MAXIMUS Announces Settlement of Arbitration Matter
RESTON, Va.--(BUSINESS WIRE)-- MAXIMUS (NYSE:MMS), a leading provider of government services, announced today that it has resolved the arbitration matter with Accenture that has been outstanding since early 2007. Concurrently, the parties have also resolved outstanding contract claims by the Texas Health and Human Services Commission ("HHSC") arising out of the contract between the Texas Access Alliance (comprised of Accenture as prime contractor and MAXIMUS as subcontractor) and HHSC. In connection with this settlement, MAXIMUS will record a pre-tax charge of $37.5 million ($23.2 million after-tax) in legal and settlement expense in the fourth quarter of fiscal 2008.
Under terms of the agreement, MAXIMUS will pay $27.5 million in cash, net of insurance proceeds from its primary insurance carrier. In addition, MAXIMUS will provide $10 million in future services to HHSC. MAXIMUS is also pursuing additional insurance reimbursement from its excess insurance carriers, but the amount of any additional recoveries cannot be determined at this time.
Richard Montoni, Chief Executive Officer of MAXIMUS, commented, "We are pleased to put this long outstanding matter behind us on terms that are balanced and clearly manageable. In summary, the settlement is $23.2 million after-tax and this is before any additional recovery from our excess insurance carriers. In addition, MAXIMUS will realize the benefit of future revenue from the $10 million in in-kind services we will provide to Texas HHSC."
Montoni continued, "We determined that resolving the matter and avoiding the continuing costs, distractions and uncertainty of the arbitration process was in the best interests of our customers, shareholders and employees. Following the wind down of the Texas Access Alliance contract in 2007, HHSC entered into direct contracts with MAXIMUS for the administration of its most critical health and human services programs including Medicaid Enrollment, State Children's Health Insurance Program (SCHIP), and eligibility support services, and we continue to run those programs for the State of Texas. That is the most important indicator of the quality of our services."
In accordance with GAAP, previously announced fiscal 2008 results will be adjusted for the settlement. Specifically, MAXIMUS will record the $37.5 million pre-tax charge ($23.2 million after-tax) in the fourth quarter and year ended September 30, 2008. As a result of the settlement, the fourth quarter's GAAP loss totaled $1.35 per share and for the full fiscal year the Company had GAAP earnings per diluted share of $0.35. Adjusted GAAP financial results and pro forma information for the fourth quarter and year ended September 30, 2008 are presented in the accompanying exhibits.
The Company is adjusting its cash flow guidance for fiscal 2009 to reflect payment of the settlement in its fiscal 2009 first quarter. As a result, the Company now expects cash from continuing operations to be in the range of $35 million to $45 million.
Montoni concluded, "This represents resolution of the most significant remaining step in fulfilling our strategy to de-risk and focus our business. As a result, MAXIMUS is very well positioned to help its government customers through these challenging economic times and to deal with the growth opportunities we expect to occur in our core area of health and human services. The Company maintains a very strong capital position and with strong cash flows anticipated in fiscal 2009, the Company fully expects to continue to invest in its business and to return excess cash to shareholders through its ongoing dividend and share repurchase programs."
MAXIMUS is a leading provider of government services and is devoted to providing health and human services program management and consulting services to its clients. The Company has more than 6,000 employees located in more than 220 offices in the United States, Canada and Australia. Additionally, MAXIMUS is included in the Russell 2000 Index and the S&P SmallCap 600 Index.
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 Quarterly Report filed with the Securities and Exchange Commission, found on www.maximus.com.
MAXIMUS, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30,
2007 2008
ASSETS
Current assets:
Cash and cash equivalents $ 70,472 $ 120,628
Marketable securities 126,210 --
Restricted cash 325 329
Accounts receivable -- billed, net 111,210 128,819
Accounts receivable -- unbilled 19,782 30,695
Current portion of note receivable -- 746
Deferred income taxes 17,409 13,250
Due from insurance carrier -- 12,500
Prepaid expenses and other current assets 8,087 9,276
Current assets of discontinued operations 45,242 193
Total current assets 398,737 316,436
Property and equipment, net 34,329 33,994
Capitalized software, net 10,830 14,125
Deferred contract costs, net 8,116 5,324
Goodwill 60,476 60,659
Intangible assets, net 2,476 3,699
Note receivable -- 1,337
Deferred income taxes -- 10,933
Other assets 2,366 3,788
Noncurrent assets of discontinued operations 47,134 --
Total assets $ 564,464 $ 450,295
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,711 $ 48,950
Accrued compensation and benefits 24,569 26,684
Current portion of deferred revenue 16,845 19,676
Current portion of income taxes payable 5,487 4,011
Current portion of capital lease obligations 1,627 417
Other accrued liabilities 1,387 53,891
Current liabilities of discontinued operations 35,966 11,028
Total current liabilities 131,592 164,657
Capital lease obligations, less current portion 417 --
Deferred revenue, less current portion 10,143 8,315
Income taxes payable, less current portion -- 1,617
Deferred income taxes 12,912 --
Total liabilities 155,064 174,589
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 60,000,000 shares
authorized; 22,194,489 and 18,302,368 shares issued 299,846 328,323
and outstanding at September 30, 2007 and 2008, at
stated amount, respectively
Treasury stock, at cost; 4,490,073 and 8,635,130 (124,637 ) (289,103 )
shares at September 30, 2007 and 2008, respectively
Accumulated other comprehensive income 1,730 5,536
Retained earnings 232,461 230,950
Total shareholders' equity 409,400 275,706
Total liabilities and shareholders' equity $ 564,464 $ 450,295
MAXIMUS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
Year Ended September 30,
September 30,
2007 2008 2007 2008
Revenue $ 173,712 $ 189,069 $ 626,231 $ 745,133
Cost of revenue 126,204 138,260 478,507 543,389
Gross profit 47,508 50,809 147,724 201,744
Selling, general and 23,233 30,900 104,632 115,649
administrative expenses
Gain on sale of building -- -- -- 3,938
Gain on sale of Corrections -- -- 451 --
Services business
Legal and settlement expense 2,324 36,727 44,438 38,358
Goodwill impairment -- 7,600 -- 7,600
Operating income (loss) from 21,951 (24,418 ) (895 ) 44,075
continuing operations
Interest and other income, 2,581 325 5,804 2,423
net
Income (loss) from
continuing operations before 24,532 (24,093 ) 4,909 46,498
income taxes
Provision (benefit) for 10,301 (9,321 ) 12,081 18,217
income taxes
Income (loss) from 14,231 (14,772 ) (7,172 ) 28,281
continuing operations
Discontinued operations, net
of income taxes:
Loss from discontinued (62 ) (2,827 ) (1,083 ) (15,969 )
operations
Loss on disposal -- (7,361 ) -- (5,635 )
Loss from discontinued (62 ) (10,188 ) (1,083 ) (21,604 )
operations
Net income (loss) $ 14,169 $ (24,960 ) $ (8,255 ) $ 6,677
Basic earnings (loss) per
share:
Income (loss) from $ 0.64 $ (0.80 ) $ (0.33 ) $ 1.48
continuing operations
Loss from discontinued -- (0.55 ) (0.05 ) (1.13 )
operations
Basic earnings (loss) per $ 0.64 $ (1.35 ) $ (0.38 ) $ 0.35
share
Diluted earnings (loss) per
share:
Income (loss) from $ 0.63 $ (0.80 ) $ (0.33 ) $ 1.47
continuing operations
Loss from discontinued -- (0.55 ) (0.05 ) (1.12 )
operations
Diluted earnings (loss) per $ 0.63 $ (1.35 ) $ (0.38 ) $ 0.35
share
Dividends per share $ 0.10 $ 0.10 $ 0.40 $ 0.40
Weighted average shares
outstanding:
Basic 22,177 18,540 21,870 19,060
Diluted 22,554 18,540 21,870 19,305
MAXIMUS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Year Ended
September 30,
2007 2008
Cash flows from operating activities:
Net income (loss) $ (8,255 ) $ 6,677
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations 1,083 21,604
Depreciation 9,889 9,132
Amortization 2,450 3,396
Impairment of goodwill -- 7,600
Deferred income taxes (12,598 ) (20,200 )
Gain on sale of Corrections Services business (451 ) --
Gain on sale of building -- (3,938 )
Deferred interest income on note receivable -- 147
Non-cash equity based compensation 3,962 9,123
Changes in assets and liabilities, net of effects from
divestitures:
Accounts receivable - billed (2,039 ) (16,000 )
Accounts receivable - unbilled 1,750 (10,913 )
Due from insurance carrier -- (12,500 )
Prepaid expenses and other current assets (216 ) (1,173 )
Deferred contract costs 3,049 2,792
Other assets 4,375 (227 )
Accounts payable 1,694 3,014
Accrued compensation and benefits 4,085 2,115
Deferred revenue 2,254 1,003
Income taxes 14,490 2,572
Other liabilities 1,167 47,499
Cash provided by operating activities - continuing 26,689 51,723
operations
Cash provided by operating activities - discontinued 24,501 4,850
operations
Cash provided by operating activities 51,190 56,573
Cash flows from investing activities:
Proceeds from sales of discontinued operations, net of -- 37,678
transaction costs
Proceeds from sale of Corrections Services business, 1,871 --
net of transaction costs
Proceeds from sale of building, net of transaction -- 5,929
costs
Acquisition of business, net of cash acquired -- (3,150 )
Decrease in note receivable -- 237
Purchases of property and equipment (12,390 ) (10,318 )
Capitalized software costs (2,350 ) (5,131 )
(Increase) decrease in marketable securities (8,895 ) 126,210
Cash provided by (used in) investing activities - (21,764 ) 151,455
continuing operations
Cash used in investing activities - discontinued (3,090 ) (2,995 )
operations
Cash provided by (used in) investing activities (24,854 ) 148,460
Cash flows from financing activities:
Employee stock transactions 12,953 4,422
Repurchases of common stock -- (164,466 )
Price adjustment under Accelerated Share Repurchase -- 13,903
agreement
Payments on capital lease obligations (1,690 ) (1,627 )
Tax benefit due to option exercises and restricted 2,078 689
stock units vesting
Cash dividends paid (8,750 ) (7,798 )
Cash provided by (used in) financing activities - 4,591 (154,877 )
continuing operations
Cash provided by financing activities - discontinued -- --
operations
Cash provided by (used in) financing activities 4,591 (154,877 )
Net increase in cash and cash equivalents 30,927 50,156
Cash and cash equivalents, beginning of period 39,545 70,472
Cash and cash equivalents, end of period $ 70,472 $ 120,628
MAXIMUS, Inc.
Segment Information - Income (loss) from Continuing Operations (1)
(Dollars in thousands)
(Unaudited)
Three Months Ended
Year Ended September 30,
September 30,
2007 2008 2007 2008
Revenue:
Operations $ 142,988 $ 163,520 $ 507,486 $ 629,226
Consulting 30,724 25,549 118,745 115,907
Total 173,712 189,069 626,231 745,133
Gross Profit:
Operations 37,580 43,715 102,886 163,308
Consulting 9,928 7,094 44,838 38,436
Total 47,508 50,809 147,724 201,744
Selling, General, and
Administrative expense:
Operations 14,814 21,541 67,271 77,615
Consulting 8,015 9,206 37,090 37,011
Corporate/Other 404 153 271 1,023
Total 23,233 30,900 104,632 115,649
Income (loss) from
Operations: (1)
Operations 22,766 22,174 35,615 85,693
Consulting 1,913 (2,112 ) 7,748 1,425
Consolidating adjustments (404 ) (153 ) (271 ) (1,023 )
Subtotal: Segment Operating 24,275 19,909 43,092 86,095
Income
Gain on sale of Corrections -- -- 451 --
Services business
Gain on sale of building -- -- -- 3,938
Legal and settlement expense (2,324 ) (36,727 ) (44,438 ) (38,358 )
Goodwill impairment -- (7,600 ) -- (7,600 )
Consolidated total $ 21,951 $ (24,418 ) $ (895 ) $ 44,075
Operating margin (loss)
percentage:
Operations 15.9 % 13.6 % 7.0 % 13.6 %
Consulting 6.2 % -8.3 % 6.5 % 1.2 %
Subtotal: Segment Operating 14.0 % 10.5 % 6.9 % 11.6 %
Income
Consolidated total 12.6 % -12.9 % -0.1 % 5.9 %
(1) Before income taxes.
MAXIMUS, Inc.
Supplemental Pro Forma Earnings per Diluted Share from Continuing Operations
Fiscal Year 2008
Q1 08 Q2 08 Q3 08 Q4 08 Total
Diluted earnings per share
from continuing operations-
GAAP basis $ 0.59 $ 0.72 $ 0.92 $ (0.80 ) $ 1.43
Pro forma adjustments:
Legal and settlement charges - 0.03 0.02 1.23 1.28
Gains on sale of building - - (0.13 ) - (0.13 )
Pre-ASR interest income (0.03 ) - - - (0.03 )
Non-cash goodwill impairment - - - 0.25 0.25
charge
Severance - - - 0.03 0.03
Subtotal pro forma $ (0.03 ) $ 0.03 $ (0.11 ) $ 1.51 $ 1.40
adjustments
Pro forma diluted earnings
per share from continuing $ 0.56 $ 0.75 $ 0.81 $ 0.71 $ 2.83
operations
Source: MAXIMUS, Inc.
Released December 12, 2008