MAXIMUS Reports Fiscal Year 2018 Second Quarter Results
MAXIMUS Reports Fiscal Year 2018 Second Quarter Results
RESTON, Va., May 10, 2018 /PRNewswire/ -- MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and six months ended March 31, 2018.
Highlights for the second quarter of fiscal year 2018 include:
-- Revenue of $612.8 million compared to $622.0 million reported for the
same period last year
-- Diluted earnings per share of $0.84 compared to $0.80 for the same
period last year
-- Cash flows from operations of $78.7 million and free cash flow of $72.0
million
-- Year-to-date signed contract awards of $1.4 billion and contracts
pending (awarded but unsigned) of $489.1 million at March 31, 2018
-- Sales pipeline of $3.0 billion at March 31, 2018
-- Updated fiscal 2018 revenue and diluted earnings per share guidance
For the second quarter of fiscal 2018, revenue decreased 1% to $612.8 million compared to $622.0 million reported for the same period last year. The decrease was due to the expected revenue decline in the U.S. Federal Services Segment from contracts that ended.
Total company operating margin for the second quarter of fiscal 2018 was 11.6% and tempered by $2.3 million of restructuring costs (or $0.02 of diluted earnings per share). The restructuring is part of the Company's ongoing efforts to right-size resources in its U.K. human services business as mainstream employment services programs come to an expected end and governments focus on more specialized health and employment programs supporting people with disabilities and other vulnerable populations.
For the second quarter of fiscal 2018, net income attributable to MAXIMUS totaled $55.5 million (or $0.84 of diluted earnings per share). Diluted earnings per share for the second quarter benefited by $0.02 from the lower provision for income taxes due to a revision to the estimate of the one-time benefit for the reduction in deferred income taxes, resulting from the new tax reform law. This compares to fiscal 2017 second quarter diluted earnings per share of $0.80.
Health Services Segment
Health Services Segment revenue for the second quarter of fiscal 2018 increased 5% to $365.6 million compared to $349.0 million reported for the same period last year. The increase in revenue was driven by organic growth and favorable currency exchange movements. On a constant currency basis, segment revenue growth would have been 2%.
Operating margin for the second quarter of fiscal 2018 was strong at 17.2% compared to 16.2% reported for the prior-year period. Operating margin expansion was driven by solid operational performance in certain contracts including the U.K. Health Assessment Advisory Service that achieved its full year volume targets for contract year three, and to a lesser extent, benefits tied to certain contracts, including the terminated Fit for Work contract as the Company closed out major elements of the program during the second quarter.
U.S. Federal Services Segment
U.S. Federal Services Segment revenue for the second quarter of fiscal 2018 decreased 20% to $116.3 million compared to $145.4 million reported for the same period last year. As previously disclosed, the lower revenue was largely due to contracts that ended, including non-recurring temporary disaster relief work that ended earlier than anticipated.
Operating margin for the second quarter of fiscal 2018 was 8.5% compared to 12.1% reported for the prior-year period. Operating margin was lower in the second quarter due to a one-time $2.9 million charge to renegotiate a relationship with one of the Company's subcontractors on a large BPO program. Under the new arrangement, MAXIMUS will now assume the majority of this work, which will increase revenue and operating income on this contract in future periods.
Human Services Segment
Human Services Segment revenue for the second quarter of fiscal 2018 increased 2% to $130.8 million compared to $127.7 million reported for the same period last year driven by favorable foreign exchange rates. On a constant currency basis, segment revenue would have decreased 1%.
Operating margin for the second quarter of fiscal 2018 was 2.6% compared to 7.5% reported for the prior-year period. Operating margin was lower than expected due to a contract extension that was not signed during the quarter and lower volumes on a contract outside the U.S. As expected, operating margin was also tempered by a number of new contracts that are in the start-up phase but performing as expected.
Sales and Pipeline
Year-to-date signed contract awards at March 31, 2018 totaled $1.4 billion and contracts pending (awarded but unsigned) totaled $489.1 million. During the quarter, MAXIMUS received notification of award for the Australia Disability Employment Services rebid.
The sales pipeline at March 31, 2018 was $3.0 billion (comprised of approximately $0.7 billion in proposals pending, $0.3 billion in proposals in preparation, and $2.0 billion in opportunities tracking). This compares to a pipeline of $3.2 billion at December 31, 2017. The sequential decline is due to the conversion of the Australia Disability Employment Services rebid into awarded unsigned (contracts pending), as well as the delay of approximately $600 million in requests for proposals (RFPs) that moved out of the pipeline's six-month horizon.
Balance Sheet and Cash Flows
Cash and cash equivalents at March 31, 2018 totaled $253.2 million. For the three months ended March 31, 2018, cash flows from operations totaled $78.7 million, with free cash flow of $72.0 million.
At March 31, 2018, days sales outstanding (DSO) were 68 and consistent with the prior year.
On February 28, 2018, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On April 11, 2018, the Company announced a $0.045 per share cash dividend, payable on May 31, 2018 to shareholders of record on May 15, 2018.
Outlook
MAXIMUS is updating its fiscal 2018 revenue and earnings guidance. The Company now expects revenue to range between $2.400 billion and $2.440 billion for fiscal 2018. This compares to the Company's previous revenue guidance of $2.475 billion and $2.550 billion. MAXIMUS has revised its guidance because it has not booked sufficient new in-year awards.
As a result of the lowered revenue, MAXIMUS is narrowing its fiscal 2018 earnings guidance and now expects GAAP diluted earnings per share to range between $3.30 and $3.40 for fiscal 2018. This compares to the Company's previous earnings guidance of $3.30 to $3.50.
The Company's guidance does not include any future acquisitions or future legal expenses or recoveries.
"The core of our business is sound and the macro trends remain in our favor. We have a number of initiatives underway to comprehensively determine the best path for long-term growth. We are analyzing current markets where we could play a more meaningful role, taking a fresh look at adjacent markets that hold promise, and continuing to advance our M&A strategy. We have taken immediate steps to best align MAXIMUS for the long term and we will execute our plan over the next 24 months," commented MAXIMUS CEO Bruce Caswell.
Conference Call and Webcast Information
MAXIMUS will host a conference call this morning, May 10, 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 May 24, 2018. Callers can access the replay by calling:
877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay conference ID number: 13679058
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 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 March 31, Six Months Ended March 31,
2018 2017 2018 2017
---- ---- ---- ----
Revenue $612,787 $622,047 $1,235,935 $1,229,611
Cost of revenue 463,984 469,730 935,172 932,476
------- ------- ------- -------
Gross profit 148,803 152,317 300,763 297,135
Selling, general and administrative expenses 72,559 68,596 142,118 133,994
Amortization of intangible assets 2,603 3,386 5,321 6,788
Restructuring costs 2,320 - 2,320 2,242
Operating income 71,321 80,335 151,004 154,111
Interest expense 157 744 325 1,593
Other income, net 1,392 417 1,679 680
----- --- ----- ---
Income before income taxes 72,556 80,008 152,358 153,198
Provision for income taxes 17,450 26,911 37,300 53,772
------ ------ ------ ------
Net income 55,106 53,097 115,058 99,426
(Loss)/income attributable to noncontrolling interests (386) 582 475 247
---- --- --- ---
Net income attributable to MAXIMUS $55,492 $52,515 $114,583 $99,179
======= ======= ======== =======
Basic earnings per share attributable to MAXIMUS $0.84 $0.80 $1.74 $1.51
Diluted earnings per share attributable to MAXIMUS $0.84 $0.80 $1.73 $1.50
Dividends paid per share $0.045 $0.045 $0.09 $0.09
====== ====== ===== =====
Weighted average shares outstanding:
Basic 65,856 65,549 65,857 65,669
====== ====== ====== ======
Diluted 66,268 65,947 66,223 65,989
====== ====== ====== ======
MAXIMUS, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
March 31, 2018 September 30, 2017
-------------- ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $253,227 $166,252
Accounts receivable - billed and billable 415,008 394,338
Accounts receivable - unbilled 41,202 36,475
Income taxes receivable 1,677 4,528
Prepaid expenses and other current assets 47,918 55,649
------ ------
Total current assets 759,032 657,242
Property and equipment, net 90,741 101,651
Capitalized software, net 22,601 26,748
Goodwill 405,082 402,976
Intangible assets, net 94,109 98,769
Deferred contract costs, net 14,673 16,298
Deferred compensation plan assets 29,703 28,548
Deferred income taxes 7,625 7,691
Other assets 6,934 10,739
----- ------
Total assets $1,430,500 $1,350,662
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $119,589 $122,083
Accrued compensation and benefits 81,833 105,667
Deferred revenue 52,743 71,722
Income taxes payable 11,652 4,703
Other liabilities 13,534 12,091
------ ------
Total current liabilities 279,351 316,266
Deferred revenue, less current portion 23,802 28,182
Deferred income taxes 10,997 20,106
Deferred compensation plan liabilities, less current portion 30,904 30,707
Other liabilities 19,118 9,633
------ -----
Total liabilities 364,172 404,894
Shareholders' equity:
Common stock, no par value 487,385 475,592
Accumulated other comprehensive loss (24,435) (27,619)
Retained earnings 599,630 492,112
------- -------
Total MAXIMUS shareholders' equity 1,062,580 940,085
Noncontrolling interests 3,748 5,683
----- -----
Total equity 1,066,328 945,768
--------- -------
Total liabilities and equity $1,430,500 $1,350,662
========== ==========
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2018 2017 2018 2017
---- ---- ---- ----
Cash flows from operations:
Net income $55,106 $53,097 $115,058 $99,426
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property, equipment and capitalized software 13,355 15,405 27,074 29,967
Amortization of intangible assets 2,603 3,386 5,321 6,788
Deferred income taxes (14,886) (11,631) (9,179) (5,721)
Stock compensation expense 5,922 5,345 11,324 10,234
Change in assets and liabilities:
Accounts receivable - billed and billable 25,859 (4,657) (18,522) 10,030
Accounts receivable - unbilled (10,265) (1,447) (4,730) (3,445)
Prepaid expenses and other current assets 2,507 1,267 8,526 7,512
Deferred contract costs 381 954 1,794 998
Accounts payable and accrued liabilities (14,558) (3,144) (3,171) (17,719)
Accrued compensation and benefits 14,197 10,944 (15,391) (6,293)
Deferred revenue (11,384) (5,757) (23,789) (15,853)
Income taxes 8,992 3,813 18,634 20,715
Other assets and liabilities 872 (1,867) 3,620 209
--- ------ ----- ---
Cash flows from operations 78,701 65,708 116,569 136,848
Cash flows from investing activities:
Purchases of property and equipment and capitalized software costs (6,661) (5,207) (13,175) (12,975)
Acquisition of part of noncontrolling interest (157) - (157) -
Proceeds from the sale of a business - - - 385
Other 138 175 183 218
Cash used in investing activities (6,680) (5,032) (13,149) (12,372)
Cash flows from financing activities:
Cash dividends paid to MAXIMUS shareholders (2,935) (2,917) (5,865) (5,837)
Repurchases of common stock - (91) (1,038) (28,858)
Tax withholding related to RSU vesting - (12) (8,529) (9,267)
Borrowings under credit facility 65,000 70,000 124,683 135,000
Repayment of credit facility and other long-term debt (76,596) (104,761) (124,752) (184,828)
Other (2,130) - (2,130) (1,145)
------
Cash used in financing activities (16,661) (37,781) (17,631) (94,935)
Effect of exchange rate changes on cash and cash equivalents 962 2,200 1,186 (878)
--- ----- ----- ----
Net increase in cash and cash equivalents 56,322 25,095 86,975 28,663
Cash and cash equivalents, beginning of period 196,905 69,767 166,252 66,199
------- ------ ------- ------
Cash and cash equivalents, end of period $253,227 $94,862 $253,227 $94,862
======== ======= ======== =======
MAXIMUS, Inc.
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
Three Months Ended March 31, Six Months Ended March 31,
2018 % (1) 2017 % (1) 2018 % (1) 2017 % (1)
---- ---- ---- ---- ---- ---- ---- ----
Revenue:
Health Services $365,633 100% $348,994 100% $717,723 100% $689,723 100%
U.S. Federal Services 116,327 100% 145,370 100% 249,310 100% 286,668 100%
Human Services 130,827 100% 127,683 100% 268,902 100% 253,220 100%
------- ------- ------- -------
Total $612,787 100% $622,047 100% $1,235,935 100% $1,229,611 100%
======== ======== ========== ==========
Gross Profit:
Health Services $98,207 26.9% $86,454 24.8% $189,263 26.4% $164,688 23.9%
U.S. Federal Services 27,374 23.5% 36,571 25.2% 60,732 24.4% 74,147 25.9%
Human Services 23,222 17.8% 29,292 22.9% 50,768 18.9% 58,300 23.0%
------ ------ ------ ------
Total $148,803 24.3% $152,317 24.5% $300,763 24.3% $297,135 24.2%
======== ======== ======== ========
Selling, general, and
administrative expense:
Health Services $35,190 9.6% $29,914 8.6% $68,606 9.6% $58,021 8.4%
U.S. Federal Services 17,540 15.1% 18,927 13.0% 34,188 13.7% 38,622 13.5%
Human Services 19,829 15.2% 19,663 15.4% 39,324 14.6% 36,902 14.6%
Other (2) - NM 92 NM - NM 449 NM
--- --- --- ---
Total (3) $72,559 11.8% $68,596 11.0% $142,118 11.5% $133,994 10.9%
======= ======= ======== ========
Operating income:
Health Services $63,017 17.2% $56,540 16.2% $120,657 16.8% $106,667 15.5%
U.S. Federal Services 9,834 8.5% 17,644 12.1% 26,544 10.6% 35,525 12.4%
Human Services 3,393 2.6% 9,629 7.5% 11,444 4.3% 21,398 8.5%
Amortization of intangible (2,603) NM (3,386) NM (5,321) NM (6,788) NM
assets
Restructuring costs (4) (2,320) NM - NM (2,320) NM (2,242) NM
Other (2) - NM (92) NM - NM (449) NM
--- --- --- ----
Total $71,321 11.6% $80,335 12.9% $151,004 12.2% $154,111 12.5%
======= ======= ======== ========
(1) Percentage of respective segment
revenue. Percentages not
considered meaningful are marked
"NM."
(2) Other costs and credits relate to
SG&A balances that do not relate
directly to segment business
activities. During the six months
ended March 31, 2017 we incurred
$0.4 million of legal costs
pertaining to a matter which
occurred in fiscal year 2009.
(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 $1.3
million and $2.5 million during
the three and six months ended
March 31, 2018, respectively.
(4) During fiscal years 2018 and 2017,
we incurred costs in restructuring
our United Kingdom human services
business.
MAXIMUS, Inc.
FREE CASH FLOW
(Non-GAAP measure)
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2018 2017 2018 2017
---- ---- ---- ----
Cash flows from operations $78,701 $65,708 $116,569 $136,848
Purchases of property and equipment and (6,661) (5,207) (13,175) (12,975)
capitalized software costs
Free cash flow $72,040 $60,501 $103,394 $123,873
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CONTACT: Lisa Miles 703.251.8637
lisamiles@maximus.com
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