ICF International, Inc. (ICFI)
Q2 2008 Earnings Call
August 6, 2008 8:30 am ET
Douglas Beck - Senior Vice President, Corporate Development
Sudhakar Kesavan - Chairman, Chief Executive Officer
John Wasson - Chief Operating Officer
Alan Stewart - Chief Financial Officer
Joseph Vafi - Jeffries and Company
Tim Mchugh - William Blair and Company
Jason Kupferberg - UBS
Tim Quillin - Stephens Incorporated
Bill Loomis - Stifel Nicolas
Rajen Shah - Post Road Capital Management
Previous Statements by ICFI
» ICF International Inc. Q4 2008 Earnings Call Transcript
» ICF International Inc. Q3 2008 Earnings Call Transcript
» ICF International Inc., Q4 2007 Earnings Call Transcript
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 August 6, 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 the 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 future 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 second quarter 2008 highlights.
We completed another quarter of very solid financial and operating results, reporting strong growth in core business revenue and consistent profitability levels that were firmly within our guidance range.
Our growth strategy is working well. All business revenue increased 84.5% year over year and 23.2% sequentially to $113.7 million and accounted for about 62% of total revenue in the second quarter. This is an important offset for the wind down of the road home contract, where our activities over the next ten months will primarily involve wrapping up open cases, auditing completed files and preparing to transition the management of the program to the state.
Organic growth in our core business was 24% in the quarter, a clear indication of our strength of our markets and their growth potential as well as ICF's increasing prominence in these markets. Importantly, we are consistently reporting solid profitability in line with our projections of EBITDA margin within the 9% to 10% range. Several trends are contributing. First, we are getting good traction and leveraging our advisory work as a larger implementation contract, our recently announced win of the $60 million NIH contract is a good example of this, and we are waiting to hear on a couple of additional implementation contracts that should be decided shortly.
Second, our government business contract mix is steadily shifting towards higher margins, time and materials and fixed price contract work. These contracts accounted for 81% of our core business revenue in the 2008 second quarter compared to 76% for all of 2007 and 66% in 2005. Third, our commercial business is growing as a percentage of revenue. This business traditionally has higher margins than our government business. And fourth, we are taking advantage of opportunities to increase efficiencies within our organization.
ICF continues to benefit from favorable backlog trends, providing us with good visibility of future revenue. Backlog at the end of the second quarter, excluding the road home contract and FH&E, was $621.6 million, an increase of 53% from last year second quarter and up 5% sequentially. Also, our new business pipeline is growing, moving up to $1.6 billion today. We continue to actively look at potential acquisitions while maintaining our disciplined approach. With that, I would like to turn the call over to John Wasson to give you additional information on our operation. John?
As Sudhakar noted, we are experiencing strong growth in our core business that reflects broad based demand for our services from government and commercial clients. This growth is more than balancing out of the decrease in our activities under the road home contract. For today, we have completed 116,000 closed links, totaling some $6.8 billion. Which we estimate to be nearly 98% of all expected initial closings. This pace is about six months ahead of the original plan.
Between now and mid 2009, we will continue with other [disbursements] for additional parts of the program including funds for elevations and for homes sold after the storm and to prepare final documentation on all the closings. The very positive trends we are seeing in our core business are across all of our four markets.
Our release today mentioned some of the most important contract wins for the quarter, which totaled $146 million. We were particularly pleased to win the new ERA contract at the national institutes of health, worth some $60 million over five years. It not only solidified our leading role in IT services for what is one of the largest research grant programs in the federal government. It also reflected our competitive advantage in domain expertise among competitive bidders that included many of the largest IT firms in the government space.