MAXIMUS Reports Third Quarter Results
- Raises Full-Year Earnings Guidance for Fiscal Year 2017 -
RESTON, Va.--(BUSINESS WIRE)-- MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and nine months ended June 30, 2017.
Highlights for the third quarter of fiscal year 2017 include:
- Revenue of $600.4 million
- Diluted earnings per share of $0.86 compared to $0.79 for the same period last year
- Strong cash flow with cash from operations of $115.2 million and free cash flow of $109.1 million
- Year-to-date signed contract awards of $1.8 billion and contracts pending (awarded but unsigned) of $259.8 million at June 30, 2017
- Sales pipeline of $3.3 billion at June 30, 2017
- Updated fiscal 2017 diluted earnings per share guidance to range between $3.05 and $3.15
For the third quarter of fiscal 2017, revenue decreased 3% to $600.4 million compared to $617.1 million reported for the same period last year. The decline was principally due to foreign currency impacts and the expected wind down of a subcontract in the U.S. Federal Services Segment. On a constant currency basis, revenue would have declined 1%.
Total company operating margin for the third quarter of fiscal 2017 was 13.6%.
For the third quarter of fiscal 2017, net income attributable to MAXIMUS totaled $56.9 million (or $0.86 of diluted earnings per share). Better-than-expected diluted earnings per share were primarily due to benefits for research and development tax credits in the United States and Canada. During the third quarter, the Company recorded tax credits of $3.7 million (or $0.06 of diluted earnings per share) related to tax returns for years prior to fiscal year 2017. In addition, the Company had favorable results of approximately $0.01 of diluted earnings per share principally due to other income and the gain on sale of the K-12 education business. The remainder of the over-delivery was attributable to performance. This compares to fiscal 2016 third quarter diluted earnings per share of $0.79, which included a $0.06 gain on the sale of the K-12 education business that was partially offset by $0.02 of legal expenses.
Health Services Segment
Health Services Segment revenue for the third quarter of fiscal 2017 was $335.1 million, which is comparable to the $333.7 million reported for the same period last year. Growth from existing contracts and improved service delivery in the United Kingdom was offset by foreign currency translation and work that ended, including a previously disclosed contract that the Company chose not to rebid. On a constant currency basis, segment revenue growth would have been 3%. Both revenue and operating income were impacted by approximately $4 million due to a pending change order where the Company has been performing the additional scope of work and costs were incurred, but revenue is expected to be recorded in future quarters.
Operating margin for the third quarter of fiscal 2017 was 15.4% compared to 15.1% reported for the prior-year period.
U.S. Federal Services Segment
U.S. Federal Services Segment revenue for the third quarter of fiscal 2017 decreased 12% to $131.6 million compared to $149.6 million reported for the same period last year. As previously disclosed, the lower revenue was largely due to the wind down of the Company's subcontract supporting a program with the U.S. Department of Veterans Affairs. This subcontract ended in April 2017. In addition, the segment continues to be impacted by the slowdown from the ongoing transition of the new administration in the U.S. Federal Government.
Operating margin for the third quarter of fiscal 2017 was 12.1% compared to 12.8% reported for the prior-year period. The prior-year period included approximately $3.5 million of non-recurring revenue and operating income that bolstered margin.
Human Services Segment
Human Services Segment revenue for the third quarter of fiscal 2017 was $133.8 million, which is unchanged from the $133.8 million reported for the same period last year. Organic growth was offset by the expected wind down of the Work Programme in the United Kingdom.
Operating margin for the third quarter of fiscal 2017 was 12.2% compared to 10.7% reported for the prior-year period.
Sales and Pipeline
Year-to-date signed contract awards at June 30, 2017 totaled $1.8 billion and contracts pending (awarded but unsigned) totaled $259.8 million.
The sales pipeline at June 30, 2017 was $3.3 billion (comprised of approximately $0.8 billion in proposals pending, $0.7 billion in proposals in preparation, and $1.8 billion in opportunities tracking). This compares to a pipeline of $3.3 billion at March 31, 2017.
Balance Sheet and Cash Flows
Cash and cash equivalents at June 30, 2017 totaled $104.4 million. For the three months ended June 30, 2017, cash flows from operations totaled $115.2 million, with free cash flow of $109.1 million.
At June 30, 2017, Days Sales Outstanding (DSOs) were 64 and better than the Company’s expected range.
On May 31, 2017, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On July 7, 2017, the Company announced a $0.045 per share cash dividend, payable on August 31, 2017 to shareholders of record on August 15, 2017.
Outlook
MAXIMUS is reiterating its revenue guidance and continues to expect revenue to range between $2.425 billion and $2.475 billion for fiscal 2017 with a bias toward the bottom end of the range. Primarily due to the benefit from the research and development tax credits recorded in the third quarter, MAXIMUS is raising its fiscal 2017 earnings guidance and now expects GAAP diluted earnings per share to range between $3.05 and $3.15 for fiscal 2017. This compares to the Company's prior guidance of $3.00 to $3.10. The Company’s guidance does not include any future acquisitions or future legal expenses or recoveries.
"As governments seek solutions to manage aging populations, individuals with complex health needs and growing caseloads in a cost-effective and efficient way, the long-term macro environment continues to be favorable. Despite continued delays in certain markets, our core business remains strong. We are actively pursuing opportunities to build upon our stable portfolio. Management remains committed to achieving our long-term financial and operational objectives and drive shareholder value," commented MAXIMUS CEO Richard A. Montoni.
Conference Call and Webcast Information
MAXIMUS will host a conference call this morning, August 3, 2017, 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 17, 2017. Callers can access the replay by calling:
877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay
conference ID number: 13666496
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 18,000 employees worldwide, MAXIMUS is a proud partner to government agencies in the United States, Australia, Canada, Saudi Arabia 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 press release, we use the non-GAAP measures of 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 21, 2016. We have included a reconciliation of free cash flow to cash flows from operations in this press 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, market demand or acceptance of the Company’s products 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.
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MAXIMUS, Inc. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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(Amounts in thousands, except per share data) |
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(Unaudited) |
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| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| Revenue | $ | 600,447 | $ | 617,094 | $ | 1,830,058 | $ | 1,780,269 | ||||
| Cost of revenue | 448,258 | 465,715 | 1,380,734 | 1,371,008 | ||||||||
| Gross profit | 152,189 | 151,379 | 449,324 | 409,261 | ||||||||
| Less: | ||||||||||||
| Selling, general and administrative expenses | 68,308 | 69,706 | 202,302 | 199,916 | ||||||||
| Amortization of intangible assets | 2,720 | 3,517 | 9,508 | 9,928 | ||||||||
| Restructuring costs | — | — | 2,242 | — | ||||||||
| Acquisition-related expenses | — | — | — | 575 | ||||||||
| Add: | ||||||||||||
| Gain on sale of a business | 650 | 6,453 | 650 | 6,453 | ||||||||
| Operating income | 81,811 | 84,609 | 235,922 | 205,295 | ||||||||
| Less: | ||||||||||||
| Interest expense | 458 | 1,029 | 2,051 | 3,291 | ||||||||
| Add: | ||||||||||||
| Other income, net | 1,306 | 62 | 1,986 | 3,402 | ||||||||
| Income before income taxes | 82,659 | 83,642 | 235,857 | 205,406 | ||||||||
| Provision for income taxes | 24,871 | 30,892 | 78,643 | 76,433 | ||||||||
| Net income | 57,788 | 52,750 | 157,214 | 128,973 | ||||||||
| Income attributable to noncontrolling interests | 870 | 525 | 1,117 | 1,354 | ||||||||
| Net income attributable to MAXIMUS | $ | 56,918 | $ | 52,225 | $ | 156,097 | $ | 127,619 | ||||
| Basic earnings per share attributable to MAXIMUS | $ | 0.87 | $ | 0.79 | $ | 2.38 | $ | 1.94 | ||||
| Diluted earnings per share attributable to MAXIMUS | $ | 0.86 | $ | 0.79 | $ | 2.36 | $ | 1.93 | ||||
| Dividends paid per share | $ | 0.045 | $ | 0.045 | $ | 0.135 | $ | 0.135 | ||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 65,571 | 65,766 | 65,637 | 65,836 | ||||||||
| Diluted | 66,082 | 66,194 | 66,023 | 66,200 | ||||||||
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MAXIMUS, Inc. |
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CONSOLIDATED BALANCE SHEETS |
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(Amounts in thousands) |
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| June 30, 2017 | September 30, 2016 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 104,378 | $ | 66,199 | ||||
| Accounts receivable — billed and billable | 376,972 | 444,357 | ||||||
| Accounts receivable — unbilled | 43,718 | 36,433 | ||||||
| Income taxes receivable | 11,569 | 17,273 | ||||||
| Prepaid expenses and other current assets | 52,902 | 56,718 | ||||||
| Total current assets | 589,539 | 620,980 | ||||||
| Property and equipment, net | 106,622 | 131,569 | ||||||
| Capitalized software, net | 27,370 | 30,139 | ||||||
| Goodwill | 397,386 | 397,558 | ||||||
| Intangible assets, net | 99,487 | 109,027 | ||||||
| Deferred contract costs, net | 17,048 | 18,182 | ||||||
| Deferred compensation plan assets | 27,148 | 23,307 | ||||||
| Deferred income taxes | 8,548 | 8,644 | ||||||
| Other assets | 10,347 | 9,413 | ||||||
| Total assets | $ | 1,283,495 | $ | 1,348,819 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 111,856 | $ | 150,711 | ||||
| Accrued compensation and benefits | 85,662 | 96,480 | ||||||
| Deferred revenue | 67,498 | 73,692 | ||||||
| Income taxes payable | 7,713 | 7,979 | ||||||
| Long-term debt, current portion | 180 | 277 | ||||||
| Other liabilities | 12,541 | 11,617 | ||||||
| Total current liabilities | 285,450 | 340,756 | ||||||
| Deferred revenue, less current portion | 29,893 | 40,007 | ||||||
| Deferred income taxes | 24,731 | 16,813 | ||||||
| Long-term debt | 15,540 | 165,338 | ||||||
| Deferred compensation plan liabilities, less current portion | 28,668 | 24,012 | ||||||
| Other liabilities | 9,122 | 8,753 | ||||||
| Total liabilities | 393,404 | 595,679 | ||||||
| Shareholders’ equity: | ||||||||
| Common stock, no par value | 478,120 | 461,679 | ||||||
| Accumulated other comprehensive loss | (34,303 | ) | (36,169 | ) | ||||
| Retained earnings | 441,795 | 323,571 | ||||||
| Total MAXIMUS shareholders’ equity | 885,612 | 749,081 | ||||||
| Noncontrolling interests | 4,479 | 4,059 | ||||||
| Total equity | 890,091 | 753,140 | ||||||
| Total liabilities and equity | $ | 1,283,495 | $ | 1,348,819 | ||||
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MAXIMUS, Inc. |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(Amounts in thousands) |
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(Unaudited) |
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Three Months Ended |
Nine Months Ended |
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| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Cash flows from operations: | ||||||||||||||||
| Net income | $ | 57,788 | $ | 52,750 | $ | 157,214 | $ | 128,973 | ||||||||
| Adjustments to reconcile net income to cash flows from operations: | ||||||||||||||||
| Depreciation and amortization of property, equipment and capitalized software | 13,449 | 13,387 | 43,416 | 39,246 | ||||||||||||
| Amortization of intangible assets | 2,720 | 3,517 | 9,508 | 9,928 | ||||||||||||
| Deferred income taxes | 14,335 | (1,420 | ) | 8,614 | (1,747 | ) | ||||||||||
| Stock compensation expense | 5,588 | 4,667 | 15,822 | 13,818 | ||||||||||||
| Gain on sale of a business | (650 | ) | (6,453 | ) | (650 | ) | (6,453 | ) | ||||||||
| Change in assets and liabilities: | ||||||||||||||||
| Accounts receivable — billed and billable | 57,993 | 7,582 | 68,023 | (27,469 | ) | |||||||||||
| Accounts receivable — unbilled | (3,822 | ) | (705 | ) | (7,267 | ) | (5,556 | ) | ||||||||
| Prepaid expenses and other current assets | (1,568 | ) | (1,065 | ) | 5,944 | 4,378 | ||||||||||
| Deferred contract costs | 116 | 146 | 1,114 | 956 | ||||||||||||
| Accounts payable and accrued liabilities | (19,694 | ) | (668 | ) | (37,413 | ) | (20,617 | ) | ||||||||
| Accrued compensation and benefits | 4,590 | 4,237 | (1,703 | ) | (9,974 | ) | ||||||||||
| Deferred revenue | (417 | ) | (9,694 | ) | (16,270 | ) | (11,703 | ) | ||||||||
| Income taxes | (15,345 | ) | 21,632 | 5,370 | (965 | ) | ||||||||||
| Other assets and liabilities | 166 | (1,645 | ) | 375 | (4,683 | ) | ||||||||||
| Cash flows from operations | 115,249 | 86,268 | 252,097 | 108,132 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchases of property and equipment and capitalized software costs | (6,113 | ) | (14,267 | ) | (19,088 | ) | (34,103 | ) | ||||||||
| Acquisition of businesses, net of cash acquired | — | (4,924 | ) | — | (46,736 | ) | ||||||||||
| Proceeds from the sale of a business | 650 | 5,515 | 1,035 | 5,515 | ||||||||||||
| Other | 267 | 171 | 485 | 381 | ||||||||||||
| Cash used in investing activities | (5,196 | ) | (13,505 | ) | (17,568 | ) | (74,943 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Cash dividends paid to MAXIMUS shareholders | (2,917 | ) | (2,920 | ) | (8,754 | ) | (8,780 | ) | ||||||||
| Repurchases of common stock | — | (2,197 | ) | (28,858 | ) | (33,335 | ) | |||||||||
| Tax withholding related to RSU vesting | — | — | (9,267 | ) | (11,597 | ) | ||||||||||
| Borrowings under credit facility | 20,000 | 9,260 | 155,000 | 139,823 | ||||||||||||
| Repayment of credit facility and other long-term debt | (120,074 | ) | (84,598 | ) | (304,902 | ) | (139,817 | ) | ||||||||
| Stock option exercises | 370 | 205 | 370 | 205 | ||||||||||||
| Other | (80 | ) | (533 | ) | (1,225 | ) | (533 | ) | ||||||||
| Cash used in financing activities | (102,701 | ) | (80,783 | ) | (197,636 | ) | (54,034 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | 2,164 | (2,154 | ) | 1,286 | (3,218 | ) | ||||||||||
| Net increase/(decrease) in cash and cash equivalents | 9,516 | (10,174 | ) | 38,179 | (24,063 | ) | ||||||||||
| Cash and cash equivalents, beginning of period | 94,862 | 60,783 | 66,199 | 74,672 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 104,378 | $ | 50,609 | $ | 104,378 | $ | 50,609 | ||||||||
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MAXIMUS, Inc. |
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SEGMENT INFORMATION |
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(Amounts in thousands) |
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(Unaudited) |
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| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||
| (Amounts in thousands) | 2017 | % (1) | 2016 | % (1) | 2017 | % (1) | 2016 | % (1) | ||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Health Services | $ | 335,090 | 100% | $ | 333,699 | 100% | $ | 1,024,813 | 100% | $ | 956,169 | 100% | ||||||||||||
| U.S. Federal Services | 131,589 | 100% | 149,601 | 100% | 418,257 | 100% | 445,077 | 100% | ||||||||||||||||
| Human Services | 133,768 | 100% | 133,794 | 100% | 386,988 | 100% | 379,023 | 100% | ||||||||||||||||
| Total | $ | 600,447 | 100% | $ | 617,094 | 100% | $ | 1,830,058 | 100% | $ | 1,780,269 | 100% | ||||||||||||
| Gross Profit: | ||||||||||||||||||||||||
| Health Services | $ | 83,269 | 24.8% | $ | 76,775 | 23.0% | $ | 247,957 | 24.2% | $ | 211,464 | 22.1% | ||||||||||||
| U.S. Federal Services | 33,627 | 25.6% | 38,980 | 26.1% | 107,774 | 25.8% | 100,639 | 22.6% | ||||||||||||||||
| Human Services | 35,293 | 26.4% | 35,624 | 26.6% | 93,593 | 24.2% | 97,158 | 25.6% | ||||||||||||||||
| Total | $ | 152,189 | 25.3% | $ | 151,379 | 24.5% | $ | 449,324 | 24.6% | $ | 409,261 | 23.0% | ||||||||||||
| Selling, general, and administrative expense: | ||||||||||||||||||||||||
| Health Services | $ | 31,716 | 9.5% | $ | 26,345 | 7.9% | $ | 89,737 | 8.8% | $ | 77,312 | 8.1% | ||||||||||||
| U.S. Federal Services | 17,757 | 13.5% | 19,861 | 13.3% | 56,379 | 13.5% | 55,821 | 12.5% | ||||||||||||||||
| Human Services | 18,925 | 14.1% | 21,373 | 16.0% | 55,827 | 14.4% | 64,006 | 16.9% | ||||||||||||||||
| Other (4) | (90 | ) | NM | 2,127 | NM | 359 | NM | 2,777 | NM | |||||||||||||||
| Total | $ | 68,308 | 11.4% | $ | 69,706 | 11.3% | $ | 202,302 | 11.1% | $ | 199,916 | 11.2% | ||||||||||||
| Operating income: | ||||||||||||||||||||||||
| Health Services | $ | 51,553 | 15.4% | $ | 50,430 | 15.1% | $ | 158,220 | 15.4% | $ | 134,152 | 14.0% | ||||||||||||
| U.S. Federal Services | 15,870 | 12.1% | 19,119 | 12.8% | 51,395 | 12.3% | 44,818 | 10.1% | ||||||||||||||||
| Human Services | 16,368 | 12.2% | 14,251 | 10.7% | 37,766 | 9.8% | 33,152 | 8.7% | ||||||||||||||||
| Amortization of intangible assets | (2,720 | ) | NM | (3,517 | ) | NM | (9,508 | ) | NM | (9,928 | ) | NM | ||||||||||||
| Restructuring costs (2) | — | NM | — | NM | (2,242 | ) | NM | — | NM | |||||||||||||||
| Acquisition-related expenses (3) | — | NM | — | NM | — | NM | (575 | ) | NM | |||||||||||||||
| Gain on sale of a business | 650 | NM | 6,453 | NM | 650 | NM | 6,453 | NM | ||||||||||||||||
| Other (4) | 90 | NM | (2,127 | ) | NM | (359 | ) | NM | (2,777 | ) | NM | |||||||||||||
| Total | $ | 81,811 | 13.6% | $ | 84,609 | 13.7% | $ | 235,922 | 12.9% | $ | 205,295 | 11.5% | ||||||||||||
| (1) | Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.” | |
| (2) | During the current fiscal year, we incurred costs in restructuring our United Kingdom Human Services business. | |
| (3) | Acquisition-related expenses relate to the acquisitions of Assessments Australia and Ascend in December 2015 and February 2016, respectively. | |
| (4) | Other costs and credits relate to SG&A balances that do not relate directly to segment business activities. During the three and nine months ended June 30, 2016, we incurred $2.1 million and $2.8 million, respectively, of legal costs related to a matter that occurred in fiscal year 2014. This matter was settled in the third quarter of fiscal 2017. | |
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MAXIMUS, Inc. |
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FREE CASH FLOW |
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(Non-GAAP measure) |
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(Amounts in thousands) |
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(Unaudited) |
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Three Months Ended |
Nine Months Ended |
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| (in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Cash flows from operations | $ | 115,249 | $ | 86,268 | $ | 252,097 | $ | 108,132 | ||||||||
| Purchases of property and equipment and capitalized software costs | (6,113 | ) | (14,267 | ) | (19,088 | ) | (34,103 | ) | ||||||||
| Free cash flow | $ | 109,136 | $ | 72,001 | $ | 233,009 | $ | 74,029 | ||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170803005277/en/
MAXIMUS
Lisa Miles, 703-251-8637
lisamiles@maximus.com
Source: MAXIMUS
Released August 3, 2017