ICF International Inc (ICFI) 2006 Q3 法說會逐字稿

Welcome to the ICF International Third Quarter 2006 Conference Call.

[OPERATORS INSTRUCTIONS]

As a reminder, this conference is being recorded on Monday, November the 6, 2006, and cannot be reproduced or rebroadcast without permission from the company. And now I would like to turn the program over to Douglas Beck, Senior Vice President, Corporate Development for ICF International. Please go ahead.

Thank you, operator. Good afternoon. During this conference call we will make forward-looking statements to assist you in understanding ICF and management's expectations about our future performance. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today.

We anticipate that future developments will cause our views to change. Please consider the information presented in that light. We may at some point elect to update the forward-looking statements made today, but we specifically disclaim any obligation to do so. During this call we will refer to non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is available in the investor relation section of our website at www.icif.com.

At this point, I would like to turn the call over to Sudhakar Kesavan, our Chairman and Chief Executive Officer.

Thank you, Doug, and good afternoon, everyone. We appreciate your interest in ICF and look forward to providing additional insights into our third quarter result and outlook for the fourth quarter, and then open the call to your questions. As you have seen, ICF turned in an excellent performance in the third quarter. This was the first full quarter in which we saw the benefits of the major win we announced in the 30th of June to have restored the housing infrastructure in Louisiana. This enabled us to report revenues for the period of $107.8 million, about 2.5 times greater than last year's third quarter and a new milestone for the company.

Operating income grew even faster, moving from $1.7 million to $6.3 million, representing an increase of more 3.5 times. If you back out the onetime bonus charge of $2.7 million that was triggered by the completion of our initial public offering, operating income was $9 million representing a margin of 8.3% for that period. All of our quarterly financial comparisons were excellent and I will be turning the call over to our CFO, Alan Stewart, a little later on who will provide further color on our profit and loss statements and balance sheet. Also joining us on the table today is John Wasson, our Chief Operating Officer, who has spent extensive time in Louisiana and will be able to answer any questions you have on the contract.

I would like to use this opportunity our first post-earnings conference call as a public company to further define ICF, discuss our major business initiatives, competitive strengths and our strategic plans. Over the years we have developed unparalleled domain expertise in our four major global markets that today are at the forefront of government and public -- and private sector policymaking -- the energy, environment and infrastructure, health, human services and social programs, and homeland security and defense.

We have a professional staff with deep subject matter expertise, 50% of whom have postgraduate degrees. And ICF personnel retention has exceeded the industry average. In the category of associates and above which represent about 80% of our available staff, turnover was 4% in the third quarter and 10% in the first nine months of 2006, which we believe is an important competitive strength.

ICF has long-term relationship with nearly every cabinet level department of the federal government as well as with the growing group of state and local governments, and in most cases, we enjoy the prime contractor position with these clients.

Over the last several years we have been strategically leveraging our advisory services business, win engagements for implementation services, a market that we believe offer significant growth opportunities for ICF. Our most [beautiful] success in this effort is the Louisiana Housing Management Services Contract, a three-year, $756 million contract funded by the federal government to compensate Louisiana homeowners and rental housing owners for losses suffered during Hurricanes Katrina and Rita.

As you can imagine, this award involved a very complex plus publicly visible selection process, placing ICF against much larger and better capitalized competitor. What differentiated us and ultimately won us of the business was that we approached this as a housing and restructuring issue, calling upon our deep knowledge of federal housing policy, community development block grant programs, and disaster recovery, which many of our competitors approached only from an IT services perspective.

ICF's mandate in Louisiana is to lead manage the end-to-end program implementation, which involves establishing 12 housing assistance centers, processing 120,000 homeowner requests from formal application to review, verification and final disbursement of financial assistance, and development community outreach programs and complex management information systems to track and report progress of the program.

There is a lot more to say about the Louisiana program. It has a stated three-year life, but it will probably run longer than that, although the funding is capped at $756 million. I am proud to say that we have met each of the deadlines imposed in Phase I of the program. We have ramped up quickly. 40 ICF [available] senior professionals were reassigned to this program. Of course, this impacted the rate of revenue growth in certain parts of the business, but the projects they were looking on remain in backlog.

Since mid-June, ICF has hired 250 people in Louisiana, 95% of whom are local Louisiana residents. We have set up ten housing assistance centers, received over 75,000 applications and conducted more than 16,000 in person appointments. There is no question that Louisiana is a huge win for us in its own right, but it is also a clear illustration of how ICF can leverage domain expertise to gain a greater share of our addressable market. We believe that the market for implementation service is many times the size of the advisory market.

At the end of the third quarter we had a total backlog of $370 million of which 49% was funded. This compares to a total backlog of $309 million at the end of the second quarter of which 62% was funded. Our backlog increased sequentially despite the fact that we used up $55 million in Louisiana backlog that was funded in the second quarter. An additional $669 million of funded backlog representing Phases II and III of the Louisiana Road Home Contract will be added to quarter four backlog.

Today's earnings release contains descriptive information on the key competitive contracts ICF won during the third quarter. Some takeaways we consider important are our excellent recompete statistics, winning $147 million in recompetes or 98% of the potential recompetition revenue. This includes all the pending recompetes totaling $96 million in our Caliber business, which is focused in the health, human services and the social program sector.

We were also awarded [technical difficulty] detailed in the press release, both from the EPA and from Health and Human Services regarding Public Health Emergency Preparedness. A word about business development. About a year ago, we restructured our new business development efforts in order to compete more aggressively for larger contracts. We now have a centralized business development activity that focuses on long-term capture of large new opportunities.

We believe that this new program has contributed to the positive trends we have seen in our revenue pipeline for the last several quarters and made a significant difference in helping us capture the Louisiana work. At the end of quarter three, our pipeline excluding the Louisiana contract stood at $812 million and 27% higher than the end of last year's third quarter. Including Louisiana, our pipeline again at the end of the third quarter was in excess to $1.4 billion. Our target has been to maintain a pipeline that is three to four times our revenue run rate.

As you can see in today's earnings release, we are expecting our positive momentum to continue in the fourth quarter. We are forecasting a $95 to a $105 million revenue range, which represents significant increase over the $51.7 million reported for last year's quarter four. A point about the Louisiana contract contribution in the fourth quarter, it is difficult to estimate precisely. We are expecting it to come in at below Q3 level because we have already completed most of the fixed price work related to the infrastructure needed to implement the program.

We now will be compensated primarily on a T&M basis, labor hours associated with application processing, and on a unit basis for home inspections and title searches. Therefore we're using a $40 million base for the fourth quarter, which will sequentially increase as we ramp up our hiring. In terms of profitability, we anticipate another very solid quarter in quarter four, posting substantial improvement over last year's fourth quarter and replicating the strong performance we have achieved in the third quarter.

We are clearly very enthusiastic about ICF's prospects. The Company is operating effectively in efficiency at full throttle. And for the first time since American buyout in 1999, ICF will not be startled with heavy interest -- hefty interest payments and debt, addressing a large and growing market, which provides excellent organic growth opportunities and we are in a much stronger position today to make selective acquisitions that can generate additional revenue growth.

I would now like to turn the call over to Alan Stewart who will discuss our quarter three financial results in more detail. Alan?

Thank you, Sudhakar, and good afternoon to all. Our revenue for the third quarter ending September 30, 2006, was 108 million, up 66 million or a 156%, from the 42 million reported in the third quarter of 2005. Approximately 55 million of the revenue included in the third quarter of 2006 is attributable to the Louisiana contract, which started in June 2006, and an additional 10 million from Caliber Associates, which we acquired in October 2005.

In the September quarter, we reported a 2.7 million one-time bonus expense that was contractually negotiated under our 1999 Incentive Compensation agreement and was triggered upon the successful execution of our initial public offering of this month. These bonuses were distributed to over 33 senior managers at ICF in October. Additionally, as a private company in January 2006, we began to record charges for non-cash compensation as required under FAS 123R.

In this recent quarter, we recorded a 0.3 million charge. This quarter, direct cost increased as a percentage of gross revenue from 60.4% to 67.9% of revenues primarily due to increased levels of sub-contract and another direct cost associated with the Louisiana contract. Conversely, indirect cost as a percentage of gross revenue decreased to 22.3% from 33.8%. This was possible due to our ability to leverage infrastructure cost across a substantially higher revenue base.

EBITDA for the third quarter of 2006 was 7.3 million as compared to 2.4 million for the third quarter of 2005. After adjusting for the 2.7 million one-time bonus charge of this quarter and the 0.3 million FAS 123R expense, adjusted EBITDA for this quarter was 10.3 million or 9.5% of gross revenue.

Interest expense is 1.2 million for the quarter compared to 0.6 million for the third quarter 2005. The increase was due to increased borrowing due to the October 2005 Caliber acquisition, which we used all debt, and growth in receivables during this period. The estimated effect of annualized tax rate for 2006 is approximately 45.6%, which is slightly higher than a 44.4% we reported in the second quarter.

And this was primarily due to reduction in deferred tax assets associated with fully funded stock options during this period for which book deduction was taken in the fourth quarter of 2005 upon the acceleration of investing options. Net income and fully diluted earnings per share for the third quarter of 2006 and 2005 were 3.0 million or $0.28 million per share for `06, 1.2 million or $0.14 per share respectively for 2005. The fully diluted shares for the quarter include 9,334,000 for basic weighted average shares and 1.141 million common stock equivalents for a fully diluted total share count of 10.475 million for the third quarter.

It should be noted that we issued approximately 342,000 restricted stock units and grants at end of September and additional 267,000 in the fourth quarter, which generally vests over a three-year period or granted to over [140] senior staff. Pro forma net income and fully diluted earnings per share for the third quarter after adjusting for the 2.7 million one-time bonus charge and the 300,000 of FAS 123R charges were 4.6 million and $0.44 per share respectively.

And going to the nine months ending September 30, our revenue for this nine-month period was 217 million, up 92 million or 73% from the comparable period last year of 125 million. Included in the nine months revenue was approximately 55 million from the Louisiana contract and 32 million from Caliber Associates, which was acquired on October 2005, was not reflected in the comparable September results of `05.

In the current nine-month period, we recorded a significant 4.3 million charge for abandoned lease space for a San Francisco lease was entered into during the dotcom error and a much smaller leased for in our Lexington, Massachusetts, offices as well as a 2.7 million one-time bonus we previously discussed. In addition, we recorded 0.6 million charge for equity instruments under FAS 123R for the nine months of 2006.

EBITDA for the nine months was 10.6 million as compared to 8.8 million for the same period in 2005. After adjusting for the one-time bonus charge, the abandoned space charge and FAS 123R expenses in this recent nine-month period. adjusted EBITDA was 18.1 million or 8.3% of gross revenue. Net income and fully diluted earnings per share for the first nine months of 2006 were 2.7 million and $0.26 per share compared to 3.1 million and $0.32 per share for the first nine months of 2005 respectively.

Pro forma net income and fully diluted earnings per share for the recent nine-month period in 2006, after adjusting for these significant one-time charges for the abandoned space, one-time bonus charge and FAS 123R expenses were 6.8 million and $0.65 per share respectively. In reviewing our balance sheet as of September 30th, there are several significant points of note. Our net accounts receivable balance was 70.8 million, which represents a 59 days sales outstanding. This compares to 108 day sales outstanding as of June 30th, 2006 and 92 days as of December 31, 2005, and 79 days as of September 30, 2005, again very favorable DSO for us.

Our bank debt as of September 30, 2006, before the application of the IPO proceeds, which were received in October, was 25.7 million as compared to bank debt of 61 million on June 30, 2006. The significant decline was primarily due to the accelerated cash collections on a large contract, prior to some significant payments to subcontractors, which occurred on October and November. Given the IPO proceeds of 46.5 million, which includes the over-allotment option and net of expenses, we now have significant borrowing capacity as we pursue a robust M&A pipeline of opportunities.

And turning to our cash flow statement, we retired our over-balance as of September 30, 2006, again reducing our debt level significantly prior to the receipt of the IPO proceeds. And as of October 27th, our most recent month end, we have no debt currently outstanding approximately 14 million cash in our accounts. Looking at the cash flow statement, our cash flow from operations for the recent nine months was approximately 39 million compared to the use of cash for the nine months in 2005 of 83,000.

Of the cash provided by operating activities during this recent nine-month period, accrued expenses increased by 23.0 million, which is primarily attributed to subcontractor accruals of almost 18.5 million for the Louisiana contract, 2.4 million of increased goodwill for Caliber as they had several of the re-competes and triggered their contingency run outs and another 1.4 million attributed to current accrual for the abandoned space charge with a residual of the balance in other long-term liabilities.

The accounts payable also increased by 8 million, primarily due to the Louisiana contract. In addition, accrued salaries and benefits increased by 11.2 million, which includes the 2.7 million [exit] one-time bonus. And deferred revenue increase by 8 million, primarily attributed to the deferral of revenue on Phase I fixed-price work on Louisiana contract.

And looking at capital expenditures for the first nine months of 2006, we have 2.5 million of CapEx as compared to 703,000 for the same period in 2005. Approximately 1.6 million of this year's additions was attributable to our three-year enterprise agreement with Microsoft, which is paid over three annual installments. And obviously, this cash flow excludes the 40 million receivable from the underwriter net of commission before offering expenses at the IPO, as this was considered a non-cash item as of September 30, until close in early October.

And with that, I'd like to turn the call back over to Sudhakar Kesavan.

Thank you, Alan. Operator, we are ready to take questions.

[OPERATOR INSTRUCTIONS]

And your first question comes from the line of Jason Kupferberg with UBS. Please proceed.

Good afternoon, guys.

Hi, Jason. How are you?

Good. Thanks. I wanted to ask a question on the operating margins. It's been very strong relative to our expectations in the third quarter. Just wanted to get a sense of where you see that metric heading in the fourth quarter. It looks like according to the guidance, EPS will be down a bit sequentially here on kind of an apples-to-apples basis, excluding the bonus they have in 3Q, so if you can walk us through some of the moving parts there, that would be great.

So why don't I get Alan to address that question.

Right. Jason, I think some of it has to do with Phase I, which have a lot of risks and a much higher level of fixed price. We had a bit more healthier margins built into some of those fixed price cost as they came through is we are able to manage well through a number of uncertainties during the first three months on the contract.

In addition, there was a fairly high utilization rate of the staff, a lot of overtime and a lot of corporate people that we sent down and the available staff from ICF, we are working some pretty long hours during the first three-month period. So I think you tend to have those more [teen] and as well as some good margins on the fixed price drop through in this quarter.

Okay. So where would that leave us in the fourth quarter in terms of operating margins?

At this point we are being reasonably prudent in making sure we determine both the level of fixed cost we had in the fourth quarter as well as the mix of staffing levels and the teen of rates to come in. And so I think we have got very prudent estimates for this fourth quarter, and I think as we expand and open more housing units to continue to have staff that makes good increase.

Okay. Let me ask a question on the core business here excluding Louisiana. It looks like revenues were down a little bit sequentially there. And I just wanted to get a sense, was that kind of almost one timish in nature, because you had to divert some people onto Louisiana. It looks like with complying your guidance as a sequential recovery in that core business in the fourth quarter is that kind of a right way to think about it?

Right. I think as I alluded to in my opening remarks, this is Sudhakar, Jason. Just to address that, we have over 40 senior available staff who are down there.

Yes.

So obviously, to start up such a huge program, we needed to find people whom we -- who had been with the firm, whom we trusted. So to some extent we did suffer because of that in terms of our legacy business, but we are rapidly trying to make sure that we hire the appropriate level staff in Louisiana. And then as those all come back and they all will by the end of the year the legacy business should recover strongly because the backlogs certainly is, we certainly have it and I think it will -- we will have some reasonable number for the legacy business by the end of the year.

Okay. And then last question, and then I will turn it over. Can you just talk about your -- kind of your hiring and retention plans going forward? And I'm kind of thinking, again, excluding the Louisiana you kind of laid out some of the hiring accomplishments there. I wanted to get a sense in kind of the core business how many net hires you had in the third quarter? And then kind of thinking ahead to address the big backlog that you have, what are kind of your net hiring plans going forward?

Right, I think we have been hiring people, I can give you the net new hires in the third quarter was 254.

Okay.

And you know --

That included Louisiana.

Right, that included Louisiana and Louisiana was let me see, here 200 of those, so the balance 54 were in the legacy business.

Okay.

And we -- I think from a retention point of view -- we would like to certainly -- the reason why I gave you the statistic of associates and above because the category below that is these are the systems would tend to go back graduate school every year or two years.

Right.

So we have traditionally looked at the associates and above, and -- if you analyze that number it comes to around 14% I gave you the 10% number for the nine months. And I think that it is, we believe that -- we think we can certainly stay within that -- we have tended to treat people at least in the consulting business.

Well, I think we have -- historically had low turnover especially in the officer ranks as you know we have very low turnover average tenure is about 13 years of the 125 people or 130 people who are in the officer rank. So traditionally, we have -- as you know, our turnover has been low and we certainly hope that we can continue to do that. We are taking what every steps are required.

You know, we have all kinds of programs within the firm to make sure that we do that. It's a very competitive work place, especially the area which we operate in the Washington DC area. And I think that we have managed to keep the turnover down over these last few years, despite the fact that our -- some times it was tough even though there is lots of growth in the area. So I think we are confident that we will keep the numbers at between 10% and 15% turnover levels.

Okay. Thanks for the color guys. Good luck.

Thank you.

And your next question comes from the line of Bill Loomis with Stifel Nicolaus. Please proceed.

Hi, thank you. Can you talk on the Road Home contract when you went from Phase I and Phase II last month, was there any delays in working up the new phase as far as the transition into the new prices, new price and agreements? And then also, if you can lay out a little more detail the hiring for that you expect over the next year with the Road Home. How quickly can you ramp those people up and then also the, what's the rough schedule for the other ten offices opening up?

Just on the last thing, we already opened up ten housing assistance centers. Bill, we are going to open up an additional two.

Okay.

But ten already open, we are going to open two. Yes, at this quarter, this coming quarter. So we should have these -- those two open. In terms of the transition from Phase I to Phase II there was no led up in terms of the work, I mean everything continued. We, in fact, the client thought that we should absolutely not have any sort of disruption.

So I think that there was no disruption at all when we negotiated the new contract which we think is, in fact, a better contract than we had in the first phase because we think it's all [T&M], in terms of, just the risk associated with it. I think that -- we will start the inverting process every two weeks, I don't think that two weeks -- you must have just done one invoice I think so. I think that we basically are in pretty good shape, there are no disruptions. In terms of hiring, John do you want to talk about?

Sure. That I think -- right now across the entire program team, we have about 500 staff working across the entire team, about half of that is ICF international staffs are approximately 250 staff. I think we see staffing continuing to increase through our Q4, and then certainly, in the first half of next year should reach a staff of somewhere around 850 and 950 across the entire team sometime later next year. And again, I would expect about half of that to be ICF international staff.

Okay. It sounds good and what's as far as the turnover statistics that you gave, they did not include Louisiana or did include?

They included everyone. That's the whole thing.

Okay. And the forty people you said they are the senior people you bring back and replace local people in coming months. At what point will you know will be or largely local senior staff on the Road Home contract?

John you want to --?

Yes. My expectation on that would be by the end of the first quarter of next year. I think we are certainly going to pull back significant portion of the staff by the end of the year, but I think that the goal is by the end of the first quarter to have that complete, have senior Louisiana staff in Louisiana.

Okay. Thanks a lot.

And your next question comes from the line of Joseph Vafi with Jefferies and Company. Please proceed.

Gentlemen, good afternoon.

Hi, Joe.

Hi, Joe.

Congratulations on a very strong first quarter after your IPO here.

Thank you.

I was wondering if you could kind of talk a little bit on Road Home. Alan, I don't know if you mentioned anything here on margin contribution on the contract, but any kind of color you could provide there on margins that are coming from the contract. And then secondly, maybe on the core business we could get an idea from you on -- largest billing agency for continuing resolutions might be to the business moving forward and then I'll have a follow-up after that.

Joe , at the present time, we've really determined not to go into discreet contract margins of profitability. If the dilemma is with the mix of our cost and structure and all things we are providing at things are very challenging and try to bifurcate, but I will turn it over to Sudhakar on the core business on continuing resolution like issues.

Just to add to Alan's question Joe, the problem is that we, it's difficult just from a comparative view point we don't want to talk about margins on a specific contract this also said the president. So I think that we, it's a T&M contract and I think that the margins are consistent with T&M contract, but I think in the government sector. So I would leave it to bet.

On the issue associated with continuing resolutions -- I have been this asked question before as you can imagine and I think that we've been the continuing resolution land for the last three or four years. So in fact it's a sort of a steady state now, they only get their funding sometime in January or February. So they have funding for the 12 months and they expect the funding to be, again, appear in January or February.

So I don't think there will be any significant impact because of the continuing resolution. I think the -- if it's of a steady state. When they start -- when congress start authorizing stuff as they are supposed to whether 1st of October, then we get a pump up at some point, but I am not holding my breath, so my sense is that the continuing resolution will not have that -- any significant impact on all these.

Fair enough. And then, just maybe another follow-up on Road Home for calendar 2007, obviously we can kind of figure out the math here in Q4 on Road Home. And kind of looking out for next year, I know, you're not clearly providing any '07 guidance at this point, but kind of any preliminary thought you might have there on kind of revenue contribution or kind of how it might play out over '07 on that contract -- is everything kind of we are moving to Phase II here and I know, like anything there will be helpful as well? Thank you.

Yes. I think that we will certainly provide guidance for '07 in the next earnings call when we do '06 numbers, but I did, I think given some sense of what's likely to happen, because I did say that -- we will do base business of $40 million and that would sequentially increase. So let me leave it at that and then as we come up with numbers and we have a better handle on how things are progressing there, we will give you better considered numbers in the next call.

Very good. Thanks, gentlemen.

And your next question comes from the line of Matt Litfin with William Blair & Company. Please proceed.

Hi good afternoon, Sudhakar and Alan.

Hey, Matt

Hi, Matt.

I saw the cash flow was very strong in the quarter as you mentioned, the prepared comments has detailed around that I know, but with all those moving apart, can you just talk about what you perceive as an ongoing cash flow run rate maybe here in Q4? And also, the same question applies the DSO level, it's stopped around significantly -- most recently way down here. And I am just trying to get a sense of how much of that decrease is sustainable?

Quite. Now, that's a very good comment. I think, to be honest, a lot depends on the timing of the payments and expenses of the fixed price count related to these two new housing centers. I think in looking at our DSO of 59 days in September 30th, that's the best DSO we've had in our seven year history, and I think we did have some very favorable payment terms in this first quarter, I mean ICF's legacy government businesses typically run between 75 and 85 days generally, acquisition startup around those.

So I think that's a -- I think would be the Louisiana contract, the terms have been very favorable, they should bring down our DSO of that. But I think we need another quarter to really -- for me to have a better feel the run rate I think will be a much better position as we close December forecast '07 on the cash flow at that point.

Okay. And, the Road Home contract is obviously a very significant portion of the business recently and also as we look ahead. So can you share with us the expected sustainability of that Road Home revenue, what the milestones, the majors milestones are that you have to hit to -- see that contract renewed overtime and then I guess, that case scenario how long could that possibly last?

The contract Matt is -- the three-year with $756 million in funding. The RFP, which was issued for the work was a five-year RFP. So we anticipate that the work could last longer than three, we don't know exactly how long. And then it will be up to the state whether they can get additional funding from the federal government.

We can't speculated on that, but I can certainly tell you that -- contract will last at least three year then likely longer because that was what the anticipated step into work set when the RFP was issued. The reason why the three-year contract is as -- the State of Louisiana cannot issue five year contract by state law. So that is why it's a three-year contract.

But they can certainly, I am sure take measures to extend the contract at some of point, if they so desire. In terms of sustainability I think in terms milestones clearly there are the -- the -- we have to process 120,000-homeowner request for assistance. We need to do it rapidly, and we are progressing on that front. I think the state would like it very much if we could do it as rapidly we can.

And I think the important thing, which we have to keep in mind is that it's a complicated program that finds a lot of verification, requires prevention of short of fraud associated with application. There is a whole bunch of stuff, which we have to do in term of verification. So there is the whole issue of doing it correctly and doing it right with minimal or no fraud and we are taking great precaution to make sure that happens.

So I think that it's balancing sort of the making sure that we do it quickly and do it right and it's the question of making sure that as you go through the process we learn more and do it in a way, which we think is sustainable. So I think that the contract would certainly last between three and five years.

Okay. One last but if could for Alan. The EPS guidance for the fourth quarter, can you share with us the ongoing fully diluted share count that you're modeling in there that's implied in that guidance for the quarter?

I think, we are looking at an estimate of about 13.1 million of basic weighted average shares for the fourth quarter and roughly about a 1.4 million for common stock prevalence for about a 14.4 million fully diluted weighted average share count for the fourth quarter.

Okay. Thank you, both. And congratulation on a strong quarter.

Thank you.

And your next question comes from the line of Van Brady with Presidio Management. Please proceed.

Yes. I have a couple of questions. You talked about pipeline figures earlier and I think, I couldn't copy that what you said on cash. You know, first, you gave us a figure of 12 million up -- in Louisiana and then that you talked about 1.4 billion, can you kind of --?

Sure. Yes. I think what I was saying was that be pipeline numbers as of September 30th were $812 million, which is worth which we have bid on in the various stages of decision and things are not been decided yet by the potential clients. So that was 812 million and if you recall as of September 30th we had not been awarded Phases 2 and 3 of the Louisiana contract and that was an additional $600 million or so is what we had estimated at that point. So if you added that $600 million, which was still undecided by the state that made it $1.4 billion.

I see. Then one other question that was -- on your tax rate going forward you had a rather high [run] on [this just] reported, could you - what you think the normalizes tax rate would be through the fourth quarter and also through 2007?

My comptroller and I have spent a lot of time dealing with taxes more so than I will prefer, but yes we do have unusual, unusual rate. I -- we believe that with the continued growth of the company of profitability going in '07, we believe the rate will start moving toward more typical rate of our peers, but it may take a two year period to get to that.

I think we will be in much better position as we are -- again closing our fourth quarter and we are doing some extensive work on a lot of the foreign tax credits and other permanent differences to see what the timing maybe for turning around in '07. And from that I'll have a much better sense, but I would expect the rate will decline in '07 but we are not yet ready to put out a number yet.

Well, you said it should have over a three year period move to what your peers are experiencing, what would you say that target is?

I think many of the total government IT companies in our area are generally in the low 40s, 40, 40 and change, I think.

[Inaudible] 41%?

40 to 41, 40 and 40.5 is an effective tax rate. A lot depending on how many states, how many countries are in and o what the mix is.

Yes. And you think you could get back to that -- ?

That is our goal.

Okay. Thank you.

And your next question is the follow-up from the line of Joseph Vafi with Jefferies and Company. Please proceed.

Hi, guys. Just one quick follow-up on the Q4 numbers if you are looking at them. And we have got a relatively large, variable year in terms of the high-end, low-end of the range, in revenue, just kind of some thoughts in your head on what might be the variables going on there that would get us between low and the high-end? Thank you.

I think the primary variable Joe, would be the Louisiana contract. I mean if that is the -- that's the primary variable. I think that as I told about the [inaudible] -- is around 40 million, it could be higher and the -- it just depends on how many applications come in? How many appointments we have? How many home inspections we can get done and therefore how many awards we process? And it just -- and also how many people we hire? So I think that all those things together, will determine what the number is on the high-end. So I think that basically is the variable in terms of the revenue number.

Okay. And just so, just to kind of get a better idea on the Phase 2 business now, kind of -- we kind of looked at the run rate of where you are at now, relative to kind of additional volumes as you kind of staff up to -- to kind of maybe a full level, and where kind of are we on that, on that stage or in that process, right now?

We've hired I think as John told you about 500 people, and we are planning to go up to about, across the team, yes, this is across the whole ICF team about half of whom are ours. Ad we have planned to go up to -

850 or 900 staff.

Okay.

By the middle of next year so --

Sometime in '07.

Yes. And so we should be and half of those should be ours. So I think, does that give you a sense?

Yes. That's good. That's helpful. Thank you very much gentlemen.

Sure. Yes.

[OPERATOR INSTRUCTIONS]

There are no further questions at this time, I would turn the call over to management for closing remarks.

Thank you very much for calling in. We certainly appreciate your interest, we will -- we are excited about the business and we think that we will speak to you again with hopefully strong fourth quarter results and annual results when we talk to you early next year. So, thanks very much. And have a great holiday season. Thank you.

Thank you for your participation in today's conference. Ladies and gentlemen this concludes the presentation you may all disconnect and have a good day.