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Consulting and technology services company ICF International (NASDAQ:ICFI) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 2.4% year on year to $512 million. It made a non-GAAP profit of $1.69 per share, improving from its profit of $1.57 per share in the same quarter last year.
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ICF (ICFI) Q2 CY2024 Highlights:
- Revenue: $512 million vs analyst estimates of $505.7 million (1.3% beat)
- EPS (non-GAAP): $1.69 vs analyst estimates of $1.49 (13.1% beat)
- EPS (non-GAAP) Guidance for the full year is $7.10 at the midpoint, beating analysts' estimates by 4.8%
- EBITDA Guidance for the full year is $230 million at the midpoint, above analyst estimates of $223.9 million
- Gross Margin (GAAP): 35.7%, up from 34.9% in the same quarter last year
- Free Cash Flow of $55.47 million is up from -$15.23 million in the previous quarter
- Backlog: $3.8 billion at quarter end
- Market Capitalization: $2.76 billion
Defense ContractorsDefense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.
Sales Growth A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, ICF's 7% annualized revenue growth over the last five years was mediocre. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. ICF's annualized revenue growth of 10.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
This quarter, ICF reported reasonable year-on-year revenue growth of 2.4%, and its $512 million of revenue topped Wall Street's estimates by 1.3%. Looking ahead, Wall Street expects sales to grow 5.5% over the next 12 months, an acceleration from this quarter.
Operating Margin ICF was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 6.8%.
On the bright side, ICF's annual operating margin rose by 1.2 percentage points over the last five years
This quarter, ICF generated an operating profit margin of 8.3%, up 1.9 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
ICF's EPS grew at a solid 11.6% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into the nuances of ICF's earnings can give us a better understanding of its performance. As we mentioned earlier, ICF's operating margin expanded by 1.2 percentage points over the last five years. On top of that, its share count shrank by 1.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For ICF, its two-year annual EPS growth of 16.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, ICF reported EPS at $1.69, up from $1.57 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects ICF's EPS of $6.95 in the last year to stay about the same.
Key Takeaways from ICF's Q2 Results We enjoyed seeing ICF exceed analysts' revenue and EPS expectations this quarter. We were also glad its full year guidance outperformed Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock remained flat at $146.02 immediately following the results.
