MAXIMUS Reports Fiscal Year 2019 First Quarter Results

– Company Reiterates Full Year Revenue and Earnings Guidance –

RESTON, Va.–(BUSINESS WIRE)–MAXIMUS (NYSE: MMS), a leading provider of government services
worldwide, today reported financial results for the three months
ended December 31, 2018.

Highlights for the first quarter of fiscal year 2019 include:

  • Revenue grew 7% to $664.6 million compared to $623.1 million reported
    for the same period last year, driven by the citizen engagement center
    acquisition in the U.S. Federal Services Segment
  • Diluted earnings per share of $0.86 were better-than-expected due to
    strong operational delivery in the U.S. Health and Human Services
    Segment
  • Cash flows from operations of $59.3 million and free cash flow of
    $53.9 million
  • Year-to-date signed contract awards of approximately $224 million and
    contracts pending (awarded but unsigned) of approximately $743 million
    at December 31, 2018
  • Sales pipeline of $19.9 billion at December 31, 2018, of which 78% is
    new work
  • Purchased 650,000 shares of MAXIMUS common stock for a total cost of
    $41.3 million for an average price of $63.52

Bruce Caswell, President and Chief Executive Officer of MAXIMUS,
commented, “MAXIMUS delivered solid first quarter results with good
performance, most notably in our U.S. Health and Human Services Segment.
We continue to make meaningful progress as we transform the customer
experience with digital tools, expand our clinical-related services and
extend our reach into new markets and customer areas.”

For the first quarter of fiscal 2019, revenue totaled $664.6 million as
compared to $623.1 million reported for the same period last year.
Revenue growth from the acquisition was partially offset by unfavorable
foreign currency translation of $7.2 million.

For the first quarter of fiscal 2019, operating income totaled $74.1
million, yielding an operating margin of 11.2% as compared to 12.8% for
the same period last year. As expected, operating margin was lower due
to the newly acquired citizen engagement center contracts that have
cost-plus terms, and therefore generate operating margins in the
mid-single digits.

For the first quarter of fiscal 2019, net income attributable to MAXIMUS
totaled $55.9 million (or $0.86 of diluted earnings per share) and
benefited from solid operational performance in the U.S. Health and
Human Services Segment. This compares to first quarter of fiscal 2018
diluted earnings per share of $0.89.

U.S. Health & Human Services Segment

U.S. Health and Human Services Segment revenue for the first quarter of
fiscal 2019 decreased 3.3% to $294.2 million compared to $304.2 million
reported for the same period last year. The decrease was principally due
to the refresh or rebid of certain larger contracts in the portfolio.

Operating margin for the first quarter of fiscal 2019 was 19.0% compared
to 16.2% reported for the prior-year period. Operating margins increased
despite a pullback in revenue primarily due to solid operational
performance across a number of health services contracts and a
seasonally strong quarter in the domestic consulting business. Segment
operating margin also benefited from cost synergies as a result of the
acquisition in our U.S. Federal Services Segment.

U.S. Federal Services Segment

As expected, U.S. Federal Services Segment revenue for the first quarter
of fiscal 2019 increased 63% to $217.0 million compared to $133.0
million reported for the same period last year. Acquired revenue from
the citizen engagement center acquisition was $101.3 million. Excluding
the acquisition, the Segment’s organic revenue decreased primarily due
to contracts ending, including temporary work supporting disaster relief
efforts that bolstered revenue in the first quarter last year, as well
as contracts acquired with the Acentia transaction that ended because
they were re-procured under small business set-aside rules which
precluded MAXIMUS from bidding.

Operating margin for the first quarter of fiscal 2019 was 9.8% compared
to 12.6% reported for the prior-year period. With the newly acquired
cost-plus contracts, we now expect operating margins in the Segment to
be in the range of 8% to 10%.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the first quarter of fiscal 2019
decreased 17% (14% on a constant currency basis) to $153.4 million
compared to $185.9 million reported for the same period last year due to
welfare-to-work contracts in Australia and the United Kingdom.

Operating margin for the first quarter of fiscal 2019 was 2.9% compared
to 8.7% reported for the prior-year period.

The effects of a robust full employment economy continue to impact the
Segment, tempering revenue and margin due to lower volumes in the
segment’s welfare-to-work business.

Sales and Pipeline

Year-to-date signed contract awards at December 31, 2018, totaled $224
million and contracts pending (awarded but unsigned) totaled $743
million.

The sales pipeline at December 31, 2018, was $19.9 billion (comprised of
approximately $2.6 billion in proposals pending, $0.3 billion in
proposals in preparation and $17.0 billion in opportunities tracking).
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 (BCV), 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 so that the estimated TCV will now be reported under this
new methodology.

Balance Sheet and Cash Flows

Cash and cash equivalents at December 31, 2018, totaled $54.7 million.
For the three months ended December 31, 2018, cash flows from operations
totaled $59.3 million, with free cash flow of $53.9 million.

At December 31, 2018, days sales outstanding (DSO) were 73 days after
normalizing the calculation to include a full three months of revenue
from the acquisition.

During the first quarter, MAXIMUS purchased 650,000 shares of MAXIMUS
common stock for a total cost of $41.3 million for an average price of
$63.52. Subsequent to December 31, 2018, MAXIMUS has purchased another
62,000 shares of common stock for a total cost of $4.1 million for an
average price of $66.15.

On January 4, 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 February 28, 2019, to shareholders of record on
February 15, 2019.

Outlook

MAXIMUS is reiterating its fiscal 2019 revenue and earnings guidance.
The Company expects revenue to range between $2.925 billion and $3.0
billion and GAAP diluted earnings per share to range from $3.55 to $3.75
for fiscal 2019.

Conference Call and Webcast Information

MAXIMUS will host a conference call this morning, February 7, 2019, at
9:00 a.m. (ET). The call is open to the public and is available by
webcast at http://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 February 21, 2019. Callers can access the replay by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay
conference ID number: 13686904

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, 2017. We have included a reconciliation of
free cash flow to cash flows from operations in this news release.

Statements that are not historical facts, including statements about
the Company’s confidence and strategies and the Company’s expectations
about revenues, results of operations, profitability, future contracts,
market opportunities, acquisitions, technology-driven innovations,
digital transformation, market demand or acceptance of the Company’s
current or future products or services, are forward-looking statements
that involve risks and uncertainties. These uncertainties could cause
the Company’s actual results to differ materially from those indicated
by such forward-looking statements and include reliance on government
clients; risks associated with government contracting; risks involved in
managing government projects; legislative changes and political
developments; opposition from government unions; challenges resulting
from growth; adverse publicity; and legal, economic, and other risks
detailed in Exhibit 99.1 to the Company’s most recent Annual Report
filed with the Securities and Exchange Commission, found on
maximus.com.

             

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 
Three Months Ended December 31,
2018           2017
Revenue $ 664,619 $ 623,148
Cost of revenue 505,354   471,188
Gross profit 159,265 151,960
Selling, general and administrative expenses 79,671 69,559
Amortization of intangible assets 5,458   2,718
Operating income 74,136 79,683
Interest expense 625 168
Other income, net 2,045   287
Income before income taxes 75,556 79,802
Provision for income taxes 19,833   19,850
Net income 55,723 59,952
(Loss)/income attributable to noncontrolling interests (190 ) 861
Net income attributable to MAXIMUS $ 55,913   $ 59,091
Basic earnings per share attributable to MAXIMUS $ 0.86 $ 0.90
Diluted earnings per share attributable to MAXIMUS $ 0.86 $ 0.89
Dividends paid per share $ 0.25   $ 0.045
Weighted average shares outstanding:
Basic 64,827   65,866
Diluted 64,977   66,177
 
 
                     

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 
December 31, 2018 September 30, 2018
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 54,736 $ 349,245
Short-term investments 20,264
Accounts receivable — billed and billable 486,922 357,613
Accounts receivable — unbilled 124,385 31,536
Income taxes receivable 7,066 5,979
Prepaid expenses and other current assets 49,915   43,995  
Total current assets 723,024 808,632
Property and equipment, net 81,352 77,544
Capitalized software, net 22,773 22,429
Goodwill 585,735 399,882
Intangible assets, net 204,553 88,035
Deferred contract costs, net 16,049 14,380
Deferred compensation plan assets 28,970 34,305
Deferred income taxes 209 6,834
Other assets 6,637   9,959  
Total assets $ 1,669,302   $ 1,462,000  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 152,532 $ 114,378
Accrued compensation and benefits 97,563 95,555
Deferred revenue 37,231 51,182
Income taxes payable 2,302 4,438
Long-term debt, current portion 5,124 136
Other liabilities 17,474   11,760  
Total current liabilities 312,226 277,449
Deferred revenue, less current portion 22,275 20,394
Deferred income taxes 49,617 26,377
Long-term debt 120,321 374
Deferred compensation plan liabilities, less current portion 31,769 33,497
Other liabilities 15,715   17,490  
Total liabilities 551,923 375,581
Shareholders’ equity:
Common stock, no par value 492,938 487,539
Accumulated other comprehensive loss (42,673 ) (36,953 )
Retained earnings 664,332   633,281  
Total MAXIMUS shareholders’ equity 1,114,597 1,083,867
Noncontrolling interests 2,782   2,552  
Total equity 1,117,379   1,086,419  
Total liabilities and equity $ 1,669,302   $ 1,462,000  
 
 
             

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 
Three Months Ended
December 31,
2018           2017
Cash flows from operations:
Net income $ 55,723 $ 59,952
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property, equipment and capitalized
software
11,231 13,719
Amortization of intangible assets 5,458 2,718
Deferred income taxes 16,511 5,707
Stock compensation expense 4,971 5,402
 
Change in assets and liabilities:
Accounts receivable — billed and billable (69,890 ) (44,381 )
Accounts receivable — unbilled 20,198 5,535
Prepaid expenses and other current assets (5,691 ) 6,019
Deferred contract costs (1,757 ) 1,413
Accounts payable and accrued liabilities 26,564 11,387
Accrued compensation and benefits 377 (29,588 )
Deferred revenue (372 ) (12,405 )
Income taxes (3,848 ) 9,642
Other assets and liabilities (135 ) 2,877  
Cash flows from operations 59,340 37,997
 
Cash flows from investing activities:
Purchases of property and equipment and capitalized software costs (9,973 ) (6,514 )
Acquisition of part of noncontrolling interest (421,809 )
Redemption of short-term investments 19,996
Other 47   59  
Cash used in investing activities (411,739 ) (6,455 )
 
Cash flows from financing activities:
Cash dividends paid to MAXIMUS shareholders (16,033 ) (2,930 )
Purchases of MAXIMUS common stock (40,984 ) (1,038 )
Tax withholding related to RSU vesting (8,915 ) (8,529 )
Borrowings under credit facility 195,100 59,683
Repayment of credit facility and other long-term debt (70,033 ) (48,156 )
Other (133 )  
Cash used in financing activities 59,002 (970 )
 
Effect of exchange rate changes on cash and cash equivalents (1,068 ) 203  
 
Net increase in cash, cash equivalents and restricted cash (294,465 ) 30,775
 
Cash, cash equivalents and restricted cash, beginning of period (1) 356,559   179,727  
 
Cash, cash equivalents and restricted cash, end of period (1) $ 62,094   $ 210,502  
 
(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 $7.4 million
and $7.3 million at December 31, 2018, and September 30, 2018,
respectively.
 
 
     

MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

 
Three Months Ended December 31,
        2018       % (1)       2017       % (1)
Revenue:
U.S. Health & Human Services $ 294,213 $ 304,241
U.S. Federal Services 216,987 132,983
Outside the U.S. 153,419   185,924  
Total $ 664,619   $ 623,148  
 
Gross Profit:
U.S. Health & Human Services $ 88,031 29.9 % $ 84,231 27.7 %
U.S. Federal Services 47,985 22.1 % 33,358 25.1 %
Outside the U.S. 23,249   15.2 % 34,371   18.5 %
Total $ 159,265   24.0 % $ 151,960   24.4 %
 
Selling, general, and administrative expense:
U.S. Health & Human Services $ 32,139 10.9 % $ 34,805 11.4 %
U.S. Federal Services 26,632 12.3 % 16,648 12.5 %
Outside the U.S. 18,808 12.3 % 18,106 9.7 %
Other (2) 2,092   NM   NM
Total (3) $ 79,671   12.0 % $ 69,559   11.2 %
 
Operating income:
U.S. Health & Human Services $ 55,892 19.0 % $ 49,426 16.2 %
U.S. Federal Services 21,353 9.8 % 16,710 12.6 %
Outside the U.S. 4,441 2.9 % 16,265 8.7 %
Amortization of intangible assets (5,458 ) NM (2,718 ) NM
Other (2) (2,092 ) NM   NM
Total $ 74,136   11.2 % $ 79,683   12.8 %
 
(1)     Percentage of respective segment revenue. Percentages not considered
meaningful are marked “NM.”
(2) Other selling, general & administrative expenses includes credits
and costs not directly allocated to a particular segment. In the
three month period ended December 31, 2018, 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

December 31,

2018           2017
Cash flows from operations $ 59,340 $ 37,997
Purchases of property and equipment and capitalized software costs (9,973 ) (6,514 )
Capital expenditure as a result of acquisition (1) 4,542  
Free cash flow $ 53,909   $ 31,483  
 
(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.
 

Contacts

Lisa Miles 703.251.8637
lisamiles@maximus.com

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