MAXIMUS Reports Fiscal Year 2018 Third Quarter Results
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 Nine Months Ended
June 30, 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 Nine Months Ended
June 30, 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 (8,377) (6,113) (21,552) (19,088)
costs
Free cash flow $64,114 $109,136 $167,508 $233,009
======= ======== ======== ========
CONTACT: Lisa Miles 703.251.8637
lisamiles@maximus.com
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