
2021
Taxes at statutory rate
State taxes, net of federal benefit
Foreign tax rate differential
Executive compensation
Other permanent differences
Global intangible low-taxed income (GILTI)
Prior year tax adjustments
Deferred impact of state rate change
Worthless stock deduction
Unrecognized tax benefits
Capital loss
Valuation allowance
Equity-based compensation
Tax credits
Taxes at effective rate
21.0 %
6.0 %
(0.2 )%
1.7 %
(0.3 )%
0.3 %
(6.4 )%
0.5 %
(5.1 )%
9.0 %
(3.8 )%
2.0 %
(1.1 )%
(9.2 )%
14.4 %
21.0 %
5.8 %
0.1 %
2.2 %
2.0 %
—
(1.1 )%
0.6 %
(4.6 )%
(0.4 )%
—
0.7 %
(1.3 )%
(1.5 )%
23.5 %
21.0 %
5.6 %
0.1 %
2.1 %
(0.4 )%
—
1.5 %
—
—
(0.5 )%
—
1.3 %
(1.0 )%
(0.8 )%
28.9 %
During 2023, the Company restructured the ownership of its Canadian entities for tax purposes resulting in a 3.8% decrease in the Company’s
effective income tax rate for the year ended December 31, 2023.
During 2023, the Company liquidated one of its U.K. subsidiaries as part of the wind-down of its commercial marketing business resulting in a
reduction in the Company’s effective income tax rate of 5.1% for the year ended December 31, 2023.
During 2023, the Company completed its annual true-up of the prior year income tax provision in connection with the filing of its U.S. federal &
state income tax returns. As a result of that process, the Company recorded a change in the estimate of certain tax credits it is eligible to claim with its
income tax return filings that resulted in a 7.0% decrease in the Company’s effective income tax rate for the year ended December 31, 2023.
F-25
NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income included the following:
Accumulated other comprehensive (loss) income at January 1,
2021
Current period other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss) income
Effect of taxes
(3)
Total current period other comprehensive income (loss)
Accumulated other comprehensive (loss) income at December 31,
2021
Current period other comprehensive income (loss):
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss) income
Effect of taxes
(3)
Total current period other comprehensive income (loss)
Accumulated other comprehensive (loss) income at December 31,
2022
Current period other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
(loss) income
Effect of taxes
(4)
(3)
Total current period other comprehensive income (loss)
Accumulated other comprehensive (loss) income at December 31,
2023
$
Foreign
Currency
Translation
Adjustments
Gain on Sale of
Interest Rate
Hedge
Agreement
(1)
Changes in
Fair Value
of Interest
Rate Hedge
Agreements
(2)(5)
Total
$
(7,210 )
$
1,096
$
(7,992 ) $
(14,106 )
(1,676 )
—
127
(1,549 )
(8,759 )
(9,259 )
—
3,962
(5,297 )
(14,056 )
4,158
—
(2,797 )
1,361
—
3,285
1,609
(720 )
193
(527 )
569
—
(720 )
192
(528 )
41
—
(60 )
19
(41 )
3,728
(1,866 )
5,147
3,008
(1,546 )
3,071
(2,845 )
(11,035 )
11,445
472
(3,190 )
8,727
2,186
(248 )
964
2,902
5,882
(8,133 )
(45 )
4,113
(6,922 )
1,895
(5,072 )
(6,982 )
(883 )
(3,752 )
(12,695 ) $
— $
810 $
(11,885 )
(1)
(2)
(3)
(4)
(5)
Represents the fair value of an interest rate hedge agreement, designated as a cash flow hedge, which was sold on December 1, 2016. The fair value of the interest rate hedge agreement was recorded in other
comprehensive income, net of tax, and will be reclassified to earnings when earnings are impacted by the hedged items, as interest payments are made on the Credit Facility from January 31, 2018 to January 31,
2023.
Represents the change in fair value of interest rate hedge agreements designated as a cash flow hedges. The fair value of the interest rate hedge agreements was recorded in other comprehensive income, net of tax,
and will be reclassified to earnings when earnings are impacted by the hedged items, as interest payments are made on the Credit Facility from through June 27, 2028. See additional details of the hedge
agreements in Note 12 - Derivative Instruments and Hedging Activities.
The Company’s effective tax rate for the years ended December 31, 2023, 2022, and 2021 was 14.4%, 23.5%, and 28.9%, respectively.
The Company expects to reclassify $4.8 million in unrealized gains related to the Change in Fair Value of Interest Rate Hedge Agreement from accumulated other comprehensive loss into earnings during the next
12 months.
The fair value of the interest rate hedge agreements is included in other current and other long-term assets and liabilities on the consolidated balance sheets. See “Note 19 - Fair Value” for additional details.
F-26
NOTE 15 - ACCOUNTING FOR STOCK-BASED COMPENSATION
Stock Incentive Plans
On April 4, 2018, the Board approved the 2018 Omnibus Incentive Plan (the “2018 Omnibus Plan”), which was subsequently approved by the
stockholders and became effective on May 31, 2018 (the “Effective Date”). The 2018 Omnibus Plan replaced the previous 2010 Omnibus Incentive Plan
(the “Prior Plan”). The 2018 Omnibus Plan was amended on May 28, 2020 to increase the number of shares available for issuance.
On June 1, 2023, the Company’s stockholders approved an amendment and restatement of the 2018 Omnibus Plan (the “2018 A&R Omnibus Plan”)
which further increased the number of shares available for issuance, incorporated compensation recovery provisions consistent with new SEC and
NASDAQ requirements and made certain other clarifying changes.
The A&R 2018 Omnibus Plan, as amended, allows the Company to grant up to 2,050,000 shares using stock options, stock appreciation rights,
restricted stock, RSUs, performance units and PSAs, cash-based awards, and other stock-based awards to all key officers, key employees, and non-
employee directors of the Company. Outstanding shares granted under the Prior Plan, totaling 2,631, as of December 31, 2023, remain subject to its terms
and conditions, and additional awards from the Prior Plan are prohibited after the Effective Date. As of December 31, 2023, the Company had
approximately 1,119,446 shares available for grant under the A&R 2018 Omnibus Plan. CSRSUs have no impact on the shares available for grant under the
A&R 2018 Omnibus Plan, nor on the calculated shares used in earnings per share (“EPS”) calculations.
Stock-based compensation expense is included as part of direct costs and indirect and selling expenses on the consolidated statements of
comprehensive income. The total stock-based compensation expense for the years ended December 31, 2023, 2022, and 2021, the unrecognized
compensation expense at December 31, 2023, and the weighted-average period to recognize the remaining unrecognized shares are as follows:
Stock-Based Compensation Expense
Recognized
as of December 31,
Unrecognized
as of December 31,
Restricted Stock Units
Cash-Settled Restricted Stock Units
Non-Employee Director Awards
Performance Shares
Total
2023
2022
2021
2023
$
$
9,413
8,061
1,029
4,416
22,919
$
$
9,300
5,709
1,087
2,784
18,880
$
$
8,563 $
8,251
937
3,731
21,482 $
13,517
11,558
481
4,351
29,907
Weighted
Average
Period to
Recognize
(years)
1.7
1.7
0.4
1.5
The assumptions of employment termination forfeiture rates used in the determination of fair value of stock awards during the 2023 calendar year
were based on the Company’s historical average of actual forfeitures from the previous 10 years preceding the reporting period. The expected annualized
forfeiture rates used during the 2023 calendar year varied from 0% to 21.59%.
F-27
Stock Options
Stock options are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant. There were no
stock options granted during 2023, 2022, and 2021.
The following table summarizes the changes in outstanding stock options:
Outstanding at January 1, 2021
Exercised
Granted
Forfeited/Expired
Outstanding at December 31, 2021
Exercised
Granted
Forfeited/Expired
Outstanding at December 31, 2022
Exercised
Granted
Forfeited/Expired
Outstanding at December 31, 2023
Vested plus expected to vest at December 31, 2023
Exercisable at December 31, 2023
Number of
Shares
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value
38,227 $
(8,535 ) $
— $
— $
29,692 $
(18,807 ) $
— $
— $
10,885 $
(8,254 ) $
— $
— $
2,631 $
2,631 $
2,631 $
31.93
27.17
—
—
33.30
32.04
—
—
35.49
33.84
—
—
40.68 $
40.68 $
40.68 $
246
246
246
The aggregate intrinsic value is based on the Company’s closing stock price of $134.09 as of December 31, 2023. The total intrinsic value of options
exercised was $0.9 million, $1.9 million, and $0.8 million for the years ended December 31, 2023, 2022, and 2021, respectively. All options have vested as
of December 31, 2023, and the weighted-average remaining contractual term for options vested and exercisable was 0.2 years.
Information regarding stock options outstanding as of December 31, 2023 is summarized below:
Range of
Exercise Prices
$40.68 to $40.68
Restricted Stock Units
OPTIONS OUTSTANDING
Weighted
Average
Remaining
Contractual
Term
Number
Outstanding
As of
December
31, 2023
Weighted
Average
Exercise
Price
OPTIONS EXERCISABLE
Number
Exercisable
As of
December 31,
2023
Weighted
Average
Exercise
Price
2,631
0.2 $
40.68
2,631 $
40.68
RSUs generally have a vesting term of three years. On vesting the employee is issued one share of stock for each RSU awarded. The fair value of
shares vested was $7.3 million, $10.8 million, and $7.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.
F-28
A summary of the Company’s RSUs is presented below.
Non-vested RSUs at January 1, 2021
Granted
Vested
Cancelled
Non-vested RSUs at December 31, 2021
Granted
Vested
Cancelled
Non-vested RSUs at December 31, 2022
Granted
Vested
Cancelled
Non-vested RSUs at December 31, 2023
RSUs expected to vest in the future
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value
305,399 $
132,757 $
(119,203 ) $
(15,117 ) $
303,836 $
148,361 $
(140,666 ) $
(26,705 ) $
284,826 $
89,388 $
(93,881 ) $
(21,815 ) $
258,518 $
230,953 $
66.51
95.68
66.46
68.53
79.17
93.70
76.53
77.16
88.23
110.80
78.05
94.01
99.25
98.82
$
$
34,665
30,968
The aggregate intrinsic value in the preceding table is based on the Company’s closing stock price of $134.09 per share as of December 31, 2023.
Cash-Settled Restricted Stock Units
CSRSUs generally have a vesting term of three years. The fair value of CSRSUs vested and settled in cash for the years ended December 31, 2023,
2022, and 2021 was $7.9 million, $6.6 million and $8.7 million, respectively. A summary of the Company’s CSRSUs is presented below.
Non-vested CSRSUs at January 1, 2021
Granted
Vested
Cancelled
Non-vested CSRSUs at December 31, 2021
Granted
Vested
Cancelled
Non-vested CSRSUs at December 31, 2022
Granted
Vested
Cancelled
Non-vested CSRSUs at December 31, 2023
CSRSUs expected to vest in the future
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
Aggregate
Intrinsic
Value
241,481 $
52,246 $
(104,272 ) $
(23,195 ) $
166,260 $
115,024 $
(75,566 ) $
(17,299 ) $
188,419 $
70,742 $
(81,537 ) $
(19,040 ) $
158,584 $
134,808 $
65.06
89.51
63.96
69.68
72.79
97.88
73.20
80.02
87.28
110.65
76.26
91.94
102.82
102.31
$
$
21,264
18,076
The aggregate intrinsic value in the preceding table is based on the Company’s closing stock price of $134.09 per share as of December 31, 2023.
F-29
Non-Employee Director Awards
The Company grants awards of registered shares to its non-employee directors on an annual basis under the A&R Omnibus Plan. A summary of the
non-employee director awards is presented below:
Non-vested RSUs at January 1, 2021
Granted
Vested
Cancelled
Non-vested RSUs at December 31, 2021
Granted
Vested
Cancelled
Non-vested RSUs at December 31, 2022
Granted
Vested
Cancelled
Non-vested RSUs at December 31, 2023
RSUs expected to vest in the future
Number of
Shares
Weighted-
Average Grant
Date Fair
Value
Aggregate
Intrinsic
Value
6,510 $
$
11,186
$
(12,110 )
—
$
$
5,586
$
11,399
$
(11,637 )
—
$
$
5,348
$
8,211
$
(9,457 )
—
$
4,102
$
4,102
$
64.47
90.73
76.61
—
90.73
95.35
93.39
—
94.79
127.81
109.14
—
127.81 $
127.81
$
550
550
The aggregate intrinsic value in the preceding table is based on the Company’s closing stock price of $134.09 per share as of December 31, 2023.
Performance Share Awards
In 2015, the Board approved a performance-based share program (the “Program”) that provides for the issuance of PSAs to its senior management.
Under the Program, the number of PSAs that the participant will receive depends on the Company’s achievement of two performance goals during two
performance periods. The performance goals under the Program are based on (i) the Company’s compounded annual growth rate in EPS (adjusted to
exclude certain items specified in the award's Agreement) during a two-year performance period (the “Initial Period”) and (ii) the Company’s cumulative
total shareholder return relative to its peer group (“rTSR”) during a performance period from the first day of the performance period (typically January 1 of
the year awarded) to the last day of the third year of the performance period (typically December 31). The PSAs will only be eligible to vest following the
expiration of the three-year performance period. The actual shares vested will be subject to both continued employment by the Company (barring certain
exceptions allowing for partial performance periods) and actual financial measures achieved. The final number of shares of common stock that will be
issued to each participant at the end of the applicable performance period will be determined by multiplying the award by the product of two percentages:
the first based on the Company’s EPS performance and the second based on the Company’s rTSR performance, subject to a minimum and maximum
performance level. As of December 31, 2023, shares granted during 2021, 2022, and 2023 are within year three, two, and one of the performance periods,
respectively, and therefore have not fully vested. A total of 45,141 shares granted in 2020 vested during 2023 after meeting the performance goals. As of
December 31, 2023, a total of 69,650 shares granted in 2021 and 2022 are expected to vest in the future based on estimated financial measures achieved in
the Initial Period and rTSR performance.
F-30
A summary of the Company’s PSAs is presented below.
Number of
Shares
Weighted-
Average Grant
Date Fair Value
Aggregate
Intrinsic
Value
Non-vested PSAs at January 1, 2021
Granted
Vested
Cancelled
Non-vested PSAs at December 31, 2021
Granted
Vested
Cancelled
Non-vested PSAs at December 31, 2022
Granted
Vested
Cancelled
Non-vested PSAs at December 31, 2023
PSAs expected to vest in the future
142,121 $
$
$
$
$
$
$
$
$
$
$
$
54,216
(63,258 )
—
133,079
38,412
(47,634 )
(3,170 )
120,687
36,956
(45,141 )
(6,934 )
105,568
69,650
68.19
85.03
65.05
—
76.54
93.15
82.38
80.64
79.42
115.67
58.76
61.49
$
$
102.12
104.95
$
$
14,156
9,339
The aggregate intrinsic value in the preceding table is based on the Company’s closing stock price of $134.09 per share as of December 31, 2023.
The fair value of the awards is estimated on the grant date using a Monte Carlo simulation model due to the market condition for the rTSR
component. The fair value assumptions using the Monte Carlo simulation model for awards granted in 2023, 2022, and 2021 were:
Dividend Yield
Historical Volatility
Risk-Free Rate of Returns
2023
2022
2021
0.5 %
33.6 %
3.8 %
0.6 %
39.0 %
2.1 %
0.6 %
40.9 %
0.3 %
F-31
NOTE 16 – ACQUISITIONS AND DIVESTITURES
Acquisitions
CMY Solutions, LLC
On May 1, 2023, the Company acquired CMY Solutions, LLC (“CMY”), a privately-held company that provides engineering and automation
solutions to utilities and organizations, for $32.6 million in cash. The acquisition enhances the Company’s offerings in the field of power and energy
advisory services.
As part of the allocation of purchase consideration, the Company recorded $10.3 million of intangible assets, $1.2 million in net working capital,
and $21.1 million of goodwill. The goodwill is deductible for income tax purposes. Intangible assets consist of $10.2 million related to existing customer
relationships and $0.1 million related to trade names and trademarks. The pro-forma impact of the acquisition is not material to the Company’s results of
operations.
Blanton & Associates
On September 1, 2022, the Company completed the acquisition of Blanton & Associates (“Blanton”), an environmental consulting, planning, and
project management firm headquartered in Austin, Texas, for $22.9 million. Blanton brings domain expertise in environmental regulatory compliance and
permitting for the transportation, renewable energy, water, and resource management sectors and adds technically specialized staff in all aspects of
environmental services to the Company.
As part of the allocation of the purchase consideration, the Company recorded net working capital of $4.6 million, property and equipment of $0.2
million, deferred income tax liabilities of $3.0 million, $11.4 million to intangible assets, and $9.7 million to goodwill. The goodwill is not deductible for
income tax purposes. Intangible assets consisted of $10.9 million related to existing customer relationships, $0.5 million related to contract backlog, and
$0.1 million related to trade names and trademarks. The pro-forma impact of the acquisition is not material to the Company’s results of operations.
SemanticBits, LLC
On July 13, 2022, the Company completed the acquisition of SemanticBits, LLC (“SemanticBits”), a 450-person Virginia limited liability company.
SemanticBits is a partner to U.S. federal health agencies for mission-critical digital modernization solutions and provides a suite of scalable digital
modernization services using open-source frameworks, including end-to-end agile scale development capabilities, cloud-native solutions, data analytics and
human-centered designs. The acquisition provides synergies and scalabilities to support federal agencies with advanced IT solutions, digital modernization,
and health expertise to solve complex customer challenges.
The purchase price was $216.0 million in cash and was funded by the existing Credit Facility. The final purchase price allocation is summarized as
follows:
Contract receivables
Contract assets
Customer-related intangibles
Trade names and trademarks
Other current and non-current assets
Accrued salaries and benefits
Accrued expenses and other liabilities
Deferred tax liability
Net assets acquired
Goodwill
Purchase consideration
$
$
12,699
6,071
62,967
1,120
407
(3,998 )
(6,244 )
(16,701 )
56,321
159,677
215,998
Goodwill is reflective of the existing workforce of SemanticBits and the expected synergies created with the Company as part of the acquisition. The
useful lives associated with the customer-related intangible asset and trade names and trademarks are 4.0 years and 0.7 years, respectively. The goodwill
and intangible assets are not deductible for income tax purposes.
Acquisition-related costs and integration costs totaled $4.3 million and are included as part of indirect and selling expenses in the Company’s
consolidated statements of comprehensive income.
For the year ended December 31, 2022, SemanticBits contributed revenues of $64.3 million and gross profit of $26.7 million. Computation of an
earnings measure other than gross profit is impracticable due to SemanticBits’ operations and financial systems being integrated with those of the
Company.
F-32
The following unaudited condensed pro forma information presents combined financial information as if the acquisition of SemanticBits had been
effective at January 1, 2021, the beginning of the 2021 fiscal year. As a result, fiscal year 2022 represents the pro forma results for year two of the
acquisition. The pro forma information includes alignment of SemanticBits’ revenue recognition policy, corrections of employee-related expenses, and
adjustments reflecting changes in the amortization of intangibles, acquisition-related costs, interest expense, and records income tax effects as if
SemanticBits had been included in the Company’s results of operations. The pro forma information is not intended to reflect the actual combined results of
operations that would have occurred if the acquisition was completed on January 1, 2021, nor is it indicative of future operating results after the acquisition
date of July 13, 2022.
(in thousands)
Revenue
Net income
Creative Systems and Consulting
(Unaudited)
Year Ended
2022
2021
$
1,856,399
$
75,999
1,667,425
63,752
On December 31, 2021, the Company acquired Creative Systems, a provider of IT modernization and digital transformation solutions to federal
agencies, for cash purchase price of $156.6 million. The Company recognized fair value of the assets acquired and liabilities assumed, and allocated $128.1
million and $28.9 million of the purchase price to intangible assets and goodwill. The goodwill is deductible for income tax purposes. Intangible assets
consisted of $24.5 million in customer relationships, $3.7 million related to developed technology, $0.6 million related to trade names and trademarks, and
$0.1 million related to non-compete agreements. The customer-related and technology-related intangibles are being amortized on a straight-line basis over 4
years and 10 years, respectively, while trade names and trademarks and non-compete agreements will be amortized in less than one year from the
acquisition date. Goodwill is reflective of the existing workforce at Creative Systems and the expected synergies created with the Company as a result of
the acquisition. The pro-forma impact of the acquisition is not material to the Company’s results of operations.
ESAC
On November 1, 2021, the Company completed the acquisition of ESAC, which specializes in providing advanced health analytics, research data
management and bioinformatics solutions to U.S. federal health agencies, for a cash purchase price of $17.3 million. In addition to working capital acquired
of $2.6 million, the Company recognized fair value of the assets acquired and liabilities assumed and allocated $11.3 million to goodwill and $3.4 million
to intangible assets. The goodwill is deductible for income tax purposes. Intangible assets included $3.1 million related to customer relationships and $0.3
million related to technology and other intangibles, which are amortized over 3 years and less than 1 year, respectively. The pro-forma impact of the
acquisition is not material to the Company’s results of operations.
Divestitures
Commercial Marketing
On July 21, 2023, the Company entered into an Asset Purchase Agreement to sell its U.S. commercial marketing business, including certain assets
of the business, for initial cash considerations of $49.5 million before final net working capital adjustments. On September 12, 2023, the Company
completed the divesture and received $47.1 million in cash, net of working capital adjustments and certain amounts held in escrow. The disposal of the
commercial marketing business was not a major strategic shift that was, or will be, significant to the Company’s operations and financial results. In
connection with the sale, the Company recorded a gross gain of $4.4 million and transactions fees of $1.9 million, for a total pre-tax gain of $2.5 million,
that is included as part of other income on the Company’s consolidated statements of comprehensive income.
Mobile and SMS Messaging Aggregator Business
On July 24, 2023, the Company entered into an Asset Purchase Agreement to sell its mobile and Short Message Service (“SMS”) messaging
aggregator business, including certain assets of the business, for the equivalent of $5.4 million in cash. The sale was completed on November 1, 2023. The
disposal of the mobile aggregation and SMS messaging aggregator business was not a major strategic shift that was, or will be, significant to the
Company’s operations and financial results. In connection with the sale, the Company recorded a pre-tax gain of $3.2 million that is included as part of
other income on the Company’s consolidated statements of comprehensive income.
F-33
NOTE 17 - EARNINGS PER SHARE
The Company’s EPS is computed by dividing reported net income by the weighted-average number of shares outstanding. Diluted EPS considers the
potential dilution that could occur if common stock equivalents of stock options, RSUs, and PSAs were exercised or converted into 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 December 31, 2023, the PSAs granted during the year ended December 31, 2021 and 2022 met the related performance conditions for the
initial performance period and were included in the calculation of diluted EPS; however, the PSAs granted during the year ended December 31, 2023 have
not yet completed their initial two-year performance period and therefore were excluded in the calculation of diluted EPS.
The dilutive effect of stock options, RSUs, and performance shares for each period reported is summarized below:
Net Income
2023
2022
2021
$
82,612
$
64,243
$
71,132
Weighted-average number of basic shares outstanding during the period
Dilutive effect of stock options, RSUs, and performance shares
Weighted-average number of diluted shares outstanding during the period
18,802
192
18,994
18,818
215
19,033
Basic earnings per share
Diluted earnings per share
NOTE 18 - SHARE REPURCHASE PROGRAM
$
$
4.39 $
4.35 $
3.41 $
3.38 $
18,868
256
19,124
3.77
3.72
In September 2017, the Board approved a share repurchase program that allows for share repurchases in the aggregate up to $100.0 million under
approved share repurchase plans pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. In November 2021, the Board amended and increased the
previously authorized aggregate repurchase limit from $100.0 million to $200.0 million. The Credit Facility (see Note 10 – Long-Term Debt) permits
annual share repurchases of at least $25.0 million provided that the Company is not in default of its covenants, and higher amounts provided that the
Company’s Consolidated Leverage Ratio, prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then-applicable maximum
Consolidated Leverage Ratio and subject to the Company having net liquidity of at least $100.0 million after giving effect to such repurchases.
Purchases under this program may be made from time to time at prevailing market prices in open market purchases or in privately negotiated
transactions pursuant to Rule 10b-18 under the Exchange Act and in accordance with applicable insider trading and other securities laws and regulations.
The purchases are funded from existing cash balances and/or borrowings, and the repurchased shares are held in treasury. The timing and extent to which
the Company repurchases its shares will depend on market conditions and other corporate considerations in the Company’s sole discretion.
For the years ended December 31, 2023 and 2022, the Company used $18.1 million to repurchase 180,000 shares at an average price of $100.70 per
share and $17.0 million to repurchase 176,375 shares at an average price of $96.18 per share, respectively, under this program. As of December 31, 2023,
approximately $93.7 million of authority remained available under the share repurchase plan.
F-34
NOTE 19 - FAIR VALUE
Financial instruments measured at fair value on a recurring basis and their location within the accompanying consolidated financial statements are as
follows:
(in thousands)
Assets:
Interest rate swaps - current portion
Foreign currency forward and swap contracts
Interest rate swaps - long-term portion
December 31, 2023
Level
3
Level 1 Level 2
Total
Location on Balance Sheet
$ — $
—
—
4,820 $ — $ 4,820
6
—
398
—
6
398
Prepaid expenses and other assets
Prepaid expenses and other assets
Other assets
20,43
Company-owned life insurance policies
—
20,438
—
8
Other assets
Liabilities:
Interest swaps - long-term portion
$ — $
4,184 $ — $ 4,184
Other long-term liabilities
(in thousands)
Assets:
Interest rate swaps - current portion
Interest rate swaps - long-term portion
December 31, 2022
Level
3
Level 1 Level 2
Total
Location on Balance Sheet
$ — $
5,051 $ — $ 5,051
2,950
2,950
Prepaid expenses and other
Other assets
17,86
Company-owned life insurance policies
—
17,869
—
9
Other assets
NOTE 20 - COMMITMENTS AND CONTINGENCIES
Letters of Credit and Guarantees
At December 31, 2023 and 2022, the Company had open standby letters of credit totaling $1.8 million and $2.0 million, respectively, and
guarantees of $7.9 million and $9.2 million issued by its banks. The letters of credit and guarantees were primarily for the Company’s facility leases and
contract performance obligations. The open standby letters of credit reduce the Company’s unused borrowing capacity under its Credit Facility.
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 it is not reasonably possible that any ultimate liability
arising out of these matters and proceedings will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
F-35
NOTE 21 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
Effective June 30, 1999, the Company established the ICF Consulting Group Retirement Savings Plan (the “Retirement Savings Plan”). The
Retirement Savings Plan is a defined contribution profit sharing plan with a cash or deferred arrangement under Section 401(k) of the Internal Revenue
Code. Participants are able to elect to defer up to 70% of their compensation, subject to statutory limitations, and are entitled to receive 100% employer
matching contributions for the first 3% and 50% for the next 2% of their compensation. Contribution expense for the years ended December 31, 2023,
2022, and 2021 was $25.4 million, $22.9 million, and $19.0 million, respectively.
Deferred Compensation Plan
Certain key employees of the Company are eligible to defer a specified percentage of their cash compensation by having it contributed to a
nonqualified deferred compensation plan. Eligible employees may elect to defer up to 80% of their base salary and up to 100% of performance bonuses,
reduced by any amounts withheld for the payment of taxes or other deductions required by law. Participants are at all times 100% vested in their account
balances. The Company funds its deferred compensation liabilities by making cash contributions to a Rabbi Trust at the time the salary or bonus being
deferred would otherwise be payable to the employee. The liability to plan participants is materially funded at all times and the plan does not have a
material net impact on the Company’s results of operations.
Employee Stock Purchase Plan
The Company has a Employee Stock Purchase Plan (“ESPP”) under which one million shares have been authorized for issuance. The ESPP allows
eligible employees to purchase shares of the Company’s common stock through payroll deductions up to $25,000 per calendar year over six-month offering
periods at a discount not to exceed 5% of the market value on the date of each purchase period, and therefore the Company does not recognize
compensation expense related to the ESPP. For the years ended December 31, 2023 and 2022, employees purchased a total of 36,140 and 34,844 shares at
an average purchase price of $121.96 and $91.84, respectively. At December 31, 2023 and 2022, there were 548,832 and 584,972 shares remaining
available for future issuance under this plan.
NOTE 22 - EXIT ACTIVITIES
During the year ended December 31, 2022, the Company incurred charges related to: (i) the reduction and wind-down of certain non-core
commercial marketing businesses, and (ii) the reduction of facilities utilized by the remaining elements of the commercial marketing group. Specifically,
these charges included the impairment of certain right-of-use operating leases and related assets associated with exited facilities of $8.2 million, $4.8
million in other facility costs recorded within indirect and selling expenses, and retention and severance of $2.3 million primarily recorded within direct
costs. Of the $2.3 million in retention and severance, $1.3 million was paid during the 2022 fiscal year and the remaining liability was paid during the 2023
fiscal year.
During the year ended December 31, 2023, the Company incurred and paid $2.5 million in retention and severance related to the wind-down of its
non-core commercial marketing and communication businesses in the U.K. and Belgium. The exit activity was completed as of December 31, 2023.
During the year ended December 31, 2023, the Company completed the divestitures of its non-core U.S. commercial marketing and Canadian
mobile and SMS messaging aggregator businesses. As a result of the divestitures, the Company incurred retention and severance of $1.9 million and $1.7
million for the years ended December 31, 2023 and 2022, respectively, which was primarily recorded within direct costs. As part of the sale of the
businesses, the Company incurred $0.6 million in related compensation expense which was recorded within indirect and selling expenses. The retention and
severance and compensation expenses were paid during the 2023 fiscal year.
As a result of these wind-down and divestitures that were completed during the year ended December 31, 2023, the Company recognized
impairment losses of $0.9 million related to a prior acquisition, $3.0 million related to right-of-use operating leases, and $2.4 million in other facility costs.
NOTE 23 - SUBSEQUENT EVENTS
Share Buyback Program
On November 14, 2023, the Board of directors authorized and approved a plan to repurchase up to 191,000 shares of the Company’s common stock
pursuant to Rule 10b5-1 (the “Plan”) of the current repurchase program. The Plan is effective January 2, 2024 through June 30, 2024. As of February 23,
2024, the Company repurchased 159,681 shares at a total cost of $21.9 million, or $136.94 per share under the plan.
F-36
NOTE 24 - SUPPLEMENTAL INFORMATION
Valuation and Qualifying Accounts
Allowance for Credit Losses
Balance at beginning of period
Provision for credit losses
Write-offs, net of recoveries
Effect of foreign currency translation
Balance at end of period
Income Tax Valuation Allowance
Balance at beginning of period
Provision for income taxes - valuation allowance
Balance at end of period
2023
2022
2021
$
$
$
$
6,112
1,164
(1,886 )
45
5,435
2023
7,607
1,414
9,021
F-37
$
$
$
$
7,741
248
(1,782 )
(95 )
6,112
$
$
2022
2021
7,048
559
7,607
$
$
7,616
10,912
(10,723 )
(64 )
7,741
6,839
209
7,048
Exhibit 10.17
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is
dated as of November 6, 2023 (the “Effective Date”), and is made by and among ICF INTERNATIONAL, INC., a Delaware
corporation (“ICF”), ICF CONSULTING GROUP, INC., a Delaware corporation (“Consulting”; and together with ICF, the
“Borrowers”), the GUARANTORS (as defined in the Credit Agreement (as hereinafter defined)), the LENDERS (as defined in
the Credit Agreement (as hereinafter defined)), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as Administrative
Agent for the Lenders (in such capacity, the “Administrative Agent”).
W I T N E S S E T H:
WHEREAS, the Borrowers, the Guarantors party thereto, the Lenders party thereto, and the Administrative Agent are
parties to that certain Amended and Restated Credit Agreement, dated as of May 6, 2022, as supplemented by that certain
Guaranty Joinder of SemanticBits, LLC, dated as of September 22, 2022 and as amended by that certain Waiver,
Acknowledgement, and First Amendment to Amended and Restated Credit Agreement and Other Loan Documents, dated as of
May 17, 2023 (as so supplemented and amended and as otherwise amended, restated, amended and restated, supplemented or
otherwise modified from time to time, the “Credit Agreement”), pursuant to which to which the Administrative Agent and the
Lenders have provided (a) a revolving credit facility to the Borrowers in an aggregate principal amount not to exceed
$600,000,000, (ii) a $300,000,000 term loan facility, and (iii) a $400,000,000 delayed draw term loan facility; and
WHEREAS, the Loan Parties have requested that the Lenders (i) amend the definition of “Delayed Draw Term Loan
Availability Period”, (ii) amend Section 3.5 of the Credit Agreement, and (iii) make certain other amendments and modifications
to the Credit Agreement as more fully set forth herein, and the Lenders are willing to do so upon and subject to the terms and
conditions of this Amendment.
NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth
and intending to be legally bound hereby, covenant and agree as follows:
1. Definitions. Except as set forth in this Amendment, defined terms used herein shall have the meanings
given to them in the Credit Agreement.
2. Amendments to the Credit Agreement.
(a)
Amendment to Credit Agreement Definition of “Delayed Draw Term Loan Availability Period”.
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NAI-1538559999v4
The Credit Agreement definition of “Delayed Draw Term Loan Availability Period” is hereby deleted in its entirety and
replaced with the following language:
“Delayed Draw Term Loan Availability Period” means the period beginning on the Closing Date and
ending on the earlier of (i) the drawing of all Delayed Draw Term Loans pursuant to Section 3.3 [Delayed Draw
Term Loan Commitments] and (ii) January 5, 2024.
(b)
Amendment to Credit Agreement Section 3.5.
Section 3.5 [Delayed Draw Term Loan Fee] of the Credit Agreement is hereby deleted in its entirety and replaced with
the following language:
3.5 Delayed Draw Term Loan Fee. The Borrowers agree to pay to the Administrative Agent
for the account of each Delayed Draw Term Loan Lender, on each Payment Date during the Delayed Draw Term
Loan Availability Period, on November 6, 2023, and on the date on which the Delayed Draw Term Loan
Commitments shall be permanently reduced or terminated as provided herein, a commitment fee (the “Delayed
Draw Term Loan Fee”) at a rate per annum equal to the Commitment Fee rate in effect immediately following
the Closing Date pursuant to the definition of Applicable Margin, on the daily amount of such Delayed Draw
Term Loan Lender’s unused Delayed Draw Term Loan Commitments; provided, however, that any Delayed
Draw Term Loan Fee accrued with respect to a Defaulting Lender during the period prior to the time such
Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrowers so long as
such Lender shall be a Defaulting Lender except to the extent that such Delayed Draw Term Loan Fee shall
otherwise have been due and payable by the Borrowers prior to such time; and provided, further, that no
Delayed Draw Term Loan Fee shall accrue with respect to the Delayed Draw Term Loan Commitment of a
Defaulting Lender so long as such Lender shall be a Defaulting Lender. All Delayed Draw Term Loan Fees
shall be computed on the basis of a 365 day (or 366 day, as applicable) year for the actual number of days
elapsed and shall be paid in Dollars. The Delayed Draw Term Loan Fees due to each Delayed Draw Term Loan
Lender shall commence to accrue on the Closing Date, and shall cease to accrue on the last day of the Delayed
Draw Term Loan Availability Period. The Administrative Agent shall distribute the applicable Delayed Draw
Term Loan Fees among the Delayed Draw Term Loan Lenders pro rata in accordance with their respective
Ratable Shares of the total Delayed Draw Term Loan Commitments of all Delayed Draw Term Loan Lenders.
3. Conditions Precedent. The Loan Parties and the Lenders acknowledge and agree that the amendments set forth herein
shall only be effective upon the satisfaction of all the following conditions precedent:
(a) Amendment. The Loan Parties, the Administrative Agent and the Required Lenders shall have executed
and delivered this Amendment.
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NAI-1538559999v4
(b) Consents. The Loan Parties have obtained all consents and approvals necessary for the execution,
delivery and performance of this Amendment and the transactions contemplated hereby.
(c)
Representations and Warranties. All of the representations and warranties of the Loan Parties contained
in Section 4 herein shall be true and correct on and as of the Effective Date, except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and
all of the representations and warranties of the Loan Parties contained in Article 6 of the Credit Agreement and in any
other Loan Document shall be true and correct in all material respects (or with respect to such representations and
warranties which by their terms contain materiality qualifiers, shall be true and correct), in each case on and as of the
Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which
case they shall be true and correct in all material respects (or with respect to such representations and warranties which
by their terms contain materiality qualifiers, shall be true and correct) as of such earlier date.
(d) No Default or Event of Default. No Potential Default or Event of Default shall exist or result from
entering into this Amendment.
(e)
Secretary’s Certificate. The Administrative Agent shall have received, with respect to each Loan Party, in
form and substance acceptable to the Administrative Agent, a certificate dated as of the date hereof and signed by an
Authorized Officer of such Loan Party, certifying as appropriate as to: (a) all actions taken or contemplated to be taken
by such Loan Party in connection with this Amendment, (b) the names of the Authorized Officers authorized to sign this
Amendment and their true specimen signatures; and (c) copies of such organizational documents as in effect on the date
hereof certified by the appropriate state official where such documents are filed in a state office together with certificates
from the appropriate state officials as to the continued existence and good standing (where applicable) of such Loan
Party in the state where organized.
(f)
Fees. The Borrowers shall have paid to the Administrative Agent the reasonable and documented out-of-
pocket costs and expenses of the Administrative Agent, including without limitation, reasonable and documented out-of-
pocket fees and costs of the Administrative Agent’s counsel in connection with this Amendment, in addition to any other
fees owed as of the Effective Date by any Loan Party to the Administrative Agent or any Lender pursuant to the Credit
Agreement, the Administrative Agent’s Letter, or any other Loan Document.
(g) Miscellaneous. Such other documents, agreements, instruments, deliverables and items, as otherwise
deemed necessary by the Administrative Agent.
4. Representations, Warranties and Covenants. Each Borrower and each Guarantor covenant and agree with, and
represent and warrant to, the Administrative Agent and the Lenders as follows:
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NAI-1538559999v4
(a)
the Borrowers’ and Guarantors’ obligations under the Credit Agreement, as modified hereby, are and shall
remain secured by the Collateral, pursuant to the terms of the Credit Agreement and the other Loan Documents;
(b)
each Borrower and each of the Guarantors possesses all of the powers requisite for it to enter into and
carry out the transactions of such Borrower and such Guarantor, respectively, referred to herein and to execute, enter into
and perform the terms and conditions of this Amendment, the Credit Agreement and the other Loan Documents and any
other documents contemplated herein that are to be performed by such Borrower or such Guarantor; any and all actions
required or necessary pursuant to such Borrower’s or such Guarantor’s organizational documents or otherwise have been
taken to authorize the due execution, delivery and performance by such Borrower and such Guarantor of the terms and
conditions of this Amendment and any other documents contemplated herein; the officers of each Borrower and each
Guarantor executing this Amendment are the duly elected, qualified, acting and incumbent officers of such Loan Party
and hold the titles set forth below their names on the signature lines of this Amendment; and, except as would not
reasonably be expected to result in a Material Adverse Change, such execution, delivery and performance will not
conflict with, constitute a default under or result in a breach of any applicable law or any material agreement, instrument,
order, writ, judgment, injunction or decree to which such Borrower or such Guarantor is a party or by which such
Borrower or such Guarantor or any of its properties is bound, and, except as would not reasonably be expected to result
in a Material Adverse Change, all consents, authorizations and/or approvals required or necessary from any third parties
in connection with the entry into, delivery and performance by such Borrower and such Guarantor of the terms and
conditions of this Amendment, the Credit Agreement, the other Loan Documents and any other documents contemplated
herein and the transactions contemplated hereby have been obtained by such Borrower and such Guarantor and are full
force and effect;
(c)
this Amendment, the Credit Agreement, and the other Loan Documents and any other documents
contemplated herein constitute the valid and legally binding obligations of each Borrower and each Guarantor,
enforceable against each Borrower and each Guarantor in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws and by
general equitable principles, whether enforcement is sought by proceedings at law or in equity;
(d)
all representations and warranties made by each Borrower and each Guarantor in the Credit Agreement
and the other Loan Documents are true and correct in all material respects (or in the case of any such representation and
warranty that is qualified by materiality or reference to Material Adverse Change, in all respects) as of the date hereof,
except to the extent that any such representation and warranty relates to a specific date, in which case such representation
and warranty shall be true and correct in all material respects (or in the case of any such representation and warranty that
is qualified by materiality or reference to Material Adverse Change, in all respects) as of such earlier date, with the same
force and effect as if all such representations and warranties were fully set forth herein and made as of the date hereof
and each Borrower and each Guarantor has
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NAI-1538559999v4
complied with all covenants and undertakings in the Credit Agreement and the other Loan Documents;
(e)
no Event of Default or Potential Default has occurred and is continuing under the Credit Agreement or the
other Loan Documents, and, to the best knowledge of each Loan Party, there exist no defenses, offsets, counterclaims or
other claims with respect to any Borrower’s or any Guarantor’s obligations and liabilities under the Credit Agreement or
any of the other Loan Documents; and
(f)
each Borrower and each Guarantor hereby ratifies and confirms in full its duties and obligations under the
Credit Agreement and the other Loan Documents applicable to it, each as modified hereby.
5. Incorporation into Credit Agreement and Other Loan Documents. This Amendment shall be incorporated into the
Credit Agreement by this reference and each reference to the Credit Agreement that is made in the Credit Agreement, the
Security Agreement or any other document executed or to be executed in connection therewith shall hereafter be construed as a
reference to the Credit Agreement, as amended hereby. The term “Loan Documents” as defined in the Credit Agreement shall
include this Amendment.
6. Severability. If any one or more of the provisions contained in this Amendment, the Credit Agreement, or the other
Loan Documents shall be held invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained in this Amendment, the Credit Agreement, the Security Agreement or the other Loan Documents
shall not in any way be affected or impaired thereby, and this Amendment shall otherwise remain in full force and effect.
7. Successors and Assigns. This Amendment shall apply to and be binding upon each Borrower and each Guarantor in
all respects and shall inure to the benefit of each of the Administrative Agent and the Lenders and their respective successors and
assigns, provided that (i) no Borrower or Guarantor may assign, transfer or delegate its duties and obligations hereunder and (ii)
no Lender may assign or transfer any of its rights and obligations hereunder except in accordance with Section 12.8 [Successors
and Assigns] of the Credit Agreement. Nothing expressed or referred to in this Amendment is intended or shall be construed to
give any person or entity other than the parties hereto a legal or equitable right, remedy or claim under or with respect to this
Amendment, the Credit Agreement, the Security Agreement or any of the other Loan Documents, it being the intention of the
parties hereto that this Amendment and all of its provisions and conditions are for the sole and exclusive benefit of the Borrowers,
the Guarantors, the Administrative Agent and the Lenders.
8. Reimbursement of Expenses. Each Borrower unconditionally agrees to pay and reimburse the Administrative Agent
and save the Administrative Agent harmless against liability for the payment of reasonable and documented out-of-pocket costs,
expenses and disbursements, including without limitation, reasonable and documented out-of-pocket fees and expenses of
counsel incurred by the Administrative Agent in connection with the development, preparation, negotiation, execution,
administration, interpretation or performance of this Amendment and all other documents or instruments to be delivered in
connection herewith. For the avoidance of
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NAI-1538559999v4
doubt, the Borrowers and the Guarantors are responsible for their own costs and expenses related to this Amendment.
9. Reaffirmation. Each of the Loan Parties hereby (i) consents to the execution and delivery of this Amendment; (ii)
agrees to be bound hereby; (iii) affirms that, except as expressly provided herein, nothing contained herein shall modify in any
respect whatsoever its obligations pursuant to the terms of any of the Loan Documents to which such Loan Party is a party; (iv)
acknowledges that each of the Loan Documents remains in full force and effect and is hereby ratified and reaffirmed (as modified
by this Amendment) and (v) ratifies and reaffirms the validity and enforceability of each appointment of the Administrative
Agent as its proxy and true and lawful attorney-in-fact in certain specified circumstances as expressly provided under each
applicable Loan Document (in each case, in accordance with the terms of such applicable Loan Documents) until the Facility
Termination Date and, as of the date hereof, reappoints the Administrative Agent as its proxy and true and lawful attorney-in-fact
in certain specified circumstances as expressly provided in accordance with the terms of such applicable Loan Documents until
the Facility Termination Date, which appointment is IRREVOCABLE and coupled with an interest, for the purpose of carrying
out the provisions of the Loan Documents, as applicable. To the extent any Loan Party has or is hereby granting liens on or
security interests in any of its property pursuant to the Security Agreement or any other Loan Document as security for the
Obligations, or otherwise has or is hereby guaranteeing the Obligations under or with respect to the Loan Documents, such Loan
Party hereby ratifies and reaffirms such guarantee and grant of security interests and liens and represents, warrants and covenants
that such security interests and liens hereafter secure all of the Obligations.
10.Release. In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and agreed, each Loan Party, for itself and its successors, assigns, parents, subsidiaries,
affiliates, predecessors, employees, agents, heirs and executors, as applicable (collectively, the “Releasors”), jointly and severally
with each other Loan Party, releases, remises, acquits and forever discharges the Administrative Agent and each Lender and each
of their respective subsidiaries, affiliates, officers, directors, employees, agents, attorneys, predecessors, successors and assigns,
both present and former (collectively, the “Released Parties”) of and from any and all manner of actions, causes of action, torts,
suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in law or in
equity, that exist or have occurred on or prior to the date of this Amendment, arising out of or relating to this Amendment or any
other Loan Document which the Releasors ever had or now have against any of the Released Parties, including any presently
existing claim whether or not presently suspected, contemplated or anticipated. To the fullest extent permitted under Applicable
Laws, the foregoing release applies to all Releasor claims, whether based in contract, tort or any other theory, and such release
shall extend to each Released Party notwithstanding the sole or concurrent negligence of every kind or character whatsoever,
whether active or passive, whether an affirmative act or an omission, including without limitation, all types of negligent conduct
identified in the Restatement (Second) of Torts, of one or more of the Released Parties or by reason of strict liability imposed
without fault on any one or more of the Released Parties. Furthermore, each of the Loan Parties hereby covenants and agrees not
to bring, commence, prosecute, maintain, or cause or permit to be brought, commenced, prosecuted or maintained, any suit or
action, either in law or equity, in any court or before any other administrative or judicial authority, regarding any claim or cause
of action such Person may
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NAI-1538559999v4
have against the Administrative Agent or any Lender arising on or prior to the date hereof out of, in connection with or in any
way relating to any of the Loan Documents.
11.Electronic Execution. The words “execution,” “signed,” “signature,” and words of like import in this Amendment
shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same
legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the
case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the
Uniform Electronic Transactions Act. The parties hereto consent to the use of electronic signatures and records with respect to
this Amendment.
12.Counterparts. This Amendment may be executed by different parties hereto in any number of separate counterparts,
each of which, when so executed and delivered shall be an original and all such counterparts shall together constitute one and the
same instrument.
13.Entire Agreement. This Amendment sets forth the entire agreement and understanding of the parties with respect to
the transactions contemplated hereby and supersedes all prior understandings and agreements, whether written or oral, between
the parties hereto relating to the subject matter hereof. No representation, promise, inducement or statement of intention has been
made by any party which is not embodied in this Amendment, and no party shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not set forth herein.
14.Headings. The various headings of this Amendment are inserted for convenience only and shall not affect the
meaning or interpretation of this Amendment or any provisions hereof.
15.Construction. The rules of construction set forth in Section 1.2 [Construction] of the Credit Agreement shall apply to
this Amendment.
16.Governing Law. This Amendment shall be deemed to be a contract under the laws of the State of New York and for
all purposes shall be governed by and construed and enforced in accordance with the internal laws of the State of New York
without regard to its conflict of laws principles.
17.WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE CREDIT
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN
- 7 -
NAI-1538559999v4
INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
[Signature Pages Follow]
- 8 -
NAI-1538559999v4
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Amendment
as of the day and year first above written.
ATTEST:
BORROWERS
ICF INTERNATIONAL, INC.
By: /s/ James Daniel
Name: James Daniel
By: /s/ John Wasson
Name: John Wasson
Title: President and Chief Executive Officer
ICF CONSULTING GROUP, INC.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title:
Chief Financial Officer
NAI-1538559999v4
Signature Page to Second Amendment
GUARANTORS
ICF RESOURCES, L.L.C.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
ICF INCORPORATED, L.L.C.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
ICF JONES & STOKES, INC.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
ICF MACRO, INC.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
ICF NEXT, INC.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
INCENTIVE TECHNOLOGY GROUP, LLC
CREATIVE SYSTEMS AND CONSULTING L.L.C.
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
NAI-1538559999v4
Signature Page to Second Amendment
By: /s/ James Daniel
Name: James Daniel
By: /s/ Barry Broadus
Name: Barry Broadus
Title: Chief Financial Officer
SEMANTICBITS, LLC
NAI-1538559999v4
Signature Page to Second Amendment
PNC BANK, NATIONAL ASSOCIATION,
individually and as Administrative Agent
By: /s/ Eric H. Williams
Name: Eric H. Williams
Title: Senior Vice President
Signature Page to Second Amendment
BANK OF AMERICA, N.A.
By: /s/ Ena Ukachi
Name: Ena Ukachi
Title: Senior Vice President
Signature Page to Second Amendment
TD BANK, N.A.
By: /s/ Bernadette Collins
Name: Bernadette Collins
Title: Senior Vice President
Signature Page to Second Amendment
WELLS FARGO BANK, N.A.
By: /s/ Tim Favinger
Name: Tim Favinger
Title: Director
Signature Page to Second Amendment
CITIZENS BANK, N.A.
By: /s/ Peggy Sanders
Name: Peggy Sanders
Title: Sr. Vice President
Signature Page to Second Amendment
TRUIST BANK
By: /s/ Anika Kirs
Name: Anika Kirs
Title: Director
Signature Page to Second Amendment
JPMORGAN CHASE BANK, N.A.
By: /s/ Michael Mastronikolas
Name: Michael Mastronikolas
Title: Vice President
Signature Page to Second Amendment
MUFG BANK, LTD.
By: /s/ Richard Ferrara
Name: Richard Ferrara
Title: Vice President
Signature Page to Second Amendment
HSBC BANK USA, N.A.
By: /s/ Alyssa V. Champion
Name: Alyssa V. Champion
Title: Senior Vice President
Signature Page to Second Amendment
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Kelsey Hehman
Name: Kelsey Hehman
Title: Vice President
Signature Page to Second Amendment
UNITED BANK
By: /s/ Larkin Wilsom
Name: Larkin Wilson
Title: Vice President
Signature Page to Second Amendment
FIRST NATIONAL BANK OF PENNSYLVANIA
By: /s/ Douglas T. Brown
Name: Douglas T. Brown
Title: SVP
Signature Page to Second Amendment
ATLANTIC UNION BANK
By: /s/ Matthew Sawyer
Name: Matthew Sawyer
Title: Managing Director
Signature Page to Second Amendment
SUBSIDIARIES OF
ICF INTERNATIONAL, INC.
NAME
ICF Consulting Group, Inc.
ICF Consulting Canada, Inc.
ICF Emergency Management Services, L.L.C.
ICF Incorporated, L.L.C.
(d/b/a ICF (Delaware), L.L.C. in Arizona)
(d/b/a ICF Consulting, L.L.C. in California)
(d/b/a ICF Incorporated, L.L.C., a Delaware limited liability company in Colorado)
(d/b/a ICF Systems, L.L.C. in Idaho)
(d/b/a ICF, L.L.C. in Illinois)
(d/b/a ICF Group, L.L.C. in Kentucky)
(d/b/a ICF Incorporated, L.L.C. of Louisiana in Louisiana)
(d/b/a ICF in Massachusetts)
(d/b/a ICF, L.L.C. in Michigan)
(d/b/a ICF Minnesota, L.L.C. in Minnesota)
(d/b/a ICF Consulting, LLC in Mississippi)
(d/b/a ICF (Delaware), L.L.C. in Missouri)
(d/b/a ICF Nebraska, LLC in Nebraska)
(d/b/a ICF New Mexico, L.L.C in New Mexico)
(d/b/a ICF Delaware in New York)
(d/b/a ICF, LLC in North Dakota)
(d/b/a ICF Ohio, L.L.C. in Ohio)
(d/b/a ICF PA, L.L.C. in Pennsylvania)
(d/b/a ICF, L.L.C. in Texas)
(d/b/a ICF, L.L.C. in Virginia)
(d/b/a ICF, LLC in Washington)
(d/b/a ICF, L.L.C. in West Virginia)
(d/b/a ICF DE, L.L.C. in Wyoming)
(dba ICF Incorporated, LLC in Puerto Rico)
ICF Resources, L.L.C.
ICF Consulting India Private, Limited.
ICF Consulting Limited
ICF SH&E, Inc.
ICF SH&E Limited
ICF Jones & Stokes, Inc.
ICF International Consulting (Beijing) Company, Ltd.
ICF Macro, Inc.
(dba ICF Macro, Inc. in Kenya)
(d/b/a ICF Macro Inc. in Liberia)
(d/b/a ICF Macro Inc. in Madagascar)
(d/b/a ICF Macro Inc. in South Africa)
GHK Holdings Limited
ICF Consulting Services, Limited. (f/k/a GHK Consulting Limited.)
(d/b/a ICF Consulting Services Limited, Nepal Branch)
ICF Consulting Services, India Private, Ltd. (f/k/a GHK Development Consultants India Private, Limited.)
ICF Next, Inc. (f/k/a Olson + Co., Inc.)
(d/b/a Olson in California)
Catalus, L.L.C. (f/k/a Bonfire Partners, L.L.C.)
ICF Next North America, ALB ULC (f/k/a Olson Canada, Inc.)
ICF, SA (f/k/a/ Full Angle Communications, SA)
ICF Next, SA (f/k/a Mostra, SA)
ICF Africa, SARL
(d/b/a ICF Africa SARL in Democratic Republic of the Congo)
(d/b/a ICF Africa SARL in Cameroon)
Incentive Technology Group, LLC
Logistik Holdings Limited
ICF Next, Limited (f/k/a We are Vista Limited)
ICF ESAC, LLC
Creative Systems and Consulting, LLC
SemanticBits, LLC
Blanton & Associates, Inc.
ICF Consulting Services, S.L.
CMY Solutions, LLC
Exhibit 21.0
JURISDICTION OF
INCORPORATION/
ORGANIZATION
Delaware
Canada
Delaware
Delaware
Delaware
India
U.K.
Delaware
U.K.
Delaware
China
Delaware
Kenya
Liberia
Madagascar
South Africa
U.K.
U.K.
Nepal
India
Minnesota
Minnesota
Alberta, Canada
Belgium
Belgium
Mali
DRC
Cameroon
Virginia
U.K.
U.K.
Maryland
Virginia
Virginia
Texas
Spain
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We have issued our reports dated February 28, 2024, with respect to the consolidated financial statements and internal control over financial
reporting included in the Annual Report of ICF International, Inc. on Form 10-K for the year ended December 31, 2023. We consent to the
incorporation by reference of said reports in the Registration Statements of ICF International, Inc. on Form S-3 (File No. 333-161896) and on
Forms S-8 (File No. 333-239428, File No. 333-225786, File No. 333-206048, File No. 333-190334, File No. 333-168608, File No. 333-
165474, File No. 333-159053, File No. 333-150932, File No. 333-142265, and File No. 333-137975).
/s/ Grant Thornton LLP
Arlington, Virginia
February 28, 2024
Exhibit 31.1
I, John Wasson, certify that:
1.
I have reviewed this annual report on Form 10-K of ICF International, Inc. (the “Registrant”);
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent
fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal
control over financial reporting.
Dated this 28th day of February, 2024.
By:
/s/ JOHN WASSON
John Wasson
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Barry Broadus, certify that:
1.
I have reviewed this annual report on Form 10-K of ICF International, Inc. (the “Registrant”);
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the Registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent
fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal
control over financial reporting.
Dated this 28th day of February, 2024.
By:
/s/ BARRY BROADUS
Barry Broadus
Chief Financial Officer
(Principal Financial Officer)
Certification of Principal Executive Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
Exhibit 32.1
In connection with the Annual Report on Form 10-K for the year ended December 31, 2023 (the “Report”) of ICF International, Inc. (the
“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, John Wasson, Chair, President, and Chief Executive Officer of
the Registrant, hereby certify that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
Date: February 28, 2024
By:
/s/ JOHN WASSON
John Wasson
President and Chief Executive Officer
(Principal Executive Officer)
Certification of Principal Financial Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
Exhibit 32.2
In connection with the Annual Report on Form 10-K for the year ended December 31, 2023 (the “Report”) of ICF International, Inc. (the
“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Barry Broadus, Chief Financial Officer of the Registrant, hereby
certify that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
Date: February 28, 2024
By:
/s/ BARRY BROADUS
Barry Broadus
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 97.0
COMPENSATION RECOVERY POLICY
If the Company determines that an accounting restatement is required, each current and former executive officer of the
Company shall repay or forfeit, to the fullest extent permitted by applicable law and as directed by the Board, the recoverable
amount of any incentive-based compensation received by the executive officer during the applicable look-back period.
For purposes of this policy:
•
•
•
•
•
an “accounting restatement” is the correction of an error in the Company’s previously issued financial
statements that (a) is material to those previously issued financial statements or (b) is not material to those
financial statements but would result in a material misstatement if the error were recognized in the current
period or left uncorrected in the current period;
“executive officer” means those officers who have been designated by the Company as executive officers for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended;
“recoverable amount” means the amount of incentive-based compensation received by the executive officer or
former executive officer during the look-back period that exceeds the amount of incentive-based compensation
that otherwise would have been received had it been determined based on the accounting restatement, computed
without regard to taxes paid;
“look-back period” means the three completed fiscal years preceding the earlier of (1) the date the Board or a
Board committee concludes, or reasonably should have concluded, that the Company is required to prepare an
accounting restatement; or (2) the date a court, regulator, or other legally authorized body directs the Company
to prepare an accounting restatement; and
“incentive-based compensation” means any compensation that is granted, earned, or vested (including, without
limitation, any annual cash bonus, incentive plan awards, performance stock units, restricted stock awards, or
other performance-based compensation), which compensation is based wholly or in part upon the attainment of
any financial reporting measure, including financial measures contained in the Company’s financial statements
(including, for the avoidance of doubt, the Company’s stock price or any total shareholder return measure), and
any measure derived in whole or in part from such financial measures. Incentive-based compensation will be
deemed to have been “received” in the fiscal period during
which the financial reporting measure specified in the incentive-based compensation award was attained, not
when the payment, grant or vesting occurs.
This policy only applies to recoverable amounts that are or were received by an executive officer (i) after beginning
service as an executive officer and (ii) after the adoption of this policy by the Board.
The recoupment of any recoverable amount of incentive-based compensation shall be mandatory, except to the extent
that one of the limited exemptions set forth in Exchange Act Rule 10D-1(b)(1)(iv) applies. For the avoidance of doubt, this policy
does not require that any executive officer have been at fault or have been responsible for the preparation of the financial
statements subject to an accounting restatement to become subject to recoupment of a recoverable amount. The company shall
maintain all documentation relating to the Board’s review of any accounting restatement and all calculations or estimates of
recoverable amounts.
The Board will determine, in its sole discretion, the method or methods for recouping recoverable amounts from an
executive officer, which may include without limitation requiring reimbursement by the executive officer, seeking recovery of
any gain realized by the executive officer on any disposition of equity-based awards, offsetting the recouped amount from any
compensation otherwise owed to the executive officer, cancelling the executive officer’s outstanding equity awards, or taking any
other action permitted by law. The Company shall not indemnify any executive officer against losses due to the recoupment of
recoverable amounts.
Each award agreement or other document setting forth the terms and conditions of any incentive-based compensation
granted to an executive officer shall include a provision incorporating the requirements of this policy. The remedy specified in
this policy shall not be exclusive and shall be in addition to every other right or remedy at law or in equity that may be available
to the Company.
The Board is authorized to interpret and construe this policy and to make all determinations necessary, appropriate, or
advisable for the administration of this policy. It is intended that this policy be interpreted consistent with the requirements of
Section 10D of the Exchange Act of 1934, as amended, and any applicable rules or standards adopted by the Securities and
Exchange Commission and any national securities exchange on which the Company's securities are listed. The rights of
recoupment under this policy are in addition to, and not in lieu of, any other rights or policies of recoupment available to the
Company, provided that in the event of any conflict between this policy and such other rights or policies, this policy will control.
2