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MAXIMUS Reports Third Quarter Results

06:30 EDT 3 Aug 2017 | Businesswire
MAXIMUS

- Raises Full-Year Earnings Guidance for Fiscal Year 2017 -

MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and nine months ended June 30, 2017.

Highlights for the third quarter of fiscal year 2017 include:

  • Revenue of $600.4 million
  • Diluted earnings per share of $0.86 compared to $0.79 for the same period last year
  • Strong cash flow with cash from operations of $115.2 million and free cash flow of $109.1 million
  • Year-to-date signed contract awards of $1.8 billion and contracts pending (awarded but unsigned) of $259.8 million at June 30, 2017
  • Sales pipeline of $3.3 billion at June 30, 2017
  • Updated fiscal 2017 diluted earnings per share guidance to range between $3.05 and $3.15

For the third quarter of fiscal 2017, revenue decreased 3% to $600.4 million compared to $617.1 million reported for the same period last year. The decline was principally due to foreign currency impacts and the expected wind down of a subcontract in the U.S. Federal Services Segment. On a constant currency basis, revenue would have declined 1%.

Total company operating margin for the third quarter of fiscal 2017 was 13.6%.

For the third quarter of fiscal 2017, net income attributable to MAXIMUS totaled $56.9 million (or $0.86 of diluted earnings per share). Better-than-expected diluted earnings per share were primarily due to benefits for research and development tax credits in the United States and Canada. During the third quarter, the Company recorded tax credits of $3.7 million (or $0.06 of diluted earnings per share) related to tax returns for years prior to fiscal year 2017. In addition, the Company had favorable results of approximately $0.01 of diluted earnings per share principally due to other income and the gain on sale of the K-12 education business. The remainder of the over-delivery was attributable to performance. This compares to fiscal 2016 third quarter diluted earnings per share of $0.79, which included a $0.06 gain on the sale of the K-12 education business that was partially offset by $0.02 of legal expenses.

Health Services Segment

Health Services Segment revenue for the third quarter of fiscal 2017 was $335.1 million, which is comparable to the $333.7 million reported for the same period last year. Growth from existing contracts and improved service delivery in the United Kingdom was offset by foreign currency translation and work that ended, including a previously disclosed contract that the Company chose not to rebid. On a constant currency basis, segment revenue growth would have been 3%. Both revenue and operating income were impacted by approximately $4 million due to a pending change order where the Company has been performing the additional scope of work and costs were incurred, but revenue is expected to be recorded in future quarters.

Operating margin for the third quarter of fiscal 2017 was 15.4% compared to 15.1% reported for the prior-year period.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the third quarter of fiscal 2017 decreased 12% to $131.6 million compared to $149.6 million reported for the same period last year. As previously disclosed, the lower revenue was largely due to the wind down of the Company's subcontract supporting a program with the U.S. Department of Veterans Affairs. This subcontract ended in April 2017. In addition, the segment continues to be impacted by the slowdown from the ongoing transition of the new administration in the U.S. Federal Government.

Operating margin for the third quarter of fiscal 2017 was 12.1% compared to 12.8% reported for the prior-year period. The prior-year period included approximately $3.5 million of non-recurring revenue and operating income that bolstered margin.

Human Services Segment

Human Services Segment revenue for the third quarter of fiscal 2017 was $133.8 million, which is unchanged from the $133.8 million reported for the same period last year. Organic growth was offset by the expected wind down of the Work Programme in the United Kingdom.

Operating margin for the third quarter of fiscal 2017 was 12.2% compared to 10.7% reported for the prior-year period.

Sales and Pipeline

Year-to-date signed contract awards at June 30, 2017 totaled $1.8 billion and contracts pending (awarded but unsigned) totaled $259.8 million.

The sales pipeline at June 30, 2017 was $3.3 billion (comprised of approximately $0.8 billion in proposals pending, $0.7 billion in proposals in preparation, and $1.8 billion in opportunities tracking). This compares to a pipeline of $3.3 billion at March 31, 2017.

Balance Sheet and Cash Flows

Cash and cash equivalents at June 30, 2017 totaled $104.4 million. For the three months ended June 30, 2017, cash flows from operations totaled $115.2 million, with free cash flow of $109.1 million.

At June 30, 2017, Days Sales Outstanding (DSOs) were 64 and better than the Company’s expected range.

On May 31, 2017, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On July 7, 2017, the Company announced a $0.045 per share cash dividend, payable on August 31, 2017 to shareholders of record on August 15, 2017.

Outlook

MAXIMUS is reiterating its revenue guidance and continues to expect revenue to range between $2.425 billion and $2.475 billion for fiscal 2017 with a bias toward the bottom end of the range. Primarily due to the benefit from the research and development tax credits recorded in the third quarter, MAXIMUS is raising its fiscal 2017 earnings guidance and now expects GAAP diluted earnings per share to range between $3.05 and $3.15 for fiscal 2017. This compares to the Company's prior guidance of $3.00 to $3.10. The Company’s guidance does not include any future acquisitions or future legal expenses or recoveries.

"As governments seek solutions to manage aging populations, individuals with complex health needs and growing caseloads in a cost-effective and efficient way, the long-term macro environment continues to be favorable. Despite continued delays in certain markets, our core business remains strong. We are actively pursuing opportunities to build upon our stable portfolio. Management remains committed to achieving our long-term financial and operational objectives and drive shareholder value," commented MAXIMUS CEO Richard A. Montoni.

Conference Call and Webcast Information

MAXIMUS will host a conference call this morning, August 3, 2017, 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 August 17, 2017. Callers can access the replay by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay conference ID number: 13666496

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 18,000 employees worldwide, MAXIMUS is a proud partner to government agencies in the United States, Australia, Canada, Saudi Arabia 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 press release, we use the non-GAAP measures of organic revenue growth, constant currency movement 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 21, 2016. We have included a reconciliation of free cash flow to cash flows from operations in this press 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, market demand or acceptance of the Company’s products 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 June 30,   Nine Months Ended June 30,
2017   2016 2017   2016
Revenue $ 600,447 $ 617,094 $ 1,830,058 $ 1,780,269
Cost of revenue   448,258   465,715   1,380,734   1,371,008
Gross profit 152,189 151,379 449,324 409,261
Less:
Selling, general and administrative expenses 68,308 69,706 202,302 199,916
Amortization of intangible assets 2,720 3,517 9,508 9,928
Restructuring costs 2,242
Acquisition-related expenses 575
Add:
Gain on sale of a business   650   6,453   650   6,453
Operating income 81,811 84,609 235,922 205,295
Less:
Interest expense 458 1,029 2,051 3,291
Add:
Other income, net   1,306   62   1,986   3,402
Income before income taxes 82,659 83,642 235,857 205,406
Provision for income taxes   24,871   30,892   78,643   76,433
Net income 57,788 52,750 157,214 128,973
Income attributable to noncontrolling interests   870   525   1,117   1,354
Net income attributable to MAXIMUS $ 56,918 $ 52,225 $ 156,097 $ 127,619
Basic earnings per share attributable to MAXIMUS $ 0.87 $ 0.79 $ 2.38 $ 1.94
Diluted earnings per share attributable to MAXIMUS $ 0.86 $ 0.79 $ 2.36 $ 1.93
Dividends paid per share $ 0.045 $ 0.045 $ 0.135 $ 0.135
Weighted average shares outstanding:
Basic   65,571   65,766   65,637   65,836
Diluted   66,082   66,194   66,023   66,200
 
 

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 
  June 30, 2017   September 30, 2016
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 104,378 $ 66,199
Accounts receivable — billed and billable 376,972 444,357
Accounts receivable — unbilled 43,718 36,433
Income taxes receivable 11,569 17,273
Prepaid expenses and other current assets   52,902     56,718  
Total current assets 589,539 620,980
Property and equipment, net 106,622 131,569
Capitalized software, net 27,370 30,139
Goodwill 397,386 397,558
Intangible assets, net 99,487 109,027
Deferred contract costs, net 17,048 18,182
Deferred compensation plan assets 27,148 23,307
Deferred income taxes 8,548 8,644
Other assets   10,347     9,413  
Total assets $ 1,283,495   $ 1,348,819  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 111,856 $ 150,711
Accrued compensation and benefits 85,662 96,480
Deferred revenue 67,498 73,692
Income taxes payable 7,713 7,979
Long-term debt, current portion 180 277
Other liabilities   12,541     11,617  
Total current liabilities 285,450 340,756
Deferred revenue, less current portion 29,893 40,007
Deferred income taxes 24,731 16,813
Long-term debt 15,540 165,338
Deferred compensation plan liabilities, less current portion 28,668 24,012
Other liabilities   9,122     8,753  
Total liabilities 393,404 595,679
Shareholders’ equity:
Common stock, no par value 478,120 461,679
Accumulated other comprehensive loss (34,303 ) (36,169 )
Retained earnings   441,795     323,571  
Total MAXIMUS shareholders’ equity 885,612 749,081
Noncontrolling interests   4,479     4,059  
Total equity   890,091     753,140  
Total liabilities and equity $ 1,283,495   $ 1,348,819  
 
 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 
 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

2017   2016 2017   2016
Cash flows from operations:
Net income $ 57,788 $ 52,750 $ 157,214 $ 128,973
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property, equipment and capitalized software 13,449 13,387 43,416 39,246
Amortization of intangible assets 2,720 3,517 9,508 9,928
Deferred income taxes 14,335 (1,420 ) 8,614 (1,747 )
Stock compensation expense 5,588 4,667 15,822 13,818
Gain on sale of a business (650 ) (6,453 ) (650 ) (6,453 )
 
Change in assets and liabilities:
Accounts receivable — billed and billable 57,993 7,582 68,023 (27,469 )
Accounts receivable — unbilled (3,822 ) (705 ) (7,267 ) (5,556 )
Prepaid expenses and other current assets (1,568 ) (1,065 ) 5,944 4,378
Deferred contract costs 116 146 1,114 956
Accounts payable and accrued liabilities (19,694 ) (668 ) (37,413 ) (20,617 )
Accrued compensation and benefits 4,590 4,237 (1,703 ) (9,974 )
Deferred revenue (417 ) (9,694 ) (16,270 ) (11,703 )
Income taxes (15,345 ) 21,632 5,370 (965 )
Other assets and liabilities   166     (1,645 )   375     (4,683 )
Cash flows from operations 115,249 86,268 252,097 108,132
 
Cash flows from investing activities:
Purchases of property and equipment and capitalized software costs (6,113 ) (14,267 ) (19,088 ) (34,103 )
Acquisition of businesses, net of cash acquired (4,924 ) (46,736 )
Proceeds from the sale of a business 650 5,515 1,035 5,515
Other   267     171     485     381  
Cash used in investing activities (5,196 ) (13,505 ) (17,568 ) (74,943 )
 
Cash flows from financing activities:
Cash dividends paid to MAXIMUS shareholders (2,917 ) (2,920 ) (8,754 ) (8,780 )
Repurchases of common stock (2,197 ) (28,858 ) (33,335 )
Tax withholding related to RSU vesting (9,267 ) (11,597 )
Borrowings under credit facility 20,000 9,260 155,000 139,823
Repayment of credit facility and other long-term debt (120,074 ) (84,598 ) (304,902 ) (139,817 )
Stock option exercises 370 205 370 205
Other   (80 )   (533 )   (1,225 )   (533 )
Cash used in financing activities (102,701 ) (80,783 ) (197,636 ) (54,034 )
 
Effect of exchange rate changes on cash and cash equivalents   2,164     (2,154 )   1,286     (3,218 )
 
Net increase/(decrease) in cash and cash equivalents 9,516 (10,174 ) 38,179 (24,063 )
 
Cash and cash equivalents, beginning of period   94,862     60,783     66,199     74,672  
 
Cash and cash equivalents, end of period $ 104,378   $ 50,609   $ 104,378   $ 50,609  
 
 

MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

 
  Three Months Ended June 30,   Nine Months Ended June 30,
(Amounts in thousands) 2017   % (1)   2016   % (1) 2017   % (1)   2016   % (1)
Revenue:
Health Services $ 335,090 100% $ 333,699 100% $ 1,024,813 100% $ 956,169 100%
U.S. Federal Services 131,589 100% 149,601 100% 418,257 100% 445,077 100%
Human Services   133,768   100%   133,794   100%   386,988   100%   379,023   100%
Total $ 600,447   100% $ 617,094   100% $ 1,830,058   100% $ 1,780,269   100%
 
Gross Profit:
Health Services $ 83,269 24.8% $ 76,775 23.0% $ 247,957 24.2% $ 211,464 22.1%
U.S. Federal Services 33,627 25.6% 38,980 26.1% 107,774 25.8% 100,639 22.6%
Human Services   35,293   26.4%   35,624   26.6%   93,593   24.2%   97,158   25.6%
Total $ 152,189   25.3% $ 151,379   24.5% $ 449,324   24.6% $ 409,261   23.0%
 
Selling, general, and administrative expense:
Health Services $ 31,716 9.5% $ 26,345 7.9% $ 89,737 8.8% $ 77,312 8.1%
U.S. Federal Services 17,757 13.5% 19,861 13.3% 56,379 13.5% 55,821 12.5%
Human Services 18,925 14.1% 21,373 16.0% 55,827 14.4% 64,006 16.9%
Other (4)   (90 ) NM   2,127   NM   359   NM   2,777   NM
Total $ 68,308   11.4% $ 69,706   11.3% $ 202,302   11.1% $ 199,916   11.2%
 
Operating income:
Health Services $ 51,553 15.4% $ 50,430 15.1% $ 158,220 15.4% $ 134,152 14.0%
U.S. Federal Services 15,870 12.1% 19,119 12.8% 51,395 12.3% 44,818 10.1%
Human Services 16,368 12.2% 14,251 10.7% 37,766 9.8% 33,152 8.7%
Amortization of intangible assets (2,720 ) NM (3,517 ) NM (9,508 ) NM (9,928 ) NM
Restructuring costs (2) NM NM (2,242 ) NM NM
Acquisition-related expenses (3) NM NM NM (575 ) NM
Gain on sale of a business 650 NM 6,453 NM 650 NM 6,453 NM
Other (4)   90   NM   (2,127 ) NM   (359 ) NM   (2,777 ) NM
Total $ 81,811   13.6% $ 84,609   13.7% $ 235,922   12.9% $ 205,295   11.5%
 
(1)   Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”
 
(2) During the current fiscal year, we incurred costs in restructuring our United Kingdom Human Services business.
 
(3) Acquisition-related expenses relate to the acquisitions of Assessments Australia and Ascend in December 2015 and February 2016, respectively.
 
(4) Other costs and credits relate to SG&A balances that do not relate directly to segment business activities. During the three and nine months ended June 30, 2016, we incurred $2.1 million and $2.8 million, respectively, of legal costs related to a matter that occurred in fiscal year 2014. This matter was settled in the third quarter of fiscal 2017.
 
 

MAXIMUS, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

 
 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

(in thousands) 2017   2016 2017   2016
Cash flows from operations $ 115,249 $ 86,268 $ 252,097 $ 108,132
Purchases of property and equipment and capitalized software costs   (6,113 )   (14,267 )   (19,088 )   (34,103 )
Free cash flow $ 109,136   $ 72,001   $ 233,009   $ 74,029  
 

MAXIMUS
Lisa Miles, 703-251-8637
lisamiles@maximus.com

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