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ICF International Inc. (ICFI)
Q3 2008 Earnings Call
November 05, 2008; 6:15 pm ET
Sudhakar Kesavan - Chairman & Chief Executive Officer
John Wasson - Chief Operating Officer
Alan Stewart - Chief Financial Officer
Douglas Beck - Senior Vice President of Corporate Development
Jason Kupferberg - UBS
Joseph Vafi - Jefferies & Co.
Tim McHugh - William Blair & Co.
Steve Ferazani - Sidoti & Co.
Tim Quillin - Stephens Inc.
James Harlow - Stifel Nicolaus & Co.
Previous Statements by ICFI
» ICF International Inc. Q4 2008 Earnings Call Transcript
» ICF International, Inc. Q2 2008 Earnings Call Transcript
» ICF International Inc., Q4 2007 Earnings Call Transcript
Now I would like to turn the program over to Douglas Beck, Senior Vice President Corporate Development. Please go ahead.
Thank you. Good evening everyone, and thank you for joining us to review ICF’s third quarter 2008 performance. With us today from ICF International are Sudhakar Kesavan, Chairman and CEO, John Wasson, COO, and Alan Stewart, CFO.
During this conference call, we will make forward-looking statements to assist you in understanding ICF management’s expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our November 5, 2008 press release and our SEC filings for discussions of those risks.
In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that light.
We may at some point elect to update the forward-looking statements made today, but specifically disclaim any obligation to do so. During this call we will refer you to non-GAAP financial measures such as backlog and EBITDA. Our reconciliation of these measures to the most directly comparable GAAP measures is available in the Investor Relations section of our website.
I will now turn the call over to our CEO Sudhakar Kesavan to discuss third quarter 2008 highlights. Sudhakar.
Thank you, Doug and good evening everyone. This was another quarter of strong core business revenue growth, solid profitability and our highest level of sales in any quarter this year. Core business revenues were up 57%, which brings our annualized third quarter run rate, excluding the Road Home contract to $465 million. The organic growth rate for the quarter was 20.5%.
On a core business basis, the revenue breakdown was similar to recent quarters with energy, environment and climate change accounting for 57%; health human services and social programs representing 29%, and homeland security and defense representing 14% of our revenue.
In our core business, work for government clients accounted for 72% of third quarter revenues, domestic commercial clients represented about 21% and international business was the remaining 7%.
We achieved double-digit growth across all of our markets. In addition, the market trends are positive, there is greater likelihood of government regulation, and the role of government is likely to expand, creating strong demand for ICF services among both our government and commercial clients.
Importantly, we are maintaining our profitability levels as the Road Home contract winds down by focusing our efforts in four areas. (1) gaining cost efficiencies; (2) achieving significant organic growth and winning large contracts; (3) effectively managing our contract mix and (4) increasing the percentage of higher margin work in our portfolio.
Let me describe each of these. On cost efficiencies, we are increasing the productivity of our professional staff and we are carefully monitoring costs and taking advantage of synergies with recent acquisitions. On growth, in addition to expanding our advisory work based up on our domain expertise, we are gaining traction and leveraging our advisory work to win larger implementation contracts.
On contract mix, we have been steadily shifting towards higher margin, time and materials and fixed price contracts, which accounted for 81% of our core business revenues in this year’s third quarter. This represents significant progress from 76% for all of 2007 and 69% for 2006. On higher margin work, our commercial international business, which has higher margins, is increasing as a percentage of revenues.
Turning to our outlook, we are pleased with trends in our new business pipeline, which is at $1.5 billion today, even after subtracting the significant contract wins this past quarter. Core business backlog, which excludes the Road Home contract, was at a record $735 million at the end of the third quarter, up 42% from last year’s third quarter and an 18% sequential increase over this year’s second quarter.
With that, I would like to turn the call over to John Wasson who will give you more details on contracts and business trends; John.
Thank you Sudhakar, and good evening everyone. As Sudhakar noted, we are experiencing strong growth in our core business. Along with that growth we have experienced an excellent quarter of new sales across all of our markets that bode well for our future prospects.
This past quarter, we had our strongest sales since winning the Road Home contract. We won $208 million in new contract awards with important wins in all of our major markets. Not only did these wins strengthen our total non-Road Home backlog by over $110 million in the third quarter, they also expanded our leadership positions in energy and climate change and health and human services.