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What changed in ICF International, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ICF International, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+281 added−339 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in ICF International, Inc.'s 2023 10-K

281 paragraphs added · 339 removed · 239 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

84 edited+16 added−20 removed71 unchanged
Biggest changeA 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 and Jobs Act passed by the Biden administration on November 15, 2021; • The increasing demand for businesses to respond to climate change and similar “ESG” priorities being championed not only by the public sector, but also by investors, financing sources, business organizations, and proxy advisory firms; and • Changing patterns of economic development that require transportation systems and energy infrastructure to adapt to new patterns of demand.
Biggest changeA 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 the center of the Infrastructure Investment and Jobs Act passed by Congress and signed by the President on November 15, 2021; • Economic and policy incentives for the implementation of carbon-free energy sources that were the centerpiece of the IRA passed by Congress and signed into law by the President on August 16, 2022; • The increasing demand for businesses to respond to climate change and similar environmental, social, and governance priorities being championed not only by the public sector, but also by investors, financing sources, business organizations, ratings agencies, and proxy advisory firms; and • Changing patterns of economic development that require transportation systems and energy infrastructure to adapt to new patterns of demand. 8 By leveraging our multi-disciplinary skills, which range from finance and economics to earth and life sciences, information technology, and program management, we are able to provide a wide range of services that include complex environmental impact assessments, environmental management information systems, air quality assessments, program evaluation, transportation and aviation planning and operational improvement, strategic communications, and regulatory reinvention.
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 those industries most heavily involved in the use and delivery of energy.
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.
Pursue strategic acquisitions We plan to augment our organic growth with selective, strategic acquisitions when the target company will enable us to obtain new clients, increase our presence in attractive markets, and/or obtain capabilities that complement our existing portfolio of services, gain access to customer contracts, provided that the target company has cultural compatibility and we expect that the acquisition will have a positive financial impact.
Pursue strategic acquisitions We plan to augment our organic growth with selective, strategic acquisitions when the target company will enable us to obtain new clients, increase our presence in attractive markets, obtain capabilities that complement our existing portfolio of services, and/or gain access to customer contracts; provided, that the target company has cultural compatibility and we expect that the acquisition will have a positive financial impact.
We will focus not only on defending our current market footprint, but also on innovating to continue expanding across key growth markets, such as U.S. federal government energy and 14 climate-related programs, reengineering of U.S. public health and research efforts, and cybersecurity initiatives, digital services, and disaster recovery work for state and local governments.
We will focus not only on defending our current market footprint, but also on innovating to continue expanding across key growth markets, such as U.S. federal government energy and climate-related programs, reengineering of U.S. public health and research efforts, and cybersecurity initiatives, digital services, and disaster recovery work for state and local governments.
For example, we have developed 12 industry-standard energy and environmental models that are used by governments and commercial entities around the world for energy planning and air quality analyses and have also developed a suite of proprietary climate change tools to help the private sector develop strategies for complying with GHG emission reduction requirements.
For example, we have developed industry-standard energy and environmental models that are used by governments and commercial entities around the world for energy planning and air quality analyses and have also developed a suite of proprietary climate change tools to help the private sector develop strategies for complying with GHG emission reduction requirements.
The growth of interest in sustainability and energy efficiency issues has created opportunities to offer these types of services to new clients beyond our traditional sectors. We believe these factors, coupled 13 with our expansive national and global footprint, will result in a greater number of engagements that will also be larger in size and scope.
The growth of interest in sustainability and energy efficiency issues has created opportunities to offer these types of services to new clients beyond our traditional sectors. We believe these factors, coupled with our expansive national and global footprint, will result in a greater number of engagements that will also be larger in size and scope.
Moreover, we believe we will be able to leverage the domain expertise and program knowledge we have developed through advisory assignments and our experience with program management, technology-based solutions, and engagement projects to win larger engagements, which 6 generally lead to increasing returns on business development investment and promote higher employee utilization.
Moreover, we believe we will be able to leverage the domain expertise and program knowledge we have developed through advisory assignments and our experience with program management, technology-based solutions, and engagement projects to win larger engagements, which generally lead to increasing returns on business development investment and promote higher employee utilization.
REGULATION We provide our services to U.S. federal, and state and local governments, as well as international government clients, and we are therefore subject to certain laws and regulations. Our failure to comply with the complex laws, rules, and regulations applicable to us could cause us to lose business and subject us to a 18 variety of penalties and sanctions.
REGULATION We provide our services to U.S. federal, and state and local governments, as well as international government clients, and we are therefore subject to certain laws and regulations. Our failure to comply with the complex laws, rules, and regulations applicable to us could cause us to lose business and subject us to a variety of penalties and sanctions.
Additionally, we are subject to various routine and non-routine governmental and other reviews, audits, and investigations, the results of which could affect our operating results and also subject us to penalties and sanctions. See “Item 1A. Risk Factors — Compliance Risks” for a more detailed description of the regulatory and compliance risks we face.
Additionally, we are subject to various routine and non-routine governmental and other reviews, audits, and investigations, the results of which could affect our operating results and also subject us to penalties and sanctions. See “Item 1A. Risk Factors - Compliance Risks” for a more detailed description of the regulatory and compliance risks we face. 19
Our government clients generally have the right to cancel any contract, or ongoing or planned work under any contract, at any time. In addition, there can be no assurance that revenue from funded or unfunded backlog will have similar profitability to previous work or will be 16 profitable at all.
Our government clients generally have the right to cancel any contract, or ongoing or planned work under any contract, at any time. In addition, there can be no assurance that revenue from funded or unfunded backlog will have similar profitability to previous work or will be profitable at all.
OUR COMPANY INFORMATION Our principal executive office is currently located at 1902 Reston Metro Plaza, Reston, Virginia 20190, and our telephone number is (703) 934-3000. We maintain an internet website at www.icf.com.
OUR COMPANY INFORMATION Our principal executive office is located at 1902 Reston Metro Plaza, Reston, Virginia 20190, and our telephone number is (703) 934-3000. We maintain an internet website at www.icf.com.
We 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.
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 cyberattack; • Broadened homeland security concerns that include areas such as health, food, energy, water, and transportation; • Reassessment of the emergency management functions of homeland security in the face of natural disasters; • Safety issues around crime and at-risk behavior; • Increased dependence on private sector personnel and organizations in emergency response; • The need to ensure that critical functions and sectors are resilient and able to recover quickly after attacks or disasters in either the physical or cyber realms; and • The challenges resulting from migrations and changing global demographics.
We will specifically target deeper penetration of those agencies that currently procure services only from one or two of our service areas, and our recent acquisitions of ITG, Creative Systems, SemanticBits, and Blanton, which provide us with strong skills and market presence in technology modernization, will provide additional capabilities in this effort.
We will specifically target deeper penetration of those agencies that currently procure services only from one or two of our service areas, and our acquisitions of ITG, Creative Systems, and SemanticBits, which provide us with strong skills and market presence in technology modernization, will provide additional capabilities in this effort.
Health, Education, and Social Programs We also apply our expertise across our full suite of services in the areas of health, education, and social programs.
Health and Social Programs We also apply our expertise across our full suite of services in the areas of health and social programs.
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.
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 and greater reliance on more distant electricity generation; • Changing public policy, regulations, and incentives, including those established by the Inflation Reduction Act (the “IRA”), surrounding the modernization of and investment in an upgraded energy infrastructure, including new business models that may accompany those changes; • The need to manage energy demand and increase efficient energy use in an era of environmental concerns, especially regarding carbon and other emissions; and • The disruption of global energy markets and supplies, involving natural gas in particular, that have emerged as a result of the invasion of Ukraine by Russia.
We believe that our domain expertise and the program 5 knowledge developed from our advisory engagements further position us to provide our full suite of services. We report operating results and financial data in one operating and reportable segment.
We believe that our domain expertise and the program knowledge developed from our advisory engagements further position us to provide our full suite of services. 4 We report operating results and financial data in one operating and reportable segment.
If we are a subcontractor, we classify the revenue based on the nature of the ultimate client receiving the services. In fiscal years 2022, 2021, and 2020, our largest three government clients by revenue were HHS, DoS, and DoD.
If we are a subcontractor, we classify the revenue based on the nature of the ultimate client receiving the services. In fiscal years 2023, 2022, and 2021, our largest three government clients by revenue were HHS, DoS, and DoD.
As of December 31, 2022, we had approximately 9,000 full and part-time employees around the globe, including many recognized as thought leaders in their respective fields.
As of December 31, 2023, we had approximately 9,000 full-time and part-time employees around the globe, including many recognized as thought leaders in their respective fields.
We rely on the technology and models, 17 proprietary processes, and other intellectual property we own or have the rights to use in our analyses and other work we perform for our clients. We use this innovative, and often proprietary, software, analytical models and tools throughout our service offerings.
We rely on the technology and models, proprietary processes, and other intellectual property we own or have the rights to use in our analyses and other work we perform for our clients. We use these innovative, and often proprietary, software, analytical models, and tools throughout our service offerings.
In the area of social programs, we provide extensive training, technical assistance, and program analysis and support services for a number of the housing and disaster recovery programs of the U.S. Department of Housing and Urban Development (“HUD”) and state, territorial, and local governments.
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.
Leverage advisory work into full life cycle solutions We plan to continue to leverage our advisory services and strong client relationships to increase our revenue by winning longer-term engagements. These engagements could include: information services and technology-based solutions; project and program management; business process solutions; marketing and communications delivery; strategic communications; and technical assistance and training.
Leverage advisory work into full life-cycle solutions We plan to continue to leverage our advisory services and strong client relationships to increase our revenue by winning longer-term engagements. These engagements could include: information services and technology-based solutions; project and program management; business process solutions; and technical assistance and training.
Administrative and legislative actions by governments to address changing priorities could have a negative impact on our business, which may result in a reduction to our revenue and profit and adversely affect cash flow. Geopolitical factors could result in changing government priorities.
Administrative and legislative actions by governments to address changing priorities could have a negative impact on our business, which may result in a reduction to our revenue and profit and adversely affect cash flow.
We converted to a Delaware corporation in 2003 and changed our name to ICF International, Inc. in 2006. We completed our initial public offering in September 2006. We provide professional services and technology-based solutions to government and commercial clients, including management, marketing, technology, and policy consulting and implementation services.
We converted to a Delaware corporation in 2003 and changed our name to ICF International, Inc. in 2006. We completed our initial public offering in September 2006. We provide professional services and technology-based solutions, including management, technology, and policy consulting and implementation services.
Department of Energy (“DoE”) for more than 25 years, DoD for more than 20 years, certain commercial clients in our energy markets for more than 20 years, the European Commission for more than 15 years, and we have multi-year relationships with many of our other clients in both our government and commercial client base.
Department of Energy (“DoE”) for more than 25 years, DoD for more than 20 years, certain commercial clients in our energy markets for more than 20 years, and the E.C. for more than 15 years, and we have multi-year relationships with many of our other clients in both our government and commercial client base.
Many of our government contracts provide for option periods that may be exercised by the client. In 2022, 2021, and 2020, no single contract accounted for more than 3%, 2%, and 5% of our revenue for those years, respectively.
Many of our government contracts provide for option periods that may be exercised by the client. In 2023, 2022, and 2021, no single contract accounted for more than 2%, 3%, and 2% of our revenue for those fiscal years, respectively.
We support governments at the federal and state and local level, including providing comprehensive support to the National Science and Technology Council’s Global Change Research Program. Additionally, we support ministries and agencies of the government of the U.K. and European Commission, as well as commercial clients, on these and related issues.
We support governments at the federal and state and local levels, including providing comprehensive support to the National Science and Technology Council’s Global Change Research Program. Additionally, we support ministries and agencies of the government of the U.K. and the European Commission (the “E.C.”), as well as commercial clients, on these and related issues.
CLIENT AND CONTRACT MIX Government clients (including U.S. federal, state and local, as well as international, governments) accounted for approximately 76%, 71%, and 65% of our 2022, 2021, and 2020 revenue, respectively. Commercial clients (including U.S. and international clients) accounted for approximately 24%, 29%, and 35% of our 2022, 2021, and 2020 revenue, respectively.
CLIENT AND CONTRACT MIX Government clients (including U.S. federal, state and local, as well as international, governments) accounted for approximately 76%, 76%, and 71% of our 2023, 2022, and 2021 revenue, respectively. Commercial clients (including U.S. and international clients) accounted for approximately 24%, 24%, and 29% of our 2023, 2022, and 2021 revenue, respectively.
As of December 31, 2022, approximately 41% of our benefits-eligible staff held post-graduate degrees in diverse fields such as the social sciences, business and management, physical 11 sciences, public policy, human capital, information technology, mathematics, engineering, planning, economics, life sciences, and law.
As of December 31, 2023, approximately 45% of our benefits-eligible staff held post-graduate degrees in diverse fields such as the social sciences, business and management, physical sciences, public policy, human capital, information technology, mathematics, engineering, planning, economics, life sciences, and law.
We have a broad global presence We serve our clients with a global network of 58 regional offices throughout the U.S., and 24 offices in key markets outside the U.S., including offices in the U.K., Belgium, India, and Canada.
We have a broad global presence We serve our clients with a global network of 55 regional offices throughout the U.S., and 15 offices in key markets outside the U.S., including offices in the U.K., Belgium, India, and Canada.
Our domain expertise is well suited in Europe to meet the need for cutting-edge climate change, energy, and environmental solutions, particularly with our offerings to the U.K. government and European Commission.
Our domain expertise is well suited in Europe to meet the need for cutting-edge climate change, energy, and environmental solutions, particularly with our offerings to the U.K. government and the E.C.
We serve clients globally from our headquarters in the Washington, D.C. metropolitan area, our 58 regional offices throughout the U.S., and 24 offices outside the U.S., including offices in the United Kingdom (“U.K.”), Belgium, India, China, and Canada.
We serve clients globally from our headquarters in the Washington, D.C. metropolitan area, our 55 regional offices throughout the U.S., and 15 offices outside the U.S., including offices in the United Kingdom (“U.K.”), Belgium, India, and Canada.
We believe 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. 10 In addition, the U.S.
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.
In addition, as a result of our acquisitions of Incentive Technology Group, LLC (“ITG”) in January 2020 and Creative Systems and Consulting (“Creative Systems”) in December 2021, we have strong partnerships and experience in cloud-based technology platforms that are central to our federal government clients’ technology modernization agendas.
In addition, as a result of our acquisitions of Incentive Technology Group, LLC (“ITG”) in January 2020, Creative Systems and Consulting (“Creative Systems”) in December 2021, SemanticBits in July 2022, and ESAC in November 2022, we have strong partnerships and experience in cloud-based technology platforms and open-source ecosystems that are central to our federal government clients’ technology modernization agendas.
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; 8 • 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 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; • The need to prepare for and recover from natural disasters such as hurricanes, wildfires, and earthquakes; • The perceived declining performance of the U.S. educational system compared to other countries; • A changing regulatory environment; and • Military personnel returning home from active duty with health and social service needs.
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 the SARS-CoV-2 virus and the Coronavirus Disease 2019 (“COVID-19”); • Expanded healthcare services to underserved portions of the population; • Rising healthcare expenditures, which require the evaluation of the effectiveness and efficiency of current and new programs; • Rampant substance abuse and widespread social and health impacts of the opioid abuse epidemic; • The emphasis on improving the effectiveness of the U.S. and other countries’ educational systems; • The perceived declining performance of the U.S. educational system compared to other countries; • The need to digitally transform and modernize the technology infrastructure underpinning government operations; • Increased arrival of refugees to the U.S. requiring social and other support; • The need for greater transparency and accountability of public sector programs; • A continued high need for social support systems, in part due to an aging population, and the interrelated nature of health, housing, transportation, employment, and other social issues; • A changing regulatory environment; and • Military personnel returning home from active duty with health and social service needs.
Most of our revenue is derived from prime contracts in which we work directly for the end customer, which accounted for approximately 91%, 91%, and 92% of our revenue for 2022, 2021, and 2020, respectively. Our contract periods typically extend from one month to five years, including option periods.
Most of our revenue is derived from prime contracts under which we work directly for the end customer. These accounted for approximately 89%, 91%, and 91% of our revenue for the 2023, 2022, and 2021 fiscal years, respectively. Our contract periods typically extend from one month to five years, including option periods.
BUSINESS DEVELOPMENT Our business development efforts are critical to our organic growth. Our business development processes and systems are designed to enable agility and speed-to-market over the business development life cycle, especially given the distinctions between commercial and government clients. Business development efforts in priority market areas, which include some of our largest federal agency accounts (HHS, DoS, DoE, U.S.
Our business development processes and systems are designed to enable agility and speed-to-market over the business development life cycle, especially given the distinctions between commercial and government clients. Business development efforts in priority market areas, which include some of our largest federal agency accounts (HHS, DoS, DoE, U.S. Department of Transportation, and EPA), are executed through account teams.
Our managers are experienced both in marketing efforts and in successfully managing and executing our key services. Our management team also has experience in acquiring other businesses and integrating those operations with our own. A number of our managers are industry-recognized thought leaders.
This low turnover allows us to retain institutional knowledge. Our managers are experienced both in marketing efforts and in successfully managing and executing our key services. Our management team also has experience in acquiring other businesses and integrating those operations with our own. A number of our managers are industry-recognized thought leaders.
We provide services across these four markets that deliver value throughout the entire life cycle of a policy, program, project, or initiative. Our primary services include: • Advisory Services. We research critical policy, industry, and stakeholder issues, trends, and behavior.
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. We research critical policy, industry, and stakeholder issues, trends, and behavior.
We generated revenue of $1,780.0 million, $1,553.0 million, and $1,506.9 million during the years ended December 31, 2022, 2021, and 2020, respectively. Our total backlog was approximately $3,856.2 million, $3,198.9 million, and $2,897.6 million at December 31, 2022, 2021, and 2020, respectively.
We generated revenue of $1,963.2 million, $1,780.0 million, and $1,553.0 million during the years ended December 31, 2023, 2022, and 2021, respectively. Our total backlog was approximately $3,777.8 million, $3,856.2 million, and $3,198.9 million at December 31, 2023, 2022, and 2021, respectively.
Department of Defense (“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.
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. 10 We provide key services to DoD, DHS, DoJ, and analogous Directorates-General at the E.C.
We help our clients conceive, develop, implement, and improve solutions that address complex business, natural resource, social, technological, and public safety issues. Our services primarily support clients that operate in four key markets: • Energy, Environment, and Infrastructure; • Health, Education, and Social Programs; • Safety and Security; and • Consumer and Financial.
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 continue to see growth opportunities in our current commercial business in the utility sector, as well as significant potential to expand our business in other commercial areas, such as aviation, tourism, digital marketing services and strategic communications services, both domestically and internationally.
We continue to see growth opportunities in our current commercial business in the utility sector as well as significant potential to expand our business in other commercial areas such as aviation and tourism.
Across all of the areas described above, in Energy, Environment, and Infrastructure as well as Health and Social Programs, 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.
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.
Our staff regularly maintains, updates, and improves these software, models, and tools based on our corporate experience. In addition, we sometimes retain limited rights in software applications we develop for clients. We use a variety of means to protect our intellectual property.
Our staff regularly maintains, updates, and improves these software, models, and tools based on our corporate experience. In addition, we sometimes retain limited rights in software applications we develop for clients.
This account-based approach allows deep insight into the needs of current and future clients. It also helps us anticipate our clients’ evolving requirements over the coming 12 to 18 months and position ourselves to meet those requirements. Each administrative group is responsible for maximizing sales in our existing accounts and finding opportunities in closely-related accounts.
It also helps us anticipate our clients’ evolving requirements over the coming 12 to 18 months and position ourselves to meet those requirements. Each administrative group is responsible for maximizing sales in our existing accounts and finding opportunities in closely-related accounts.
These trends include increased government focus on environmental initiatives; efficiency and mission performance management; generational changes; the emphasis on transparency and accountability; and an increased demand for combining domain knowledge of client missions and programs with innovative technology-enabled solutions. We see growth opportunities for technology-based solutions involving analytics, digital services and strategic communications across all of our markets.
These trends include increased government focus on environmental initiatives; efficiency and mission performance management; generational changes; the emphasis on transparency and accountability; and an increased demand for combining domain knowledge of client missions and programs with innovative technology-enabled solutions.
Our acquisitions of Blanton and SemanticBits in 2022 are examples of this approach. These elements of our strategy permeate all of the Company and influence our day-to-day decisions. We believe that, collectively, they support the overall long-term growth of the organization.
Our acquisition of CMY in 2023 is an example of this approach. These elements of our strategy permeate all of the Company and influence our day-to-day decisions. We believe that, collectively, they support the overall long-term growth of the organization.
Department of Transportation, and EPA), are executed through account teams. Each team participates in regular executive reviews of marketing plans and proposal development processes. Our non-federal government clients are served by account leaders from operating units and coordinated by senior executives with industry experience where such coordination is deemed appropriate to enhance our business development success.
Each team participates in regular executive reviews of marketing plans and proposal development processes. Our non-federal government clients are served by account leaders from operating units and coordinated by senior leaders with industry experience where such coordination is deemed appropriate to enhance our business development success. This account-based approach allows deep insight into the needs of current and future clients.
The percentage of our total revenue from the government clients are as follows: Year ended December 31, 2022 2021 2020 Department of Health and Human Services 23 % 20 % 17 % Department of State 6 % 5 % 5 % Department of Defense 4 % 5 % 6 % Total 33 % 30 % 28 % 15 There were no commercial clients with revenue equal to or greater than two, two, and six percent of our total revenue for the fiscal years 2022, 2021, or 2020, respectively.
The percentages of our total revenue from these government clients are as follows: Year ended December 31, 2023 2022 2021 Department of Health and Human Services 26 % 23 % 20 % Department of State 5 % 6 % 5 % Department of Defense 3 % 4 % 5 % Total 34 % 33 % 30 % There was no single commercial client with revenue equal to or greater than 2% of our total revenue for the 2023, 2022, and 2021 fiscal years, respectively.
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 European Commission.
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.
We are positioned to increase these services by expanding the technological underpinnings of our business, while bringing cloud, business process automation, data management and analytics offerings to our clients to better link them with citizens, consumers, and other stakeholders.
In 2022, we acquired SemanticBits, a leading provider of cloud-native open-source technology systems with a strong client position in CMS. We are positioned to increase these services by expanding the technological underpinnings of our business, while bringing cloud, business process automation, data management, and analytics offerings to our clients to better link them with citizens, consumers, and other stakeholders.
Some of our principal competitors include: Abt Associates Inc.; AECOM Technology Corporation; Booz Allen Hamilton Holding Corporation; CACI International Inc.; Cambridge Systematics, Inc.; CRA International, Inc.; Deloitte LLP; Eastern Research Group, Inc.; Cardno ENTRIX, Inc.; Guidehouse; Leidos Holdings, Inc.; Northrop Grumman Corporation; Omnicom Group Inc.; PA Consulting Group; Publicis Group; Science Applications International Corporation; Research Triangle Institute; Tetra Tech Inc.; Westat, Inc., and WPP Plc.
Some of our principal competitors include: Abt Associates; Accenture; AECOM Technology Corporation; Booz Allen Hamilton Holding Corporation; CACI International Inc.; CLEAResult Consulting, Inc.; Deloitte LLP; General Dynamics, Inc.; Guidehouse; HORNE; Leidos Holdings, Inc.; PA Consulting Group; Science Applications International Corporation; Research Triangle Institute; Tetra Tech Inc.; and Westat, Inc.
Our funded and estimates of unfunded and total backlog were as follows at December 31: 2022 2021 2020 (in millions) Funded $ 1,786.9 $ 1,593.5 $ 1,522.3 Unfunded 2,069.3 1,605.4 1,375.3 Total backlog $ 3,856.2 $ 3,198.9 $ 2,897.6 There were no awards included in our 2022, 2021 or 2020 backlog amounts that were under protest.
Our funded and estimates of unfunded and total backlog were as follows at December 31: (in millions) 2023 2022 2021 Funded $ 1,775.1 $ 1,786.9 $ 1,593.5 Unfunded 2,002.7 2,069.3 1,605.4 Total backlog $ 3,777.8 $ 3,856.2 $ 3,198.9 There were no awards included in our 2023, 2022, or 2021 backlog amounts that were under protest. 16 BUSINESS DEVELOPMENT Our business development efforts are critical to our organic growth.
We also continued our history of gender equity with 55% of our employees self-identifying as female. Of our people managers, 54% self-identify as female, and 39% of our executives self-identify as female. Within our U.S. employees, 36% classify themselves as non-white with the largest classifications being 12% Asian and 11% Black.
We also continued our history of gender equity, with 56% of our employees identifying as female. 55% of our people managers and 40% of our executives are female. 36% of our U.S. employees self-identify as non-white, with the largest classifications being 11% Asian, 11% Black, and 9% Hispanic. This commitment is garnering attention externally.
Our broad range of services to the aviation industry makes us well positioned to capitalize on significant industry changes, including recovery from COVID-19-induced demand shocks; substantial airline equipment upgrades to newer, more efficient aircraft models in a cost-constrained environment; testing and adoption of Sustainable Aviation Fuels (“SAF”); and changes to airport business models and strategy as they place increasing importance on passenger experience.
Our broad range of services to the aviation industry makes us well positioned to capitalize on significant industry changes; substantial airline equipment upgrades to newer, more efficient aircraft models in a cost-constrained environment; testing and adoption of Sustainable Aviation Fuels (“SAF”); and changes to airport business models and strategy as they place increasing importance on passenger experience. 13 Replicate our business model across government and industry in selected geographies We believe the services we provide to our energy, environment, and infrastructure market have strong growth potential in selected geographies.
We also provide the defense sector with critical infrastructure protection, environmental management, human capital assessment, military community research, and technology-enabled solutions.
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.
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. 7 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.
Our areas of expertise include power market analysis and modeling, transmissions analysis, power engineering and substation design, flexible load and distribution system management, electric system reliability standards, energy asset valuation and due diligence, regulatory and litigation support, fuels market analysis, air regulatory strategy, and renewable energy and green power project implementation.
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 DHS, we assist in shaping and managing critical programs to ensure the safety of communities, developing critical infrastructure protection plans and processes, and establishing goals and capabilities for national preparedness at all levels of government in the U.S. At the DoJ, we provide technical and communications assistance to programs that help victims of crime and at-risk youths.
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.
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.
Pursue larger prime contract opportunities We believe that continuing to expand our client engagements into services we offer as part of our end-to-end client solutions enables us to pursue larger prime contract opportunities, which should provide a greater return on our business development efforts and allow for increased employee utilization.
Finally, having 55 offices across the U.S. allows us to focus more of our business development efforts on addressing the needs of U.S. federal and state and local government agencies with operations outside of the Washington, D.C. metropolitan area. 14 Pursue larger prime contract opportunities We believe that continuing to expand our client engagements into services we offer as part of our end-to-end client solutions enables us to pursue larger prime contract opportunities, which should provide a greater return on our business development efforts and allow for increased employee utilization.
We do not include any estimate of revenue relating to potential future delivery orders that might be awarded under our U.S.
We generally include in our total backlog the estimated revenue represented by contract options that have been priced, but not exercised. We do not include any estimate of revenue relating to potential future delivery orders that might be awarded under our U.S.
However, we believe that the Biden administration provides renewed opportunities for growth in many of the government mission areas, such as efforts to address infrastructure issues with the passing of the Infrastructure Investment and Jobs Act in 2021, where we have expertise and long-standing relationships.
Defend, expand, and deepen our presence in core U.S. federal and state and local government markets Changing and somewhat unpredictable political priorities at the U.S. federal, state, and local government levels have created challenging market conditions for all competitors in the government services sector; however, we believe that the Biden administration provides renewed opportunities for growth in many of the government mission areas, such as efforts to address infrastructure issues with the passing of the Infrastructure Investment and Jobs Act in 2021, where we have expertise and long-standing relationships.
HUMAN CAPITAL As a professional and technology services and solutions company, our success depends substantially on attracting, developing, and retaining a workforce that is highly qualified, provides excellent, effective and efficient performance, and is reflective of the communities we serve.
We use a variety of means to protect our intellectual property. 17 HUMAN CAPITAL As a global advisory and technology services provider, our human capital strategy is vital to our business. Our business depends substantially on attracting, developing, and retaining a highly qualified workforce that provides excellent, effective, and efficient performance reflecting the vast communities we serve.
Increasingly, we provide multichannel communications and messaging for public health programs using capabilities similar to those used to provide marketing services to our commercial clients. 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”).
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.
We believe that demand for our services will continue as government, industry, and other stakeholders seek to understand and respond to these and other factors.
We see growth opportunities for technology-based solutions involving analytics, digital services, and strategic communications across all of our markets. 5 We believe that demand for our services will continue as government, industry, and other stakeholders seek to understand and respond to these and other factors.
The types of services we provide, and the manner in which we do so, enable us to attract and retain talented professionals from a variety of backgrounds while maintaining a culture that fosters teamwork and excellence.
The types of services we provide, and the manner in which we do so, enable us to attract and retain talented professionals from a variety of backgrounds while maintaining a culture that fosters teamwork and excellence. 11 We have strong, long-standing relationships with clients across a diverse set of markets The long-term relationships we maintain with many of our clients reflect our successful track record of fulfilling our clients’ needs.
Strengthen our technology-based offerings We continue to strengthen our services in the fields of content and customer relationship management, loyalty marketing, and end-to-end e-commerce. In early 2020 we acquired ITG, which materially increased our skills and market presence in IT modernization, including the use of popular cloud-based platforms to modernize legacy IT systems.
Strengthen our technology-based offerings In early 2020 we acquired ITG, which materially increased our skills and market presence in IT modernization, including the use of popular cloud-based platforms to modernize legacy IT systems. In December 2021, we followed with the acquisition of Creative Systems, further extending our cloud platform and open-source technology implementation skills.
We support our employees to achieve personal and career success. In 2022, we delivered customized, blended digital and instructor-led programs to build leadership, diversity and inclusion, people management, project management, client relationships, finance, technology, and innovation skills. We also partner with industry leaders including LinkedIn Learning, Udemy, and Microsoft for digital learning in self-paced programs.
In 2023, we delivered digital and instructor-led programs to build skills in various areas, including leadership inclusion, people management, project management, business development, finance, technology, and innovation skills. To increase enterprise-wide access to industry-leading content, we also partner with LinkedIn Learning, Udemy, and Microsoft for digital learning in self-paced programs.
Our global presence also gives us access to many of the leading experts on a variety of issues from around the world, allowing us to expand our knowledge base and areas of functional expertise.
Our global presence also gives us access to many of the leading experts on a variety of issues from around the world, allowing us to expand our knowledge base and areas of functional expertise. Over the years, we worked in dozens of countries, helping government and commercial clients with energy, environment, infrastructure, healthcare, interactive technology/e-commerce, and air transport matters.
However, we believe we are well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the U.S. federal government as well as to state and local and international governments and commercial clients.
Geopolitical factors could result in changing government priorities; however, we believe we are well positioned to provide a broad range of services in support of initiatives that will continue to be priorities to the U.S. federal government as well as to state and local and international governments and commercial clients. 6 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.
Safety and Security Safety and 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.
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.
Lastly, we enable our people to thrive physically and professionally, and encourage healthy lifestyles with strong mental and physical health. We believe that when our employees are at their best, it impacts how they engage at work, with their families, and their communities. This year we launched a wellbeing platform, powered by Virgin Pulse.
Lastly, we enable employees to thrive personally and professionally, encouraging and empowering them to adopt mentally and physically healthy lifestyles. When our employees are at their best, it impacts how they engage at work, their families, and their communities.
We have strong, long-standing relationships with clients across a diverse set of markets The long-term relationships we maintain with many of our clients reflect our successful track record of fulfilling our clients’ needs. We have advised the U.S. Environmental Protection Agency (“EPA”), the United States Agency for International Development (“USAID”), and HHS for more than 30 years, the U.S.
We have advised the U.S. Environmental Protection Agency (“EPA”), the United States Agency for International Development (“USAID”), and HHS for more than 30 years, the U.S.
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.
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. 7 Carbon emissions have been an important focus of federal government regulation, international governments, many state and local governments, and multinational corporations around the world.
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.
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.
These security concerns create demand for government programs that can identify, prevent, and mitigate key cybersecurity issues and the societal issues they cause. We believe that demand for our services will continue to grow as government, industry, and other stakeholders seek to provide natural disaster relief and rebuild efforts and address ongoing homeland security threats.
These security concerns create demand for government programs that can identify, prevent, and mitigate key cybersecurity issues and the societal issues they cause.
To support these objectives, our human resources programs are designed to enable a high-performing, diverse workforce; develop those persons to prepare them for critical roles; reward and support employees through pay, benefits and perquisite programs that we believe are competitive; and evolve and invest in technology, tools, and resources to enable employees at work.
We then develop our employees to prepare them for critical roles; reward and support employees through pay, benefit, and perquisite programs that we believe are competitive; and evolve and invest in technology, tools, and resources to empower employees to belong, grow, and thrive at ICF. We employ approximately 9,000 employees, 86% of whom are employed full-time.
We are led by an experienced management team Our management team, consisting of 283 officers with the title of vice president or higher, possesses extensive industry experience and had an average tenure of 15.5 years with us as of December 31, 2022 (including prior service with companies we have acquired). This low turnover allows us to retain institutional knowledge.
In addition, we also have proprietary program management methodologies and services that we believe can help clients improve performance measurement, support chief information officer and science and engineering program activities, and reduce security risks. 12 We are led by an experienced management team Our management team, consisting of 277 senior leaders with the title of vice president or higher, possesses extensive industry experience and had an average tenure of 16.4 years with us as of December 31, 2023 (including prior service with companies we have acquired).
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.
Virgin Islands, and Puerto Rico, the affected areas remain in various stages of relief and recovery efforts.
Our annual mentoring program, Mentor Connect, had its largest cohort in 2022 with 515 mentoring pairs. A key focus area this year was to continue building our pipeline of tomorrow’s leaders. We expanded our leadership development curriculum and were able to triple our reach to emerging leaders at various stages of their career.
More than 164,000 hours of learning were consumed across these platforms in 2023. 18 Our annual mentoring program, Mentor Connect, had its largest cohort in 2023, with nearly 650 mentoring pairs. This year’s key focus area was to continue building our pipeline of tomorrow’s leaders.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny failure to comply with applicable federal, and/or state and local government laws, rules and regulations could subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, repayment of amounts already received under contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with federal and/or state 29 and local government agencies and departments, any of which could adversely affect our reputation, our revenue, our operating results, and/or the value of our stock.
Biggest changeCivil False Claims Act and the False Statements Act; and • U.S. laws, rules, and regulations restricting (i) the use and dissemination of information classified for national security purposes, (ii) the exportation of specified products, technologies, and technical data, and (iii) the use and dissemination of sensitive but unclassified data. 30 Any failure to comply with applicable federal, and/or state and local government laws, rules, and regulations could subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, repayment of amounts already received under contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with federal and/or state and local government agencies and departments, any of which could adversely affect our reputation, our revenue, our operating results, and/or the value of our stock.
Such growth efforts place substantial additional demands on our management and staff, as well as on our information, financial, cash flow, and administrative and operational systems. We may not be able to manage these demands successfully. Growth may require increased recruiting efforts, business development, and selling, marketing and other actions that are expensive and increase risk.
Such growth efforts place substantial additional demands on our management and staff, as well as on our information, financial, cash flow, and administrative and operational systems. We may not be able to manage these demands successfully. Growth may require increased recruiting efforts, business development, selling, marketing and other actions that are expensive and increase risk.
We monitor the aging of receivables regularly and make assessments of the ability of customers to pay amounts due. Our business could be adversely affected by delays caused by our competitors protesting contract awards received by us, which could stop our work.
We regularly monitor the aging of receivables and make assessments of the ability of customers to pay amounts due. Our business could be adversely affected by delays caused by our competitors protesting contract awards received by us, which could stop our work.
We and our vendors process increasingly large amounts of personal and sensitive personal data (collectively, “Personal Data”) concerning our existing and potential employees, clients, client customers, vendors, or other third parties (collectively, “Data Subjects”), as well as handle confidential information on our clients’ behalf.
We and our vendors process increasingly large amounts of sensitive personal data (collectively, “Personal Data”) concerning our existing and potential employees, clients, client customers, vendors, or other third parties (collectively, “Data Subjects”), as well as handle confidential information on our clients’ behalf.
Any interruption in our operations or any systems failures, including, but not limited to: (i) the inability of our staff to perform their work in a timely fashion, whether caused by limited access to and/or closure of our and/or our clients’ offices or otherwise; (ii) the failure of network, software and/or hardware systems; and (iii) other interruptions and failures, whether caused by us, a third-party service provider, unauthorized intruders and/or hackers, computer viruses, natural disasters, power shortages, terrorist attacks or otherwise, could cause loss of data and interruptions or delays in our business or that of our clients, or both.
Any interruption in our operations or any systems failures, including, but not limited to: (i) the inability of our staff to perform their work in a timely fashion, whether caused by limited access to and/or closure of our and/or our clients’ offices or otherwise; (ii) the failure of network, software, and/or hardware systems; and (iii) other interruptions and failures, whether caused by us, a third-party service provider, unauthorized intruders/ hackers, computer viruses, natural disasters, power shortages, terrorist attacks, or otherwise, could cause loss of data and interruptions or delays in our business or that of our clients, or both.
Our charter documents contain the following provisions that could have an anti-takeover effect: • Our board of directors is divided into three classes, making it more difficult for stockholders to change the composition of the board; • Directors may be removed only for cause; • Our stockholders are not permitted to call a special meeting of the stockholders; • All stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting or by a written consent signed by all of our stockholders; • Our stockholders are required to comply with advance notice procedures to nominate candidates for election to our board of directors or to place stockholders’ proposals on the agenda for consideration at stockholder meetings; and • The approval of the holders of capital stock representing at least two-thirds of our voting power is required to amend our indemnification obligations, director classifications, stockholder proposal requirements, and director candidate nomination requirements set forth in our amended and restated certificate of incorporation and amended and restated bylaws.
Our charter documents contain the following provisions that could have an anti-takeover effect: • Our board of directors (the “Board”) is divided into three classes, making it more difficult for stockholders to change the composition of the Board; • Directors may be removed only for cause; • Our stockholders are not permitted to call a special meeting of the stockholders; • All stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting or by a written consent signed by all of our stockholders; • Our stockholders are required to comply with advance notice procedures to nominate candidates for election to our Board or to place stockholders’ proposals on the agenda for consideration at stockholder meetings; and • The approval of the holders of capital stock representing at least two-thirds of our voting power is required to amend our indemnification obligations, director classifications, stockholder proposal requirements, and director candidate nomination requirements set forth in our amended and restated certificate of incorporation and amended and restated bylaws.
There is also the possibility that Congress will fail to raise the U.S. debt ceiling when necessary which, in addition to resulting in federal government shutdowns, could significantly impact the U.S. and global economy, affecting the discretionary spending decisions of our non-governmental clients and affecting the capital markets and our access to related sources of liquidity on terms that are acceptable to us.
There is also the possibility that Congress will fail to raise the U.S. debt ceiling when necessary which, in addition to resulting in federal government shutdowns, could significantly impact the U.S. and global economy, affecting the discretionary spending decisions of our non-governmental clients and affecting the capital markets and our access to sources of liquidity on terms that are acceptable to us.
There can be no assurance that those 20 expiring contracts we are servicing will continue after their expiration, that the client will re-procure those requirements, that any such re-procurement will not be restricted in a way that would eliminate us from the competition (e.g., set asides for small businesses), or that we will be successful in any such re-procurements or in obtaining subcontractor roles.
There can be no assurance that those expiring contracts we are servicing will continue after their expiration, that the client will re-procure those requirements, that any such re-procurement will not be restricted in a way that would eliminate us from the competition (e.g., set asides for small businesses), or that we will be successful in any such re-procurements or in obtaining subcontractor roles.
In any such event, we would have no right to seek lost fees or other damages. In addition, certain contracts with international government clients may have more severe and/or different contract clauses than what we are accustomed to with federal and state and local government clients, such as penalties for any delay in performance.
In any such event, we likely would have no right to seek lost fees or other damages. In addition, certain contracts with international government clients may have more severe and/or different contract clauses than what we are accustomed to with federal and state and local government clients, such as penalties for any delay in performance.
We cannot be sure that our hedges will be successful in reducing the risks to us of our exposure to foreign currency fluctuations and, in fact, the hedges may adversely affect our operating results. Presently, there is active armed conflict across the territory of Ukraine as a result of Russian invasion.
We cannot be sure that our hedges will be successful in reducing the risks to us of our exposure to foreign currency fluctuations and, in fact, the hedges may adversely affect our operating results. 31 Presently, there is active armed conflict across the territory of Ukraine as a result of a Russian invasion.
If a client were to terminate, decline to exercise options under, or curtail further performance under one or more of our major contracts, our revenue and operating results could be adversely affected. Our relationships with other contractors are important to our business and, if disrupted, could cause us damage.
If a client were to terminate, decline to exercise options under, or curtail further performance under one or more of our major contracts, our revenue and operating results could be adversely affected. 23 Our relationships with other contractors are important to our business and, if disrupted, could cause us damage.
The increase in size and scope of the engagements in which we become involved in subjects us to the potential for a larger impact of performance risk associated with larger and more challenging engagements and the credit risk associated with certain larger customers, particularly among our commercial non-U.S. government and non-federal U.S. government clients.
The increase in size, scope, and complexity of the engagements in which we become involved in subjects us to the potential for a larger impact of performance risk associated with larger and more challenging engagements and the credit risk associated with certain larger customers, particularly among our commercial non-U.S. government and non-federal U.S. government clients.
We have offices in the U.K., Belgium, India, China, and Canada, among others, and expect to continue to have international operations and offices, some of which are in economically developing countries that do not have a well-established business infrastructure. We also perform work in some countries where we do not have a physical office.
We have offices in the U.K., Belgium, India, and Canada, among others, and expect to continue to have international operations and offices, some of which are in economically developing countries that do not have a well-established business infrastructure. We also perform work in some countries where we do not have a physical office.
To the extent that federal government agencies and departments choose to employ GSA 21 Schedule contracts and other IDIQ contracts encompassing activities for which we are not able to compete or provide services, we could lose business, which would negatively affect our revenue and profitability.
To the extent that federal government agencies and departments choose to employ GSA Schedule contracts and other IDIQ contracts encompassing activities for which we are not able to compete or provide services, we could lose business, which would negatively affect our revenue and profitability.
The budgets of many of our state and local government clients are also subject to similar divisions, risks, and uncertainties as are inherent in the federal budget process. Government spending priorities may change in a manner adverse to our business.
The budgets of many of our state and local government clients are also subject to similar divisions, risks, and uncertainties as are inherent in the federal budget process. 20 Government spending priorities may change in a manner adverse to our business.
The war has impacted member states of the E.U. in a variety of ways, including through their provision of weapons, humanitarian supplies, and substantial financial support to Ukraine, and their absorption of millions of Ukrainian and other refugees.
The war has impacted member states of the E.U. in a variety of ways, including through their provision of weapons, humanitarian supplies, and substantial financial support to Ukraine, and their absorption of millions of Ukrainian refugees.
In addition, we plan to extend our services to new clients, lines of business, and selected geographic locations, including outside the U.S., and to seek out cross-border opportunities.
In addition, we extend our services to new clients, lines of business, and selected geographic locations, including outside the U.S., and to seek out cross-border opportunities.
Expenditures by our federal government clients may be restricted or reduced by 19 Administration or Congressional actions, by action of the Office of Management and Budget, by action of individual agencies or departments, or by other actions.
Expenditures by our federal government clients may be restricted or reduced by Administration or Congressional actions, by action of the Office of Management and Budget, by action of individual agencies or departments, or by other actions.
In addition, we could suffer serious harm to our reputation and our stock price could decline if allegations of impropriety are made against us, whether true or not. Federal government audits have been completed on our incurred contract costs only through 2011 for our NIH-cognizant indirect rates and through 2015 for our USAID-cognizant indirect rates.
In addition, we could suffer serious harm to our reputation and our stock price could decline if allegations of impropriety are made against us, whether true or not. Federal government audits have been completed on our incurred contract costs only through 2019 for our NIH-cognizant indirect rates and through 2015 for our USAID-cognizant indirect rates.
In addition, the failure or disruption of mail, communications and/or utilities could cause an 25 interruption or suspension of our operations or otherwise harm our reputation or business.
In addition, the failure or disruption of mail, communications and/or utilities could cause an interruption or suspension of our operations or otherwise harm our reputation or business.
Privacy and Data Protection Law requirements also confer a private right of action in some countries, including under the GDPR. We may incur substantial costs associated with protecting Personal Data and maintaining compliance with the various Privacy and Data Protection Laws, including restrictions on international data transfers, in particular in light of the increasing scrutiny by supervisory authorities.
Privacy and Data Protection Law requirements also confer a private right of action in some countries, including under the GDPR. We may incur substantial costs associated with protecting Personal Data and maintaining compliance with the various Privacy and Data Protection Laws, including restrictions on international data transfers, particularly in light of the increasing scrutiny by supervisory authorities.
Our assessment of a contract’s potential value is based on factors such as the amount of revenue we have recently recognized on that contract under the assumption that future utilization will be similar, our experience in utilizing contract capacity on similar types of contracts, and our professional judgment.
Our assessment of a contract’s potential value is based on factors such as the amount of revenue we have recently recognized on that contract under the assumption that future utilization will be similar, historical trends and our experience in utilizing contract capacity on similar types of contracts, and our professional judgment.
If a client terminates one of our contracts for convenience, we should only bill the client for work completed prior to the termination, plus any commitments and settlement expenses that we may claim and the client agrees to pay, but not for any work not yet performed.
If a client terminates one of our contracts for convenience, we would only bill the client for work completed prior to the termination, plus any commitments and settlement expenses that we may claim and the client agrees to pay, but not for any work not yet performed.
ITEM 1A. RI SK FACTORS The following discussion of “risk factors” sets forth some of the most material factors that may adversely affect our business, operations, financial position or future financial performance, reputation and/or value of our stock.
ITEM 1A. RI SK FACTORS The following discussion of “risk factors” sets forth some of the most significant factors that may adversely affect our business, operations, financial position or future financial performance, reputation, and/or value of our stock.
Certain lines of business of our commercial work depend on certain sectors of the global economy that are highly cyclical, which can lead to substantial variations in our revenue and profit from period to period. Our commercial clients, which include clients outside the U.S., generated approximately 24%, 29%, and 35% of our revenue in 2022, 2021, and 2020, respectively.
Certain lines of business of our commercial work depend on certain sectors of the global economy that are highly cyclical, which can lead to substantial variations in our revenue and profit from period to period. Our commercial clients, which include clients outside the U.S., generated approximately 24%, 24%, and 29% of our revenue in 2023, 2022, and 2021, respectively.
The calculation of backlog is highly subjective and conditioned on numerous uncertainties and estimates, and there can be no assurance that we will in fact receive the amounts we have included in our backlog.
The calculation of backlog is conditioned on numerous uncertainties and estimates, and there can be no assurance that we will in fact receive the amounts we have included in our backlog.
We derived approximately 55%, 47%, and 44% of our revenue in 2022, 2021, and 2020, respectively, from contracts with federal government clients, and approximately 21%, 24%, and 21% of our revenue from contracts with state and local governments and international governments in 2022, 2021, and 2020, respectively.
We derived approximately 55%, 55%, and 47% of our revenue in 2023, 2022, and 2021, respectively, from contracts with federal government clients, and approximately 21%, 21%, and 24% of our revenue from contracts with state and local governments and international governments in 2023, 2022, and 2021, respectively.
The 2018 California Consumer Privacy Act (“CCPA”), which went into effect January 2020, now imposes similar requirements. New privacy laws in California, Colorado, and Virginia will take effect in 2023, with others likely to follow. Several privacy bills have also been introduced in Congress.
The 2018 California Consumer Privacy Act (“CCPA”), which went into effect January 2020, now imposes similar requirements. New privacy laws in California, Colorado, Virginia, and other states took effect in 2023, with others likely to follow. Several privacy bills have also been introduced in Congress.
All of our acquisitions have involved purchase prices in excess of tangible asset values net of liabilities assumed, resulting in the creation of an increased amount of goodwill and other intangible assets. As of December 31, 2022, goodwill and purchased intangibles accounted for approximately 58% and 6%, respectively, of our total assets.
All of our acquisitions have involved purchase prices in excess of tangible asset values net of liabilities assumed, resulting in the creation of an increased amount of goodwill and other intangible assets. As of December 31, 2023, goodwill and purchased intangibles accounted for approximately 61% and 5%, respectively, of our total assets.
Likewise, we may protest the contracts awarded 23 to some of our competitors, a process that takes the time and energy of our management and may incur additional legal and consultant costs.
Likewise, we may protest the contracts awarded to some of our competitors, a process that takes the time and energy of our management and may result in additional legal and consultant costs.
These risks relate to, among other things, the demand for our services, the availability of our staffing and business partners, a possible slowdown of client decision-making as to our services, a significant deterioration of global supply chains and other business conditions, and a possible reprioritization of spending by our clients.
These risks relate to, among other things, the demand for our services, the availability of our staffing and business partners, a possible slowdown of client decision-making as to our services, a significant deterioration of global supply chains and other business conditions, and a possible reprioritization of spending by our clients. ITEM 1B. UNRESOLV ED STAFF COMMENTS None.
Budget compromises that may be needed for future fiscal years may continue to be extraordinarily difficult given the complicated grassroots political environment, a closely divided Congress, an increasing federal deficit and debt load, the continuing COVID-19 pandemic due to emerging variants, and a challenged economy.
Budget compromises that may be needed for future fiscal years may continue to be extraordinarily difficult given the complicated grassroots political environment, a closely divided Congress, an increasing federal deficit and debt load, and a challenged economy.
In particular, cybersecurity attacks are increasing in number and sophistication for the Company. We face a constant risk of cybersecurity threats, whether from deliberate attacks or unintentional events, including computer viruses, attacks by computer hackers, malicious code, cyber and phishing attacks, and other electronic security breaches such as unauthorized access to our and our clients’ systems.
We face a constant risk of cybersecurity threats, whether from deliberate attacks or unintentional events, including computer viruses, attacks by computer hackers, malicious code, cyber and phishing attacks, and other electronic security breaches such as unauthorized access to our and our clients’ systems.
For example, the GDPR requires us to meet stringent requirements regarding (i) our access, use, disclosure, transfer, protection, or other processing of Personal Data; and (ii) the ability of Data Subjects to exercise their related various rights such as to access, correct or delete their Personal Data.
For example, the European Union’s (“E.U.”) General Data Protection Regulation (“GDPR”) requires us to meet stringent requirements regarding (i) our access, use, disclosure, transfer, protection, or other processing of Personal Data; and (ii) the ability of Data Subjects to exercise their related various rights such as to access, correct, or delete their Personal Data.
The declaration of any future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to the discretion of the board of directors taking into account future earnings, cash flows, net income, dividend yield and other factors.
The declaration of any future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to the discretion of the Board taking into account future earnings, cash flows, net income, dividend yield and other factors. Authorization of dividends by the Board is subject to adherence/compliance with our Credit Facility.
Among other things, our debt could: • Make it difficult to obtain additional financing for working capital, capital expenditures, acquisitions, or other general corporate purposes; • Result in a substantial portion of our cash flows from operations being dedicated to the payment of the principal and interest on our debt, as well as used to make debt service payments; • Limit our flexibility in planning for, and reacting to, changes in our business and the marketplace; • Place us at a competitive disadvantage relative to other less leveraged firms; and • Increase our vulnerability to economic downturns and rises in interest rates.
Among other things, our debt could: • Make it difficult to obtain additional financing for working capital, capital expenditures, acquisitions, or other general corporate purposes; • Result in a substantial portion of our cash flows from operations being dedicated to the payment of the principal and interest on our debt, as well as used to make debt service payments; • Limit our flexibility in planning for, and reacting to, changes in our business and the marketplace; • Place us at a competitive disadvantage relative to other less leveraged firms; and • Increase our vulnerability to economic downturns and rises in interest rates. 29 Should any of these or other unforeseen consequences arise, they could have an adverse effect on our business, financial condition, results of operations, future business opportunities and/or ability to satisfy our obligations under our debt.
We continually bid for and execute new contracts, and our existing contracts regularly become subject to re-competition and expiration. If we are not able to replace the revenue from these contracts, either through follow-on contracts or new contracts for those requirements or for other requirements, our revenue and operating results may be adversely affected.
If we are not able to replace the revenue from these contracts, either through follow-on contracts or new contracts for those requirements or for other requirements, our revenue and operating results may be adversely affected.
Even if we win a particular contract through competitive bidding, our profit margins may be depressed, or we may even suffer losses as a result of the costs incurred through the bidding process and the need to lower our prices to overcome competition.
Even if we win a particular contract through competitive bidding, our profit margins may be depressed, or we may even suffer losses as a result of the costs incurred through the bidding process and the need to lower our prices to overcome competition. 22 Our reliance on GSA Schedule and other IDIQ contracts creates the risk of volatility in our revenue and profit levels.
Moreover, our revenue, profit and operating results could be adversely affected if any prime contractor or teammate does not pay our invoices in a timely fashion, chooses to offer products or services of the type that we provide, teams with other companies to provide such products or services, or otherwise reduces its reliance upon us for such products or services. 22 PROFITABILITY RISKS If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which could decrease our operating margins and reduce our profits.
Moreover, our revenue, profit and operating results could be adversely affected if any prime contractor or teammate does not pay our invoices in a timely fashion, chooses to offer products or services of the type that we provide, teams with other companies to provide such products or services, or otherwise reduces its reliance upon us for such products or services.
Audits for costs incurred on work performed since then have not yet been completed. In addition, non-audit reviews may still be conducted on all of our government contracts, even for periods before 2011.
Audits for costs incurred on work performed since then have not yet been completed. In addition, non-audit reviews may still be conducted on all of our government contracts, even for periods before 2015. 25 PRIVACY, CYBERSECURITY, TECHNOLOGY, AND DATA PROTECTION RISKS Our operations face continuous and evolving cybersecurity risks.
Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, revenue, profits and operating results could be adversely affected. We provide digital marketing services in highly competitive and constantly evolving markets.
Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, revenue, profits, and operating results could be adversely affected. 27 We depend on our intellectual property and our failure to protect it could harm our competitive position.
Failure to identify, hire, train and retain talented employees who are committed to our mission and vision could have a negative effect on our reputation and our business. Our business, which entails the provision of professional services to government and commercial clients, largely depends on our ability to attract and retain qualified employees who are often in demand.
Our business, which entails the provision of professional services to government and commercial clients, largely depends on our ability to attract and retain qualified employees who are often in demand.
During and following the integration of an acquired business, we may experience attrition, including losing key employees and/or clients of the acquired business, which could adversely affect our future revenue and operating results and prevent us from achieving the anticipated benefits of the acquisition. 26 The businesses we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover through due diligence or underestimate prior to the consummation of the acquisition.
During and following the integration of an acquired business, we may experience attrition, including losing key employees and/or clients of the acquired business, which could adversely affect our future revenue and operating results and prevent us from achieving the anticipated benefits of the acquisition.
Our efforts to become involved in engagements that are greater in terms of size, scope and performance demands may result in increased performance and credit risk. As we expand our national and global footprint, we may become involved in a greater number of engagements that will be larger in size and scope and more international.
As we expand our national and global footprint, we may become involved in a greater number of engagements that will be larger in size, scope and complexity.
Bribery Act and the European Union’s (“E.U.”) General Data Protection Regulation (“GDPR”), could have similar effects to those described above. Our international operations pose additional risks to our profitability and operating results.
Bribery Act 2010 and the GDPR, could have similar effects to those described above. Our international operations pose additional risks to our profitability and operating results.
PRIVACY, CYBERSECURITY, TECHNOLOGY, AND DATA PROTECTION RISKS Impermissible use, misuse or an improper disclosure of personal data or confidential information and breaches of, or disruptions to, our information technology systems or those of our third-party providers, could adversely affect our business and could result in liability and harm our reputation.
Any failure of these third-party systems, which are outside of our control but still impact us, could have similar adverse effects. 26 Impermissible use, misuse or an improper disclosure of personal data or confidential information and breaches of, or disruptions to, our information technology systems or those of our third-party providers, could adversely affect our business and could result in liability and harm to our reputation.
If we fail to satisfy the needs of our clients in providing these services, we could incur reputational damage and clients could claim significant costs and losses for which they could seek compensation from us.
If we fail to satisfy the needs of our clients in providing these services, we could incur reputational damage and clients could claim significant costs and losses for which they could seek compensation from us. 21 RISKS RELATED TO THE GOVERNMENT CONTRACTS BUSINESS Maintaining our client relationships and professional reputation is critical to our ability to successfully win new contracts and renew expired contracts.
We have not identified a material adverse impact on our business or our financial results, individually or in the aggregate, due to being the target of prior cyber-attacks. While we are committed to threat detection and mitigation efforts to reduce such impact, there can be no assurance that our efforts will prevent such attacks or their impact in the future.
While we are committed to threat detection and mitigation efforts to reduce such impact, there can be no assurance that our efforts will prevent such attacks or their impact in the future.
These liabilities and/or issues may include the acquired business’ failure to comply with, or other violations of, applicable laws, rules, or regulations or contractual or other obligations or liabilities. As the successor owner, we may be financially responsible for, and may suffer harm to our reputation or otherwise be adversely affected by, such liabilities and/or issues.
As the successor owner, we may be financially responsible for, and may suffer harm to our reputation or otherwise be adversely affected by, such liabilities and/or issues.
Authorization of dividends by the Board is subject to adherence/compliance with our credit facility. There can be no assurance that the board of directors will declare any dividends in the future.
There can be no assurance that the board of directors will declare any dividends in the future.
Demand for our services from our commercial clients has historically declined when their industries have experienced downturns, and we expect a decline in demand for our services when these industries or their customer bases experience downturns in the future.
Demand for our services from our commercial clients has historically declined when their industries have experienced downturns, and we expect a decline in demand for our services when these industries or their customer bases experience downturns in the future. 24 Our efforts to become involved in engagements that are greater in terms of size, scope and performance demands may result in increased performance and credit risk.
We depend on our intellectual property and our failure to protect it could harm our competitive position. Our success depends in part upon our internally developed technology and models, proprietary processes, and other intellectual property that we incorporate in our products and utilize to provide our services.
Our success depends in part upon our internally developed technology and models, proprietary processes, and other intellectual property that we incorporate in our products and utilize to provide our services. If we fail to protect our intellectual property, our competitors could market services or products similar to our services and products, which could reduce demand for our offerings.
RISKS RELATED TO OUR CORPORATE AND CAPITAL STRUCTURE Provisions of our charter documents and Delaware law may prevent or deter potential acquisition bids to acquire us and other actions that stockholders may consider favorable, and the market price of our common stock may be lower as a result.
Although we have to date determined that goodwill has not been impaired, future events or changes in circumstances that result in an impairment of goodwill or intangible assets would have a negative impact on our profitability and operating results. 28 RISKS RELATED TO OUR CORPORATE AND CAPITAL STRUCTURE Provisions of our charter documents and Delaware law may prevent or deter potential acquisition bids to acquire us and other actions that stockholders may consider favorable, and the market price of our common stock may be lower as a result.
Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur and, consequently, we are exposed to a number of risks. We realize a profit on fixed-price contracts only if we can control our costs and prevent cost overruns while also meeting contract requirements.
We derived 45%, 45%, and 41% of our total revenue from fixed-price contracts in 2023, 2022, and 2021, respectively. Under fixed-price contracts, we receive a fixed price irrespective of the actual costs we incur and, consequently, we realize a profit on fixed-price contracts only if we can control our costs and prevent cost overruns while meeting our contractual obligations.
Fixed-price contracts require cost and scheduling estimates that are based on a number of assumptions, including those about future economic conditions, costs, and availability of labor, equipment and materials, and other exigencies.
Revenue recognition on fixed-price contracts requires us to make cost and scheduling estimates based on a number of assumptions, including assumptions about availability of labor, equipment, materials, change in contractual scope, and future economic conditions, among others.
We could experience cost overruns if these estimates are inaccurate as a result of errors or ambiguities in the contract specifications or if they become inaccurate as a result of a change in circumstances following the submission of the estimate due to, among other things, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, or the inability of our vendors or subcontractors to perform.
While estimates are inherently subjective and often change, we may experience contract cost overruns as a result of ambiguities in contract specifications, our inability to meet service-level agreements, inflationary pressures, high demand for skilled labor, unanticipated technical problems, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, inability of our vendors or subcontractors to perform, or for other reasons.
RISKS RELATED TO THE GOVERNMENT CONTRACTS BUSINESS Maintaining our client relationships and professional reputation is critical to our ability to successfully win new contracts and renew expired contracts. Our client relationships and professional reputation are key factors in maintaining and growing our business, revenue, and profit levels under contracts with our clients.
Our client relationships and professional reputation are key factors in maintaining and growing our business, revenue, and profit levels under contracts with our clients. We continually bid for and execute new contracts, and our existing contracts regularly become subject to re-competition and expiration.
Subject to the limits contained in the agreements governing our outstanding debt, we may incur additional debt in the future to fund our ongoing operations as well as acquisitions.
As of December 31, 2023, we had an aggregate of $430.4 million of outstanding indebtedness (net of unamortized debt issuance costs) that will mature on May 6, 2027. Subject to the limits contained in the agreements governing our Credit Facility, we may incur additional debt in the future to fund our ongoing operations as well as acquisitions.
The board of directors has authorized, declared and paid regular dividends each quarter since 2018.
We cannot assure you that we will pay special or regular dividends on our stock in the future. The Board has authorized, declared and paid regular dividends each quarter since 2018.
There are risks associated with our outstanding and future indebtedness which could reduce our profitability, limit our ability to pursue certain business opportunities and reduce the value of our stock. 27 As of December 31, 2022, we had an aggregate of $556.3 million of outstanding indebtedness (net of unamortized debt issuance costs) under a credit facility that will mature on May 6, 2027.
There are risks associated with our outstanding and future indebtedness which could reduce our profitability, limit our ability to pursue certain business opportunities, and reduce the value of our stock. At our discretion, we borrow funds from our various credit facilities (the “Credit Facility”) under a credit agreement with a group of lenders.
If cost overruns occur, we could experience reduced profits or, in some cases, a loss for that project. If a project is significant, or if there are one or more common issues that impact multiple projects, cost overruns could increase the unpredictability of our earnings, as well as have an adverse impact on our business and earnings.
Contract cost overruns that are not reimbursed by our customers, would result in a loss for that project and, if the project is significant or if multiple projects are impacted, such aggregate overruns may have a material adverse impact on our business and earnings.
As described elsewhere in this Form 10-K, we generally enter into three principal types of contracts with our clients: fixed-price, time-and-materials and cost-based. We derived 45%, 41%, and 35% of our revenue from fixed-price contracts in 2022, 2021, and 2020, respectively.
PROFITABILITY RISKS Our inability to accurately estimate or control our costs on our fixed price contracts may result in a decrease of our operating margins, and in some cases result in contract losses. As described elsewhere in this Form 10-K, we have three principal types of contracts with our clients: fixed-price, time-and-materials and cost-based.
In such an environment, it is 30 possible that E.U. spending priorities may shift suddenly, that our current programs could be disrupted, and that our future opportunities could be diminished. Our operations face continuous and evolving cybersecurity risks. The continued occurrence of high-profile data breaches of other companies provides evidence of an external environment hostile to information security.
In such an environment, it is possible that E.U. spending priorities may shift suddenly, that our current programs could be disrupted, and that our future opportunities could be diminished. Health epidemics, pandemics, and similar outbreaks may have material adverse effects on our business, financial position, results of operations, and/or cash flows.
Removed
Our reliance on GSA Schedule and other IDIQ contracts creates the risk of volatility in our revenue and profit levels.
Added
The continued occurrence of high-profile data breaches of other companies provides evidence of an external environment hostile to information security. In particular, cybersecurity attacks are increasing in number and sophistication for the Company.
Removed
In particular, the unpredictability of our earnings could increase on our fixed-price contracts if we cannot accurately estimate and control our contract costs. It is important for us to accurately estimate and control our contract costs and maintain positive operating margins and profitability.
Added
We have not identified a material adverse impact on our business or our financial results, individually or in the aggregate, due to being the target of prior cyber attacks.
Removed
INTERNATIONAL OPERATIONS RISKS Our business in the U.K. and the E.U. could be negatively affected by uncertainties related to the U.K.’s exit from the E.U. and other potential developments in the E.U.
Added
The businesses we acquire may have liabilities or adverse operating issues, or both, that we either fail to discover through due diligence or underestimate prior to the consummation of the acquisition. These liabilities and/or issues may include the acquired business’ failure to comply with, or other violations of, applicable laws, rules, or regulations or contractual or other obligations or liabilities.
Removed
Our U.K. and Belgian operations have traditionally serviced most of our European clients, including the European Commission, and there has been, and remains, a risk that these operations could be disrupted by the withdrawal of the U.K. from the E.U., often referred to as “Brexit.” The U.K.’s withdrawal from the E.U. became effective on January 31, 2020 but was subject to a transition period that lasted until December 31, 2020, when a new U.K./E.U. trade agreement became effective.
Added
GENERAL RISK FACTORS Failure to identify, hire, train, and retain talented employees who are committed to our mission and vision could have a negative effect on our reputation and our business.
Removed
Consistent with the political declaration that accompanied the withdrawal treaty, the new trade deal preserved significant elements of “free trade” between the U.K. and the E.U. However, such an exit from the E.U. was unprecedented.
Added
We face various risks and uncertainties related to health epidemics, pandemics, and similar outbreaks.
Removed
It remains uncertain how the commercial, legal, regulatory and tax environment in which we, our customers and our counterparties operate will be affected by Brexit going forward. Among the many necessary changes, the U.K. will have its own customs territory and set its own tariffs.
Removed
The new trade deal was relatively undeveloped in terms of trade in services, which could affect our ability to provide services into the E.U. from the U.K. 24 The challenges that continue to surround the terms of the U.K.’s exit from the E.U. and its consequences could adversely impact customer and investor confidence and relationships, result in additional market volatility and adversely affect our businesses and results of operations.
Removed
These effects have derived, and could continue to derive, from delays or reductions in contract awards, canceled contracts, increased costs, fluctuations in exchange rates, difficulty in recruiting or in gaining permission to employ existing staff, difficulty in supplying services across the E.U.-U.K. border, or less favorable payment terms.
Removed
There also remains the possibility of further political and constitutional changes within the U.K., specifically in relation to Scotland or Northern Ireland (which is accorded a special status with enhanced access to the E.U. Single Market under the withdrawal treaty), with different but significant consequences.
Removed
Further changes to the functioning model of the E.U. could result in a reduction in the financial resources of the European Commission which could lead to a decrease in the funding and scope of our work for that client.
Removed
In addition, security, sovereignty, and financial system stability issues resulting from Brexit or other geopolitical events, or the E.U. actions driven by those events, could change the current balance of responsibility established between the European Commission and member states, or affect the results of the E.U. budget-setting process, either of which could also reduce the funding and scope of our work for that client.
Removed
Our success in these markets depends on our ability to develop and integrate new technologies into our business and enhance our existing products and services, as well as our ability to respond to rapid changes in technology in order to remain competitive. In our consumer and financial market, we provide digital marketing services in highly competitive markets.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, we had leases in place for approximately 1.4 million square feet of office space in more than 82 office locations throughout the U.S. and around the world, with various lease terms expiring over the next sixteen years.
Biggest changeAs of December 31, 2023, we had leases in place for approximately 970,843 square feet of office space in more than 70 office locations throughout the U.S. and around the world, with various lease terms expiring over the next fifteen years.
We continually review our need for office space, and we believe that our current office space, as well as other future office space we expect to be able to obtain in the lease marketplace, will be sufficient to meet our office space needs.
We continually review our need for office space, and we believe that our current office space, as well as other future office space we expect to be able to obtain in the lease marketplace, will be sufficient to meet our office space needs. 33
ITEM 2. PR OPERTIES We lease our offices and do not own any real estate. As of December 31, 2022, we leased approximately 208,274 square feet of office space at our corporate headquarters at 1902 Reston Metro Plaza, Reston, Virginia (in the Washington, D.C. metropolitan area) through May 2039 (the “Reston Office”).
ITEM 2. PR OPERTIES We lease our offices and do not own any real estate. As of December 31, 2023, we leased approximately 208,274 square feet of office space at our corporate headquarters at 1902 Reston Metro Plaza, Reston, Virginia (in the Washington, D.C. metropolitan area) through May 2039 (the “Reston Office”).
Removed
As of December 31, 2022, approximately 18,325 square feet of the space we leased was subleased to other parties.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile 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.
Biggest changeWhile these matters and proceedings cause us to incur costs, including, but not limited to, attorneys’ fees, we currently believe that any ultimate liability arising out of these matters and proceedings will not have a material adverse effect on our financial position, results of operations, or cash flows. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 34 PAR T II
Removed
An update on litigation related to our Road Home contract is discussed in “Note 20 - Commitment and Contingencies — Road Home Contract” in our financial statements. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 32 PAR T II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases of Equity Securities The following table summarizes the share repurchase activity for the three months ended December 31, 2022 for our share repurchase plan and shares purchased in satisfaction of employee tax withholding obligations related to the settlement of restricted stock units.
Biggest changeOur Credit Facility permits annual share repurchases of at least $25 million provided that the Company is not in default of its covenants, and higher amounts provided that our Consolidated Leverage Ratio, prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then-applicable maximum Consolidated Leverage Ratio and subject to a net liquidity of $100.0 million after giving effect to such purchases. 37 Repurchases of Equity Securities The following table summarizes the share repurchase activity for the three months ended December 31, 2023 for our share repurchase plan and shares purchased in satisfaction of employee tax withholding obligations related to the settlement of restricted stock units.
This number is not representative of the number of beneficial holders because many of the shares are held by depositories, brokers, or nominees. Dividends We currently expect to continue paying dividends comparable with our historic dividend payments. The declaration and payment of any dividends is at the sole discretion of the board of directors and is not guaranteed.
This number is not representative of the number of beneficial holders because many of the shares are held by depositories, brokers, or nominees. Dividends We currently expect to continue paying dividends comparable with our historic dividend payments. The declaration and payment of any dividends is at the sole discretion of our Board and is not guaranteed.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the NASDAQ Global Select Market under the symbol “ICFI.” Holders As of February 24, 2023, there were 27 registered holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the NASDAQ Global Select Market under the symbol “ICFI.” Holders As of February 23, 2024, there were 26 registered holders of record of our common stock.
During the three months ended December 31, 2022, we repurchased 16,407 shares of common stock from employees in satisfaction of tax withholding obligations at an average price of $108.21 per share. (b) The current share repurchase program authorizes share repurchases in the aggregate up to $200.0 million.
During the three months ended December 31, 2023, we repurchased 4,935 shares of common stock from employees in satisfaction of tax withholding obligations at an average price of $126.64 per share. b) The current share repurchase program authorizes share repurchases in the aggregate up to $200.0 million.
Period Total Number of Shares Purchased (a) Average Price Paid per Share (a) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (b) October 1 – October 31 9,371 $ 110.50 — $ 111,869,762 November 1 – November 30 7,036 $ 105.15 — $ 111,869,762 December 1 – December 31 — $ — — $ 111,869,762 Total 16,407 $ 108.21 — (a) The total number of shares purchased of 16,407 includes any shares repurchased pursuant to our share repurchase program described further in footnote (b) below, as well as shares purchased from employees to pay required withholding taxes related to the settlement of restricted stock units in accordance with our applicable long-term incentive plan.
Period Total Number of Shares Purchased (a) Average Price Paid per Share (a) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (b) October 1 – October 31 — $ — — $ 93,743,956 November 1 – November 30 4,935 $ 126.64 — $ 93,743,956 December 1 – December 31 — $ — — $ 93,743,956 Total 4,935 $ 126.64 — a) The total number of shares purchased includes any shares repurchased pursuant to our share repurchase program described further in footnote (b) below, as well as shares purchased from employees to pay required withholding taxes related to the settlement of restricted stock units in accordance with our applicable long-term incentive plan.
The Restated Credit Agreement permits share repurchases, provided that our Consolidated Leverage Ratio, prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then applicable maximum Consolidated Leverage Ratio and subject to a net liquidity of $100.00 million.
Our Credit Facility permits annual share repurchases of at least $25 million provided that the Company is not in default of its covenants, and higher amounts provided that our Consolidated Leverage Ratio prior to and after giving effect to such repurchases, is 0.50 to 1.00 less than the then-applicable maximum Consolidated Leverage Ratio and subject to a net liquidity of $100.00 million.
The historical information set forth below is not necessarily indicative of future performance. 34 Year Ended December 31, 2017 2018 2019 2020 2021 2022 ICF International, Inc. $ 100.00 $ 124.40 $ 177.20 $ 144.95 $ 201.18 $ 195.41 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 2021 Peer Group 100.00 110.79 164.18 186.54 215.26 227.09 2022 Peer Group 100.00 97.90 136.28 161.75 195.42 177.20 Recent Sales of Unregistered Securities None.
The historical information set forth below is not necessarily indicative of future performance. 36 Year Ended December 31, 2018 2019 2020 2021 2022 2023 ICF International, Inc. $ 100.00 $ 177.20 $ 144.95 $ 201.18 $ 195.41 $ 265.74 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 Russell 2000 Index 100.00 125.52 150.58 172.90 137.56 160.85 S&P Composite 1500 Commercial & Professional Services 100.00 135.88 160.43 202.40 182.94 215.78 Recent Sales of Unregistered Securities None.
In this transition year, in accordance with Item 201(e)(4) of Regulation S-K, the stock performance graph below includes both the new index and the peer group that we used in the immediately preceding year to assist our investors in understanding the impact of the transition. 33 The comparison below assumes an initial investment of $100.00 on December 31, 2017 in which all dividends (if any) are reinvested and all returns are market-cap weighted.
The comparison below assumes an initial investment of $100.00 on December 31, 2018 in which all dividends (if any) are reinvested and all returns are market-cap weighted.
Our amended credit facility contains certain restrictions related to the payment of cash dividends, requiring us to meet certain covenants prior to and after the declaration of any dividend.
Our Credit Facility contains certain restrictions related to the payment of cash dividends, requiring us to meet certain covenants prior to and after the declaration of any dividend. 35 Stock Performance Graph The following graph compares the cumulative total stockholder return on our common stock from December 31, 2018 through December 31, 2023, with the cumulative total return on (i) the NASDAQ Composite, (ii) the Russell 2000 stock index, and (iii) the S&P 1500 companies having GICS Code 2020 Commercial & Professional Services.
Removed
Stock Performance Graph The following graph compares the cumulative total stockholder return on our common stock from December 31, 2017 through December 31, 2022, with the cumulative total return on (i) the NASDAQ Composite, (ii) the Russell 2000 stock index, (iii) our previous peer group composed of other governmental and commercial service providers: Booz Allen Hamilton Holding Corporation; CACI International Inc.; CBIZ, Inc.; CRA International, Inc.; Exponent Inc.; FTI Consulting, Inc.; Huron Consulting Group Inc.; Maximus, Inc.; Resources Connection, Inc.; Science Applications International Corporation; Tetra Tech, Inc.; Unisys Corporation; and VSE Corporation, and (iv) our index-based comparator that replaces our previous peer group.
Added
Share Repurchase Program In September 2017, the Board approved a share repurchase program that authorizes share repurchases in the aggregate up to $100.0 million. In November 2021, the Board approved an increase to the share repurchase program to a new limit of $200.0 million, inclusive of the prior limit.
Removed
We have elected to replace our peer group comparator with an index-based comparator (S&P 1500 companies having GICS Code 2020 Commercial & Professional Services), because (i) we believe this index is reflective of the markets we operate in and (ii) we expect the composition of the index to be less susceptible to year-over-year volatility due to acquisitions or divestitures by ICF or the component companies within the index.
Added
During the year ended December 31, 2023, we repurchased 180,000 shares under this program at an average price of $100.70 per share. As of December 31, 2023, $93.7 million of authority remained available for share repurchases. The objective of our share repurchase program is to offset dilution resulting from employee stock compensation.
Removed
Additionally, we are permitted to make share repurchases up to $25.0 million per calendar year without triggering a default. During the three months ended December 31, 2022, we did not repurchase any shares under the share repurchase program. For additional information on the share repurchase program, see “Note 18 - Share Repurchase Program” in our financial statements.
Added
Under the program, purchases can be made from time to time at prevailing market prices in open market purchases or in privately negotiated transactions pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act, and in accordance with applicable insider trading and other securities laws and regulations.
Added
The timing and extent to which we repurchase our shares will depend upon market conditions and other corporate considerations, as may be considered in our sole discretion. The purchases will be funded from existing cash balances and/or borrowings and the repurchased shares will be held in treasury.
Added
For additional information on the share repurchase program, see “Note 18 - Share Repurchase Program” in our financial statements. ITEM 6. [ RESERVED] 38

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

73 edited+16 added−48 removed38 unchanged
Biggest changeYears Ended December 31, 2022 and 2021 (dollars in thousands) Year Ended December 31, Year to Year Change 2022 2021 2022 2021 2021 to 2022 Dollars Percentages Dollars Percent Revenue $ 1,779,964 $ 1,553,048 100.0 % 100.0 % $ 226,916 14.6 % Direct Costs 1,134,422 979,570 63.7 % 63.1 % 154,852 15.8 % Operating Costs and Expenses Indirect and selling expenses 486,863 430,572 27.4 % 27.7 % 56,291 13.1 % Depreciation and amortization 21,482 19,478 1.2 % 1.3 % 2,004 10.3 % Amortization of intangible assets 28,435 12,492 1.6 % 0.8 % 15,943 127.6 % Total Operating Costs and Expenses 536,780 462,542 30.2 % 29.8 % 74,238 16.1 % Operating Income 108,762 110,936 6.1 % 7.1 % (2,174 ) (2.0 )% Interest, net (23,281 ) (9,984 ) (1.3 )% (0.6 )% (13,297 ) 133.2 % Other expense (1,501 ) (862 ) (0.1 )% (0.1 )% (639 ) 74.1 % Income Before Income Taxes 83,980 100,090 4.7 % 6.4 % (16,110 ) (16.1 )% Provision for Income Taxes 19,737 28,958 1.1 % 1.9 % (9,221 ) (31.8 )% Net Income $ 64,243 $ 71,132 3.6 % 4.6 % $ (6,889 ) (9.7 )% Year ended December 31, 2022 compared to year ended December 31, 2021 Revenue.
Biggest changeYears Ended December 31, 2023 and 2022 (dollars in thousands) Year Ended December 31, Year to Year Change 2023 2022 2023 2022 2022 to 2023 Dollars Percentages Dollars Percent Revenue $ 1,963,238 $ 1,779,964 100.0 % 100.0 % $ 183,274 10.3 % Direct Costs: Direct labor & related fringe 730,322 639,861 37.2 % 35.9 % 90,461 14.1 % Subcontractors & other direct costs 534,696 494,561 27.2 % 27.8 % 40,135 8.1 % Total Direct Costs 1,265,018 1,134,422 64.4 % 63.7 % 130,596 11.5 % Operating Costs and Expenses Indirect and selling expenses 505,162 486,863 25.7 % 27.4 % 18,299 3.8 % Depreciation and amortization 25,277 21,482 1.3 % 1.2 % 3,795 17.7 % Amortization of intangible assets 35,461 28,435 1.8 % 1.6 % 7,026 24.7 % Total Operating Costs and Expenses 565,900 536,780 28.8 % 30.2 % 29,120 5.4 % Operating Income 132,320 108,762 6.7 % 6.1 % 23,558 21.7 % Interest, net (39,681 ) (23,281 ) (2.0 )% (1.3 )% (16,400 ) 70.4 % Other income (expense) 3,908 (1,501 ) 0.2 % (0.1 )% 5,409 (360.4 )% Income Before Income Taxes 96,547 83,980 4.9 % 4.7 % 12,567 15.0 % Provision for Income Taxes 13,935 19,737 0.7 % 1.1 % (5,802 ) (29.4 )% Net Income $ 82,612 $ 64,243 4.2 % 3.6 % $ 18,369 28.6 % 45 Year ended December 31, 2023 compared to year ended December 31, 2022 Revenue.
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. 37 Our results of operations and cash flows may vary significantly from quarter to quarter depending on a number of factors, including, but not limited to: • Progress of contract performance; • Extraordinary economic events and natural disasters; • Number of billable days in a quarter; • Timing of client orders; • Timing of award fee notices; • Changes in the scope of contracts; • Variations in purchasing patterns under our contracts; • Federal and state and local governments’ and other clients’ spending levels; • Federal government shutdowns; • Timing of billings to, and collection of payments from, clients; • Timing of receipt of invoices from, and payments to, employees and vendors; • Commencement, completion, and termination of contracts; • Strategic decisions, such as acquisitions, consolidations, divestments, spin-offs, joint ventures, strategic investments, and changes in business strategy; • Timing of significant costs and investments (such as bid and proposal costs and the costs involved in planning or making acquisitions); • Timing of events related to discrete tax items; • Our contract mix and use of subcontractors or the timing of other direct costs for which we may earn lower contract margin; • Changes in contract margin performance due to performance risks; • Additions to, and departures of, staff; • Changes in staff utilization; • Paid time off taken by our employees; • Level and cost of our debt; • Changes in accounting principles and policies; and/or • General market and economic conditions.
We believe that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund ongoing operations, potential acquisitions, customary capital expenditures, and other working capital requirements. 40 Our results of operations and cash flows may vary significantly from quarter to quarter depending on a number of factors, including, but not limited to: • Progress of contract performance; • Extraordinary economic events and natural disasters; • Number of billable days in a quarter; • Timing of client orders; • Timing of award fee notices; • Changes in the scope of contracts; • Variations in purchasing patterns under our contracts; • Federal and state and local governments’ and other clients’ spending levels; • Federal government shutdowns; • Timing of billings to, and collection of payments from, clients; • Timing of receipt of invoices from, and payments to, employees and vendors; • Commencement, completion, and termination of contracts; • Strategic decisions, such as acquisitions, consolidations, divestments, spin-offs, joint ventures, strategic investments, and changes in business strategy; • Timing of significant costs and investments (such as bid and proposal costs and the costs involved in planning or making acquisitions); • Timing of events related to discrete tax items; • Our contract mix and use of subcontractors or the timing of other direct costs for which we may earn lower contract margin; • Changes in contract margin performance due to performance risks; • Additions to, and departures of, staff; • Changes in staff utilization; • Paid time off taken by our employees; • Level and cost of our debt; • Changes in accounting principles and policies; and/or • General market and economic conditions.
Recent Accounting Pronouncements New accounting standards are discussed in “Note 2 - Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements”. 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.
Recent Accounting Pronouncements New accounting standards are discussed in “Note 2 - Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements”. 43 SELECTED KEY METRICS In order to evaluate operations, we track revenue by key metrics that provide useful information about the nature of our operations. Client markets provide insight into the breadth of our expertise.
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.
In the wake of the major hurricanes (Ian, Harvey, Ida, Idalia, Irma, Maria, Laura and Michael) that devastated communities in Texas, Florida, North Carolina, Louisiana, the U.S. Virgin Islands, and Puerto Rico, the affected areas remain in various stages of relief and recovery efforts.
OVERVIEW AND OUTLOOK We provide professional services and technology-based solutions, including management, marketing, 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.
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.
We believe that we will be able to access these markets at commercially reasonable terms and conditions if, in the future, we need additional borrowings or capital. Material Cash Requirements from Contractual Obligations .
We believe that we will be able to access these markets at commercially reasonable terms and conditions if, in the future, we need additional borrowings or capital. 49 Material Cash Requirements from Contractual Obligations .
RESULTS OF OPERATIONS The following table sets forth certain items from our consolidated statements of comprehensive income for the years ended December 31, 2022 and 2021 and expresses these items as a percentage of revenue for the periods indicated and the period-over-period rate of change in each of them.
RESULTS OF OPERATIONS The following table sets forth certain items from our consolidated statements of comprehensive income for the years ended December 31, 2023 and 2022 and expresses these items as a percentage of revenue for the periods indicated and the period-over-period rate of change in each of them.
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 believe EBITDA is useful in assessing ongoing trends and, as a result, may provide additional visibility in understanding our operations. Adjusted EBITDA is EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of the performance of our ongoing operations.
Although we describe our multiple service offerings to clients that operate in four 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.
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.
Our commercial clients, which include clients outside the U.S., generated approximately 24%, 29%, and 35% of our revenue in 2022, 2021, and 2020, respectively. We believe that our domain expertise and the program knowledge developed from our research and analytics, and assessment and advisory engagements further position us to provide a full suite of services.
Our commercial clients, which include clients outside the U.S., generated approximately 24%, 24%, and 29% of our revenue in 2023, 2022, and 2021, respectively. We believe that our domain expertise and the program knowledge developed from our research and analytics, and assessment and advisory engagements further position us to provide a full suite of services.
As of December 31, 2022, contractual obligations that require a material use of cash include repayments of our Credit Facility and operating lease obligations for facilities and equipment.
As of December 31, 2023, contractual obligations that require a material use of cash include repayments of our Credit Facility and operating lease obligations for facilities and equipment.
CRITICAL ACCOUNTING ESTIMATES Our discussion of financial condition and results of operations is based on our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these consolidated financial statements requires us to make certain estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES Our discussion of financial condition and results of operations is based on our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make certain estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses.
Discussions of 2021 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 25, 2022, and is incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Discussions of 2022 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 1, 2023, and is incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our primary source of borrowings is from our Credit Facility, as described in “Note 10 - Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Annual Report.
Our primary source of borrowings is from our Credit Facility, as described in “Note 10 - Long-Term Debt” in the “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K.
In doing so, we will continue to evaluate strategic acquisition opportunities, such as our recent acquisitions of ITG in 2020, ESAC and Creative Systems in 2021, and SemanticBits and Blanton in 2022, that enhance our subject matter knowledge, broaden our service offerings, gain access or expand customer relationships, and/or provide scale in specific geographies.
In doing so, we will continue to evaluate strategic acquisition opportunities, such as our acquisitions of ESAC and Creative Systems in 2021, SemanticBits and Blanton in 2022, and CMY in 2023 that enhance our subject matter knowledge, broaden our service offerings, gain access to or expand customer relationships, and/or provide scale in specific geographies.
While we believe that these non-GAAP financial measures 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.
While we believe that these non-GAAP financial measures provide additional information to investors and may be useful in evaluating our financial information, they should be considered supplemental in nature and not as a substitute for financial information prepared in accordance with U.S. GAAP.
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 47 to the nature of our business as a provider of professional services with contracts that can be negotiated with new prices. Share Repurchase Program.
Our business and results of operations have not been materially affected by inflation and changing prices during the period presented and we do not expect to be materially affected in the future due to the nature of our business as a provider of professional services with contracts that can be negotiated with new prices. Dividends.
This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Most of our revenue is from contracts on which we are the prime contractor, which we believe provides us with strong client relationships. In 2022, 2021, and 2020, approximately 91%, 91%, and 92% of our revenue, respectively, was from prime contracts.
Most of our revenue is from contracts on which we are the prime contractor, which we believe provides us with strong client relationships. In 2023, 2022, and 2021, approximately 89%, 91%, and 91% of our revenue, respectively, was from prime contracts.
The estimates do not take into accounts future drawdowns and repayments on the debt or changes in the variable interest rate, and actual interest may be different. As of December 31, 2022, we have operating leases for facilities and equipment with remaining terms ranging from 1 to 16 years.
The estimates do not take into account future drawdowns and repayments on the debt or changes in the variable interest rate, and actual interest may be different. As of December 31, 2023, we have operating leases for facilities and equipment with remaining terms ranging from 1 to 15 years.
For the years ended December 31, 2022, 2021, and 2020, our revenue from contracts in which we use EACs totaled $287.4 million, $253.6 million, and $199.2 million, respectively. Our contracts may include variable considerations such as award fees and incentives that may increase or decrease the transaction price.
For the years ended December 31, 2023, 2022, and 2021, our revenue from contracts in which we use EACs totaled $310.1 million, $287.4 million, and $253.6 million, respectively. Our contracts may include variable considerations such as award fees and incentives that may increase or decrease the transaction price.
Our government efforts include work performed under subcontract agreements to commercial clients whose ultimate customer is government agencies and departments. Our largest clients are U.S. federal government departments and agencies. In fact, our federal government clients have included every cabinet-level department, most significantly HHS, DoD, and DoS.
Our government efforts include work performed under subcontract agreements to commercial clients whose ultimate customers are government agencies and departments. Our largest clients are U.S. federal government departments and agencies. Our federal government clients have included every cabinet-level department, most significantly HHS, DoD, and DoS.
Fair Value of Acquired Assets from Business Combinations Our consolidated balance sheets as of December 31, 2022 and 2021 include $126.5 million and $79.6 million, respectively, of net intangible assets that were created through business acquisitions.
Fair Value of Acquired Assets from Business Combinations Our consolidated balance sheets as of December 31, 2023 and 2022 include $94.9 million and $126.5 million, respectively, of net intangible assets that were created through business acquisitions.
Our current and long-term operating lease liabilities of $201.6 million at December 31, 2022 represent the present value of the minimum payments required under the non-cancellable leases, and the actual cash payments total $248.7 million. The operating lease payment obligations by year are further discussed in “Note 7 - Leases” in the “Notes to Consolidated Financial Statements”.
Our current and long-term operating lease liabilities of $195.9 million at December 31, 2023 represent the present value of the minimum payments required under the non-cancellable leases, and the actual cash payments total $241.1 million. The operating lease payment obligations by year are further discussed in “Note 7 - Leases” in the “Notes to Consolidated Financial Statements”.
At December 31, 2022, our outstanding Credit Facility balance was $556.3 million, net of unamortized debt issuance costs, of which $23.3 million is due in 2023, $26.0 million in 2024, $35.8 million in 2025, $39.0 million in 2026, and the remaining $437.4 million due upon maturity in 2027.
At December 31, 2023, our outstanding Credit Facility balance was $430.4 million, net of unamortized debt issuance costs, of which the principal amounts of $26.0 million is due in 2024, $35.8 million in 2025, $39.0 million in 2026, and the remaining $333.3 million due upon maturity in 2027.
Indirect and selling expenses as a percent of revenue decreased to 27.4% for the year ended December 31, 2022, compared to 27.7% for the year ended December 31, 2021. Depreciation and amortization .
As a percentage of revenue, indirect and selling expenses decreased to 25.7% for the year ended December 31, 2023 compared to 27.4% for the year ended December 31, 2022. Depreciation and amortization .
Our services primarily support clients that operate in four key markets: • Energy, Environment, and Infrastructure; • Health, Education, and Social Programs; • Safety and Security; and • Consumer and Financial. We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative.
Our services primarily support clients that operate in four key markets: • Energy, Environment, Infrastructure, and Disaster Recovery; • Health and Social Programs; and • Security and Other Civilian & Commercial We provide services to our diverse client base that deliver value throughout the entire life cycle of a policy, program, project, or initiative.
Our discussion 42 of the items for the years ended December 31, 2021 and 2020 can be found in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 25, 2022.
Our discussion of the items for the years ended December 31, 2022 and 2021 can be found in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023.
As of December 31, 2022, we had $545.4 million of unused borrowing capacity, or $440.0 million after taking into account the financial and performance-based limitations, available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program.
As of December 31, 2023, we had $591.9 million of unused borrowing capacity, or $575.5 million after taking into account the financial and performance-based limitations, available under the Credit Facility to fund our ongoing operations, future acquisitions, dividend payments, and share repurchase program.
Accounting for Income Taxes Our provisions for federal, state, and foreign income taxes are calculated from consolidated income based on current tax laws and any changes in tax rates from the rates used previously in determining the deferred tax assets and liabilities from temporary differences between financial statement carrying amounts and amounts on our tax returns. 40 We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Accounting for Income Taxes Our provisions for federal, state, and foreign income taxes are calculated from consolidated income based on current tax laws and any changes in tax rates from the rates used previously in determining the deferred tax assets and liabilities from temporary differences between financial statement carrying amounts and amounts on our tax returns.
Cash dividends declared in 2022 were as follows: Dividend Declaration Date Dividend Per Share Record Date Payment Date February 23, 2022 $ 0.14 March 25, 2022 April 13, 2022 May 4, 2022 $ 0.14 June 10, 2022 July 14, 2022 August 3, 2022 $ 0.14 September 9, 2022 October 13, 2022 November 3, 2022 $ 0.14 December 9, 2022 January 12, 2023 Cash Flows .
Cash dividends declared in 2023 were as follows: 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 Flows .
As of December 31, 2022, we also have a finance lease for our Reston headquarters equipment and furniture with lease payment obligations through 2029 as discussed in “Note 7 - Leases” in the “Notes to Consolidated Financial Statements”. The current and long-term finance lease liabilities at December 31, 2022 of $18.5 million represent the present value of the minimum payments.
As of December 31, 2023, we also have finance leases for equipment and furniture with lease payment obligations through 2029 as discussed in “Note 7 - Leases” in the “Notes to Consolidated Financial Statements”. The current and long-term finance lease liabilities at December 31, 2023 of $16.4 million represent the present value of the minimum payments totaling $18.1 million. Inflation.
Assuming that our interest rate on the Credit Facility is the same as on December 31, 2022, we anticipate our interest payments on the debt to be approximately $32.5 million in 2023, $31.0 million in 2024, $29.2 million in 2025, $26.8 million in 2026, and $6.7 million in 2027 when our Credit Facility expires.
Assuming that our interest rate on the Credit Facility is the same as on December 31, 2023, we anticipate our interest payments on the debt to be approximately $29.5 million in 2024, $27.5 million in 2025, $24.9 million in 2026, and $8.1 million in 2027 when our Credit Facility expires.
We generally have been able to price our contracts in a manner that accommodates the rates of inflation experienced in recent years, although we cannot ensure that we will be able to do so in the future.
We generally have been able to price our contracts in a manner that accommodates the rates of inflation experienced in recent years, although we cannot ensure that we will be able to do so in the future. 41 BUSINESS COMBINATIONS A key element of our growth strategy is to pursue acquisitions.
Federal government clients generated approximately 55%, 47%, and 44% of our revenue in 2022, 2021, and 2020, respectively. State and local government clients generated approximately 15% of our revenue in 36 each of 2022, 2021, and 2020, respectively. International government clients generated approximately 6%, 9%, and 6% of our revenue in 2022, 2021, and 2020, respectively.
Federal government clients generated approximately 55%, 55%, and 47% of our revenue in 2023, 2022, and 2021, respectively. State and local government clients generated approximately 16%, 15%, and 15% of our revenue in each of 2023, 2022, and 2021, respectively.
(7) These costs include severance, pro rata incentive bonus, welfare benefits, and acceleration of equity awards we incurred under the departing officer’s severance agreement during the fourth quarter of 2020.
The transition to the new corporate headquarters was completed in the fourth quarter of 2022. (6) These costs include severance, pro rata incentive bonus, welfare benefits, and acceleration of equity awards we incurred under the departing officer’s severance agreement during the fourth quarter of 2020.
We believe that the estimates, assumptions and judgments involved in the accounting practices described below have the greatest potential impact on our financial statements and, therefore, consider them to be critical accounting policies.
We believe that the estimates, assumptions, and judgments involved in the accounting practices described below have the greatest potential impact on our financial statements and, therefore, consider them to be critical accounting policies. Significant accounting estimates are more fully described and discussed in “Note 2 - Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements”.
We also serve a variety of commercial clients worldwide, including: airlines, airports, electric and gas utilities, health care companies, banks and other financial services companies, transportation, travel and hospitality firms, non-profits/associations, manufacturing firms, retail chains, and distribution companies.
International government clients generated approximately 5%, 6%, and 9% of our revenue in 2023, 2022, and 2021, respectively. 39 We also serve a variety of commercial clients worldwide, including: airlines, airports, electric and gas utilities, health care companies, banks and other financial services companies, transportation, non-profits/associations, manufacturing firms, retail chains, and distribution companies.
For performance obligations requiring the delivery of a service for a fixed price, we use the ratio of actual costs incurred to total estimated costs at completion (“EAC”) provided that costs incurred (an input method) represents a reasonable measure of progress towards the satisfaction of a performance obligation, in order to estimate the portion of total revenue earned.
For the years ended December 31, 2023, 2022, and 2021, revenue from cost-based contracts totaled $265.3 million, $263.7 million, and $274.1 million, respectively. 42 For performance obligations requiring the delivery of a service for a fixed price, we use the ratio of actual costs incurred to total estimated costs at completion (“EAC”) provided that costs incurred (an input method) represents a reasonable measure of progress towards the satisfaction of a performance obligation, in order to estimate the portion of total revenue earned.
We use a more-likely-than-not recognition threshold based on the technical merits of the income tax position taken to evaluate uncertain tax positions. Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured in order to determine the tax benefit recognized in the financial statements.
Uncertain tax positions that meet the more-likely-than-not recognition threshold are measured in order to determine the tax benefit recognized in the financial statements.
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.
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.
Direct costs as a percent of revenue was 63.7% for the year ended December 31, 2022 compared to 63.1% for 2021. Indirect and selling expenses.
The total direct costs as a percentage of revenue remained steady at 64.4% for the year ended December 31, 2023 compared to 63.7% for 2022. Indirect and selling expenses.
We enter into agreements with clients that create enforceable rights and obligations and for which it is probable that we will collect the consideration to which we will be entitled as services and solutions are provided to the client. 39 Our contracts may be partially funded, often incrementally in annual amounts.
Revenue Recognition We generate our revenue by primarily providing services and technology-based solutions for clients. We enter into agreements with clients that create enforceable rights and obligations and for which it is probable that we will collect the consideration to which we will be entitled as services and solutions are provided to the client.
Should the need arise, we intend to further increase our borrowing capacity in the future to provide us with adequate working capital to continue our ongoing operations. In March 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic.
Should the need arise, we intend to further increase our borrowing capacity in the future to provide us with adequate working capital to continue our ongoing operations.
Year ended December 31, 2022 2021 2020 Net income $ 64,243 $ 71,132 $ 54,959 Interest, net 23,281 9,984 13,712 Provision for income taxes 19,737 28,958 19,714 Depreciation and amortization 49,917 31,970 33,748 EBITDA (1) 157,178 142,044 122,133 Impairment of long-lived assets (2) 8,354 8,215 3,090 Acquisition-related expenses (3) 6,441 4,798 1,983 Severance and other costs related to staff realignment (4) 6,302 1,242 4,764 Facilities consolidations and office closures (5) 5,034 1,434 1,852 Expenses related to the transfer to our new corporate headquarters (6) 8,287 899 — Expenses related to retirement of Executive Chair (7) — 397 8,825 Expenses related to our agreement for the sale of receivables (8) 240 — — Total Adjustments 34,658 16,985 20,514 Adjusted EBITDA $ 191,836 $ 159,029 $ 142,647 (1) The calculation of EBITDA for the years ended December 31, 2021 and 2020 has been revised to conform to the current period calculation of EBITDA.
Year ended December 31, 2023 2022 2021 Net income $ 82,612 $ 64,243 $ 71,132 Interest, net 39,681 23,281 9,984 Provision for income taxes 13,935 19,737 28,958 Depreciation and amortization 60,738 49,917 31,970 EBITDA 196,966 157,178 142,044 Impairment of long-lived assets (1) 7,666 8,354 8,215 Acquisition and divestiture-related expenses (2) 4,759 6,441 4,798 Severance and other costs related to staff realignment (3) 6,366 6,302 1,242 Charges for facility consolidations and office closures (4) 3,187 5,034 1,434 Expenses related to the transfer to our new corporate headquarters (5) — 8,287 899 Expenses related to retirement of Executive Chair (6) — — 397 Expenses related to our agreement for the sale of receivables (7) — 240 — Pre-tax gain from divestiture of a business (8) (5,712 ) — — Total adjustments 16,266 34,658 16,985 Adjusted EBITDA $ 213,232 $ 191,836 $ 159,029 (1) Represents impairment of operating lease right-of-use and leasehold improvement assets associated with exit from certain facilities, and an intangible asset associated with exit of a business.
Year ended December 31, 2022 Year ended December 31, 2021 Year ended December 31, 2020 Dollars Percent Dollars Percent Dollars Percent Time-and-materials $ 713,581 40 % $ 633,152 41 % $ 732,365 49 % Fixed-price 802,804 45 % 645,761 41 % 536,903 35 % Cost-based 263,579 15 % 274,135 18 % 237,607 16 % Total $ 1,779,964 100 % $ 1,553,048 100 % $ 1,506,875 100 % Payments we received on cost-based contracts with the federal government are provisional payments subject to adjustment upon audit by the government.
Year ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2021 (dollars in thousands) Dollars Percent Dollars Percent Dollars Percent Contract Mix: Time-and-materials $ 812,430 41 % $ 713,693 40 % $ 633,135 41 % Fixed-price 885,465 45 % 802,568 45 % 645,809 41 % Cost-based 265,343 14 % 263,703 15 % 274,104 18 % Total $ 1,963,238 100 % $ 1,779,964 100 % $ 1,553,048 100 % Payments we received on cost-based contracts with the federal government are provisional payments subject to adjustment upon audit by the government.
Such audits have been finalized through 2011 for NIH-cognizant indirect rates and through 2015 for USAID-cognizant indirect rates, and any adjustments have been immaterial. Contract revenue for subsequent periods has been recorded in amounts that are expected to be realized on final audit and settlement of costs in those years.
Contract revenue for subsequent periods has been recorded in amounts that are expected to be realized on final audit and settlement of costs.
ESAC – In November 2021, we acquired ESAC, one of the leading specialized providers of advanced health analytics, research data management and bioinformatics solutions to U.S. federal health agencies. Creative Systems and Consulting – In December 2021, we acquired Creative Systems, a premier provider of IT modernization and digital transformation solutions to U.S. federal agencies.
During the previous three fiscal years, we completed five acquisitions summarized as follows: ESAC – In November 2021, we acquired ESAC, one of the leading specialized providers of advanced health analytics, research data management, and bioinformatics solutions to U.S. federal health agencies.
SemanticBits, LLC – In July 2022, we acquired SemanticBits, a premier partner to U.S. federal health agencies for mission-critical digital modernization solutions. Blanton & Associates – In September 2022, we completed the acquisition of Blanton, an environmental consulting, planning, and project management firm headquartered in Austin, Texas.
Creative Systems and Consulting – In December 2021, we acquired Creative Systems, a premier provider of IT modernization and digital transformation solutions to U.S. federal agencies. SemanticBits, LLC – In July 2022, we acquired SemanticBits, a premier partner to U.S. federal health agencies for mission-critical digital modernization solutions.
There are other conditions, such as the ongoing war in Ukraine and the recent increase in inflation, both in the U.S. and globally, that create uncertainty in the global economy, which in turn may impact, among other things, our ability to generate positive cash flows from operations and our ability to successfully execute and fund key initiatives in the near future.
There are certain geo-political and macro-economic conditions, such as the ongoing wars in Ukraine and the the Middle East and the recent increase in inflation, both in the U.S. and globally, that create uncertainty in the global economy, which in turn may impact, among other things, our ability to generate positive cash flows from operations and our ability to successfully execute and fund key initiatives in the near future; however, our current belief is that the combination of internally generated funds, available bank borrowings, and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund ongoing operations, customary capital expenditures and acquisitions, quarterly cash dividends, share repurchases and organic growth.
GAAP Diluted EPS $ 3.38 $ 3.72 $ 2.87 Impairment of long-lived assets 0.44 0.43 0.16 Acquisition-related expenditures 0.34 0.25 0.10 Severance and other costs related to staff realignment 0.33 0.06 0.25 Facilities consolidations and office closures 0.26 0.08 0.10 Expenses related to the transfer to our new corporate headquarters 0.44 0.05 — Expenses related to retirement of Executive Chair — 0.02 0.46 Expenses related to our agreement for the sale of receivables 0.01 — — Amortization of intangibles 1.49 0.65 0.70 Income tax effects (1) (0.92 ) (0.44 ) (0.47 ) Non-GAAP Diluted EPS $ 5.77 $ 4.82 $ 4.17 (1) Income tax effects were calculated using the effective tax rate, adjusted for discrete items, if any, of 28.0%, 28.9% and 26.4% for the year ended December 31, 2022, 2021 and 2020, respectively. 46 LIQUIDITY AND CAPITAL RESOURCES Liquidity and Borrowing Capacity .
GAAP Diluted EPS $ 4.35 $ 3.38 $ 3.72 Impairment of long-lived assets 0.40 0.44 0.43 Acquisition and divestiture-related expenses 0.25 0.34 0.25 Severance and other costs related to staff realignment 0.33 0.33 0.06 Expenses related to facility consolidations and office closures (1) 0.24 0.26 0.08 Expenses related to the transfer to our new corporate headquarters — 0.44 0.05 Expenses related to retirement of Executive Chair — — 0.02 Expenses related to our agreement for the sale of receivables — 0.01 — Pre-tax gain from divestiture of a business (0.30 ) — — Amortization of intangibles 1.87 1.49 0.65 Income tax effects of the adjustments (2) (0.64 ) (0.92 ) (0.44 ) Non-GAAP Diluted EPS $ 6.50 $ 5.77 $ 4.82 (1) These are exit costs related to actual office closures (previously included in Adjusted EBITDA) and accelerated depreciation related to fixed assets for planned office closures.
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.
EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow as these measures do not include certain cash requirements such as interest payments, tax payments, capital expenditures, and debt service. 47 The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated.
(8) These costs include legal and structuring fees related to our 2022 Master Receivables Purchase Agreement with MUFG Bank, Ltd.put in place for the sale of our receivables from time-to-time. 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.
(7) These costs include legal and structuring fees related to our 2022 Master Receivables Purchase Agreement with MUFG Bank, Ltd. put in place for the sale of our receivables. (8) Includes pre-tax gain of $2.5 million and of $3.2 million from the divestitures of our U.S. commercial marketing and Canadian mobile text aggregation businesses.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We evaluate our ability to benefit from all deferred tax assets and establish valuation allowances for amounts we believe are not more likely than not to be realized.
We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Indirect labor as a percentage of total indirect and selling expenses was 67.2% for the year ended December 31, 2022 which is comparable to the 67.4% for the same period in 2021. General and administrative costs as a percentage to total indirect and selling expenses was 32.8% for the year ended December 31, 2022 compared to 32.6% for 2021.
As a percentage of total indirect and selling expenses, indirect labor and associated fringe costs were 71.1% and 67.2%, respectively, and general and administrative costs were 28.9% and 32.8%, respectively, for the years ended December 31, 2023 and 2022.
Year ended December 31, 2022 Year ended December 31, 2021 Year ended December 31, 2020 Dollars Percent Dollars Percent Dollars Percent U.S. federal government $ 980,406 55 % $ 735,104 47 % $ 666,968 44 % U.S. state and local government 260,562 15 % 235,353 15 % 219,507 15 % International government 102,808 6 % 139,237 9 % 93,581 6 % Government 1,343,776 76 % 1,109,694 71 % 980,056 65 % Commercial 436,188 24 % 443,354 29 % 526,819 35 % Total $ 1,779,964 100 % $ 1,553,048 100 % $ 1,506,875 100 % Contract mix Contract mix varies from year to year due to numerous factors, including our business strategies and the procurement activities of our clients.
Year ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2021 (dollars in thousands) Dollars Percent Dollars Percent Dollars Percent Client Type: U.S. federal government $ 1,084,043 55 % $ 980,746 55 % $ 735,032 47 % U.S. state and local government 308,134 16 % 259,764 15 % 235,416 15 % International government 103,399 5 % 103,609 6 % 139,229 9 % Government 1,495,576 76 % 1,344,119 76 % 1,109,677 71 % Commercial 467,662 24 % 435,845 24 % 443,371 29 % Total $ 1,963,238 100 % $ 1,779,964 100 % $ 1,553,048 100 % Contract mix Contract mix varies from year to year due to numerous factors, including our business strategies and the procurement activities of our clients.
Unless the context requires otherwise, we use the term “contracts” to refer to contracts and any task orders or delivery orders issued under a contract. There are three main types of contracts: time-and-materials contracts, fixed-price contracts, and cost-based contracts. The following table shows the approximate percentage of our revenue for each of these types of contracts for the periods indicated.
Unless the context requires otherwise, we use the term “contracts” to refer to contracts and any task orders or delivery orders issued under a contract.
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. 44 Service Revenue We compute Service Revenue as U.S. GAAP revenue less subcontractor and other direct costs (which include third-party materials and travel expenses).
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.
The increase in revenue from our U.S. state and local government client market was from increases of $12.8 million and $12.5 million from energy, environment, and infrastructure and health, education, and social programs client markets, respectively, offset by a decrease of $0.1 million from safety and security client market.
Revenue from Health and Social Programs client market increased by $110.0 million, or 15.6%, driven by: • Increases of $97.4 million from U.S. federal government, $10.4 million from U.S. state and local government, and $2.5 million from commercial client markets, respectively, offset by a • Decrease of $0.3 million from international government client market.
The exit costs include charges incurred under a contractual obligation that existed as of the date of the accrual and for which we will (i) 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.
(4) These are exit costs associated with terminated leases or full office closures that we either (i) will continue to pay until the contractual obligations are satisfied but with no economic benefit to us, or (ii) paid upon termination and cease-use of the leased facilities.
The higher average debt balance was due, in part, to the acquisition of SemanticBits and Blanton in 2022. In addition, our average interest rate increased to 3.3% in 2022 compared to 1.6% in 2021. Interest income was $0.2 million compared to $0.3 million for 2022 and 2021, respectively. Other expense .
Our 2023 interest expense from our debt was reduced by $6.9 million from the swap agreements, compared to $0.5 million in additional interest expense added to 2022. Our average interest rate inclusive of the impact of the swap agreements was 5.6% for 2023 compared to 3.7% for 2022. Other income (expense) .
Interest, net . For the year ended December 31, 2022, interest, net was $23.3 million, compared to $10.0 million for the prior year, an increase of $13.3 million or 133.2%. The increase for the year ended December 31, 2022 was primarily due to our higher average debt balance of $575.0 million in 2022 compared to $335.5 million in 2021.
The increase in interest, net was primarily due to higher average debt balance of $613.5 million in 2023 compared to $575.0 million in 2022, and higher average interest rate of 6.7% in 2023 compared to 3.3% in 2022. We utilize floating-to-fixed interest rate swap agreements to hedge the variable interest portion of our debt.
Amortization of intangible assets for the year ended December 31, 2022 was $28.4 million compared to $12.5 million for the prior year. The increase was due to amortization of additional intangible assets acquired from our recent acquisitions of ESAC and Creative in the fourth quarter of 2021 and of SemanticBits and Blanton in 2022. Operating income .
The increase in amortization of intangible assets was due to amortization of additional intangible assets acquired from our acquisitions in the third and fourth quarter of 2022 and the second quarter of 2023. 46 Interest, net .
Year ended December 31, (in thousands) 2022 2021 2020 Net cash provided by operating activities $ 162,206 $ 110,205 $ 173,145 Net cash used in investing activities (258,844 ) (194,481 ) (270,948 ) Net cash provided by financing activities 90,371 23,233 169,955 Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,198 ) (511 ) 3,353 (Decrease) increase in cash, cash equivalents and restricted cash $ (7,465 ) $ (61,554 ) $ 75,505 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.
Year ended December 31, (in thousands) 2023 2022 2021 Net cash provided by operating activities $ 152,383 $ 162,206 $ 110,205 Net cash used in investing activities (3,673 ) (258,844 ) (194,481 ) Net cash (used in) provided by financing activities (152,588 ) 90,371 23,233 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 359 (1,198 ) (511 ) Decrease in cash, cash equivalents, and restricted cash $ (3,519 ) $ (7,465 ) $ (61,554 ) Cash provided by operating activities for the year ended December 31, 2023 decreased by $9.8 million compared to 2022 primarily due to higher interest and tax payments and the timing of collections of our billed receivables and payments of our operating liabilities. 50 Cash used in investing activities for the year ended December 31, 2023 decreased by $255.2 million compared to 2022 primarily due to higher usage of cash to fund the acquisitions of SemanticBits and Blanton in 2022; 2023 was favorably impacted by the proceeds received from the divestiture of our U.S. commercial marketing and Canadian mobile text aggregation businesses.
We 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: Year ended December 31, 2022 2021 2020 U.S.
GAAP Diluted EPS to Non-GAAP Diluted EPS for the periods indicated: Year ended December 31, 2023 2022 2021 U.S.
Certain immaterial revenue amounts in the prior years have been reclassified due to minor adjustments and reclassification within contract type.
There are three main types of contracts: time-and-materials contracts, fixed-price contracts, and cost-based contracts. 44 The following table shows the approximate percentage of our revenue for each of these types of contracts for the periods indicated. Certain immaterial revenue amounts in the prior years have been reclassified due to minor adjustments and reclassification within contract mix.
The effective income tax rate for the years ended December 31, 2022 and December 31, 2021, was 23.5% and 28.9%, respectively.
(2) Income tax effects were calculated using the effective tax rate, adjusted for discrete items, if any, of 22.8%, 28.0% and 28.9% for the years ended December 31, 2023, 2022, and 2021, respectively. LIQUIDITY AND CAPITAL RESOURCES Liquidity and Borrowing Capacity .
Operating activities provided $162.2 million in cash for the year ended December 31, 2022 compared to $110.2 million for 2021, an increase of $52.0 million.
We used $152.6 million of cash in financing activities during the year ended December 31, 2023 compared to $90.4 million provided by financing activities during 2022, a change of $243.0 million.
(4) These costs are mainly due to involuntary employee termination benefits for Company officers, groups of employees who have been terminated as part of a consolidation or reorganization or, to the extent that the costs are not included in the previous two categories, involuntary employee termination benefits for employees who were terminated as a result of COVID-19.
(2) These are primarily third-party costs related to acquisitions and potential acquisitions, integration of acquisitions, and separation of discontinued businesses or divestitures. (3) These costs are mainly due to involuntary employee termination benefits for our officers, and employees who have been notified that they will be terminated as part of a business reorganization or exit.
Year ended December 31, 2022 Year ended December 31, 2021 Year ended December 31, 2020 Dollars Percent Dollars Percent Dollars Percent Energy, environment, and infrastructure $ 664,996 37 % $ 653,080 42 % $ 609,358 40 % Health, education, and social programs 906,081 51 % 677,736 44 % 677,454 45 % Safety and security 129,357 7 % 115,659 7 % 120,599 8 % Consumer and financial 79,530 5 % 106,573 7 % 99,464 7 % Total $ 1,779,964 100 % $ 1,553,048 100 % $ 1,506,875 100 % 41 Our primary clients within the client markets are the agencies and departments of the federal government and commercial clients.
Year ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2021 (dollars in thousands) Dollars Percent Dollars Percent Dollars Percent Client Markets: Energy, environment, infrastructure, and disaster recovery $ 806,482 41 % $ 714,628 40 % $ 693,572 45 % Health and social programs 814,454 42 % 704,465 40 % 563,590 36 % Security and other civilian & commercial 342,302 17 % 360,871 20 % 295,886 19 % Total $ 1,963,238 100 % $ 1,779,964 100 % $ 1,553,048 100 % Our primary clients within the client markets are the agencies and departments of the federal government and commercial clients.
GAAP Diluted EPS”) excluding the impact of certain items noted above, as well as the impact of amortization of intangible assets related to our acquisitions and income tax effects of these exclusions. 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.
While these adjustments may be recurring and not infrequent or unusual, we do not consider these adjustments to be indicative of the performance of our ongoing operations. We believe that the supplemental adjustments provide additional information to investors. 48 The following table presents a reconciliation of U.S.
For the year ended December 31, 2022, direct labor and associated fringe benefits costs as a percentage of total direct costs was 56.4% compared to 54.8% for the same period in 2021, and subcontractor and other direct costs as a percentage of total direct costs was 43.6% compared to 45.2% in 2021.
For the years ended December 31, 2023 and 2022, direct labor and related fringe benefit costs were 57.7% and 56.4% of total direct costs, respectively, and subcontractors and other direct costs were 42.3% and 43.6% of total direct costs, respectively.
The increase in indirect and selling expenses was primarily due to an increase in indirect labor and associated fringe benefits costs and other compensation costs of $37.2 million, and in general and administrative costs of $19.1 million.
The increase in indirect and selling expenses of $18.3 million for the year ended December 31, 2023 compared to 2022 was due to an additional $31.7 million in indirect labor and related fringe benefit costs offset by a decrease of $13.4 million in general and administrative costs.
Removed
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.
Added
Blanton & Associates – In September 2022, we acquired Blanton & Associates, an environmental consulting, planning, and project management firm. CMY Solutions, LLC – In May 2023, we acquired CMY, an engineering and automation solutions provider to utilities and organizations.
Removed
IMPACT OF THE COVID-19 PANDEMIC On March 11, 2020, the World Health Organization characterized the novel strain of coronavirus disease COVID-19 as a global pandemic. The pandemic disrupted global supply chains, created pressure on workforces, and added volatility to the financial markets.
Added
Our contracts may be partially funded, often incrementally in annual amounts.
Removed
We are primarily a service business and, to date, we have experienced continuity in the majority of our work for our government clients, which accounted for approximately 76%, 71%, and 65% of our 38 revenues for the years ended December 31, 2022, 2021, and 2020, respectively.
Added
We evaluate our ability to benefit from all deferred tax assets and establish valuation allowances for amounts we believe are not more likely than not to be realized. We use a more-likely-than-not recognition threshold based on the technical merits of the income tax position taken to evaluate uncertain tax positions.
Removed
There were postponements of events and challenges around project work requiring travel and personal contact to perform services under the contracts, but overall, our government clients have continued to require our services.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−0 removed6 unchanged
Biggest changeBased on our borrowings under the Credit Facility and amount of hedging in 2022, a 1% increase in interest rates would have increased interest expense by approximately $5.9 million and would have decreased our annual net income and operating cash flows by a comparable amount.
Biggest changeBased on our borrowings under the Credit Facility, a 1% increase in interest rates would have increased interest expense by approximately $6.1 million and would have decreased our annual net income and operating cash flows by a comparable amount.
As a result, a 10% increase or decrease in the value of the U.S. dollar against all currencies would have an estimated impact on revenue of approximately 1%, or $13.5 million.
As a result, a 10% increase or decrease in the value of the U.S. dollar against all currencies would have an estimated impact on revenue of approximately 1%, or $13.1 million.
We use a sensitivity analysis to assess the impact of movement in foreign currency exchange rates on revenue. During the year ended December 31, 2022, 8% of our revenue was generated from our international operations based on the location to which a contract was awarded.
We use a sensitivity analysis to assess the impact of movement in foreign currency exchange rates on revenue. During the year ended December 31, 2023, 7% of our revenue was generated from our international operations based on the location to which a contract was awarded.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 51
At December 31, 2022, we had four interest rate swap agreements with a total aggregate notional amount of $200.0 million to hedge against changes in interest rates and offset potential increases in interest expense. See “Note 12 - Derivative Instruments and Hedging Activities” in the “Notes to Consolidated Financial Statements”.
At December 31, 2023, we had seven interest rate swap agreements with a total aggregate notional amount of $275.0 million to hedge against changes in interest rates and offset potential increases in interest expense. See “Note 12 - Derivative Instruments and Hedging Activities” in the “Notes to Consolidated Financial Statements”.
As part of this strategy, we may use interest rate swap arrangements to hedge a portion of our interest rate risk by securing hedges that effectively convert our variable rate debt to fixed rate debt. We do not use such instruments for speculative or trading purposes.
As part of this strategy, we use interest rate swap arrangements to hedge a portion of our interest rate risk that effectively converts our variable rate debt to fixed rate debt. We do not use such instruments for speculative or trading purposes.

Other ICFI 10-K year-over-year comparisons