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MAXIMUS Reports Fourth Quarter and Full Year Results for Fiscal Year 2019

MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three months and year ended September 30, 2019.

Highlights for fiscal year 2019 include:

  • Revenue increased to $2.89 billion driven by the November 2018 acquisition in the U.S. Federal Services Segment
  • Diluted earnings per share of $3.72
  • Total company operating margin of 11.0%
  • Cash and cash equivalents of $105.6 million at September 30, 2019
  • Solid cash generation with cash flows from operations of $356.7 million and free cash flow of $294.4 million
  • Signed year-to-date contract awards of $2.6 billion, new contracts pending (awarded, but unsigned) of $242 million, and a sales pipeline of $30.2 billion at September 30, 2019

Revenue for the fourth quarter and fiscal 2019 increased to $755.0 million and $2.89 billion, respectively, compared to $558.4 million and $2.39 billion reported for the same periods last year.

For the fourth quarter of fiscal 2019, net income attributable to MAXIMUS totaled $60.1 million, or $0.93 of diluted earnings per share. This compares to $46.3 million and $0.71, respectively, for the fourth quarter of fiscal 2018. For fiscal 2019, net income attributable to MAXIMUS totaled $240.8 million, or $3.72 of diluted earnings per share. This compares to fiscal 2018 reported net income attributable to MAXIMUS of $220.8 million and diluted earnings per share of $3.35.

The year-over-year increase in revenue and earnings was driven by the acquisition of the federal citizen engagement centers business which was completed on November 16, 2018. If the acquisition had occurred on October 1, 2018, revenue and diluted earnings per share would have been approximately $2.985 billion and $3.77, respectively, on a pro-forma basis.

U.S. Health and Human Services Segment

U.S. Health and Human Services Segment revenue for the fourth quarter of fiscal 2019 increased 4% to $300.4 million, compared to $288.9 million reported for the same period last year driven by new work. Operating income for the fourth quarter totaled $53.8 million (17.9% operating margin), compared to $52.2 million (18.1% operating margin) for the same period last year.

For the full fiscal year, U.S. Health and Human Services Segment revenue decreased 3% to $1.18 billion, compared to $1.21 billion for the same period last year. As previously disclosed, revenue was lower due to forecasted changes on several sizable contracts that were rebid and won, extended, or where option periods were exercised. Fiscal 2019 operating income totaled $220.8 million (18.8% operating margin), compared to operating income of $218.6 million (18.0% operating margin) for fiscal 2018.

U.S. Federal Services Segment

As expected, U.S. Federal Services Segment revenue for the fourth quarter of fiscal 2019 increased to $312.2 million, compared to $117.4 million reported for the same period last year. Operating income for the fourth quarter totaled $31.1 million (10.0% operating margin), compared to $16.0 million (13.6% operating margin) for the same period last year.

For the full fiscal year, U.S. Federal Services Segment revenue increased to $1.1 billion, compared to $478.9 million for the same period last year. Fiscal 2019 operating income totaled $115.9 million (10.4% operating margin), compared to operating income of $57.4 million (12.0% operating margin) for fiscal 2018.

Revenue and operating income increases for the fourth quarter and fiscal 2019 were driven by the acquisition of the federal citizen engagement centers business completed in November 2018. The most significant contracts acquired are cost-plus which tend to generate single-digit operating margins but carry lower risk. With more cost-plus contracts in the Segment's portfolio, the operating margin for the Segment was lower in the fourth quarter and fiscal 2019 compared to the prior year periods.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the fourth quarter of fiscal 2019 decreased 6% (2% on a constant currency basis) to $142.4 million, compared to $152.1 million for the same period last year. The Segment had operating income for the fourth quarter of $2.2 million (1.5% operating margin), compared to an operating loss of $0.9 million for the same period last year, which was tempered by the jobactive program that was rebid and launched on July 1, 2018.

For the full fiscal year, Outside the U.S. Segment revenue decreased 14% (9% on a constant currency basis) to $599.1 million, compared to $699.4 million for the same period last year. The year-over-year revenue decrease was driven by: 1) the ending of the Work Programme and Work Choice contracts which accounted for $36 million of the decline; 2) unfavorable currency translation of $35 million and; 3) lower pass-through revenue for support services tied to the jobactive program in Australia totaling $16 million. Fiscal 2019 operating income totaled $16.1 million (2.7% operating margin), compared to operating income of $36.0 million (5.1% operating margin) for fiscal 2018.

The Segment has experienced a slowdown in its employment services business as a result of low unemployment in the countries where we operate which has led to lower caseloads and volumes. The Segment has a handful of new contracts progressing towards profitability but they are unfavorable to earnings in the near-term.

Sales Awards and Pipeline

Year-to-date signed contract awards totaled $2.6 billion at September 30, 2019. The value of new contracts pending at September 30, 2019, (awarded but unsigned) was $242 million.

The sales pipeline at September 30, 2019, was approximately $30.2 billion (comprised of approximately $2.9 billion in proposals pending, $1.2 billion in proposals in preparation and $26.1 billion in opportunities tracking).

Balance Sheet and Cash Flows

Cash, cash equivalents and short-term investments at September 30, 2019, totaled $105.6 million. For the fourth quarter of fiscal 2019, cash flows from operations were $93.0 million, with free cash flow of $65.2 million. For fiscal 2019, cash flows from operations were $356.7 million with free cash flow of $294.4 million.

At September 30, 2019, days sales outstanding (DSO) were 72 days.

On August 30, 2019, MAXIMUS paid a quarterly cash dividend of $0.25 per share. On October 10, 2019, the Company announced a $0.28 per share cash dividend, payable on November 29, 2019, to shareholders of record on November 15, 2019.

Outlook

MAXIMUS is establishing fiscal 2020 guidance. The Company expects revenue to range between $3.15 billion and $3.30 billion. The Company expects diluted earnings per share to range between $3.95 and $4.15. The Company expects cash flows from operations to range between $300 million and $350 million, and free cash flow to range between $275 million and $325 million.

For fiscal 2020, the Company has estimated its effective income tax rate to range between 24.5% and 25.5% and weighted average shares outstanding of approximately 64.9 million.

Bruce Caswell, President and Chief Executive Officer of MAXIMUS, commented, "We finished fiscal 2019 with solid top- and bottom-line growth driven principally by the acquisition of the federal citizen engagement centers business last November. The acquisition enabled us to build scale, expand our customer base, improve our competitive position and bring on new technology platforms in the federal market. As we look into fiscal 2020 and beyond, we are pleased with the substantial progress we have made on our strategic plan to lead a digital transformation, grow our clinically related services, and expand in key priority markets and adjacencies."

Website Presentation, Conference Call and Webcast Information

MAXIMUS will host a conference call this morning, November 19, 2019, at 9:00 a.m. (ET). The call is open to the public and can be accessed under the Investor Relations page of the Company’s website at investor.maximus.com or by calling:

877.407.8289 (Domestic)/+1.201.689.8341 (International)

For those unable to listen to the live call, a replay will be available through December 3, 2019, by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay conference ID number: 13695553

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 approximately 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 and Other 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. 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)

 

Three Months Ended September 30,

Twelve Months Ended September 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

Revenue

$

754,966

$

558,446

$

2,886,815

$

2,392,236

Cost of revenue

586,716

419,508

2,215,631

1,797,851

Gross profit

168,250

138,938

671,184

594,385

Selling, general and administrative expenses

81,646

73,535

321,023

285,241

Amortization of intangible assets

9,028

2,462

33,054

10,308

Restructuring costs

1,033

3,353

Operating income

77,576

61,908

317,107

295,483

Interest expense

343

590

2,957

1,000

Other income, net

122

798

3,170

4,726

Income before income taxes

77,355

62,116

317,320

299,209

Provision for income taxes

17,314

16,600

76,825

78,393

Net income

60,041

45,516

240,495

220,816

(Loss)/income attributable to noncontrolling interests

(48)

(791)

(329)

65

Net income attributable to MAXIMUS

$

60,089

$

46,307

$

240,824

$

220,751

Basic earnings per share attributable to MAXIMUS

$

0.93

$

0.71

$

3.73

$

3.37

Diluted earnings per share attributable to MAXIMUS

$

0.93

$

0.71

$

3.72

$

3.35

Dividends per share

$

0.25

$

0.045

$

1.00

$

0.18

Weighted average shares outstanding:

Basic

64,397

65,034

64,498

65,501

Diluted

64,848

65,402

64,820

65,932

 

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

September 30,

2019

2018

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

105,565

$

349,245

Short-term investments

20,264

Accounts receivable — billed and billable, net

476,690

357,613

Accounts receivable — unbilled

123,884

31,536

Income taxes receivable

20,805

5,979

Prepaid expenses and other current assets

62,481

43,995

Total current assets

789,425

808,632

Property and equipment, net

99,589

77,544

Capitalized software, net

32,369

22,429

Goodwill

584,469

399,882

Intangible assets, net

179,250

88,035

Deferred contract costs, net

18,921

14,380

Deferred compensation plan assets

32,908

34,305

Deferred income taxes

186

6,834

Other assets

8,615

9,959

Total assets

$

1,745,732

$

1,462,000

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

177,786

$

114,378

Accrued compensation and benefits

106,789

95,555

Deferred revenue

43,344

51,182

Income taxes payable

13,952

4,438

Long-term debt, current portion

9,658

136

Other liabilities

12,709

11,760

Total current liabilities

364,238

277,449

Deferred revenue, less current portion

32,341

20,394

Deferred income taxes

46,560

26,377

Deferred compensation plan liabilities, less current portion

34,079

33,497

Other liabilities

20,313

17,864

Total liabilities

497,531

375,581

Commitments and contingencies

Shareholders' equity:

Common stock

498,433

487,539

Accumulated other comprehensive loss

(45,380)

(36,953)

Retained earnings

794,739

633,281

Total MAXIMUS shareholders' equity

1,247,792

1,083,867

Noncontrolling interests

409

2,552

Total equity

1,248,201

1,086,419

Total liabilities and equity

$

1,745,732

$

1,462,000

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

Three Months Ended September 30,

Twelve Months Ended September 30,

2019

2018

2019

2018

Cash flows from operations:

Net income

$

60,041

$

45,516

$

240,495

$

220,816

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, plant, equipment and capitalized software

17,816

11,982

52,404

51,884

Amortization of intangible assets

9,028

2,462

33,054

10,308

Deferred income taxes

1,465

(2,153)

12,661

6,721

Stock compensation expense

5,451

4,525

20,774

20,238

Changes in assets and liabilities, net of effects of business combinations:

Accounts receivable — billed and billable

47,818

40,822

(60,313)

34,033

Accounts receivable — unbilled

(31,354)

4,608

14,818

4,920

Prepaid expenses and other current assets

(12,650)

(552)

(15,583)

4,954

Deferred contract costs

3,472

(402)

(4,670)

1,838

Accounts payable and accrued liabilities

(5,882)

15,971

47,580

(7,725)

Accrued compensation and benefits

(6,994)

7,040

2,288

(8,795)

Deferred revenue

8,631

(1,311)

16,488

(27,039)

Income taxes

(7,859)

1,349

(4,720)

7,262

Other assets and liabilities

4,033

(1,399)

1,451

(2,641)

Cash flows from operations

93,016

128,458

356,727

316,774

Cash flows from investing activities:

Purchases of property and equipment and capitalized software costs

(27,813)

(4,968)

(66,846)

(26,520)

Acquisition of businesses, net of cash acquired

(14,790)

(436,839)

Acquisition of noncontrolling interests

(647)

(647)

(157)

Maturities/(purchases) of short-term investments

19,996

(19,996)

Other

73

238

453

1,436

Cash used in investing activities

(43,177)

(4,730)

(483,883)

(45,237)

Cash flows from financing activities:

Cash dividends paid to MAXIMUS shareholders

(15,951)

(2,891)

(63,887)

(11,692)

Purchases of MAXIMUS common stock

(1,378)

(4,932)

(47,446)

(66,919)

Tax withholding related to RSU vesting

(8,915)

(8,529)

Borrowings under credit facility and other loan agreements

94,616

1,949

414,664

136,632

Repayment of credit facility and other long-term debt

(88,545)

(1,983)

(405,142)

(136,769)

Other

(545)

(133)

(4,603)

Cash used in financing activities

(11,258)

(8,402)

(110,859)

(91,880)

Effect of exchange rate changes on cash

(1,058)

(1,111)

(2,052)

(2,825)

Net increase/(decrease) in cash and cash equivalents

37,523

114,215

(240,067)

176,832

Cash, cash equivalents and restricted cash, beginning of period

78,969

242,344

356,559

179,727

Cash, cash equivalents and restricted cash, end of period

$

116,492

$

356,559

$

116,492

$

356,559

 

MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

 

Three Months Ended September 30,

Twelve Months Ended September 30,

2019

% (1)

2018

% (1)

2019

% (1)

2018

% (1)

Revenue:

U.S. Health & Human Services

$

300,406

100 %

$

288,944

100 %

$

1,176,488

100 %

$

1,213,911

100 %

U.S. Federal Services

312,179

100 %

117,375

100 %

1,111,197

100 %

478,911

100 %

Outside the U.S.

142,381

100 %

152,127

100 %

599,130

100 %

699,414

100 %

Total

$

754,966

100 %

$

558,446

100 %

$

2,886,815

100 %

$

2,392,236

100 %

Gross profit:

U.S. Health & Human Services

$

83,154

27.7 %

$

87,382

30.2 %

$

344,109

29.2 %

$

359,624

29.6 %

U.S. Federal Services

66,586

21.3 %

33,690

28.7 %

242,070

21.8 %

126,698

26.5 %

Outside the U.S.

18,510

13.0 %

17,866

11.7 %

85,005

14.2 %

108,063

15.5 %

Total

$

168,250

22.3 %

$

138,938

24.9 %

$

671,184

23.2 %

$

594,385

24.8 %

Selling, general and administrative expense:

U.S. Health & Human Services

$

29,322

9.8 %

$

35,187

12.2 %

$

123,275

10.5 %

$

140,990

11.6 %

U.S. Federal Services

35,496

11.4 %

17,725

15.1 %

126,128

11.4 %

69,312

14.5 %

Outside the U.S.

16,353

11.5 %

18,811

12.4 %

68,944

11.5 %

72,095

10.3 %

Other

475

NM

1,812

NM

2,676

NM

2,844

NM

Total

$

81,646

10.8 %

$

73,535

13.2 %

$

321,023

11.1 %

$

285,241

11.9 %

Operating income:

U.S. Health & Human Services

$

53,832

17.9 %

$

52,195

18.1 %

$

220,834

18.8 %

$

218,634

18.0 %

U.S. Federal Services

31,090

10.0 %

15,965

13.6 %

115,942

10.4 %

57,386

12.0 %

Outside the U.S.

2,157

1.5 %

(945)

(0.6) %

16,061

2.7 %

35,968

5.1 %

Amortization of intangible assets

(9,028)

NM

(2,462)

NM

(33,054)

NM

(10,308)

NM

Restructuring costs

NM

(1,033)

NM

NM

(3,353)

NM

Acquisition-related expenses (2)

NM

(947)

NM

(2,691)

NM

(947)

NM

Other (3)

(475)

NM

(865)

NM

15

NM

(1,897)

NM

Total

$

77,576

10.3 %

$

61,908

11.1 %

$

317,107

11.0 %

$

295,483

12.4 %

(1)

 

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

(2)

 

Acquisition-related expenses include costs for the acquisition of the citizen engagement centers business.

(3)

 

"Other" relates to various expenses which are not directly attributable to our segments, including litigation costs.

 

MAXIMUS, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

 

Three Months Ended September 30,

Twelve Months Ended September 30,

2019

2018

2019

2018

Cash provided by operations

$

93,016

$

128,458

$

356,727

$

316,774

Purchases of property and equipment and capitalized software costs

(27,813)

(4,968)

(66,846)

(26,520)

Capital expenditure as a result of the acquisition

4,542

Free cash flow

$

65,203

$

123,490

$

294,423

$

290,254

Contacts:

Lisa Miles 703.251.8637
lisamiles@maximus.com

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