ICF International, Inc. - Quarter Report: 2023 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-33045

ICF International, Inc.

(Exact name of Registrant as Specified in its Charter)


Delaware		22-3661438
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1902 Reston Metro Plaza, Reston, VA		20190
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (703) 934-3000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act.


Title of each class	Trading Symbols(s)	Name of each exchange on which registered
Common Stock	ICFI	The NASDAQ Global Select Market

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, smaller reporting company, or an 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.

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 standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of October 27, 2023, there were 18,816,914 shares outstanding of the registrant’s common stock.

ICF INTERNATIONAL, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q FOR THE

PERIOD ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at September 30, 2023 (Unaudited) and December 31, 2022	3

	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2023 and 2022	4

	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2023 and 2022	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION		34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ICF International, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


(in thousands, except share and per share amounts)	September 30, 2023			December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	5,084		$	11,257
Restricted cash		2,770			1,711
Contract receivables, net		214,818			232,337
Contract assets		209,267			169,088
Prepaid expenses and other assets		34,294			40,709
Income tax receivable		11,175			11,616
Total Current Assets		477,408			466,718
Property and Equipment, net		78,706			85,402
Other Assets:
Goodwill		1,219,326			1,212,898
Other intangible assets, net		103,211			126,537
Operating lease - right-of-use assets		134,172			149,066
Other assets		42,297			51,637
Total Assets	$	2,055,120		$	2,092,258

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt	$	23,250		$	23,250
Accounts payable		123,414			135,778
Contract liabilities		16,989			25,773
Operating lease liabilities		19,230			19,305
Finance lease liabilities		2,441			2,381
Accrued salaries and benefits		77,123			85,991
Accrued subcontractors and other direct costs		42,049			45,478
Accrued expenses and other current liabilities		64,681			78,036
Total Current Liabilities		369,177			415,992
Long-term Liabilities:
Long-term debt		510,687			533,084
Operating lease liabilities - non-current		174,718			182,251
Finance lease liabilities - non-current		14,277			16,116
Deferred income taxes		40,148			68,038
Other long-term liabilities		52,783			23,566
Total Liabilities		1,161,790			1,239,047

Commitments and Contingencies (Note 17)

Stockholders’ Equity:
Preferred stock, par value $.001; 5,000,000 shares authorized; none issued		—			—
Common stock, par value $.001; 70,000,000 shares authorized; 23,948,590 and 23,771,596 shares issued at September 30, 2023 and December 31, 2022, respectively; 18,816,914 and 18,883,050 shares outstanding at September 30, 2023 and December 31, 2022, respectively		24			23
Additional paid-in capital		414,633			401,957
Retained earnings		755,572			703,030
Treasury stock, 5,131,676 and 4,906,209 shares at September 30, 2023 and December 31, 2022 respectively		(266,530	)		(243,666	)
Accumulated other comprehensive loss		(10,369	)		(8,133	)
Total Stockholders’ Equity		893,330			853,211
Total Liabilities and Stockholders’ Equity	$	2,055,120		$	2,092,258

The accompanying notes are an integral part of these consolidated financial statements.

ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2023			2022			2023			2022
Revenue	$	501,519		$	467,777		$	1,484,886		$	1,304,355
Direct Costs		323,504			307,295			961,473			834,358
Operating costs and expenses:
Indirect and selling expenses		131,553			118,290			381,808			350,145
Depreciation and amortization		5,917			5,297			19,052			15,198
Amortization of intangible assets		8,644			8,661			27,154			18,941
Total operating costs and expenses		146,114			132,248			428,014			384,284
Operating income		31,901			28,234			95,399			85,713
Interest, net		(10,557	)		(7,420	)		(30,146	)		(14,096	)
Other income		2,736			833			1,501			438
Income before income taxes		24,080			21,647			66,754			72,055
Provision for income taxes		340			2,542			6,304			16,691
Net income	$	23,740		$	19,105		$	60,450		$	55,364

Earnings per Share:
Basic	$	1.26		$	1.01		$	3.22		$	2.94
Diluted	$	1.25		$	1.01		$	3.19		$	2.91

Weighted-average Shares:
Basic		18,815			18,826			18,795			18,806
Diluted		18,974			19,009			18,958			19,001

Cash dividends declared per common share	$	0.14		$	0.14		$	0.42		$	0.42

Other comprehensive loss, net of tax		(4,053	)		(1,555	)		(2,236	)		(3,107	)
Comprehensive income, net of tax	$	19,687		$	17,550		$	58,214		$	52,257

The accompanying notes are an integral part of these consolidated financial statements.

ICF International, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended
	September 30,
(in thousands)	2023			2022
Cash Flows from Operating Activities
Net income	$	60,450		$	55,364
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		691			91
Deferred income taxes and unrecognized income tax benefits		(3,533	)		6,023
Non-cash equity compensation		10,134			10,023
Depreciation and amortization		46,207			34,139
Facilities consolidation reserve		—			(236	)
Amortization of debt issuance costs		984			940
Impairment of long-lived assets		3,801			—
Gain on divestiture of a business		(4,302	)		—
Other adjustments, net		(2,222	)		474
Changes in operating assets and liabilities, net of the effects of acquisitions:
Net contract assets and liabilities		(52,010	)		(72,619	)
Contract receivables		12,087			(31,770	)
Prepaid expenses and other assets		11,893			(11,991	)
Operating lease assets and liabilities, net		3,897			(1,305	)
Accounts payable		(13,333	)		23,394
Accrued salaries and benefits		(8,521	)		(13,971	)
Accrued subcontractors and other direct costs		(3,353	)		9,441
Accrued expenses and other current liabilities		(18,727	)		(476	)
Income tax receivable and payable		450			(1,667	)
Other liabilities		959			742
Net Cash Provided by Operating Activities		45,552			6,596

Cash Flows from Investing Activities
Capital expenditures for property and equipment and capitalized software		(17,876	)		(17,323	)
Proceeds from working capital adjustments related to prior business acquisition		—			2,911
Payments for business acquisitions, net of cash acquired		(32,664	)		(238,991	)
Proceeds from divestiture of a business		47,151			—
Net Cash Used in Investing Activities		(3,389	)		(253,403	)

Cash Flows from Financing Activities
Advances from working capital facilities		972,266			1,358,335
Payments on working capital facilities		(995,244	)		(1,074,888	)
Proceeds from other short-term borrowings		25,394			—
Repayments of other short-term borrowings		(18,845	)		—
Receipt of restricted contract funds		6,412			13,525
Payment of restricted contract funds		(7,042	)		(23,358	)
Debt issuance costs		—			(4,852	)
Payments of principal portion of finance leases		(1,780	)		—
Proceeds from exercise of options		279			412
Dividends paid		(7,903	)		(7,912	)
Net payments for stock issuances and buybacks		(20,601	)		(21,105	)
Payments on business acquisition liabilities		—			(1,132	)
Net Cash (Used in) Provided by Financing Activities		(47,064	)		239,025
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash		(213	)		(2,175	)

Decrease in Cash, Cash Equivalents, and Restricted Cash		(5,114	)		(9,957	)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period		12,968			20,433
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	7,854		$	10,476

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest	$	29,173		$	13,595
Income taxes	$	12,604		$	14,384
Non-cash investing and financing transactions:
Tenant improvements funded by lessor	$	—		$	20,253
Acquisition of property and equipment through finance lease	$	—		$	15,027

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

(Unaudited)

(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. Material intercompany transactions and balances have been eliminated.

Nature of Operations

The Company provides professional services and technology-based solutions, including management, marketing, technology, and policy consulting and implementation services, in the areas of energy, environment, infrastructure and disaster recovery; health and social programs; and 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 include airlines, airports, electric and gas utilities, health care companies, banks and other financial services companies, transportation, travel and hospitality firms, non-profit associations, manufacturing firms, retail chains, and distribution 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. The Company maintains additional offices throughout the world, including more than 50 offices in the U.S. and U.S. territories and more than 20 offices in key markets outside the U.S., including offices in the United Kingdom, Belgium, India, and Canada.

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, 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.

Interim Results

The unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in financial statements, prepared in accordance with U.S. GAAP, to be condensed or omitted. In management’s opinion, the unaudited consolidated financial statements contain all adjustments that are of a normal recurring nature, necessary for a fair presentation of the results of operations and financial position of the Company for the interim periods presented. The Company reports operating results and financial data in one operating segment and reporting unit. Operating results for the three- and nine-months periods ended September 30, 2023 and 2022 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 31, 2022 and the notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 1, 2023.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board 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.

Reclassification

Certain immaterial amounts in the consolidated statements of comprehensive income have been reclassified to conform to the current year’s presentation. To be consistent with the current presentation of interest, net, the Company reclassified $0.1 million and $0.2 million in interest income for the three- and nine-month periods ended September 30, 2022, respectively, from “Other expense” to “Interest, net”.

NOTE 2 – RESTRICTED CASH

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets for the periods presented to the total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022:


	September 30, 2023				September 30, 2022
	Beginning		Ending		Beginning		Ending
Cash and cash equivalents	$	11,257	$	5,084	$	8,254	$	8,483
Restricted cash		1,711		2,770		12,179		1,993
Total of cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	12,968	$	7,854	$	20,433	$	10,476

NOTE 3 – CONTRACT RECEIVABLES, NET

Contract receivables, net consisted of the following:


	September 30, 2023			December 31, 2022
Billed and billable	$	219,783		$	238,449
Allowance for expected credit losses		(4,965	)		(6,112	)
Contract receivables, net	$	214,818		$	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 purchase price of each receivable is equal to the net invoice amount minus a specified discount. 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 three and nine months ended September 30, 2023, the Company sold $93.1 million and $159.5 million, respectively, in billed receivables to MUFG that is included in operating cash on the consolidated statements of cash flows. As of September 30, 2023 and December 31, 2022, the Company had $10.4 million and $6.2 million, respectively, in cash collections from previously sold invoices to be remitted to MUFG which is included as part of “accrued expenses and other current liabilities” on the consolidated balance sheets.

NOTE 4 – GOODWILL

The changes in carrying amount of goodwill during the nine months ended September 30, 2023 were as follows:


Balance as of December 31, 2022	$	1,212,898
Add: Goodwill resulting from business combination		21,133
Less: Goodwill resulting from business divestiture		(15,107	)
Effect of foreign currency translation		402
Balance as of September 30, 2023	$	1,219,326

See “Note 13 – Acquisition and Divestiture” for the details of the business combination and divestiture resulting in the changes in goodwill.

NOTE 5 – LEASES

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 is included within variable lease cost.

The Company’s lease cost is recognized on a straight-line basis over the lease term. Lease cost consists of the following:


	Three Months Ended					Nine Months Ended
	September 30, 2023		September 30, 2022			September 30, 2023			September 30, 2022
Operating lease cost	$	6,324	$	9,411		$	19,206		$	28,349
Finance lease cost - amortization of right-of-use assets		494		105			1,482			105
Finance lease cost - interest		146		21			446			21
Short-term lease cost		162		76			495			353
Variable lease cost		115		59			239			106
Sublease income		—		(26	)		(28	)		(64	)
Total lease cost	$	7,241	$	9,646		$	21,840		$	28,870

Future minimum lease payments under non-cancellable operating and finance leases as of September 30, 2023 were as follows:


	Operating			Finance
September 30, 2024	$	23,307		$	2,967
September 30, 2025		27,510			2,967
September 30, 2026		23,221			2,967
September 30, 2027		18,692			2,967
September 30, 2028		15,186			2,967
Thereafter		130,521			3,708
Total future minimum lease payments		238,437			18,543
Less: Interest		(44,489	)		(1,825	)
Total lease liabilities	$	193,948		$	16,718

Other information related to operating and finance leases for nine months ended September 30, 2023 and 2022 is as follows:


	2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	15,488		$	30,038
Operating cash outflows for finance leases		446			—
Financing cash outflows for finance leases		1,780			—
Right-of-use assets obtained in exchange for operating lease liabilities	$	10,014		$	13,434
Property and equipment obtained in exchange for finance lease liabilities	$	—		$	15,027
Weighted-average remaining lease term
Operating leases		11.6			11.6
Finance leases		6.3			7.1
Weighted-average discount rate
Operating leases		3.5	%		3.3	%
Finance leases		3.4	%		3.4	%

During the quarter ended September 30, 2023, the Company ceased use of two office facilities and recorded an impairment of $2.9 million related to operating lease right-of-use asset and leasehold improvement, and accrued other future lease-related expenses of $2.2 million. The amounts are included as part of indirect and selling expenses on the Company’s consolidated statements of comprehensive income.

NOTE 6 – LONG-TERM DEBT

At September 30, 2023 and December 31, 2022, long-term debt consisted of:


	September 30, 2023				December 31, 2022
	Average Interest Rate	Outstanding Balance			Average Interest Rate	Outstanding Balance
Term Loan		$	277,500			$	288,750
Delayed-Draw Term Loan			220,000				220,000
Revolving Credit			40,888				52,616
Total before debt issuance costs	6.6%		538,388		3.3%		561,366
Unamortized debt issuance costs			(4,451	)			(5,032	)
Total		$	533,937			$	556,334

As of September 30, 2023, the Company had an unused balance of $180.0 million under its delayed-draw term loan facility (available through November 6, 2023) and unused borrowing capacity under the $600.0 million revolving line of credit of $557.5 million under a credit agreement with a group of lenders (the “Credit Facility”). The unused borrowing capacity is inclusive of outstanding letters of credit totaling $1.6 million. Considering financial, performance-based limitations under the Credit Facility, available borrowing capacity was $465.8 million as of September 30, 2023. The average interest rate on borrowings under the Credit Facility was 6.9% and 6.6% for the three- and nine-month periods ended September 30, 2023, respectively, and 3.3% for the twelve-months period ended December 31, 2022. Inclusive of the impact of floating-to-fixed interest rate swaps (see “Note 8 – Derivative Instruments and Hedging Activities”), the average interest rate was 5.5% for both the three- and nine-month periods ended September 30, 2023, respectively, and 3.7% for the twelve-month period ended December 31, 2022.

Future scheduled repayments of debt principal are as follows:


Payments due by	Term Loan		Delayed-Draw Term Loan		Revolving Credit		Total
September 30, 2024	$	15,000	$	8,250	$	—	$	23,250
September 30, 2025		18,750		13,750		—		32,500
September 30, 2026		22,500		16,500		—		39,000
May 6, 2027 (Maturity)		221,250		181,500		40,888		443,638
Total	$	277,500	$	220,000	$	40,888	$	538,388

NOTE 7 – REVENUE RECOGNITION

Disaggregation of Revenue

The Company disaggregates revenue from clients, most of which is earned over time, 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 markets, 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 entity 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 a commercial company as government revenue when the ultimate client is a government agency or department. 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 on contracts 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.


	Three Months Ended September 30,										Nine Months Ended September 30,
	2023					2022					2023					2022
	Dollars		Percent			Dollars		Percent			Dollars		Percent			Dollars		Percent
Client Markets:
Energy, environment, infrastructure, and disaster recovery	$	204,802		41	%	$	179,002		38	%	$	596,089		40	%	$	522,698		40	%
Health and social programs		210,501		42	%		197,225		42	%		620,198		42	%		511,312		39	%
Security and other civilian & commercial		86,216		17	%		91,550		20	%		268,599		18	%		270,345		21	%
Total	$	501,519		100	%	$	467,777		100	%	$	1,484,886		100	%	$	1,304,355		100	%


	Three Months Ended September 30,										Nine Months Ended September 30,
	2023					2022					2023					2022
	Dollars		Percent			Dollars		Percent			Dollars		Percent			Dollars		Percent
Client Type:
U.S. federal government	$	279,314		56	%	$	271,609		58	%	$	820,116		55	%	$	715,986		55	%
U.S. state and local government		76,393		15	%		64,910		14	%		232,274		16	%		194,778		15	%
International government		27,623		5	%		23,046		5	%		74,598		5	%		79,060		6	%
Total Government		383,330		76	%		359,565		77	%		1,126,988		76	%		989,824		76	%
Commercial		118,189		24	%		108,212		23	%		357,898		24	%		314,531		24	%
Total	$	501,519		100	%	$	467,777		100	%	$	1,484,886		100	%	$	1,304,355		100	%


	Three Months Ended September 30,										Nine Months Ended September 30,
	2023					2022					2023					2022
	Dollars		Percent			Dollars		Percent			Dollars		Percent			Dollars		Percent
Contract Mix:
Time-and-materials	$	206,646		41	%	$	188,772		40	%	$	615,859		41	%	$	523,661		40	%
Fixed-price		223,173		45	%		210,919		45	%		667,711		45	%		580,836		45	%
Cost-based		71,700		14	%		68,086		15	%		201,316		14	%		199,858		15	%
Total	$	501,519		100	%	$	467,777		100	%	$	1,484,886		100	%	$	1,304,355		100	%

Contract Balances

Contract assets consist primarily of unbilled amounts resulting from long-term contracts when revenue recognized exceeds the amount billed often due to billing schedule timing. Contract liabilities result from advance payments received on a contract or from billings in excess of revenue recognized on long-term contracts due to billing schedule timing.

The following table summarizes the contract balances as of September 30, 2023 and December 31, 2022:


	September 30, 2023			December 31, 2022
Contract assets	$	209,267		$	169,088
Contract liabilities		(16,989	)		(25,773	)
Net contract assets (liabilities)	$	192,278		$	143,315

The net contract assets (liabilities) as of September 30, 2023 increased by $49.0 million as compared to December 31, 2022. The increase in net contract assets (liabilities) is 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 nine months ended September 30, 2023 and 2022, the Company recognized $17.3 million and $27.1 million in revenue related to the contract liabilities balance at December 31, 2022 and 2021, respectively.

Performance Obligations

The Company had $1.5 billion in unfulfilled performance obligations as of September 30, 2023 which primarily reflects the future delivery of services for which revenue will be recognized over time. The obligations relate to continued or additional services required on contracts, including those that are either non-cancellable or have substantive termination penalties, and were generally valued using an estimated cost-plus margin approach, with variable consideration being estimated at the most likely amount. The amounts exclude marketing offers, which are negotiated but unexercised contract options and indefinite delivery/indefinite quantity (IDIQ) and similar arrangements that provided a framework for customers to issue specific tasks, delivery, or purchase orders in the future. The Company expects to satisfy these performance obligations in approximately two years.

NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company uses interest rate swap agreements (the “Swaps”) to manage its interest rate risk associated with its borrowings under the Credit Facility. Notwithstanding the terms of the swaps, the Company is ultimately obligated for all amounts due and payable under the Credit Facility. The derivative instruments are recorded on the consolidated balance sheets at fair value. Unrealized gains and losses on derivatives designated as cash flow hedges are reported in other comprehensive income (loss) and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. Management intends that the Swaps remain effective and, on a quarterly basis, evaluates them to determine their effectiveness or ineffectiveness and records the change in fair value as an adjustment to other comprehensive income or loss. The Company does not use derivative instruments for speculative or trading purposes.

During the second quarter of 2023, the Company entered into new floating-to-fixed interest rate swaps for a total notional amount of $100.0 million that will mature on June 27, 2028.

At September 30, 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.

NOTE 9 – INCOME TAXES

The Company is subject to federal income tax as well as taxes in various state, local, and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company’s 2019 through 2021 tax years remain subject to examination by the Internal Revenue Service for federal tax purposes. Certain significant state, local, and foreign tax returns also remain open under the applicable statutes of limitations and, as such, are subject to examination for the tax years from 2018 to 2021.

The Company’s effective tax rate for the three months ended September 30, 2023 and 2022 was 1.4% and 11.7%, respectively, and 9.4% and 23.2% for the nine months ended September 30, 2023 and 2022, respectively.

A reconciliation of the Company’s statutory rate to the effective tax rate for the three and nine months ended September 30, 2023 and 2022 is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Taxes at statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		5.8	%		5.6	%		5.8	%		5.6	%
Executive compensation		1.4	%		1.5	%		1.4	%		1.5	%
Corporate-owned life insurance		(0.2	%)		1.1	%		(0.2	%)		1.1	%
Other permanent differences		0.4	%		1.0	%		0.3	%		0.7	%
Prior year tax adjustments		(27.1	%)		0.3	%		(10.8	%)		(0.3	%)
Uncertain tax position		19.1	%		—			6.9	%		—
Worthless stock		(20.2	%)		(17.7	%)		(7.3	%)		(5.5	%)
Capital loss		—			—			(6.7	%)		—
Valuation allowance		3.1	%		0.7	%		1.9	%		1.0	%
Equity-based compensation		(0.6	%)		(1.3	%)		(1.6	%)		(1.4	%)
Tax credits		(1.3	%)		(0.5	%)		(1.3	%)		(0.5	%)
Taxes at effective rate		1.4	%		11.7	%		9.4	%		23.2	%

The Company restructured the ownership of its Canadian entities for tax purposes during the second quarter of 2023, resulting in a 6.7% decrease in the Company’s effective income tax rate for the nine months ended 2023 compared to 2022.

The Company liquidated one of its UK subsidiaries as part of the winddown of its commercial marketing business during the third quarter of 2023, resulting in a reduction in the Company’s effective income tax rate of 20.2% and 7.3% for the three and nine months ended September 30, 2023, respectively.

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 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 $9.9 million in deferred tax asset for both the three and nine months ended September 30, 2023, respectively.

During the third quarter ended September 30, 2023, the Company recorded return-to-provision adjustments in connection with the filing of its 2022 U.S. federal tax return. The adjustments were primarily driven by increase in tax credits associated with qualifying research activities.

As of September 30, 2023 and December 31, 2022, the Company’s unrecognized tax benefits and the related accrued interest totaled $26.8 million and $0.2 million, respectively, which include $4.7 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 included as part of other long-term liabilities on the Company’s consolidated balance sheets.

The components and a reconciliation of unrecognized tax benefits are as follows:


	September 30, 2023		December 31, 2022
Transfer pricing	$	145	$	145
Section 41 tax credit		4,595		—
Section 174 expense capitalization		21,416		—
Total unrecognized tax benefits liabilities	$	26,156	$	145


Unrecognized tax benefits at January 1, 2022	$	450
Decrease attributable to tax positions taken during the prior period		(305	)
Unrecognized tax benefits at December 31, 2022		145
Increase attributable to tax positions taken during the current period		26,011
Unrecognized tax benefits at September 30, 2023	$	26,156

NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss as of September 30, 2023 and 2022 included the following:


	Three Months Ended September 30, 2023
	Foreign Currency Translation Adjustments			Change in Fair Value of Interest Rate Hedge Agreements (2)			Total
Accumulated other comprehensive (loss) income at June 30, 2023	$	(10,833	)	$	4,517		$	(6,316	)
Current period other comprehensive (loss) income:
Other comprehensive (loss) income before reclassifications		(3,487	)		4,379			892
Amounts reclassified from accumulated other comprehensive (loss) income (3)		—			(2,101	)		(2,101	)
Effect of taxes		(2,227	)		(617	)		(2,844	)
Total current period other comprehensive (loss) income		(5,714	)		1,661			(4,053	)
Accumulated other comprehensive (loss) income at September 30, 2023	$	(16,547	)	$	6,178		$	(10,369	)


	Three Months Ended September 30, 2022
	Foreign Currency Translation Adjustments			Gain on Sale of Interest Rate Hedge Agreement (1)			Change in Fair Value of Interest Rate Hedge Agreement (2)			Total
Accumulated other comprehensive (loss) income at June 30, 2022	$	(16,562	)	$	305		$	3,670		$	(12,587	)
Current period other comprehensive (loss) income:
Other comprehensive (loss) income before reclassifications		(7,074	)		—			3,128			(3,946	)
Amounts reclassified from accumulated other comprehensive (loss) income (3)		—			(180	)		142			(38	)
Effect of taxes		3,309			48			(928	)		2,429
Total current period other comprehensive (loss) income		(3,765	)		(132	)		2,342			(1,555	)
Accumulated other comprehensive (loss) income at September 30, 2022	$	(20,327	)	$	173		$	6,012		$	(14,142	)


	Nine Months Ended September 30, 2023
	Foreign Currency Translation Adjustments			Gain on Sale of Interest Rate Hedge Agreement (1)			Change in Fair Value of Interest Rate Hedge Agreements (2)			Total
Accumulated other comprehensive (loss) income at December 31, 2022	$	(14,056	)	$	41		$	5,882		$	(8,133	)
Current period other comprehensive (loss) income:
Other comprehensive (loss) income before reclassifications		(82	)		—			5,658			5,576
Amounts reclassified from accumulated other comprehensive (loss) income (3)		—			(60	)		(5,239	)		(5,299	)
Effect of taxes		(2,409	)		19			(123	)		(2,513	)
Total current period other comprehensive (loss) income		(2,491	)		(41	)		296			(2,236	)
Accumulated other comprehensive (loss) income at September 30, 2023	$	(16,547	)	$	—		$	6,178		$	(10,369	)


	Nine Months Ended September 30, 2022
	Foreign Currency Translation Adjustments			Gain on Sale of Interest Rate Hedge Agreement (1)			Change in Fair Value of Interest Rate Hedge Agreement (2)			Total
Accumulated other comprehensive (loss) income at December 31, 2021	$	(8,759	)	$	569		$	(2,845	)	$	(11,035	)
Current period other comprehensive (loss) income:
Other comprehensive (loss) income before reclassifications		(16,099	)		—			10,430			(5,669	)
Amounts reclassified from accumulated other comprehensive (loss) income (3)		—			(540	)		1,640			1,100
Effect of taxes		4,531			144			(3,213	)		1,462
Total current period other comprehensive (loss) income		(11,568	)		(396	)		8,857			(3,107	)
Accumulated other comprehensive (loss) income at September 30, 2022	$	(20,327	)	$	173		$	6,012		$	(14,142	)

(1)

Represents the unamortized 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, at the date of the sale, was recorded in other comprehensive income, net of tax, and is being reclassified to interest expense when earnings are impacted by the hedged items and as interest payments are made on the Credit Facility from January 31, 2018 to January 31, 2023.

(2)

Represents the change in fair value of interest rate hedge agreements designated as 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 August 31, 2018 to June 27, 2028 (see “Note 8 – Derivative Instruments and Hedging Activities”).

(3)

The Company expects to reclassify $6.5 million of 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.

NOTE 11 – STOCKHOLDERS’ EQUITY

Changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 are as follows:


	Three Months Ended September 30, 2023
	Common Stock				Additional Paid-in		Retained			Treasury Stock					Accumulated Other Comprehensive
	Shares		Amount		Capital		Earnings			Shares		Amount			Loss			Total
Balance at June 30, 2023		18,815		24		411,187		734,468			5,131		(266,518	)		(6,316	)	$	872,845
Net income		—		—		—		23,740			—		—			—			23,740
Other comprehensive income		—		—		—		—			—		—			(4,053	)		(4,053	)
Equity compensation		—		—		3,446		—			—		—			—			3,446
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units		2		—		—		—			—		—			—			—
Payments for stock buybacks		—		—		—		—			—		(12	)		—			(12	)
Dividends declared		—		—		—		(2,636	)		—		—			—			(2,636	)
Balance at September 30, 2023		18,817	$	24	$	414,633	$	755,572			5,131	$	(266,530	)	$	(10,369	)	$	893,330


	Three Months Ended September 30, 2022
	Common Stock					Additional Paid-in		Retained			Treasury Stock					Accumulated Other Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			Loss			Total
Balance at June 30, 2022		18,818		$	23	$	393,224	$	680,323			4,887	$	(241,566	)	$	(12,587	)	$	819,417
Net income		—			—		—		19,105			—		—			—			19,105
Other comprehensive loss		—			—		—		—			—		—			(1,555	)		(1,555	)
Equity compensation		—			—		3,516		—			—		—			—			3,516
Exercise of stock options		5			—		218		—			—		—			—			218
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units		14			—		4		—			—		—			—			4
Payments for stock buybacks		(3	)		—		—		—			3		(330	)		—			(330	)
Dividends declared		—			—		—		(2,636	)		—		—			—			(2,636	)
Balance at September 30, 2022		18,834		$	23	$	396,962	$	696,792			4,890	$	(241,896	)	$	(14,142	)	$	837,739


	Nine Months Ended September 30, 2023
	Common Stock					Additional Paid-in		Retained			Treasury Stock					Accumulated Other Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			Loss			Total
Balance at December 31, 2022		18,883		$	23	$	401,957	$	703,030			4,906	$	(243,666	)	$	(8,133	)	$	853,211
Net income		—			—		—		60,450			—		—			—			60,450
Other comprehensive income		—			—		—		—			—		—			(2,236	)		(2,236	)
Equity compensation		—			—		10,134		—			—		—			—			10,134
Exercise of stock options		8			—		278		—			—		—			—			278
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units		151			1		2,264		—			—		—			—			2,265
Payments for stock buybacks		(225	)		—		—		—			225		(22,864	)		—			(22,864	)
Dividends declared		—			—		—		(7,908	)		—		—			—			(7,908	)
Balance at September 30, 2023		18,817		$	24	$	414,633	$	755,572			5,131	$	(266,530	)	$	(10,369	)	$	893,330


	Nine Months Ended September 30, 2022
	Common Stock					Additional Paid-in		Retained			Treasury Stock					Accumulated Other Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			Loss			Total
Balance at December 31, 2021		18,876		$	23	$	384,984	$	649,298			4,659	$	(219,800	)	$	(11,035	)	$	803,470
Net income		—			—		—		55,364			—		—			—			55,364
Other comprehensive loss		—			—		—		—			—		—			(3,107	)		(3,107	)
Equity compensation		—			—		10,023		—			—		—			—			10,023
Exercise of stock options		13			—		412		—			—		—			—			412
Issuance of shares pursuant to employee stock purchase plan and vesting of restricted stock units		176			—		1,543		—			—		—			—			1,543
Payments for stock buybacks		(231	)		—		—		—			231		(22,096	)		—			(22,096	)
Dividends declared		—			—		—		(7,870	)		—		—			—			(7,870	)
Balance at September 30, 2022		18,834		$	23	$	396,962	$	696,792			4,890	$	(241,896	)	$	(14,142	)	$	837,739

NOTE 12 – STOCK-BASED COMPENSATION

On April 4, 2018, the Company’s board of directors (the “board”) approved the 2018 Omnibus Incentive Plan (the “2018 Omnibus Plan”), which was subsequently approved by the Company’s 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 2,050,000 shares using stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance units and performance share awards (“PSAs”), cash-settled restricted stock units (“CSRSUs”), and other stock-based awards to all officers, key employees, and non-employee directors of the Company. Outstanding shares granted under the Prior Plan, totaling 2,631 as of September 30, 2023, remain subject to its terms and conditions, and no additional awards from the Prior Plan are to be made after the Effective Date. As of September 30, 2023, the Company had approximately 1,131,012 shares available for grant under the 2018 A&R Omnibus Plan. CSRSUs have no impact on the shares available for grant under the Omnibus Plan, nor on the calculated shares used in earnings per share calculations.

The RSUs, CSRSUs, and PSAs granted are generally subject to service-based vesting conditions, with the PSAs also having performance-based vesting conditions. The performance conditions for the PSAs granted in 2023 have a performance period from January 1, 2023 through December 31, 2025 and performance conditions that are consistent with the PSAs granted in prior years.

The following awards were granted during the three and nine months ended September 30, 2023 and 2022:


	Awards Granted								Average Grant Date Fair Value
	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Employee Stock Awards		—		25,059		113,569		177,960	$	—	$	99.47	$	107.29	$	92.87
Cash-Settled Restricted Stock Units		2,281		15,694		68,745		78,534	$	130.47	$	99.47	$	110.04	$	93.81
Non-Employee Director Stock Awards		8,211		10,703		8,211		11,399	$	127.81	$	94.79	$	127.81	$	95.35
Total		10,492		51,456		190,525		267,893

The total stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022, and the unrecognized compensation expense at September 30, 2023:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				As of September 30, 2023
(in millions)	2023		2022		2023		2022		Unrecognized		Weighted Average Period to Recognize (in years)
Employee Stock Awards	$	3,166	$	3,241	$	9,394	$	9,215	$	19,213		1.65
Cash-Settled Restricted Stock Units		1,709		1,793		5,808		4,242		12,134		1.94
Non-Employee Director Stock Awards		280		276		740		808		770		0.67
Total	$	5,155	$	5,310	$	15,942	$	14,265	$	32,117

NOTE 13 – ACQUISITION AND DIVESTITURE

Acquisition

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. Intangible assets consist of $10.2 million related to existing customer relationships and $0.1 million related to trade names and trademarks. The acquisition of CMY is not material to the Company’s results of operations.

Divestiture

Commercial Marketing

On July 21, 2023, the Company entered into an Asset Purchase Agreement (the “APA”) 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 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 $4.3 million and transactions fees of $1.9 million, for a total pre-tax gain of $2.4 million, that is included as part of other income on the Company’s consolidated statements of comprehensive income.

NOTE 14 – EARNINGS PER SHARE

The Company’s earnings per share (“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 September 30, 2023, the PSAs granted during the year ended December 31, 2021 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, 2022 and during the nine months ended September 30, 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 PSAs for each period reported is summarized below:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net Income	$	23,740	$	19,105	$	60,450	$	55,364

Weighted-average number of basic shares outstanding during the period		18,815		18,826		18,795		18,806
Dilutive effect of stock options, RSUs, and performance shares		159		183		163		195
Weighted-average number of diluted shares outstanding during the period		18,974		19,009		18,958		19,001

Basic earnings per share	$	1.26	$	1.01	$	3.22	$	2.94
Diluted earnings per share	$	1.25	$	1.01	$	3.19	$	2.91

NOTE 15 – SHARE REPURCHASE PROGRAM

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 Securities Exchange Act of 1934, as amended (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 permits share repurchases 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. Notwithstanding the formula-based limit, the Company is permitted to make share repurchases up to $25.0 million per calendar year provided that it was not in default.

Purchases under this program may be made from time to time at prevailing market prices in the open market 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 nine months ended September 30, 2023 and 2022, the Company used $18.1 million to repurchase 180,000 shares and $17.0 million to repurchase 176,375 shares, respectively, under the share repurchase program. As of September 30, 2023, $93.7 million of authorization remained available for share repurchases under the repurchase program.

NOTE 16 – FAIR VALUE

Financial instruments measured at fair value on a recurring basis and their location within the accompanying consolidated balance sheets are as follows:


	September 30, 2023
(in thousands)	Level 1		Level 2		Level 3		Total		Location on Balance Sheet
Assets:
Interest rate swaps - current portion	$	—	$	6,450	$	—	$	6,450	Prepaid expenses and other assets
Foreign currency forward and swap contracts		—		38		—		38	Prepaid expenses and other assets
Interest rate swaps - long-term portion		—		2,340		—		2,340	Other assets
Company-owned life insurance policies		—		18,705		—		18,705	Other assets

Liabilities:
Interest rate swaps - long-term portion	$	—	$	370	$	—	$	370	Other long-term liabilities


	December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total		Location on Balance Sheet
Assets:
Interest rate swaps - current portion	$	—	$	5,051	$	—	$	5,051	Prepaid expenses and other assets
Interest rate swaps - long-term portion		—		2,950		—		2,950	Other assets
Company-owned life insurance policies		—		17,869		—		17,869	Other assets

NOTE 17 – COMMITMENTS AND CONTINGENCIES

Letters of Credit

At September 30, 2023 and December 31, 2022, the Company had open standby letters of credit totaling $1.6 million and $2.0 million, respectively. The open standby letters of credit reduce the Company’s unused borrowing capacity under the 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 that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on its financial position, results of operations, or cash flows.

NOTE 18 – SUBSEQUENT EVENTS

Dividend

On November 2, 2023, the board approved a $0.14 per share cash dividend. The dividend will be paid on January 12, 2024 to shareholders of record as of the close of business on December 8, 2023.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”) 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 our filings with the Securities and Exchange Commission (the “SEC”), as well as any cautionary language in this Quarterly Report, provide examples of risks, uncertainties, and events that may cause actual results to differ materially from the expectations described in the forward-looking statements, including, but not limited to:

•

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 reduction 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 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 grants management programs involving multiple tiers of government in very stressful environments;

•

Risks resulting from expanding service offerings and client base;

•

Difficulties in identifying attractive acquisitions available at acceptable prices;

•

Acquisitions we undertake may present integration challenges, fail to perform as expected, increase our liabilities, and/or reduce 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 disclosures 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 Quarterly Report. 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 Quarterly Report, refer to ICF International, Inc. and its subsidiaries, unless otherwise indicated. 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 and local governments and the governments of U.S. territories. The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, and liquidity and capital resources. You should read this discussion in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023 (our “Annual Report”).

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 three 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 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 public health can be improved effectively on a cross-jurisdiction basis; natural disaster recovery and rebuild efforts; and ongoing homeland security threats.

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 that enhance our subject matter knowledge, broaden our service offerings, 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 and/or debt ceiling 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.

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:

•

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;

•

Changing public policy, regulations, and incentives (including those established by the Inflation Reduction Act) 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, 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.

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.

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 United Kingdom (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, 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:

•

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 recently 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 Inflation Reduction Act passed by Congress and signed 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.

By leveraging our interdisciplinary 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:

•

Weaknesses in our public health and healthcare delivery systems exposed by 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;

•

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.

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 2021 acquisition of ESAC brought a strong team with deep expertise in bioinformatics to further extend our capabilities in this arena. 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:

•

Vulnerability of critical infrastructure to cyber and terrorist threats;

•

Increasing risks to enterprises’ reputations in the wake of a cyber-attack;

•

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 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:

•

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.

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, establishing goals and capabilities for national preparedness at all levels of government in the U.S., and managing the national program to test radiological emergency preparedness at the state and local government levels in communities adjacent to nuclear power facilities. 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.

Employees and Offices:

We have approximately 9,000 full 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, with more than 50 regional offices throughout the U.S. and more than 20 offices in key regions outside the U.S., including offices in the U.K., Belgium, India, and Canada.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion of our 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 and our application of critical accounting policies, including revenue recognition, impairment of goodwill and other intangible assets, and income taxes. 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. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 2 –Summary of Significant Accounting Policies” in our Annual Report and “Note 1 – Basis of Presentation and Nature of Operations” in the “Notes to Consolidated Financial Statements” in this Quarterly Report for further discussions of our significant accounting policies and estimates.

We periodically evaluate our critical accounting policies and estimates based on changes in U.S. GAAP and the current environment that may have an effect on our financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting standards are discussed in “Note 1 – Basis of Presentation and Nature of Operations—Recent Accounting Pronouncements” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.

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 are discussed under the revenue section of the results of operations. For further discussion see “Note 7 – Revenue Recognition” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The table below sets forth our unaudited consolidated statements of comprehensive income and other select items, the percentage of revenue for such items in the periods provided, and the period-over-period rate of change and percentage of revenue for the periods indicated.


	Three Months Ended September 30,
	Dollars						Percentages of Revenue						Year-to-Year Change
(dollars in thousands)	2023			2022			2023			2022			Dollars			Percent
Revenue	$	501,519		$	467,777			100.0	%		100.0	%	$	33,742			7.2	%
Direct Costs:
Direct labor & related fringe		187,421			174,947			37.4	%		37.4	%		12,474			7.1	%
Subcontractors & other direct costs		136,083			132,348			27.2	%		28.3	%		3,735			2.8	%
Total Direct Costs		323,504			307,295			64.5	%		65.7	%		16,209			5.3	%
Operating Costs and Expenses:
Indirect and selling expenses		131,553			118,290			26.2	%		25.3	%		13,263			11.2	%
Depreciation and amortization		5,917			5,297			1.2	%		1.1	%		620			11.7	%
Amortization of intangible assets		8,644			8,661			1.7	%		1.9	%		(17	)		(0.2	%)
Total Operating Costs and Expenses		146,114			132,248			29.1	%		28.3	%		13,866			10.5	%
Operating Income		31,901			28,234			6.4	%		6.0	%		3,667			13.0	%
Interest, net		(10,557	)		(7,420	)		(2.1	%)		(1.6	%)		(3,137	)		42.3	%
Other income		2,736			833			0.5	%		0.2	%		1,903		nm
Income before Income Taxes		24,080			21,647			4.8	%		4.6	%		2,433			11.2	%
Provision for Income Taxes		340			2,542			0.1	%		0.5	%		(2,202	)		(86.6	%)
Net Income	$	23,740		$	19,105			4.7	%		4.1	%	$	4,635			24.3	%

nm - not meaningful

Revenue. Revenue for the three months ended September 30, 2023 was $501.5 million compared to $467.8 million for the three months ended September 30, 2022, an increase of $33.7 million or 7.2%. The increase in revenue was driven by $11.5 million from U.S. state and local government, $10.0 million from commercial, $7.7 million from U.S. federal government, and $4.5 million from our international government clients.

Our Energy, Environment Infrastructure, and Disaster Recovery client market increased by $25.8 million, or 14.4%, over the same period last year driven by:

•

Increases of $13.2 million, $8.7 million, $3.4 million, and $0.5 million from our commercial, U.S. state and local government, U.S. federal government, and international government clients, respectively.

Our Health and Social Programs client market increased $13.3 million, or 6.7%, over the same period last year driven by:

•

Increases of $7.6 million, $3.3 million, and $2.7 million from our U.S. federal government, international government, and U.S. state and local government clients, respectively, offset by

•

A reduction of $0.3 million from our commercial clients.

Our Security and Other Civilian & Commercial client market saw a decrease of $5.4 million, or 5.8%, over the same period last year due to:

•

Decreases of $3.3 million and $2.9 million from U.S. federal government and commercial clients, respectively, offset by

•

Increases of $0.7 million and $0.1 million from international government and U.S. state and local government clients, respectively.

Revenue includes subcontractor & other direct costs of $136.1 million and $132.3 million for the three months ended September 30, 2023 and 2022, respectively.

Direct Costs. The increase of $16.2 million in direct costs was driven by increases of $12.5 million in our direct labor and associated fringe benefit costs and $3.7 million in our subcontractor and other direct costs. The increase in these costs were driven, in part, by our recent acquisitions, investment in our people, as well as the growth in the business. Our direct labor & related fringe benefit costs as a percentage of direct costs were 57.9% and 56.9% for the three months ended September 30, 2023 and 2022, respectively. Our subcontractor & other direct costs as a percentage of direct costs were 42.1% and 43.1% for the three months ended September 30, 2023 and 2022, respectively. Our direct costs as a percentage of revenue were 64.5% for the three months ended September 30, 2023, compared to 65.7% for the three months ended September 30, 2022. Our direct labor & related fringe benefit costs as a percentage of revenue were 37.4% for both of the three months ended September 30, 2023 and 2022, respectively, and our subcontractor & other direct costs as a percentage of revenue were 27.2% and 28.3% for the three months ended September 30, 2023 and 2022, respectively.

Indirect and selling expenses. For the three months ended September 30, 2023, our indirect and selling expenses increased $13.3 million, or 11.2%, compared to the prior year. The change was primarily due to the timing of certain non-cash charges, additional indirect labor and associated fringe costs of $14.5 million as a result of additional headcount from our recent acquisitions in 2022 and 2023 as well as additional labor resources to support our growth offset by a decrease of $1.2 million in our general and administrative costs.

Depreciation and amortization. The increase of $0.6 million in our depreciation and amortization was primarily due to additional capital expenditures during the three months ended September 30, 2023.

Interest, net. The increase of $3.1 million in interest, net, was primarily from additional $2.0 million of interest related to our borrowings and $0.8 million of interest on unrecognized tax benefits recorded during the three months ended September 30, 2023. Our interest, net, was also impacted by a decrease of $0.5 million in amortized gains related to a previously sold interest rate hedging instrument that became fully amortized during the first quarter of 2023.

The increase of interest from our borrowings (before the impact of interest rate swaps) was from our higher average interest rate on borrowings of 6.9% for the three months ended September 30, 2023 compared to 4.0% in 2022. We utilize floating-to-fixed interest rate swap agreements (the “Swaps”) to hedge the variable interest portion of our debt. Our interest rate inclusive of the impact of the Swaps was 5.5% for the three months ended September 30, 2023 compared to 3.9% for the three months ended September 30, 2022. For the three months ended September 30, 2023, settlements of the Swaps reduced our interest expense, net, by $2.1 million compared to $0.1 million in additional interest for the same period in 2022. The higher average interest rate was off-set, in part, by our lower average debt balance in the quarter of $621.1 million as compared to the same period last year of $675.9 million.

Other income. Other income increased by $1.9 million for the three months ended September 30, 2023 compared to the same period in 2022 primarily due to a pre-tax gain of $2.4 million from the divestiture of our commercial marketing business offset by foreign currency losses of $0.5 million.

Provision for Income Taxes. Our effective income tax rate for the three months ended September 30, 2023 and 2022 was 1.4% and 11.7%, respectively. The decrease in the effective income tax rate was primarily due to the company’s exit from the U.K. commercial marketing business, and U.S. return-to-provision adjustments for certain tax credits claimed in connection with our federal income tax return filing, partially offset by provisions for uncertain tax positions and additional valuation allowance on excess foreign tax credits generated during the quarter. See “Note 9 – Income Taxes” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022



	Nine Months Ended September 30,
	Dollars						Percentages of Revenue						Year-to-Year Change
(dollars in thousands)	2023			2022			2023			2022			Dollars			Percent
Revenue	$	1,484,886		$	1,304,355			100.0	%		100.0	%	$	180,531			13.8	%
Direct Costs:
Direct labor & related fringe		555,745			476,321			37.4	%		36.5	%		79,424			16.7	%
Subcontractors & other direct costs		405,728			358,038			27.3	%		27.4	%		47,690			13.3	%
Total Direct Costs		961,473			834,358			64.8	%		64.0	%		127,115			15.2	%
Operating Costs and Expenses:
Indirect and selling expenses		381,808			350,145			25.7	%		26.8	%		31,663			9.0	%
Depreciation and amortization		19,052			15,198			1.3	%		1.2	%		3,854			25.4	%
Amortization of intangible assets		27,154			18,941			1.8	%		1.5	%		8,213			43.4	%
Total Operating Costs and Expenses		428,014			384,284			28.8	%		29.5	%		43,730			11.4	%
Operating Income		95,399			85,713			6.4	%		6.5	%		9,686			11.3	%
Interest, net		(30,146	)		(14,095	)		(2.0	%)		(1.1	%)		(16,051	)		113.9	%
Other income		1,501			437			0.1	%		—			1,064		nm
Income before Income Taxes		66,754			72,055			4.5	%		5.4	%		(5,301	)		(7.4	%)
Provision for Income Taxes		6,304			16,691			0.4	%		1.3	%		(10,387	)		(62.2	%)
Net Income	$	60,450		$	55,364			4.1	%		4.1	%	$	5,086			9.2	%

nm - not meaningful

Revenue. Revenue for the nine months ended September 30, 2023 was $1,484.9 million, compared to $1,304.4 million for the nine months ended September 30, 2022, an increase of $180.5 million or 13.8%. The increase in revenue was driven by $104.1 million from U.S. federal government, $43.4 million from commercial, $37.5 million from U.S. state and local government clients, respectively, offset by a decrease of $4.5 million from international government clients.

Our Health and Social Programs client market increased $108.9 million, or 21.3%, over the same period last year driven by:

•

Increases of $101.1 million, $8.1 million, and $5.1 million from our U.S. federal government, U.S. state and local government, and commercial clients, respectively, offset by

•

A reduction of $5.4 million from our international government clients.

Our Energy, Environment Infrastructure, and Disaster Recovery client market increased by $73.4 million, or 14.0%, over the same period last year driven by:

•

Increases of $43.9 million, $29.2 million, and $4.9 million from our commercial, U.S. state and local government, and U.S. federal government clients, respectively, offset by

•

A decrease of $4.6 million from international government clients.

Our Security and Other Civilian & Commercial client market decreased $1.8 million, or 0.6%, over the same period last year due to:

•

Decreases of $5.7 million and $1.8 million from our commercial and U.S. federal government, respectively, offset by

•

Increases of $5.6 million and $0.1 million from our international government and U.S. state and local government clients, respectively.

Revenue includes subcontractors & other direct costs of $405.7 million and $358.0 million for the nine months ended September 30, 2023 and 2022, respectively.

Direct Costs. The increase of $127.1 million in direct costs was driven by increases of $79.4 million in our direct labor and associated fringe benefit costs and $47.7 million in our subcontractor and other direct costs, which was driven, in part, by our recent acquisitions, investment in our people, and growth of our business. For the nine-month periods ended September 30, 2023 and 2022, direct labor & related fringe benefit costs as a percentage of direct costs were 57.8% and 57.1%, respectively, and subcontractor & other direct costs as a percentage of direct costs were also consistent at 42.2% and 42.9%, respectively. Our direct costs as a percentage of revenue were 64.8% for the nine months ended September 30, 2023, compared to 64.0% for the nine months ended September 30, 2022. Our direct labor & related fringe benefit costs as a percentage of revenue were 37.4% and 36.5% for the nine months ended September 30, 2023 and 2022, respectively, and our subcontractor & other direct costs as a percentage of revenue were 27.3% and 27.4%, for the nine months ended September 30, 2023 and 2022, respectively.

Indirect and selling expenses. For the nine months ended September 30, 2023, our indirect and selling expenses increased $31.7 million, or 9.0%, compared to the prior year, from additional indirect labor and associated fringe costs of $28.9 million and general and administrative costs of $2.8 million. The increase in our 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.

Depreciation and amortization. The increase of $3.9 million in our depreciation and amortization was primarily due to additional capital expenditure in the nine months ended September 30, 2023.

Amortization of intangible assets. The increase of $8.2 million in our amortization of intangible assets was primarily due to the amortization of intangible assets acquired in our acquisitions in the third quarter of 2022 and the second quarter of 2023.

Interest, net. The increase of $16.1 million in interest, net was primarily from additional $14.0 million of interest from our borrowings and $0.8 million of interest on unrecognized tax benefits recorded during the nine months ended September 30, 2023.

The increase of interest from our borrowings was from our higher average debt balance of $641.4 million during the nine months ended September 30, 2023 as compared to $542.6 million during the same period in 2022, primarily as a result of our acquisition activities, and higher interest rate. Our average interest rates on borrowings (before the impact of the Swaps) were 6.6% and 2.6% for the nine months ended September 30, 2023 and 2022, respectively. Inclusive of the impact of the Swaps, the average interest rate was 5.5% for the nine months ended September 30, 2023 compared to 3.1% for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, settlements of the Swaps reduced our interest expense, net, by $5.2 million compared to $1.6 million in additional interest for the same period in 2022.

Other income. Other income increased by $1.1 million primarily due to a pre-tax gain of $2.4 million from the divestiture of our commercial marketing business offset by foreign currency loss of $1.2 million.

Provision for Income Taxes. Our effective income tax rate for the nine months ended September 30, 2023 and 2022 was 9.4% and 23.2%, respectively. The decrease in the effective income tax rate was primarily due to restructuring the ownership of our Canadian subsidiaries, winddown of our U.K. commercial marketing business, and U.S. return-to-provision adjustments for certain tax credits claimed in connection with our federal income tax return filing, partially offset by provisions for uncertain tax positions and additional valuation allowance on excess foreign tax credits generated during the period. See “Note 9 – Income Taxes” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.

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 provided 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 greater 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. We believe that the adjustments applied in calculating Adjusted EBITDA are reasonable and appropriate to provide additional information to investors.

EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use as these measures do not include certain cash requirements such as interest payments, tax payments, capital expenditures, and debt service.

The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated.


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands)	2023			2022		2023			2022
Net income	$	23,740		$	19,105	$	60,450		$	55,364
Interest, net		10,557			7,420		30,146			14,096
Provision for income taxes		340			2,542		6,304			16,691
Depreciation and amortization		14,561			13,958		46,206			34,139
EBITDA (1)		49,198			43,025		143,106			120,290
Impairment of long-lived assets (2)		2,912			—		3,806			—
Acquisition and divestiture-related expenditures (3)		1,779			1,940		4,685			5,521
Severance and other costs related to staff realignment (4)		595			3,757		4,455			5,168
Charges for facility consolidations and office closures (5)		2,220			—		2,579			—
Pre-tax gain from divestiture of a business (6)		(2,425	)		—		(2,425	)		—
Expenses related to the transfer to our new corporate headquarters (7)		—			1,883		—			5,647
Total Adjustments		5,081			7,580		13,100			16,336
Adjusted EBITDA	$	54,279		$	50,605	$	156,206		$	136,626

(1)

The calculation of EBITDA for the three and nine months ended September 30, 2022 has been revised to conform to the current period calculation of EBITDA. Specifically, interest income of $0.1 million and $0.2 million, respectively, was reclassified from “Other expense” to “Interest, net” on the consolidated statements of comprehensive income.

(2)

We recorded impairment of $0.9 million and $2.9 million in the first and the third quarter of 2023, respectively, related to an intangible asset and operating lease right-of-use assets.

(3)

These costs consist primarily of third-party costs and integration costs associated with our acquisitions and/or potential acquisitions and separation costs associated with business discontinuation/divestitures.

(4)

These costs are mainly due to involuntary employee termination benefits for our officers, and/or groups of employees who have been notified that they will be terminated as part of a consolidation or reorganization.

(5)

These costs are exit costs associated with terminated leases or full office closures. The exit costs include charges incurred under a contractual obligation that existed as of the date of the accrual and for which (i) we will continue to pay until the contractual obligation is satisfied but with no economic benefit to us or (ii) we contractually terminated the obligation and ceased utilizing the facilities.

(6)

During the third quarter of 2023, we recognized a pre-tax gain of $2.4 million from sale of assets related to the divestiture of our U.S. commercial marketing business.

(7)

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.

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 items noted above, as well as 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 applied in calculating Non-GAAP Diluted EPS are reasonable and appropriate to provide additional information to investors.

The following table presents a reconciliation of U.S. GAAP Diluted EPS to Non-GAAP Diluted EPS for the periods indicated.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
U.S. GAAP Diluted EPS	$	1.25		$	1.01		$	3.19		$	2.91
Impairment of long-lived assets		0.15			—			0.20			—
Acquisition and divestiture-related expenditures		0.09			0.10			0.25			0.29
Severance and other costs related to staff realignment		0.03			0.20			0.23			0.27
Charges for facility consolidations and office closures		0.12			—			0.14			—
Pre-tax gain from divestiture of a business		(0.13	)		—			(0.13	)		—
Expenses related to the transfer to our new corporate headquarters		—			0.10			—			0.30
Amortization of intangibles		0.46			0.46			1.43			1.00
Income tax effects of the adjustments (1)		(0.16	)		(0.26	)		(0.50	)		(0.54	)
Non-GAAP Diluted EPS	$	1.81		$	1.61		$	4.81		$	4.23

(1)

Income tax effects were calculated using the effective tax rate, adjusted for certain discrete items, if any, of 21.7% and 29.4% for the three months ended September 30, 2023 and 2022, respectively, and 23.5% and 28.5% for the nine months ended September 30, 2023 and 2022, 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 with a syndicate of multiple commercial banks, as described in “Note 6 – Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. As of September 30, 2023, we had $557.5 million, or $465.8 million available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program, after taking into account the financial and performance-based limitations. We believe that our cash balances, expected cash flows from operations, and access to our Credit Facility will be sufficient to meet our working capital needs, debt servicing commitments, share repurchase, and dividend payment requirements for the next twelve months and beyond.

We have entered into floating-to-fixed interest rate swap agreements for a total notional value of $275.0 million to hedge a portion of our floating rate Credit Facility. The Swaps will expire in 2025 and 2028, respectively, and we may consider entering into additional hedges as these existing hedges expire. For additional details on the Swaps, see “Note 8 – Derivative Instruments and Hedging Activities” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. As of September 30, 2023, the percentage of our fixed-rate debt to floating-rate debt was 51%.

There are other conditions, such as the ongoing wars in Ukraine and 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. 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.

The recent closures of Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”) in March 2023 and First Republic Bank (“Republic”) in May 2023 have raised significant concerns about bank-specific risks, broader financial institution liquidity risks, and the stability of the banking system in the United States. We did not hold any of our funds in, or have any banking relationship with, SVB, Signature, or Republic. To date, we have not experienced any issues with the banks where we do maintain our accounts or have other banking relationships. We hold our funds in large commercial banks and our intent is to maintain account balances at a reasonably low level to reduce our risk of loss from a sudden failure at any individual bank. Our Credit Facility is supported by a syndicate of multiple commercial banks, and each bank in the syndicate provides a pro rata percentage of our total available borrowings and commitments independently of the others. No member of the bank syndicate is responsible for providing more than fifteen percent of the total available borrowings and commitments.

We continue to monitor the state of the financial markets to assess the continuing availability of borrowing capacity under the Credit Facility and the cost of additional capital from both debt and equity markets. At present, we believe we will be able to continue to access these markets at commercially reasonable terms and conditions if we need additional capital in the near term.

Financial Condition. There were several changes in our consolidated balance sheet as of September 30, 2023 compared to the consolidated balance sheet as of December 31, 2022. Significant changes are as follows:

Cash and cash equivalents decreased to $5.1 million as of September 30, 2023, from $11.3 million on December 31, 2022 and restricted cash increased to $2.8 million as of September 30, 2023 from $1.7 million on December 31, 2022. These balances and the changes to the balances of cash and cash equivalents and restricted cash are further discussed in “Cash Flow” below and in “Note 2 – Restricted Cash” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.

Contract receivables, net of allowance for expected credit losses, as of September 30, 2023, decreased to $214.8 million from $232.3 million on December 31, 2022 due to the timing of our billings and collection of client invoices. Contract receivables are a significant component of our working capital and may be favorably or unfavorably impacted by our collection efforts, including timing from new contract startups, and other short-term fluctuations related to the payment practices of our clients. We also utilize our Master Receivables Purchase Agreement (the “MRPA”) with MUFG Bank, Ltd. to sell certain eligible billed receivables during 2023. See “Note 3 – Contract Receivables, Net” in the “Notes to Consolidated Financial Statements” in this Quarterly Report

Contract assets and contract liabilities represent revenue in excess of billings and billings in excess of revenue, respectively, both of which generally arise from revenue recognition timing and contractually stipulated billing schedules or billing complexity. At September 30, 2023, contract assets and contract liabilities were $209.3 million and $17.0 million, respectively, compared to $169.1 million and $25.8 million, respectively, at December 31, 2022.

We evaluate our collections efforts using the days-sales-outstanding ratio (“DSO”), which we calculate by dividing total accounts receivable (contract receivables, net and contract assets, less contract liabilities), by revenue per day for the trailing 90-day period. Our DSO was 73 days at September 30, 2023, compared to 87 days at September 30, 2022, due, in part, to the utilization of our MRPA and improved collection efforts. Excluding collections relating to the Puerto Rico disaster relief and rebuild efforts (which include unusually long invoice payment cycles due to complex customer reporting and billing requirements), DSO was 68 days at September 30, 2023 compared to 82 days at September 30, 2022.

Accounts payable decreased to $123.4 million at September 30, 2023 from $135.8 million at December 31, 2022, and our accrued expenses totaled $183.8 million at September 30, 2023 as compared to $209.5 million at December 31, 2022. The changes in our accounts payable and accrued expenses are primarily due to the timing of invoices from our vendors and subcontractors for services rendered and our subsequent payments of those invoices.

Long-term debt (exclusive of unamortized debt issuance costs) decreased to $538.4 million at September 30, 2023 from $561.4 million on December 31, 2022, due to repayments of $995.2 million that offset $972.2 million in borrowings that we used to fund an acquisition during the second quarter of 2023 and our short-term working capital needs during the year. The average debt balances on the Credit Facility for the three months ended September 30, 2023 and 2022 were $621.1 million and $675.9 million, respectively, and $641.4 million and $542.6 million, respectively, for the nine months ended September 30, 2023 and 2022. We deploy cash flow from operations as our primary source of funding and utilize our Credit Facility to fund any temporary cash requirements.

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.

Share Repurchase Program. One of the objectives of our share repurchase program has been to offset dilution resulting from our employee incentive plan. Our share repurchase program is described in “Note 15 – Share Repurchase Program” in the “Notes to Consolidated Financial Statements” in this Quarterly Report. 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 our existing cash balances and/or borrowings, and the repurchased shares will be held as treasury stock.

During the three months ended September 30, 2023, we did not make any repurchases under the program and $93.7 million remained available for share repurchases as of September 30, 2023.

Dividends. We pay quarterly cash dividends to our shareholders of record at $0.14 per share. Total dividend payments during the nine months ended September 30, 2023 were $7.9 million.

Cash dividends declared thus far in 2023 are as follows:


Dividend Declaration Date	Dividend Per Share		Record Date	Payment Date
February 28, 2023	$	0.14	March 24, 2023	April 13, 2023
May 9, 2023	$	0.14	June 9, 2023	July 14, 2023
August 3, 2023	$	0.14	September 8, 2023	October 13, 2023
November 2, 2023	$	0.14	December 8, 2023	January 12, 2024

Cash Flow. We consider cash on deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The following table sets forth our sources and uses of cash for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended
	September 30,
(in thousands)	2023			2022
Net Cash Provided by Operating Activities	$	45,552		$	6,596
Net Cash Used in Investing Activities		(3,389	)		(253,403	)
Net Cash (Used in) Provided by Financing Activities		(47,064	)		239,025
Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash		(213	)		(2,175	)
Decrease in Cash, Cash Equivalents, and Restricted Cash	$	(5,114	)	$	(9,957	)

Our operating cash flows are primarily affected by the overall profitability of our contracts, our ability to invoice and collect from our clients in a timely manner, and the timing of vendor and subcontractor payments in accordance with negotiated payment terms. We bill most of our clients on a monthly basis after services are rendered.

Net cash provided by operating activities increased by $39.0 million primarily due to the proceeds from the sale of receivables and favorable net working capital changes, partially offset by higher interest payments.

Net cash used in investing activities decreased by $250.0 million, primarily due to the funding of our business acquisitions in 2022.

Net cash used in financing activities was $47.1 million for the nine months ended September 30, 2023 compared to net cash provided of $239.0 million for the same period in 2022. The $286.1 million change was primarily due to higher net borrowings in 2022 to fund our acquisitions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.

Item 4. Controls and Procedures

Disclosure Controls and Procedures and Internal Controls Over Financial Reporting. As of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. We performed the evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have been no significant changes in our internal controls over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the periods covered by this Quarterly Report or, to our knowledge, in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of 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 controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and may not be detected.

PART II. OTHER INFORMATION

Item 1. 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 1A. Risk Factors

There have been no material changes in the risk factors discussed in the section entitled “Risk Factors” disclosed in Part I, Item 1A of our Annual Report.

The risks described in our Annual Report are not the only risks that we encounter. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition, and/or operating results.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Purchase of Equity Securities by Issuer. The following table summarizes our share repurchase activity for the three months ended September 30, 2023:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 1 - July 31		—	$	—		—	$	93,743,956
August 1 - August 31		91	$	129.10		—	$	93,743,956
September 1 - September 30		—	$	—		—	$	93,743,956
Total		91	$	129.10		—

(1)

The total number of shares purchased of 91 includes shares purchased from employees to pay required withholding taxes related to the settlement of any restricted stock units in accordance with our applicable long-term incentive plan. During the three months ended September 30, 2023, we did not repurchase shares under the stock repurchase program.

(2)

The current share repurchase program authorizes share repurchases in the aggregate up to $200.0 million. The Credit Facility permits share repurchases, provided 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 a net liquidity of $100.00 million. Additionally, we are permitted to make share repurchases up to $25.0 million per calendar year provided that we are not in default. For additional information on the share repurchase program, see “Note 15 – Share Repurchase Program” in the “Notes to Consolidated Financial Statements” in this Quarterly Report.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On August 24, 2023, John Wasson, our Chair, President and Chief Executive Officer, adopted a trading plan intended to satisfy the affirmative defense conditions under Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The plan is for the sale of up to 7,500 shares and terminates on the earlier of the date all the shares under the plan are sold and August 28, 2025.

On August 24, 2023, James Morgan, our Chief Operating Officer, adopted a trading plan intended to satisfy the affirmative defense conditions under Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The plan is for the sale of up to 5,000 shares and terminates on the earlier of the date all the shares under the plan are sold and August 28, 2025.

Item 6. Exhibits


Exhibit Number		Exhibit

31.1		Certificate of the Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a). *

31.2		Certificate of the Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a). *

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101		The following materials from the ICF International, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.*

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Submitted electronically herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ICF INTERNATIONAL, INC.

November 3, 2023	By:	/s/ John Wasson
		John Wasson
		President and Chief Executive Officer
		(Principal Executive Officer)

November 3, 2023	By:	/s/ Barry Broadus
		Barry Broadus
		Chief Financial Officer (Principal Financial Officer)