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MAXIMUS Reports Fiscal Year 2019 Third Quarter Results

RESTON, Va.--(BUSINESS WIRE)--

- Company Reduces Revenue Guidance and Narrows Earnings Guidance to $3.70 to $3.75 -

MAXIMUS (MMS), a leading provider of government services worldwide, today reported financial results for the three and nine months ended June 30, 2019.

Highlights for the third quarter of fiscal year 2019 include:

  • Revenue grew 22% to $730.7 million compared to $597.9 million reported for the same period last year, driven by the citizen engagement centers acquisition in the U.S. Federal Services Segment
  • Revenue in the quarter was lower than expected due to a slower ramp on an acquired contract and unfavorable foreign currency translation
  • Diluted earnings per share were $0.97, in line with Company expectations, and driven by strong results in the U.S. Health and Human Services and U.S. Federal Services Segments
  • Cash flows from operations of $136.5 million and free cash flow of $116.0 million
  • Year-to-date signed contract awards totaled approximately $1.8 billion and contracts pending (awarded but unsigned) of $0.7 billion at June 30, 2019
  • Sales pipeline of $29.6 billion at June 30, 2019, of which 68% is new work
  • For fiscal 2019, the Company is reducing its revenue estimates and narrowing its earnings guidance towards the upper end of its range

Bruce Caswell, President and Chief Executive Officer of MAXIMUS, commented, "We have revised our revenue guidance for fiscal 2019 and we are on track to achieve our narrowed earnings range which is at the top end of the guidance range the Company established in November. As evidenced by our pipeline, we continue to see new growth opportunities in the years to come. MAXIMUS is an integral partner for governments as they shape policy and program design to address long-term macro-trends that reflect aging populations, labor skills and demand asymmetry, public health priorities, and the integration of health and employment programs. As part of our approach, we are continuing to invest in, and expand our business development resources as well as other areas that provide meaningful support to winning new work."

For the third quarter of fiscal 2019, revenue increased 22% to $730.7 million as compared to $597.9 million reported for the same period last year, driven by the acquisition in the U.S. Federal Services Segment, which contributed $163.4 million of revenue in the quarter. Revenue in the third quarter of fiscal 2019 was below the Company's expectations due to a slower ramp-up on the acquired Census Questionnaire Assistance (CQA) contract. Revenue was also unfavorably impacted compared to the prior year by foreign currency translation of $9.1 million during the third quarter.

For the third quarter of fiscal 2019, operating income totaled $83.6 million, yielding an operating margin of 11.4%. This compares to 13.8% for the same period last year which benefited from $15.5 million of revenue and operating income from change orders where the related costs were incurred in earlier periods. Results for the third quarter of fiscal 2019 were also impacted by amortization expense related to intangible assets, which increased to $9.0 million compared to $2.5 million in the comparable period of the prior year.

For the third quarter of fiscal 2019, net income attributable to MAXIMUS totaled $62.9 million, or $0.97 of diluted earnings per share, and benefited from solid operational performance in the U.S. Health and Human Services and U.S. Federal Services Segments. This compares to the third quarter of fiscal 2018 diluted earnings per share of $0.91.

U.S. Health & Human Services Segment

As expected, U.S. Health and Human Services Segment revenue for the third quarter of fiscal 2019 decreased to $291.1 million compared to $314.5 million reported for the same period last year, principally due to the rebid or extension of certain larger contracts in the portfolio.

Operating margin for the third quarter of fiscal 2019 was 18.6% compared to 21.3% reported for the prior-year period. Of the aforementioned change orders that benefited the prior year, $13.7 million was recorded within the U.S. Health and Human Services Segment. Operating margin for the Segment is expected to be between 18% and 19% for fiscal 2019.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the third quarter of fiscal 2019 increased to $292.3 million compared to $112.2 million reported for the same period last year driven both organically and through acquisition. Revenue from the acquisition totaled $163.4 million for the third quarter of 2019. Revenue for the Segment was lower than expected due to the slower ramp-up on the acquired CQA contract. Excluding the acquisition, organic revenue increased 15% compared to the same period last year driven by several new work opportunities.

Operating margin for the third quarter of fiscal 2019 was 11.6% and benefited from favorable results on performance-based contracts. For fiscal year 2019, the Segment is expected to have an operating margin between 10% and 11%.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the third quarter of fiscal 2019 decreased 14% (8.6% on a constant currency basis) to $147.3 million compared to $171.2 million reported for the same period last year due to expected decreases on welfare-to-work contracts in Australia and the United Kingdom.

Operating margin for the third quarter of fiscal 2019 was 3.4% compared to 2.5% reported for the prior-year period. As disclosed last quarter, the U.K. employment services contracts that launched in fiscal 2018 are progressing towards profitability but remain unfavorable to margin in the near-term. Operating profit was negatively impacted by an accretive component of a contract that was unexpectedly discontinued as the customer considers a new approach to the work going forward. As a result, the Company expects operating margin for the Segment to be approximately 3% for fiscal 2019.

Sales and Pipeline

Year-to-date signed contract awards at June 30, 2019, totaled $1.8 billion and contracts pending (awarded but unsigned) of $0.7 billion. These awards reflect total contract value.

The sales pipeline at June 30, 2019, was $29.6 billion (comprised of approximately $1.8 billion in proposals pending, $1.9 billion in proposals in preparation and $25.9 billion in opportunities tracking). The pipeline (opportunities tracking) now includes the expected $5.0 billion rebid for the acquired Call Center Operations (CCO) contract. As a reminder, the Company modified its pipeline reporting methodology beginning October 1, 2018. The three changes are: 1) reporting Total Contract Value (TCV) rather than Base Contract Value, 2) extending the time horizon for opportunities reported in the pipeline from six months to two years, and 3) removing the value cap of $150 million on new work opportunities.

Balance Sheet and Cash Flows

Cash and cash equivalents at June 30, 2019, totaled $71.1 million. For the three months ended June 30, 2019, cash flows from operations totaled $136.5 million, with free cash flow of $116.0 million. At June 30, 2019, days sales outstanding (DSO) were 77 days.

On July 5, 2019, our Board of Directors declared a quarterly cash dividend of $0.25 for each share of our common stock outstanding. The dividend is payable on August 30, 2019, to shareholders of record on August 15, 2019.

Outlook

MAXIMUS is updating its fiscal 2019 revenue and earnings guidance. The Company now expects revenue to range between $2.88 billion to $2.90 billion for fiscal 2019. This compares to the Company's previous revenue guidance of $2.925 billion to $2.95 billion. MAXIMUS has revised its guidance primarily due to a slower than expected ramp up on the CQA contract as well as unfavorable foreign currency translation. To a lesser extent, the Company has also experienced lower volumes across several contracts resulting in lower revenue in fiscal 2019.

MAXIMUS is also narrowing its GAAP diluted earnings per share guidance and the company now expects diluted earnings per share to range between $3.70 to $3.75 due to strong operating performance in the U.S. Health and Human Services Segment. This compares to the Company's previous earnings guidance of $3.65 to $3.75.

Conference Call and Webcast Information

MAXIMUS will host a conference call this morning, August 8, 2019, at 9:00 a.m. (ET). The call is open to the public and is available by webcast at investor.maximus.com or by phone at:

877.407.8289 (Domestic)/+1.201.689.8341 (International)

For those unable to listen to the live call, a replay will be available through August 22, 2019. Callers can access the replay by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay conference ID number: 13692016

About MAXIMUS

Since 1975, MAXIMUS has operated under its founding mission of Helping Government Serve the People®, enabling citizens around the globe to successfully engage with their governments at all levels and across a variety of health and human services programs. MAXIMUS delivers innovative business process management and technology solutions that contribute to improved outcomes for citizens and higher levels of productivity, accuracy, accountability and efficiency of government-sponsored programs. With more than 30,000 employees worldwide, MAXIMUS is a proud partner to government agencies in the United States, Australia, Canada, Saudi Arabia, Singapore and the United Kingdom. For more information, visit maximus.com.

Non-GAAP Measures

We utilize non-GAAP measures where we believe it will assist the user of our financial statements in understanding our business. The presentation of these measures is meant to complement, and not replace, other financial measures in this document. The presentation of non-GAAP numbers is not meant to be considered in isolation, nor as alternatives to revenue growth, cash flows from operations or net income as measures of performance. These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

In this news release, we use the following non-GAAP measures: organic revenue growth, constant currency and free cash flow. A description of these measures, including a description of our use of these measures and our methodology for calculating them, is included in our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 20, 2018. We have included a reconciliation of free cash flow to cash flows from operations in this news release.

Included in this press release are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “opportunity,” “could,” “potential,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward- looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the factors set forth in Exhibit 99.1 under the caption "Special Considerations and Risk Factors," in our Annual Report on Form 10-K for the year ended September 30, 2018, which was filed with the Securities and Exchange Commission on November 20, 2018 and the matters listed in our “Special Note Regarding Forward-Looking Statements” in our recently filed Quarterly Report on Form 10-Q.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)


Three Months Ended June 30,

Nine Months Ended June 30,

2019

2018

2019

2018

Revenue

$

 

730,710

$

 

597,855

$

 

2,131,849

 

$

 

1,833,790

Cost of revenue

 

556,463

 

443,171

 

1,628,915

 

 

1,378,343

Gross profit

 

174,247

 

154,684

 

502,934

 

 

455,447

Selling, general and administrative expenses

 

81,604

 

69,588

 

239,377

 

 

214,026

Amortization of intangible assets

 

9,049

 

2,525

 

24,026

 

 

7,846

Operating income

 

83,594

 

82,571

 

239,531

 

 

233,575

Interest expense

 

420

 

85

 

2,614

 

 

410

Other income, net

 

556

 

2,249

 

3,048

 

 

3,928

Income before income taxes

 

83,730

 

84,735

 

239,965

 

 

237,093

Provision for income taxes

 

20,765

 

24,493

 

59,511

 

 

61,793

Net income

 

62,965

 

60,242

 

180,454

 

 

175,300

Income/(loss) attributable to noncontrolling interests

 

67

 

381

 

(281

)

 

856

Net income attributable to MAXIMUS

$

 

62,898

$

 

59,861

$

 

180,735

 

$

 

174,444

Basic earnings per share attributable to MAXIMUS

$

 

0.98

$

 

0.91

$

 

2.80

 

$

 

2.65

Diluted earnings per share attributable to MAXIMUS

$

 

0.97

$

 

0.91

$

 

2.79

 

$

 

2.64

Dividends paid per share

$

 

0.25

$

 

0.045

$

 

0.75

 

$

 

0.135

Weighted average shares outstanding:

 

 

 

Basic

 

64,405

 

65,630

 

64,534

 

 

65,777

Diluted

 

64,759

 

65,925

 

64,800

 

 

66,131

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

June 30, 2019

September 30, 2018

(unaudited)

 

ASSETS

 

Current assets:

 

Cash and cash equivalents

$

 

71,084

 

$

 

349,245

 

Short-term investments

 

 

20,264

 

Accounts receivable — billed and billable

 

525,882

 

 

357,613

 

Accounts receivable — unbilled

 

94,102

 

 

31,536

 

Income taxes receivable

 

693

 

 

5,979

 

Prepaid expenses and other current assets

 

47,617

 

 

43,995

 

Total current assets

 

739,378

 

 

808,632

 

Property and equipment, net

 

84,694

 

 

77,544

 

Capitalized software, net

 

30,761

 

 

22,429

 

Goodwill

 

583,703

 

 

399,882

 

Intangible assets, net

 

185,965

 

 

88,035

 

Deferred contract costs, net

 

22,477

 

 

14,380

 

Deferred compensation plan assets

 

33,114

 

 

34,305

 

Deferred income taxes

 

617

 

 

6,834

 

Other assets

 

10,197

 

 

9,959

 

Total assets

$

 

1,690,906

 

$

 

 

1,462,000

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable and accrued liabilities

$

 

182,551

 

$

 

 

114,378

 

Accrued compensation and benefits

 

103,990

 

 

95,555

 

Deferred revenue

 

40,951

 

 

51,182

 

Income taxes payable

 

5,109

 

 

4,438

 

Long-term debt, current portion

 

3,648

 

 

136

 

Other liabilities

 

20,450

 

 

11,760

 

Total current liabilities

 

356,699

 

 

277,449

 

Deferred revenue, less current portion

 

26,435

 

 

20,394

 

Deferred income taxes

 

44,769

 

 

26,377

 

Long-term debt

 

268

 

 

374

 

Deferred compensation plan liabilities, less current portion

 

34,689

 

 

33,497

 

Other liabilities

 

13,147

 

 

17,490

 

Total liabilities

 

476,007

 

 

375,581

 

Shareholders’ equity:

 

Common stock, no par value

 

503,184

 

 

487,539

 

Accumulated other comprehensive loss

 

(41,110

)

 

(36,953

)

Retained earnings

 

752,370

 

 

633,281

 

Total MAXIMUS shareholders’ equity

 

1,214,444

 

 

1,083,867

 

Noncontrolling interests

 

455

 

 

2,552

 

Total equity

 

1,214,899

 

 

1,086,419

 

Total liabilities and equity

$

 

1,690,906

 

$

 

 

1,462,000

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

Three Months Ended
June 30,

Nine Months Ended
June 30,

2019

2018

2019

2018

Cash flows from operations:

 

 

Net income

$

62,965

$

60,242

$

180,454

$

175,300

Adjustments to reconcile net income to cash flows from operations:

 

 

Depreciation and amortization of property, equipment and capitalized software

12,181

12,828

34,588

39,902

Amortization of intangible assets

9,049

2,525

24,026

7,846

Deferred income taxes

(6,568)

18,053

11,196

8,874

Stock compensation expense

5,419

4,389

15,323

15,713

 
 

Change in assets and liabilities excluding acquired assets and liabilities:

 

Accounts receivable — billed and billable

(35,411)

11,733

(108,131)

(6,789)

Accounts receivable — unbilled

36,983

5,042

46,172

312

Prepaid expenses and other current assets

2,185

(3,020)

(2,933)

5,506

Deferred contract costs

(2,727)

446

(8,142)

2,240

Accounts payable and accrued liabilities

11,382

(20,525)

53,462

(23,696)

Accrued compensation and benefits

16,725

(444)

9,282

(15,835)

Deferred revenue

3,422

(1,939)

7,857

(25,728)

Income taxes

19,635

(12,721)

3,139

5,913

Other assets and liabilities

1,260

(5,053)

(2,582)

(1,242)

Cash flows from operations

136,500

71,556

263,711

188,316

 

Cash flows from investing activities:

 

 

Purchases of property and equipment and capitalized software costs

(20,492)

(8,377)

(39,033)

(21,552)

Acquisitions

(240)

(422,049)

(157)

Short-term investments

(19,996)

19,996

(19,996)

Other

96

657

380

1,198

Cash used in investing activities

(20,636)

(27,716)

(440,706)

(40,507)

 

Cash flows from financing activities:

 

 

Cash dividends paid to MAXIMUS shareholders

(15,953)

(2,936)

(47,936)

(8,801)

Purchases of MAXIMUS common stock

(60,949)

(46,068)

(61,987)

Tax withholding related to RSU vesting

(8,915)

(8,529)

Borrowings under credit facility

10,000

320,048

134,683

Repayment of credit facility and other long-term debt

(75,058)

(10,034)

(316,597)

(134,786)

Other

(1,928)

(133)

(4,058)

Cash used in financing activities

(91,011)

(65,847)

(99,601)

(83,478)

 

Effect of exchange rate changes on cash and cash equivalents

(362)

(2,784)

(994)

(1,714)

 

Net increase/ (decrease) in cash, cash equivalents and restricted cash

24,491

(24,791)

(277,590)

62,617

 

Cash, cash equivalents and restricted cash, beginning of period (1)

54,478

267,135

356,559

179,727

 

Cash, cash equivalents and restricted cash, end of period (1)

$

78,969

$

242,344

$

78,969

$

242,344

 

(1)

 

As we noted in a Current Report on Form 8-K filed on December 14, 2018, we have made changes in our cash flow statements to

comply with new accounting requirements. Most notably, we now include our restricted cash balances in the totals identified above.

Our restricted cash is included in our balance sheet under the heading "prepaid expenses and other current assets" and totaled

$7.9 million and $7.3 million at June 30, 2019, and September 30, 2018, respectively.

MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

 

Three Months Ended June 30,

Nine Months Ended June 30,

2019

% (1)

2018

% (1)

2019

% (1)

2018

% (1)

Revenue:

 

 

 

 

 

 

 

 

U.S. Health & Human
Services

$

 

291,132

 

$

 

314,477

 

$

 

876,082

 

$

 

924,967

 

U.S. Federal Services

 

292,295

 

 

112,226

 

 

799,018

 

 

361,536

 

Outside the U.S.

 

147,283

 

 

171,152

 

 

456,749

 

 

547,287

 

Total

$

 

730,710

 

$

 

597,855

 

$

 

2,131,849

 

$

 

1,833,790

 

 

Gross Profit:

 

 

 

 

 

 

 

U.S. Health & Human
Services

$

 

86,664

 

29.8

%

$

 

101,425

 

32.3

%

$

 

260,955

 

29.8

%

$

 

272,242

 

29.4

%

U.S. Federal Services

 

66,803

 

22.9

%

 

32,276

 

28.8

%

 

175,484

 

22.0

%

 

93,008

 

25.7

%

Outside the U.S.

 

20,780

 

14.1

%

 

20,983

 

12.3

%

 

66,495

 

14.6

%

 

90,197

 

16.5

%

Total

$

 

174,247

 

23.8

%

$

 

154,684

 

25.9

%

$

 

502,934

 

23.6

%

$

 

455,447

 

24.8

%

 

Selling, general, and
administrative expense:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Health & Human
Services

$

 

32,414

 

11.1

%

$

 

34,382

 

10.9

%

$

 

93,953

 

10.7

%

$

 

105,803

 

11.4

%

U.S. Federal Services

 

32,896

 

11.3

%

 

17,399

 

15.5

%

 

90,632

 

11.3

%

 

51,587

 

14.3

%

Outside the U.S.

 

15,791

 

10.7

%

 

16,775

 

9.8

%

 

52,591

 

11.5

%

 

53,284

 

9.7

%

Restructuring costs

NM

 

NM

 

NM

 

 

2,320

 

NM

 

Other

 

503

 

NM

 

 

1,032

 

NM

 

 

2,201

 

NM

 

 

1,032

 

NM

 

Total

$

 

81,604

 

11.2

%

$

 

69,588

 

11.6

%

$

 

239,377

 

11.2

%

$

 

214,026

 

11.7

%

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Health & Human
Services

$

 

54,250

 

18.6

%

$

 

67,043

 

21.3

%

$

 

167,002

 

19.1

%

$

 

166,439

 

18.0

%

U.S. Federal Services

 

33,907

 

11.6

%

 

14,877

 

13.3

%

 

84,852

 

10.6

%

 

41,421

 

11.5

%

Outside the U.S.

 

4,989

 

3.4

%

 

4,208

 

2.5

%

 

13,904

 

3.0

%

 

36,913

 

6.7

%

Amortization of intangible
assets

 

(9,049

)

NM

 

 

(2,525

)

NM

 

 

(24,026

)

NM

 

 

(7,846

)

NM

 

Restructuring costs (2)

NM

 

NM

 

NM

 

 

(2,320

)

NM

 

Other (3)

 

(503

)

NM

 

 

(1,032

)

NM

 

 

(2,201

)

NM

 

 

(1,032

)

NM

 

Total

$

 

83,594

 

11.4

%

$

 

82,571

 

13.8

%

$

 

239,531

 

11.2

%

$

 

233,575

 

12.7

%

(1)

Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”

(2)

During fiscal year 2018, we incurred costs in restructuring our United Kingdom business.

(3)

Other selling, general & administrative expenses includes credits and costs not directly allocated to a particular segment.

In the nine month period ended June 30, 2019, these include $2.7 million of costs directly related to the acquisition of the

citizen engagement centers business.

MAXIMUS, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

 

Three Months Ended
June 30,

Nine Months Ended
June 30,

2019

2018

2019

2018

Cash flows from operations

$

 

136,500

 

$

 

71,556

 

$

 

263,711

 

$

 

188,316

 

Purchases of property and equipment and capitalized software

 

(20,492

)

 

(8,377

)

 

(39,033

)

 

(21,552

)

Capital expenditure as a result of acquisition (1)

$

 

$

 

 

4,542

 

Free cash flow

$

 

116,008

 

$

 

63,179

 

$

 

229,220

 

$

 

166,764

 

 

(1)

Purchases of property and equipment and capitalized software costs included $4.5 million in one-time payments to cover software licenses required for employees joining us through the citizen engagement centers acquisition.

 

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