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MAXIMUS Reports Fiscal Year 2020 Second Quarter Results

May 7, 2020 6:30 AM

- Company Revises Guidance and Provides COVID-19 Updates -

RESTON, Va.--(BUSINESS WIRE)-- MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, reported financial results for the three and six months ended March 31, 2020.

Highlights for the second quarter of fiscal year 2020 include:

COVID-19 Status Update

In responding to the COVID-19 pandemic, the Company's priority is protecting the health and safety of our employees and ensuring government clients receive continued support. Many of the programs the Company operates have been deemed "essential" and this underscores the importance of operational continuity for vital healthcare and safety-net programs that vulnerable individuals and families increasingly rely upon during this period.

Immediately, leadership focused the Company’s resources and expertise on addressing the most urgent challenges posed. MAXIMUS implemented enhanced paid leave options for COVID-related absences for U.S. employees, increased onsite protections such as mandated social distancing and face coverings, and increased frequency of sanitization. The Company continues to work diligently with clients and operational teams to enable employees to work from home to the fullest extent possible despite shortages in the IT supply chain.

All best practices were adopted and are in accordance with recommendations and guidelines from the Centers for Disease Control and Prevention (CDC), the Environmental Protection Agency (EPA), and the Occupational Safety and Health Administration (OSHA).

"We are steadfastly committed to protecting employees while still providing access to vital government health and safety-net programs for people who rely on these programs," shared Bruce Caswell, President and Chief Executive Officer. "One of the most important actions we have taken is the rapid and ongoing transition of employees into a remote work environment. This has been an heroic effort in procuring new equipment, increasing network capacity, and deploying new services all while keeping critical operations running to meet program objectives and citizen needs. Our ability to transition more employees to remote work is constrained by the speed of the IT supply chain for equipment."

Second Quarter Results

For the second quarter of fiscal 2020, revenue increased to $818.1 million as compared to $736.5 million reported for the same period last year.

For the second quarter of fiscal 2020, operating income totaled $37.3 million, yielding an operating margin of 4.6%. This compares to 11.1% for the same period last year.

For the second quarter of fiscal 2020, net income attributable to MAXIMUS totaled $27.7 million, or $0.43 of diluted earnings per share. This compares to the second quarter of fiscal 2019 diluted earnings per share of $0.96.

The Company experienced two significant impacts to revenue and profit in the second quarter of fiscal 2020:

U.S. Health & Human Services Segment

Revenue in the U.S. Health & Human Services Segment for the second quarter of fiscal 2020 increased 6.2% to $308.7 million compared to $290.7 million reported for the same period last year. All growth in this segment was organic and attributable to new contracts and the expansion of existing work.

Operating margin for the second quarter of fiscal 2020 was 15.0% compared to 19.6% reported for the prior-year period. The aforementioned timing related change order negatively impacted operating margin in this segment.

The U.S. Health & Human Services Segment will continue to experience minor disruption and is expected to deliver an operating margin between 17% and 18% for the full year.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the second quarter of fiscal 2020 increased to $393.4 million compared to $289.7 million reported for the same period last year. All revenue growth in this segment was organic but excluding the acquired citizen engagement center business, organic revenue growth was 6.7%. As expected, the acquired Census contract continued its ramp to peak activity levels.

Operating margin for the second quarter of fiscal 2020 was 7.7% compared to 10.2% reported for the prior-year period and was tempered by a slight impact from the COVID-19 pandemic on performance-based work, and ongoing investments in business development and technological capabilities. Revenue throughout fiscal 2020 will continue to be weighted more heavily towards cost-plus contracts which offers less risk at a lower margin.

The U.S. Federal Services Segment is expected to deliver an operating margin between 8% and 9% for the full year resulting from a slightly greater mix of cost-plus work than previously anticipated.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the second quarter of fiscal 2020 decreased 26% (24% on a constant currency basis) to $116.0 million compared to $156.0 million reported for the same period last year. Operating loss for the second quarter of fiscal 2020 was $26.7 million compared to an operating profit of $4.5 million and an operating margin of 2.9% reported for the prior-year period.

This segment experienced a significant COVID-19 pandemic related write-down of approximately $24 million or $0.28 diluted earnings per share. The Segment has several performance based employment services contracts where payments are tied to job seeker outcomes with the objective to achieve long-term employment. The write down is attributable to a decline in the estimates for future outcome based milestones for program participants in the Australia and the United Kingdom. The Company is required to record the best estimate of the future outcomes, including impacts of such re-estimates immediately.

Outside the U.S. Segment is expected to end the full year in an operating loss position with the second half of the fiscal year progressively improving.

Sales and Pipeline

Year-to-date signed contract awards at March 31, 2020, totaled $729.8 million and contracts pending (awarded but unsigned) totaled $215.8 million. These awards reflect total contract value.

The sales pipeline at March 31, 2020, was $29.2 billion (comprised of approximately $2.8 billion in proposals pending, $2.0 billion in proposals in preparation and $24.4 billion in opportunities tracking).

Mr. Caswell continued, "The pipeline dynamics are unique since much has changed since the March 31 quarter end. Clients are making awards in record time for certain work, relying heavily on existing contract vehicles and existing partnerships which we have benefited from. However, in some cases this has caused previously planned procurements to be delayed. This is a fluid situation that is changing daily where we anticipate both positive and negative impacts. Our revised guidance for fiscal 2020 incorporates these considerations."

Balance Sheet and Cash Flows

Cash and cash equivalents at March 31, 2020, totaled $126.3 million and excludes $12.5 million of restricted cash included in the Consolidated Statement of Cash Flows. Borrowings on the Company's credit facility totaled $150.0 million at the end of the second quarter, leaving $250.0 million of available capacity.

For the six months ended March 31, 2020, cash from operations totaled $109.3 million, with free cash flow of $90.2 million. At March 31, 2020, days sales outstanding (DSO) were 72 days.

During the second quarter, MAXIMUS purchased approximately 2.74 million shares of MAXIMUS common stock under a 10b-5(1) plan that was instituted in February and completed in March for a total cost of $165.1 million for an average price of $60.19.

On April 3, 2020, our Board of Directors declared a quarterly cash dividend of $0.28 for each share of our common stock outstanding. The dividend is payable on May 29, 2020, to shareholders of record on May 15, 2020.

Richard J. Nadeau, Chief Financial Officer, commented, "During periods of uncertainty, we believe now more than ever the strength of our balance sheet sets us apart to support our government clients, their citizens and safeguard our employees. Maintaining and carefully managing liquidity is critical. As a result, following the conclusion of our 10b-5(1) plan in March, we decided to halt all share buybacks in the near-term."

Outlook

MAXIMUS is reinstating guidance following suspension of guidance on March 25, 2020. The Company is providing wider ranges for the midpoint of the year which are intended to reflect the increased risk and variability for the remainder of the year.

MAXIMUS anticipates fiscal 2020 revenue will range between $3.15 and $3.25 billion and diluted earnings per share will range between $2.95 and $3.15 per share. Cash flows from operations are expected to range between $250 and $300 million and free cash flow between $200 and $250 million.

Caswell added, "We remain cautiously optimistic as the demand environment is increasing. We believe we are forging a new path forward to reshape the delivery of government services for decades to come. The pandemic offers us a unique opportunity to test and learn how to operate new models with the full support of our clients. We can trial new ways of serving and engaging citizens, who now more than ever, need vital services."

The Company notes that actual results could vary materially from this guidance due to numerous factors including those noted below.

Conference Call and Webcast Information

MAXIMUS will host a conference call this morning, May 7, 2020, at 9:00 a.m. (ET).

The call is open to the public and is available by webcast or phone:
Domestic: 833.513.0569
International: +1.236.714.2193
Conference ID number: 3239007

For those unable to listen to the live call, a recording of the webcast will be available on investor.maximus.com.

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 35,000 employees worldwide, MAXIMUS is a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore and the United Kingdom. For more information, visit maximus.com.

Non-GAAP Measures

This release refers to non-GAAP financial measures, including free cash flow, constant currency, and days sales outstanding.

We have provided a reconciliation of free cash flow to cash flows from operations.

A description of these non-GAAP measures, the reasons why we use and present them and details as to how they are calculated are included in our Annual Report on Form 10-K.

The presentation of these non-GAAP numbers is not meant to be considered in isolation, nor as alternatives to cash flows from operations, revenue growth or net income as measures of performance. These non-GAAP financial measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

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 such as those related to impact of the COVID-19 pandemic including but not limited to:

These risks could cause the Company’s actual results to differ materially from those indicated by such forward-looking statements. A summary of risk factors can be found 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 March 31,

Six Months Ended March 31,

2020

2019

2020

2019

Revenue

$

818,135

$

736,520

$

1,636,364

$

1,401,139

Cost of revenue

665,037

567,098

1,307,816

1,072,452

Gross profit

153,098

169,422

328,548

328,687

Selling, general and administrative expenses

106,853

78,102

194,080

157,773

Amortization of intangible assets

8,934

9,519

18,022

14,977

Operating income

37,311

81,801

116,446

155,937

Interest expense

465

1,569

949

2,194

Other income, net

573

447

1,292

2,492

Income before income taxes

37,419

80,679

116,789

156,235

Provision for income taxes

9,769

18,913

30,405

38,746

Net income

27,650

61,766

86,384

117,489

Loss attributable to noncontrolling interests

—

(158

)

—

(348

)

Net income attributable to MAXIMUS

$

27,650

$

61,924

$

86,384

$

117,837

Basic earnings per share

$

0.43

$

0.96

$

1.34

$

1.82

Diluted earnings per share

$

0.43

$

0.96

$

1.34

$

1.82

Dividends paid per share

$

0.28

$

0.25

$

0.56

$

0.50

Weighted average shares outstanding:

Basic

63,934

64,369

64,264

64,600

Diluted

64,125

64,643

64,446

64,817

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

March 31, 2020

September 30, 2019

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

126,257

$

105,565

Accounts receivable — billed and billable, net of reserves of $12,054 and $5,382

529,928

476,690

Accounts receivable — unbilled

120,159

123,884

Income taxes receivable

33,852

20,805

Prepaid expenses and other current assets

53,257

62,481

Total current assets

863,453

789,425

Property and equipment, net

80,843

99,589

Capitalized software, net

33,746

32,369

Operating lease right-of-use assets

179,701

—

Goodwill

585,772

584,469

Intangible assets, net

161,091

179,250

Deferred contract costs, net

19,278

18,921

Deferred compensation plan assets

28,016

32,908

Deferred income taxes

186

186

Other assets

8,320

8,615

Total assets

$

1,960,406

$

1,745,732

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

191,505

$

177,786

Accrued compensation and benefits

98,882

106,789

Deferred revenue

46,206

43,344

Income taxes payable

758

13,952

Current portion of long-term debt and other borrowings

9,352

9,658

Operating lease liabilities

78,656

—

Other liabilities

12,973

12,709

Total current liabilities

438,332

364,238

Deferred revenue, less current portion

34,142

32,341

Deferred income taxes

49,421

46,560

Long-term debt, less current portion

150,155

231

Deferred compensation plan liabilities, less current portion

30,431

34,079

Operating lease liabilities, less current portion

109,339

—

Other liabilities

10,118

20,082

Total liabilities

821,938

497,531

Shareholders’ equity:

Common stock, no par value; 100,000 shares authorized; 61,313 and 63,979 shares issued and outstanding at March 31, 2020, and September 30, 2019, at stated amount, respectively

511,023

498,433

Accumulated other comprehensive loss

(50,116

)

(45,380

)

Retained earnings

677,561

794,739

Total MAXIMUS shareholders' equity

1,138,468

1,247,792

Noncontrolling interests

—

409

Total equity

1,138,468

1,248,201

Total liabilities and equity

$

1,960,406

$

1,745,732

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Three Months Ended
March 31,

Six Months Ended
March 31,

2020

2019

2020

2019

Cash flows from operations:

Net income

$

27,650

$

61,766

$

86,384

$

117,489

Adjustments to reconcile net income to cash flows from operations:

Depreciation and amortization of property, equipment and capitalized software

15,900

11,176

31,218

22,407

Amortization of intangible assets

8,934

9,519

18,022

14,977

Deferred income taxes

2,616

1,253

3,038

17,764

Stock compensation expense

6,403

4,933

11,800

9,904

Change in assets and liabilities net of effects of business combinations:

Accounts receivable — billed and billable

(21,854

)

(2,830

)

(52,870

)

(72,720

)

Accounts receivable — unbilled

276

(11,009

)

2,289

9,189

Prepaid expenses and other current assets

199

573

4,262

(5,118

)

Deferred contract costs

(1,345

)

(3,658

)

(497

)

(5,415

)

Accounts payable and accrued liabilities

19,919

15,516

22,322

42,080

Accrued compensation and benefits

(3,003

)

(7,820

)

3,839

(7,443

)

Deferred revenue

6,645

4,807

5,300

4,435

Income taxes

(41,690

)

(12,648

)

(27,706

)

(16,496

)

Operating lease right-of-use assets and liabilities

1,788

—

166

—

Other assets and liabilities

(433

)

(3,707

)

1,705

(3,842

)

Cash flows from operations

22,005

67,871

109,272

127,211

Cash flows from investing activities:

Purchases of property and equipment and capitalized software costs

(8,635

)

(8,568

)

(19,122

)

(18,541

)

Acquisitions of businesses, net of cash acquired

(2,551

)

—

(2,551

)

(421,809

)

Maturities of short-term investments

—

—

—

19,996

Other

73

237

98

284

Cash used in investing activities

(11,113

)

(8,331

)

(21,575

)

(420,070

)

Cash flows from financing activities:

Cash dividends paid to MAXIMUS shareholders

(17,900

)

(15,950

)

(35,813

)

(31,983

)

Purchases of MAXIMUS common stock

(165,061

)

(5,084

)

(166,959

)

(46,068

)

Tax withholding related to RSU vesting

—

—

(10,614

)

(8,915

)

Borrowings under credit facility and other loan agreements

258,296

124,948

341,715

320,048

Repayment of credit facility and other long-term debt

(104,955

)

(171,506

)

(191,256

)

(241,539

)

Other

(159

)

—

(652

)

(133

)

Cash used in financing activities

(29,779

)

(67,592

)

(63,579

)

(8,590

)

Effect of exchange rate changes on cash and cash equivalents

(3,320

)

436

(1,868

)

(632

)

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

(22,207

)

(7,616

)

22,250

(302,081

)

Cash, cash equivalents and restricted cash, beginning of period

160,949

62,094

116,492

356,559

Cash, cash equivalents and restricted cash, end of period

$

138,742

$

54,478

$

138,742

$

54,478

MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

Three Months Ended March 31,

Six Months Ended March 31,

2020

% (1)

2019

% (1)

2020

% (1)

2019

% (1)

Revenue:

U.S. Health & Human Services

$

308,698

$

290,737

$

620,979

$

584,950

U.S. Federal Services

393,391

289,736

759,962

506,723

Outside the U.S.

116,046

156,047

255,423

309,466

Total

$

818,135

$

736,520

$

1,636,364

$

1,401,139

Gross Profit:

U.S. Health & Human Services

85,454

27.7

%

$

86,260

29.7

%

$

175,044

28.2

%

$

174,291

29.8

%

U.S. Federal Services

76,958

19.6

%

60,696

20.9

%

147,779

19.4

%

108,681

21.4

%

Outside the U.S.

(9,314

)

(8.0

)

%

22,466

14.4

%

5,725

2.2

%

45,715

14.8

%

Total

$

153,098

18.7

%

$

169,422

23.0

%

$

328,548

20.1

%

$

328,687

23.5

%

Selling, general, and administrative expense:

U.S. Health & Human Services

39,239

12.7

%

$

29,400

10.1

%

$

70,637

11.4

%

$

61,539

10.5

%

U.S. Federal Services

46,726

11.9

%

31,104

10.7

%

85,965

11.3

%

57,736

11.4

%

Outside the U.S.

17,404

15.0

%

17,992

11.5

%

33,457

13.1

%

36,800

11.9

%

Other (2)

3,484

NM

(394

)

NM

4,021

NM

1,698

NM

Total

$

106,853

13.1

%

$

78,102

10.6

%

$

194,080

11.9

%

$

157,773

11.3

%

Operating income:

U.S. Health & Human Services

46,215

15.0

%

$

56,860

19.6

%

$

104,407

16.8

%

$

112,752

19.3

%

U.S. Federal Services

30,232

7.7

%

29,592

10.2

%

61,814

8.1

%

50,945

10.1

%

Outside the U.S.

(26,718

)

(23.0

)

%

4,474

2.9

%

(27,732

)

(10.9

)

%

8,915

2.9

%

Amortization of intangible assets

(8,934

)

NM

(9,519

)

NM

(18,022

)

NM

(14,977

)

NM

Other (2)

(3,484

)

NM

394

NM

(4,021

)

NM

(1,698

)

NM

Total

$

37,311

4.6

%

$

81,801

11.1

%

$

116,446

7.1

%

$

155,937

11.1

%

(1)

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

(2)

Other selling, general and administrative expenses includes credits and costs that are not allocated to a particular segment, including the costs for actual and potential acquisitions of other businesses.

MAXIMUS, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

Three Months
Ended March 31,

Six Months Ended
March 31,

2020

2019

2020

2019

Cash flows from operations

$

22,005

$

67,871

$

109,272

$

127,211

Purchases of property and equipment and capitalized software costs

(8,635

)

(8,568

)

(19,122

)

(18,541

)

Capital expenditure as a result of acquisition (1)

—

—

—

4,542

Free cash flow

$

13,370

$

59,303

$

90,150

$

113,212

(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 in November 2018.

Lisa Miles 703.251.8637

[email protected]

Source: MAXIMUS

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