MAXIMUS (NYSE: MMS), a leading provider of government services
worldwide, today reported financial results for the three and six months
ended March 31, 2019.
Highlights for the second quarter of fiscal year 2019 include:
-
Revenue grew 20.2% to $736.5 million compared to $612.8 million
reported for the same period last year, driven by the citizen
engagement centers acquisition in the U.S. Federal Services Segment -
Diluted earnings per share were $0.96, 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 $67.9 million and free cash flow of
$59.3 million -
Year-to-date signed contract awards totaled approximately $1.0 billion
and contracts pending (awarded but unsigned) of $725 million
at March 31, 2019 -
Sales pipeline of $21.9 billion at March 31, 2019, of which 74% is new
work
Bruce Caswell, President and Chief Executive Officer of MAXIMUS,
commented, “Over the past year we have maintained our unparalleled
commitment to operational excellence, solid execution and generating
robust cash flow. We remain keenly focused on our top priorities of
digital transformation, clinical services evolution and strategic market
expansion. The strategy aims to build on the many strengths of MAXIMUS
and deliver added value to our global clients.”
For the second quarter of fiscal 2019, revenue totaled $736.5 million as
compared to $612.8 million reported for the same period last year.
Revenue growth from the acquisition was partially offset by unfavorable
foreign currency translation of $11.9 million and timing of revenue
within fiscal year 2019.
For the second quarter of fiscal 2019, operating income totaled
$81.8 million, yielding an operating margin of 11.1% as compared to
11.6% for the same period last year. As expected, operating margin was
lower principally due to the acquisition and its cost-plus contracts
that generate an operating margin in the mid-single digits.
For the second quarter of fiscal 2019, net income attributable to
MAXIMUS totaled $61.9 million, or $0.96 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
second quarter of fiscal 2018 diluted earnings per share of $0.84.
Results for the second quarter of fiscal 2019 include amortization
expense related to intangible assets of $9.5 million or $0.11 cents
diluted earnings per share, of which $7.1 million resulted from the
acquisition.
U.S. Health & Human Services Segment
U.S. Health and Human Services Segment revenue for the second quarter of
fiscal 2019 decreased to $290.7 million compared to $306.2 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 second quarter of fiscal 2019 was 19.6%
compared to 16.3% reported for the prior-year period. Revenue and
operating margin benefited from the expected execution of a $4.0 million
change order in which the associated expenses occurred in prior periods.
Compared to the prior year, the segment also benefited from cost
synergies from the acquisition. Operating margin for the segment is
expected to be between 17% and 19% for fiscal year 2019.
U.S. Federal Services Segment
As expected, U.S. Federal Services Segment revenue for the second
quarter of fiscal 2019 increased to $289.7 million compared to
$116.3 million reported for the same period last year. Revenue from the
acquisition totaled $176.0 million for the second quarter of 2019.
Excluding the acquisition, organic revenue declined 2% compared to the
same period last year.
Operating margin for the second quarter of fiscal 2019 was 10.2% and
benefited from favorable results on performance-based contracts. This
compares to 8.5% reported for the prior-year period, which was tempered
by a non-recurring expense to renegotiate a subcontract on a large
program where MAXIMUS increased its scope of work. For fiscal year 2019,
the segment is expected to have an operating margin of approximately 10%.
Outside the U.S. Segment
Outside the U.S. Segment revenue for the second quarter of fiscal 2019
decreased 18% (12% on a constant currency basis) to $156.0 million
compared to $190.2 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 second quarter of fiscal 2019 was 2.9% compared
to 8.6% reported for the prior-year period. The segment has been
unfavorably impacted by contracts in the United Kingdom that launched in
fiscal 2018. Under these contracts, MAXIMUS provides health and
employment services to vulnerable populations with disabilities and
complex health conditions. As previously disclosed, the second quarter
of fiscal year 2018 included a one-time profit pick-up related to the
termination of major elements of the Fit for Work contract. The Company
expects operating margin for the segment to be between 3% and 4% for
fiscal year 2019.
Sales and Pipeline
Year-to-date signed contract awards at March 31, 2019, totaled
$1.0 billion and contracts pending (awarded but unsigned) of
$725 million. These awards reflect total contract value.
The sales pipeline at March 31, 2019, was $21.9 billion (comprised of
approximately $1.3 billion in proposals pending, $2.5 billion in
proposals in preparation and $18.1 billion in opportunities tracking).
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 March 31, 2019, totaled $46.8 million.
Outstanding debt was $79.0 million at the end of the second quarter. For
the three months ended March 31, 2019, cash flows from operations
totaled $67.9 million, with free cash flow of $59.3 million.
At March 31, 2019, days sales outstanding (DSO) were 77 days, which was
higher than the previous quarter due to timing on the payment of several
large invoices. We continue to expect to close the fiscal year with DSO
towards the bottom end of our range of 65 to 80 days.
On April 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 May 31, 2019, to shareholders of record on
May 15, 2019.
Board of Directors Succession
As a part of the Company’s board succession plan, effective March 25,
2019, MAXIMUS appointed Michael J. Warren to the Board of Directors. Mr.
Warren currently serves as the Managing Director of Albright Stonebridge
Group, a global business strategy and commercial diplomacy firm, where
he is responsible for advising clients on international growth
strategies, stakeholder management, and economic and geopolitical issues
affecting global markets.
Outlook
MAXIMUS is narrowing its fiscal 2019 revenue guidance to $2.925 billion
to $2.950 billion from the previous guidance of $2.925 billion to
$3.0 billion. MAXIMUS is also narrowing its GAAP diluted earnings per
share guidance to $3.65 to $3.75 from its previous guidance of $3.55 to
$3.75.
To provide context on revenue guidance, from initial projections of
fiscal 2019 revenue, it is estimated that approximately $25 million of
revenue has been delayed to fiscal 2020. Extended procurement cycles,
including new awards coming under protest, continue to cause delays.
Second, and to a lesser extent, a new contract had a slower start due to
the client proceeding with a more cautious approach to rolling out
Medicaid managed care.
Conference Call and Webcast Information
MAXIMUS will host a conference call this morning, May 9, 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 May 23, 2019. Callers can access the replay by calling:
877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay
conference ID number: 13689884
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.
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. |
|||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| Revenue | $ | 736,520 | $ | 612,787 | $ | 1,401,139 | $ | 1,235,935 | |||||
| Cost of revenue | 567,098 | 463,984 | 1,072,452 | 935,172 | |||||||||
| Gross profit | 169,422 | 148,803 | 328,687 | 300,763 | |||||||||
| Selling, general and administrative expenses | 78,102 | 74,879 | 157,773 | 144,438 | |||||||||
| Amortization of intangible assets | 9,519 | 2,603 | 14,977 | 5,321 | |||||||||
| Operating income | 81,801 | 71,321 | 155,937 | 151,004 | |||||||||
| Interest expense | 1,569 | 157 | 2,194 | 325 | |||||||||
| Other income, net | 447 | 1,392 | 2,492 | 1,679 | |||||||||
| Income before income taxes | 80,679 | 72,556 | 156,235 | 152,358 | |||||||||
| Provision for income taxes | 18,913 | 17,450 | 38,746 | 37,300 | |||||||||
| Net income | 61,766 | 55,106 | 117,489 | 115,058 | |||||||||
| (Loss)/income attributable to noncontrolling interests | (158) | (386) | (348) | 475 | |||||||||
| Net income attributable to MAXIMUS | $ | 61,924 | $ | 55,492 | $ | 117,837 | $ | 114,583 | |||||
| Basic earnings per share attributable to MAXIMUS | $ | 0.96 | $ | 0.84 | $ | 1.82 | $ | 1.74 | |||||
| Diluted earnings per share attributable to MAXIMUS | $ | 0.96 | $ | 0.84 | $ | 1.82 | $ | 1.73 | |||||
| Dividends paid per share | $ | 0.25 | $ | 0.045 | $ | 0.50 | $ | 0.09 | |||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 64,369 | 65,856 | 64,600 | 65,857 | |||||||||
| Diluted | 64,643 | 66,268 | 64,817 | 66,223 | |||||||||
|
MAXIMUS, Inc. |
|||||||
| March 31, 2019 | September 30, 2018 | ||||||
| (unaudited) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 46,799 | $ | 349,245 | |||
| Short-term investments | — | 20,264 | |||||
| Accounts receivable — billed and billable | 491,560 | 357,613 | |||||
| Accounts receivable — unbilled | 131,250 | 31,536 | |||||
| Income taxes receivable | 20,733 | 5,979 | |||||
| Prepaid expenses and other current assets | 49,668 | 43,995 | |||||
| Total current assets | 740,010 | 808,632 | |||||
| Property and equipment, net | 76,693 | 77,544 | |||||
| Capitalized software, net | 25,232 | 22,429 | |||||
| Goodwill | 587,751 | 399,882 | |||||
| Intangible assets, net | 195,354 | 88,035 | |||||
| Deferred contract costs, net | 19,771 | 14,380 | |||||
| Deferred compensation plan assets | 32,387 | 34,305 | |||||
| Deferred income taxes | 209 | 6,834 | |||||
| Other assets | 10,309 | 9,959 | |||||
| Total assets | $ | 1,687,716 | $ | 1,462,000 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 169,099 | $ | 114,378 | |||
| Accrued compensation and benefits | 87,698 | 95,555 | |||||
| Deferred revenue | 39,215 | 51,182 | |||||
| Income taxes payable | 3,159 | 4,438 | |||||
| Long-term debt, current portion | 3,681 | 136 | |||||
| Other liabilities | 17,909 | 11,760 | |||||
| Total current liabilities | 320,761 | 277,449 | |||||
| Deferred revenue, less current portion | 24,910 | 20,394 | |||||
| Deferred income taxes | 51,060 | 26,377 | |||||
| Long-term debt | 75,295 | 374 | |||||
| Deferred compensation plan liabilities, less current portion | 32,622 | 33,497 | |||||
| Other liabilities | 15,487 | 17,490 | |||||
| Total liabilities | 520,135 | 375,581 | |||||
| Shareholders’ equity: | |||||||
| Common stock, no par value | 498,269 | 487,539 | |||||
| Accumulated other comprehensive loss | (39,136) | (36,953) | |||||
| Retained earnings | 705,824 | 633,281 | |||||
| Total MAXIMUS shareholders’ equity | 1,164,957 | 1,083,867 | |||||
| Noncontrolling interests | 2,624 | 2,552 | |||||
| Total equity | 1,167,581 | 1,086,419 | |||||
| Total liabilities and equity | $ | 1,687,716 | $ | 1,462,000 | |||
|
MAXIMUS, Inc. |
|||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||
| Cash flows from operations: | |||||||||||||
| Net income | $ | 61,766 | $ | 55,106 | $ | 117,489 | $ | 115,058 | |||||
| Adjustments to reconcile net income to cash flows from operations: | |||||||||||||
|
Depreciation and amortization of property, equipment and capitalized software |
11,176 | 13,355 | 22,407 | 27,074 | |||||||||
| Amortization of intangible assets | 9,519 | 2,603 | 14,977 | 5,321 | |||||||||
| Deferred income taxes | 1,253 | (14,886) | 17,764 | (9,179) | |||||||||
| Stock compensation expense | 4,933 | 5,922 | 9,904 | 11,324 | |||||||||
|
Change in assets and liabilities excluding acquired assets and liabilities: |
|||||||||||||
| Accounts receivable — billed and billable | (2,830) | 25,859 | (72,720) | (18,522) | |||||||||
| Accounts receivable — unbilled | (11,009) | (10,265) | 9,189 | (4,730) | |||||||||
| Prepaid expenses and other current assets | 573 | 2,507 | (5,118) | 8,526 | |||||||||
| Deferred contract costs | (3,658) | 381 | (5,415) | 1,794 | |||||||||
| Accounts payable and accrued liabilities | 15,516 | (14,558) | 42,080 | (3,171) | |||||||||
| Accrued compensation and benefits | (7,820) | 14,197 | (7,443) | (15,391) | |||||||||
| Deferred revenue | 4,807 | (11,384) | 4,435 | (23,789) | |||||||||
| Income taxes | (12,648) | 8,992 | (16,496) | 18,634 | |||||||||
| Other assets and liabilities | (3,707) | 934 | (3,842) | 3,811 | |||||||||
| Cash flows from operations | 67,871 | 78,763 | 127,211 | 116,760 | |||||||||
| Cash flows from investing activities: | |||||||||||||
| Purchases of property and equipment and capitalized software costs | (8,568) | (6,661) | (18,541) | (13,175) | |||||||||
| Acquisitions | — | (157) | (421,809) | (157) | |||||||||
| Redemption of short-term investments | — | — | 19,996 | — | |||||||||
| Other | 237 | 482 | 284 | 541 | |||||||||
| Cash used in investing activities | (8,331) | (6,336) | (420,070) | (12,791) | |||||||||
| Cash flows from financing activities: | |||||||||||||
| Cash dividends paid to MAXIMUS shareholders | (15,950) | (2,935) | (31,983) | (5,865) | |||||||||
| Purchases of MAXIMUS common stock | (5,084) | — | (46,068) | (1,038) | |||||||||
| Tax withholding related to RSU vesting | — | — | (8,915) | (8,529) | |||||||||
| Borrowings under credit facility | 124,948 | 65,000 | 320,048 | 124,683 | |||||||||
| Repayment of credit facility and other long-term debt | (171,506) | (76,596) | (241,539) | (124,752) | |||||||||
| Other | — | (2,130) | (133) | (2,130) | |||||||||
| Cash used in financing activities | (67,592) | (16,661) | (8,590) | (17,631) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 436 | 867 | (632) | 1,070 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | (7,616) | 56,633 | (302,081) | 87,408 | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period (1) | 62,094 | 210,502 | 356,559 | 179,727 | |||||||||
| Cash, cash equivalents and restricted cash, end of period (1) | $ | 54,478 | $ | 267,135 | $ | 54,478 | $ | 267,135 | |||||
| (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 $7.7 million and $7.3 million at March 31, 2019, and September 30, 2018, respectively. |
|
|
MAXIMUS, Inc. |
||||||||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||
| 2019 | % (1) | 2018 | % (1) | 2019 | % (1) | 2018 | % (1) | |||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||
| U.S. Health & Human Services | $ | 290,737 | $ | 306,249 | $ | 584,950 | $ | 610,490 | ||||||||||||||||||||
| U.S. Federal Services | 289,736 | 116,327 | 506,723 | 249,310 | ||||||||||||||||||||||||
| Outside the U.S. | 156,047 | 190,211 | 309,466 | 376,135 | ||||||||||||||||||||||||
| Total | $ | 736,520 | $ | 612,787 | $ | 1,401,139 | $ | 1,235,935 | ||||||||||||||||||||
| Gross Profit: | ||||||||||||||||||||||||||||
| U.S. Health & Human Services | $ | 86,260 | 29.7 | % | $ | 86,586 | 28.3 | % | $ | 174,291 | 29.8 | % | $ | 170,817 | 28.0 | % | ||||||||||||
| U.S. Federal Services | 60,696 | 20.9 | % | 27,374 | 23.5 | % | 108,681 | 21.4 | % | 60,732 | 24.4 | % | ||||||||||||||||
| Outside the U.S. | 22,466 | 14.4 | % | 34,843 | 18.3 | % | 45,715 | 14.8 | % | 69,214 | 18.4 | % | ||||||||||||||||
| Total | $ | 169,422 | 23.0 | % | $ | 148,803 | 24.3 | % | $ | 328,687 | 23.5 | % | $ | 300,763 | 24.3 | % | ||||||||||||
| Selling, general, and administrative expense: | ||||||||||||||||||||||||||||
| U.S. Health & Human Services | $ | 29,400 | 10.1 | % | $ | 36,616 | 12.0 | % | $ | 61,539 | 10.5 | % | $ | 71,421 | 11.7 | % | ||||||||||||
| U.S. Federal Services | 31,104 | 10.7 | % | 17,540 | 15.1 | % | 57,736 | 11.4 | % | 34,188 | 13.7 | % | ||||||||||||||||
| Outside the U.S. | 17,992 | 11.5 | % | 18,403 | 9.7 | % | 36,800 | 11.9 | % | 36,509 | 9.7 | % | ||||||||||||||||
| Restructuring costs | — | NM | 2,320 | NM | — | NM | 2,320 | NM | ||||||||||||||||||||
| Other | (394 | ) | NM | — | NM | 1,698 | NM | — | NM | |||||||||||||||||||
| Total | $ | 78,102 | 10.6 | % | $ | 74,879 | 12.2 | % | $ | 157,773 | 11.3 | % | $ | 144,438 | 11.7 | % | ||||||||||||
| Operating income: | ||||||||||||||||||||||||||||
| U.S. Health & Human Services | $ | 56,860 | 19.6 | % | $ | 49,970 | 16.3 | % | $ | 112,752 | 19.3 | % | $ | 99,396 | 16.3 | % | ||||||||||||
| U.S. Federal Services | 29,592 | 10.2 | % | 9,834 | 8.5 | % | 50,945 | 10.1 | % | 26,544 | 10.6 | % | ||||||||||||||||
| Outside the U.S. | 4,474 | 2.9 | % | 16,440 | 8.6 | % | 8,915 | 2.9 | % | 32,705 | 8.7 | % | ||||||||||||||||
| Amortization of intangible assets | (9,519 | ) | NM | (2,603 | ) | NM | (14,977 | ) | NM | (5,321 | ) | NM | ||||||||||||||||
| Restructuring costs (2) | — | NM | (2,320 | ) | NM | — | NM | (2,320 | ) | NM | ||||||||||||||||||
| Other (3) | 394 | NM | — | NM | (1,698 | ) | NM | — | NM | |||||||||||||||||||
| Total | $ | 81,801 | 11.1 | % | $ | 71,321 | 11.6 | % | $ | 155,937 | 11.1 | % | $ | 151,004 | 12.2 | % | ||||||||||||
| (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 six month period ended March 31, 2019, these include $2.7 million of costs directly related to the acquisition of the citizen engagement centers business. |
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|
MAXIMUS, Inc. |
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|
Three Months Ended |
Six Months Ended |
|||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||
| Cash flows from operations | $ | 67,871 | $ | 78,763 | $ | 127,211 | $ | 116,760 | ||||||
| Purchases of property and equipment and capitalized software costs | (8,568) | (6,661) | (18,541) | (13,175) | ||||||||||
| Capital expenditure as a result of acquisition (1) | $ | — | $ | — | 4,542 | — | ||||||||
| Free cash flow | $ | 59,303 | $ | 72,102 | $ | 113,212 | $ | 103,585 | ||||||
| (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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