MAXIMUS Reports Fiscal Year 2018 Third Quarter Results

- Company to Increase Quarterly Cash Dividend to $0.25 per Share -

News provided by

MAXIMUS

Aug 09, 2018, 06:30 ET

RESTON, Va., Aug. 9, 2018 /PRNewswire/ -- MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and nine months ended June 30, 2018.

Highlights for the third quarter of fiscal year 2018 include:

  • Revenue of $597.9 million compared to $600.4 million reported for the same period last year
  • Diluted earnings per share of $0.91 compared to $0.86 for the same period last year
  • Cash flows from operations of $72.5 million and free cash flow of $64.1 million
  • Year-to-date signed contract awards of $2.0 billion and contracts pending (awarded but unsigned) of $779.4 million at June 30, 2018
  • Sales pipeline of $2.9 billion at June 30, 2018
  • An expansion of the Company's share repurchase program of up to $200 million and the purchase of 995,000 shares in the quarter
  • Today, the Company announced a significant increase to the quarterly cash dividend from the current payout of $0.045 per share to $0.25 per share, which is a yield of approximately 1.5%, effective November 2018.

For the third quarter of fiscal 2018, revenue totaled $597.9 million as compared to $600.4 million reported for the same period last year. Organic growth in the Health Services Segment offset expected revenue declines in the U.S. Federal Services and Human Services Segments.

Financial results in the third quarter benefited from several change orders which provided a $15.5 million uplift to revenue and operating income. The change orders were signed and recorded in the third quarter, but the related costs were incurred in prior periods. The change order benefit was offset by certain large contracts in the Health Services Segment that were recently renewed and reset, as well as by the ongoing startup of contracts in the Human Services Segment.

As a result, for the third quarter of fiscal 2018, operating income totaled $82.6 million, yielding an operating margin of 13.8%.

For the third quarter of fiscal 2018, net income attributable to MAXIMUS totaled $59.9 million (or $0.91 of diluted earnings per share). This compares to fiscal 2017 third quarter diluted earnings per share of $0.86.

Health Services Segment 
Health Services Segment revenue for the third quarter of fiscal 2018 increased 7% to $359.1 million compared to $335.1 million reported for the same period last year. The increase in revenue was driven by organic growth, including $13.7 million from the aforementioned change orders.

Operating margin for the third quarter of fiscal 2018 was 17.8% compared to 15.4% reported for the prior-year period. The accretive change orders were offset by forecasted changes on several sizable contracts that were rebid, extended or the option periods were exercised where the contracts have commenced service and are in the early cycles of program and margin maturity. Excluding the change orders, Health Services Segment operating margin would have been 14.5% in the third quarter of fiscal 2018.

U.S. Federal Services Segment 
As expected, U.S. Federal Services Segment revenue for the third quarter of fiscal 2018 decreased 15% to $112.2 million compared to $131.6 million reported for the same period last year. As previously disclosed, the lower revenue was largely due to contracts that ended.

Operating margin for the third quarter of fiscal 2018 was 13.3% compared to 12.1% reported for the prior-year period. The increase in operating margin was driven by higher volumes on a couple of performance-based contracts.

Human Services Segment 
Human Services Segment revenue for the third quarter of fiscal 2018 decreased 5% to $126.6 million compared to $133.8 million reported for the same period last year due to the wind-down of several contracts both domestically and internationally, including the Work Programme and Work Choice contracts in the U.K. which are set to end in fiscal 2019. Third quarter revenue and operating income benefited from a $1.8 million change order that was disclosed last quarter.

Operating margin for the third quarter of fiscal 2018 was 5.9% compared to 12.2% reported for the prior-year period. As expected, operating margin was tempered by a number of new contracts that are in the start-up phase but performing as expected. On a normalized basis, excluding the benefit of the change order and the unfavorable impact from the contracts in startup, operating margin would have been 6.4% in the third quarter of fiscal 2018.

Sales and Pipeline 
Year-to-date signed contract awards at June 30, 2018, totaled $2.0 billion and contracts pending (awarded but unsigned) totaled $779.4 million.

The sales pipeline at June 30, 2018, was $2.9 billion (comprised of approximately $0.5 billion in proposals pending, $0.7 billion in proposals in preparation, and $1.6 billion in opportunities tracking). This compares to a pipeline of $3.0 billion at March 31, 2018. The sequential decline reflects the conversion of pipeline into new awards during the quarter.

Balance Sheet and Cash Flows 
Cash and cash equivalents at June 30, 2018, totaled $229.0 million. The Company also has $20.2 million in short-term investments that mature in October 2018. For the three months ended June 30, 2018, cash flows from operations totaled $72.5 million, with free cash flow of $64.1 million.

At June 30, 2018, days sales outstanding (DSO) were 66 and consistent with the prior year.

On June 25, 2018, the Company announced an expansion to its board-authorized share repurchase program with an increase of up to $200 million. During the third quarter, MAXIMUS repurchased 995,000 shares of common stock for $61.6 million.

On May 31, 2018, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On July 12, 2018, the Company announced a $0.045 per share cash dividend, payable on August 31, 2018, to shareholders of record on August 15, 2018.

The Board of Directors also announced today its intent to increase the Company's quarterly cash dividend effective in November 2018. The quarterly cash dividend will increase to $0.25 per share or $1.00 per share per year which is an approximate yield of 1.5%.

Outlook 
MAXIMUS is reiterating its fiscal 2018 revenue and earnings guidance. The Company expects revenue to range between $2.400 billion and $2.440 billion and GAAP diluted earnings per share to range from $3.30 to $3.40 for fiscal 2018.

Bruce Caswell, President and Chief Executive Officer of MAXIMUS, commented, "With several recent new wins and new programs in the start-up phase, we are focused on excellent execution and strong cash generation, driving innovation through digital solutions to simplify citizen engagement with critical programs and effectively balancing resources in geographies where full employment has reduced volumes in certain programs we operate. We have made meaningful progress on our strategic initiatives and execution against our long-term plan. As with any guiding strategy, it will continue to evolve so that we can meet the needs of our clients and capitalize on emerging opportunities."

Conference Call and Webcast Information 
MAXIMUS will host a conference call this morning, August 9, 2018, 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 23, 2018. Callers can access the replay by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)

Replay conference ID number: 13681729

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 20,000 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 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 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 June 30,

Nine Months Ended June 30,

2018

2017

2018

2017

Revenue

$

597,855

$

600,447

$

1,833,790

$

1,830,058

Cost of revenue

443,171

448,258

1,378,343

1,380,734

Gross profit

154,684

152,189

455,447

449,324

Selling, general and administrative expenses

69,588

68,308

211,706

202,302

Amortization of intangible assets

2,525

2,720

7,846

9,508

Restructuring costs

—

—

2,320

2,242

Gain on sale of a business

—

650

—

650

  Operating income

82,571

81,811

233,575

235,922

Interest expense

85

458

410

2,051

Other income, net

2,249

1,306

3,928

1,986

  Income before income taxes

84,735

82,659

237,093

235,857

Provision for income taxes

24,493

24,871

61,793

78,643

Net income

60,242

57,788

175,300

157,214

Income attributable to noncontrolling interests

381

870

856

1,117

Net income attributable to MAXIMUS

$

59,861

$

56,918

$

174,444

$

156,097

Basic earnings per share attributable to MAXIMUS

$

0.91

$

0.87

$

2.65

$

2.38

Diluted earnings per share attributable to MAXIMUS

$

0.91

$

0.86

$

2.64

$

2.36

Dividends paid per share

$

0.045

$

0.045

$

0.135

$

0.135

Weighted average shares outstanding:






Basic

65,630

65,571

65,777

65,637

Diluted

65,925

66,082

66,131

66,023

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)


June 30, 2018

September 30, 2017

(unaudited)

ASSETS


Current assets:


Cash and cash equivalents

$

229,021

$

166,252

Short-term investments

20,166

—

Accounts receivable — billed and billable

398,751

394,338

Accounts receivable — unbilled

36,155

36,475

Income taxes receivable

5,480

4,528

Prepaid expenses and other current assets

49,703

55,649

  Total current assets

739,276

657,242

Property and equipment, net

84,944

101,651

Capitalized software, net

22,379

26,748

Goodwill

400,904

402,976

Intangible assets, net

90,693

98,769

Deferred contract costs, net

14,025

16,298

Deferred compensation plan assets

33,184

28,548

Deferred income taxes

7,502

7,691

Other assets

8,152

10,739

Total assets

$

1,401,059

$

1,350,662

LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:


Accounts payable and accrued liabilities

$

98,486

$

122,083

Accrued compensation and benefits

80,049

105,667

Deferred revenue

50,739

71,722

Income taxes payable

3,595

4,703

Other liabilities

11,177

12,091

  Total current liabilities

244,046

316,266

Deferred revenue, less current portion

22,601

28,182

Deferred income taxes

29,090

20,106

Deferred compensation plan liabilities, less current portion

32,354

30,707

Other liabilities

17,221

9,633

Total liabilities

345,312

404,894

Shareholders' equity:


Common stock, no par value

491,852

475,592

Accumulated other comprehensive loss

(34,894)

(27,619)

Retained earnings

594,901

492,112

  Total MAXIMUS shareholders' equity

1,051,859

940,085

Noncontrolling interests

3,888

5,683

  Total equity

1,055,747

945,768

  Total liabilities and equity

$

1,401,059

$

1,350,662

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



Three Months Ended
June 30,

Nine Months Ended
June 30,


2018

2017

2018

2017

Cash flows from operations:







Net income

$

60,242

$

57,788

$

175,300

$

157,214

Adjustments to reconcile net income to cash flows from operations:







Depreciation and amortization of property, equipment and capitalized software

12,828

13,449

39,902

43,416

Amortization of intangible assets

2,525

2,720

7,846

9,508

Deferred income taxes

18,053

14,335

8,874

8,614

Stock compensation expense

4,389

5,588

15,713

15,822

Gain on sale of a business

—

(650)

—

(650)









Change in assets and liabilities:







Accounts receivable — billed and billable

11,733

57,993

(6,789)

68,023

Accounts receivable — unbilled

5,042

(3,822)

312

(7,267)

Prepaid expenses and other current assets

(3,020)

(1,568)

5,506

5,944

Deferred contract costs

446

116

2,240

1,114

Accounts payable and accrued liabilities

(20,525)

(19,694)

(23,696)

(37,413)

Accrued compensation and benefits

(444)

4,590

(15,835)

(1,703)

Deferred revenue

(1,939)

(417)

(25,728)

(16,270)

Income taxes

(12,721)

(15,345)

5,913

5,370

Other assets and liabilities

(4,118)

166

(498)

375

Cash flows from operations

72,491

115,249

189,060

252,097









Cash flows from investing activities:







Purchases of property and equipment and capitalized software costs

(8,377)

(6,113)

(21,552)

(19,088)

Acquisition of part of noncontrolling interest

—

—

(157)

—

Proceeds from the sale of a business

—

650

—

1,035

Purchases of short-term investments

(19,996)

—

(19,996)

—

Other

92

267

275

485

Cash used in investing activities

(28,281)

(5,196)

(41,430)

(17,568)









Cash flows from financing activities:







Cash dividends paid to MAXIMUS shareholders

(2,936)

(2,917)

(8,801)

(8,754)

Repurchases of common stock

(60,949)

—

(61,987)

(28,858)

Tax withholding related to RSU vesting

—

—

(8,529)

(9,267)

Borrowings under credit facility

10,000

20,000

134,683

155,000

Repayment of credit facility and other long-term debt

(10,034)

(120,074)

(134,786)

(304,902)

Stock option exercises

—

370

—

370

Other

(1,928)

(80)

(4,058)

(1,225)

Cash used in financing activities

(65,847)

(102,701)

(83,478)

(197,636)









Effect of exchange rate changes on cash and cash equivalents

(2,569)

2,164

(1,383)

1,286









Net increase in cash and cash equivalents

(24,206)

9,516

62,769

38,179









Cash and cash equivalents, beginning of period

253,227

94,862

166,252

66,199









Cash and cash equivalents, end of period

$

229,021

$

104,378

$

229,021

$

104,378









MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)



Three Months Ended June 30,

Nine Months Ended June 30,


2018

% (1)

2017

% (1)

2018

% (1)

2017

% (1)

Revenue:















Health Services

$

359,050

100

%

$

335,090

100

%

$

1,076,773

100

%

$

1,024,813

100

%

U.S. Federal Services

112,226

100

%

131,589

100

%

361,536

100

%

418,257

100

%

Human Services

126,579

100

%

133,768

100

%

395,481

100

%

386,988

100

%

Total

$

597,855

100

%

$

600,447

100

%

$

1,833,790

100

%

$

1,830,058

100

%

















Gross Profit:















Health Services

$

97,254

27.1

%

$

83,269

24.8

%

$

286,517

26.6

%

$

247,957

24.2

%

U.S. Federal Services

32,276

28.8

%

33,627

25.6

%

93,008

25.7

%

107,774

25.8

%

Human Services

25,154

19.9

%

35,293

26.4

%

75,922

19.2

%

93,593

24.2

%

Total

$

154,684

25.9

%

$

152,189

25.3

%

$

455,447

24.8

%

$

449,324

24.6

%

















Selling, general, and administrative expense:















Health Services

$

33,472

9.3

%

$

31,716

9.5

%

$

102,078

9.5

%

$

89,737

8.8

%

U.S. Federal Services

17,399

15.5

%

17,757

13.5

%

51,587

14.3

%

56,379

13.5

%

Human Services

17,685

14.0

%

18,925

14.1

%

57,009

14.4

%

55,827

14.4

%

Other (2)

1,032

NM

(90)

NM

1,032

NM

359

NM

Total (3)

$

69,588

11.6

%

$

68,308

11.4

%

$

211,706

11.5

%

$

202,302

11.1

%

















Operating income:















Health Services

$

63,782

17.8

%

$

51,553

15.4

%

$

184,439

17.1

%

$

158,220

15.4

%

U.S. Federal Services

14,877

13.3

%

15,870

12.1

%

41,421

11.5

%

51,395

12.3

%

Human Services

7,469

5.9

%

16,368

12.2

%

18,913

4.8

%

37,766

9.8

%

Amortization of intangible assets

(2,525)

NM

(2,720)

NM

(7,846)

NM

(9,508)

NM

Restructuring costs (4)

—

NM

—

NM

(2,320)

NM

(2,242)

NM

Gain on sale of a business (5)

—

NM

650

NM

—

NM

650

NM

Other (2)

(1,032)

NM

90

NM

(1,032)

NM

(359)

NM

Total

$

82,571

13.8

%

$

81,811

13.6

%

$

233,575

12.7

%

$

235,922

12.9

%


(1)

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

(2)

Other costs and credits relate to selling, general and administrative expenses (SG&A) that do not relate directly to segment business activities. The majority of charges recorded in the periods above relate to two proposed disallowances by the Centers for Medicare and Medicaid Services.

(3)

During fiscal year 2018, we updated our methodology for allocation of costs which resulted in certain costs which had been within cost of revenue now being classified as SG&A. If we had utilized the same methodology in fiscal year 2018 as we had in fiscal year 2017, we estimate that SG&A would have been lower by approximately $1.0 million and $3.5 million during the three and nine months ended June 30, 2018, respectively.

(4)

During fiscal years 2018 and 2017, we incurred costs in restructuring our United Kingdom human services business.

(5)

In May 2016, we sold our K-12 Education business. In June 2017, we finalized the sale price and recognized a corresponding gain on sale.

MAXIMUS, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)



Three Months Ended
June 30,

Nine Months Ended
June 30,


2018

2017

2018

2017

Cash flows from operations

$

72,491

$

115,249

$

189,060

$

252,097

Purchases of property and equipment and capitalized software
costs

(8,377)

(6,113)

(21,552)

(19,088)

Free cash flow

$

64,114

$

109,136

$

167,508

$

233,009









CONTACT:

Lisa Miles 703.251.8637


[email protected]

SOURCE MAXIMUS

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