MAXIMUS Reports Record Revenue for Fiscal Third Quarter
Excluding Legal and Settlement Expense of $1.30, Pro Forma Earnings per Share of $0.65; GAAP Loss per Share of $0.65
RESTON, Va.--(BUSINESS WIRE)--
MAXIMUS (NYSE:MMS), a leading provider of government services, today reported results for its fiscal 2007 third quarter ended June 30, 2007.
Highlights include:
-- Third quarter record revenue totaling $196.6 million,
-- Excluding settlement and legal expense, pro forma earnings per
share of $0.65; GAAP loss per share of $0.65 reflects a charge
of $1.30 related to the previously announced settlement,
-- Profitable results from the Texas project,
-- Cash, cash equivalents and marketable securities at June 30,
2007 of $214.8 million (before the $30.5 million outlay of
cash in July 2007 for the recently announced settlement),
-- Record low Days Sales Outstanding of 75 days, and
-- New sales awards of approximately $423 million and a total
pipeline of $1.3 billion at August 1, 2007.
Revenue for the third quarter increased to $196.6 million compared to $186.6 million reported for the same period last year. Last year's third quarter included revenue of approximately $17.0 million which did not recur in the fiscal 2007 third quarter from voter hardware sales and the divested Corrections business. Excluding these items, third quarter revenue increased approximately 15.9% over the same period last year.
For the third quarter, MAXIMUS recorded a net loss of $14.4 million, or $0.65 per share, which included $33.0 million in settlement and legal expenses primarily resulting from the previously disclosed settlement with the Department of Justice to resolve an investigation of the Company's federal healthcare claiming work on behalf of the District of Columbia. A portion of this settlement was not tax deductible, and the associated tax benefit related to the settlement was approximately $4.5 million. As a result, the after-tax charge for the Company's third fiscal quarter was approximately $1.30 per share. Excluding this charge, earnings per share would have been $0.65. This compares to a net loss reported for the same period last year of $17.3 million, or $0.81 per share, which included a $34.3 million loss associated with the Texas subcontract which the Company terminated in February 2007. The Company is now supporting the State of Texas directly through four interim agreements.
"While results for the quarter were impacted by the recent settlement, we are pleased to resolve another legacy issue and focus on realizing the full value of our business portfolio," commented Richard Montoni, Chief Executive Officer of MAXIMUS. "Excluding the settlement and related legal fees, our overall results for the quarter were solid. I'm pleased that we are growing organically in core health and human services markets and delivering financial results that reflect management actions to optimize the current business. Notably, our Operations segment produced exceptional results driven primarily by organic growth and the turnaround of our Texas project. While we still have improvements to make, particularly within our Enterprise Systems Segment, these results keep us on track to achieve our full year outlook."
Consulting Segment
Consulting Segment revenue, which represented 12% of total Company revenue for the third quarter, was $23.3 million compared to $26.7 million in the same period last year. Third quarter operating income for the Consulting Segment was $2.0 million compared to $3.8 million reported for same period last year primarily due to fluctuations related to the timing and billing of work. As expected, operating income improved sequentially compared to $1.0 million reported for the second quarter of fiscal 2007.
Systems Segment
Systems Segment revenue represented 17% of total Company revenue for the third quarter of fiscal 2007 and increased 18.4% to $34.0 million from the prior-year period driven by the ERP division. The Systems Segment lost $3.6 million in the third quarter as a result of approximately $3.2 million of charges from legacy contracts in the Justice Solutions division that adversely impacted the quarter, compared to a net loss of $3.0 million reported for the third quarter of 2006. While the loss in the third quarter reflects legacy work, the Company has since implemented more stringent criteria for pursuing new business in an effort to reduce these types of quarterly project losses.
Operations Segment
Operations Segment revenue represented 71% of total Company revenue for the third quarter of fiscal 2007. Operations Segment revenue for the third quarter was $139.3 million compared to $131.2 million in last year's third quarter, which included revenue of $17.0 million which did not recur in fiscal 2007 from voter hardware sales and the divested Corrections business. Third quarter operating income for the Operations Segment was $24.6 million compared to a loss of $23.1 million reported for the same period last year and operating income of $7.1 million reported for the second quarter of fiscal 2007. The improved profitability compared to the prior year and last quarter was driven by strong organic growth and the turnaround in the Texas project.
Sales and Pipeline
Year-to-date signed contract wins at August 1, 2007, totaled $423 million, compared to $569 million reported last year. New contracts pending at August 1, 2007, (awarded but unsigned) totaled $339 million compared to $145 million reported last year. While new signed awards are down compared to last year, contracts that have been awarded but remain unsigned increased nearly $200 million compared to last year, the majority of which are expected to be signed by fiscal year end. Sales opportunities at August 1, 2007, totaled $1.3 billion (consisting of $414 million in proposals pending, $61 million in proposals in preparation, and $851 million in proposals tracking) compared to $1.1 billion the prior year.
Balance Sheet and Cash Flows
At June 30, 2007, cash, cash equivalents, and marketable securities totaled $214.8 million. Days Sales Outstanding (DSO) improved to a record low of 75 days at June 30, 2007, benefiting from an improving revenue mix with new contracts and an increased focus on the fundamentals of cash flow management. The Company's DSO includes $1.9 million of net long-term accounts receivable included in other assets. For the third fiscal quarter, the Company generated net cash from operating activities of $34.3 million and paid a quarterly cash dividend of $0.10 per share on May 31, 2007. Free cash flow, which the Company defines as cash from operations less purchased property and equipment and capitalized software costs, totaled $29.7 million for the third quarter.
Outlook
Total Company revenue for fiscal 2007 is estimated to be in the range of $740 million to $750 million. As a result, the Company expects that total fiscal year 2007 GAAP diluted loss per share will be in the range of $0.35 to $0.45, inclusive of losses on the Texas project and legal and settlement expenses through June 30, 2007.
The Company has also adjusted its preliminary fiscal 2008 guidance, with expected diluted earnings per share to be in the range of $2.35 to $2.65, and an expected revenue growth rate greater than 10%.
Mr. Montoni concluded, "We recently announced that our Board of Directors is exploring strategic alternatives to enhance shareholder value, including a possible sale of the Company. As we pursue these opportunities, our day-to-day focus will remain on serving our clients and the continued improvement in the performance of our operations with an emphasis on generating profitable, sustainable growth."
Website Presentation, Conference Call and Webcast Information
MAXIMUS will host a conference call this morning at 9:00 a.m. (ET). The Company has also posted a presentation on its website, under the Investor Relations page, for analysts to follow along with during the conference call.
The call is open to the public and can be accessed under the Investor Relations page of the Company's website at www.maximus.com or by calling:
888.881.3328 (Domestic)/206.902.3258 (International)
For those unable to listen to the live call, a replay will be available through Tuesday, August 14, 2007. Callers can access the replay by registering for the digital playback at the following website: http://reg.linkconferencecall.com/DigitalPlayback/DigitalPlayback Registration.aspx?recid=5406 (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.). Upon registration, participants will receive an email with the call back information.
MAXIMUS is one of America's leading government services companies devoted to providing program management, consulting and information technology services. The Company has approximately 6,000 employees located in more than 220 offices in the United States, Canada and Australia. In 1999, 2001, 2002, 2003, and 2005 MAXIMUS was selected by Forbes Magazine as one of the Best 200 Small Companies in America for that year. 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission (file number 001-12997).
Non-GAAP Financial Information
This press release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to MAXIMUS financial statements as prepared under generally accepted accounting principles (GAAP) are included in this press release. MAXIMUS discloses net income and earnings per share excluding legal settlement expense and losses from the Texas project in the first half of fiscal 2007, and provides certain additional information, such as non-recurring reserves, regarding earnings per share for fiscal 2007. MAXIMUS management believes providing investors with this information gives additional insights into MAXIMUS results of operations. While MAXIMUS management believes that these non-GAAP financial measures are useful in evaluating MAXIMUS operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
MAXIMUS, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, June 30,
2006 2007
-------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 39,545 $ 91,105
Marketable securities 117,315 123,737
Restricted cash 1,512 323
Accounts receivable - billed, net of
reserves of $5,830 and $27,876 153,399 120,287
Accounts receivable - unbilled 47,728 40,451
Income taxes receivable 9,003 3,598
Deferred income taxes 6,844 13,932
Prepaid expenses and other current
assets 8,334 6,918
-------------- --------------
Total current assets 383,680 400,351
Property and equipment, at cost 71,078 78,030
Less accumulated depreciation and
amortization (37,649) (44,889)
------------- -------------
Property and equipment, net 33,429 33,141
Capitalized software 57,260 59,996
Less accumulated amortization (23,335) (29,901)
------------- -------------
Capitalized software, net 33,925 30,095
Deferred contract costs, net 11,165 8,368
Goodwill 86,688 86,086
Intangible assets, net 5,720 3,994
Other assets, net 3,894 2,611
-------------- --------------
Total assets $ 558,501 $ 564,646
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,484 $ 50,032
Accrued compensation and benefits 24,426 27,900
Deferred revenue 54,414 44,918
Current portion of capital lease
obligations 1,690 1,742
Other accrued liabilities 1,600 32,468
-------------- --------------
Total current liabilities 136,614 157,060
Capital lease obligations, less current
portion 2,044 698
Deferred income taxes 14,944 11,754
-------------- --------------
Total liabilities 153,602 169,512
Shareholders' equity:
Common stock, no par value;
60,000,000 shares authorized;
21,544,964 and 22,151,770 shares
issued and outstanding at September
30, 2006 and June 30, 2007, at
stated amount, respectively 156,349 173,485
Accumulated other comprehensive
income (loss) (916) 1,138
Retained earnings 249,466 220,511
-------------- --------------
Total shareholders' equity 404,899 395,134
-------------- --------------
Total liabilities and
shareholders' equity $ 558,501 $ 564,646
============== ==============
MAXIMUS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
------------------- --------------------
2006 2007 2006 2007
--------- --------- --------- ---------
Revenue $186,596 $196,557 $529,095 $536,772
Cost of revenue 158,945 138,126 411,366 415,188
Write-off of deferred
contract costs 17,109 - 17,109 -
--------- --------- --------- ---------
Gross profit 10,542 58,431 100,620 121,584
Selling, general and
administrative expenses 32,275 35,350 94,725 104,454
Legal and settlement expense 9,078 33,010 10,303 42,114
--------- --------- --------- ---------
Loss from operations (30,811) (9,929) (4,408) (24,984)
Interest and other income,
net 2,196 1,131 5,174 3,223
Gain (gain adjustment) on
sale of business - (233) - 451
--------- --------- --------- ---------
Income (loss) before
income taxes (28,615) (9,031) 766 (21,310)
Provision (benefit) for
income taxes (11,306) 5,360 299 1,114
--------- --------- --------- ---------
Net income (loss) $(17,309) $(14,391) $ 467 $(22,424)
========= ========= ========= =========
Earnings (loss) per share:
Basic $ (0.81) $ (0.65) $ 0.02 $ (1.03)
========= ========= ========= =========
Diluted $ (0.81) $ (0.65) $ 0.02 $ (1.03)
========= ========= ========= =========
Dividends per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
========= ========= ========= =========
Weighted average shares
outstanding:
Basic 21,472 21,998 21,442 21,767
========= ========= ========= =========
Diluted 21,472 21,998 21,851 21,767
========= ========= ========= =========
MAXIMUS, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months
Ended June 30,
-------------------
2006 2007
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 467 $(22,424)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,786 7,542
Amortization 5,839 7,912
Write-off of deferred contract costs 17,109 -
Deferred income taxes (9,547) (10,277)
Gain on sale of business - (451)
Non-cash equity-based compensation 4,570 2,208
Change in assets and liabilities, net of
effects from divestiture:
Accounts receivable - billed (14,721) 33,111
Accounts receivable - unbilled (1,569) 6,232
Prepaid expenses and other current assets (1,312) 1,428
Deferred contract costs (13,411) 2,797
Other assets (961) 3,261
Accounts payable 27,281 (3,959)
Accrued compensation and benefits (1,782) 3,474
Deferred revenue 12,455 (9,091)
Income taxes (13,816) 5,405
Other liabilities (1,114) 32,179
--------- ---------
Net cash provided by operating activities 16,274 59,347
Cash flows from investing activities:
Proceeds from sale of business, net of
transaction costs - 1,871
Purchases of property and equipment (8,200) (7,390)
Capitalized software costs (6,472) (2,949)
Increase in marketable securities (18,575) (6,422)
--------- ---------
Net cash used in investing activities (33,247) (14,890)
Cash flows from financing activities:
Employee stock transactions 7,268 11,807
Repurchases of common stock (10,139) -
Payments on capital lease obligations (1,121) (1,294)
Tax benefit due to option exercises and
restricted stock units vesting 1,058 3,121
Cash dividends paid (6,434) (6,531)
--------- ---------
Net cash (used in) provided by financing
activities (9,368) 7,103
--------- ---------
Net increase (decrease) in cash and cash
equivalents (26,341) 51,560
Cash and cash equivalents, beginning of period 59,073 39,545
--------- ---------
Cash and cash equivalents, end of period $ 32,732 $ 91,105
========= =========
MAXIMUS, Inc.
Segment Information
(In thousands)
(Unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
------------------- --------------------
2006 2007 2006 2007
--------- --------- --------- ----------
Revenue:
Consulting $ 26,714 $ 23,285 $ 76,717 $ 71,165
Systems 28,686 33,957 97,205 103,910
Operations 131,196 139,315 355,173 361,697
--------- --------- --------- ----------
Total $186,596 $196,557 $529,095 $ 536,772
========= ========= ========= ==========
Gross Profit (Loss):
Consulting $ 11,148 $ 9,937 $ 31,512 $ 30,097
Systems 6,644 8,293 30,511 26,758
Operations (7,250) 40,201 38,597 64,729
--------- --------- --------- ----------
Total $ 10,542 $ 58,431 $100,620 $ 121,584
========= ========= ========= ==========
Selling, General, and
Administrative expense:
Consulting $ 7,330 $ 7,917 $ 22,182 $ 24,230
Systems 9,654 11,910 29,356 31,879
Operations 15,871 15,631 45,106 49,145
Corporate/Other (580) (108) (1,919) (800)
--------- --------- --------- ----------
Total $ 32,275 $ 35,350 $ 94,725 $ 104,454
========= ========= ========= ==========
Income (Loss) from
Operations:
Consulting $ 3,818 $ 2,020 $ 9,330 $ 5,867
Systems (3,010) (3,617) 1,155 (5,121)
Operations (23,121) 24,570 (6,509) 15,584
Consolidating adjustments 580 108 1,919 800
Legal expense (9,078) (33,010) (10,303) (42,114)
--------- --------- --------- ----------
Total $(30,811) $( 9,929) $ (4,408) $( 24,984)
========= ========= ========= ==========
MAXIMUS, Inc.
Supplemental Pro Forma Information
(Dollars in millions, except per share data)
(unaudited)
Three Months Ended
---------------------------
Dec 31 Mar 31 Jun 30
2006 2007 2007 Total
-------- -------- --------- --------
Income before taxes, as reported
(GAAP) $ (16.2) $ 3.9 $ (9.0) $ (21.3)
Add back Texas project loss
(1) 24.0 6.5 - 30.5
Add back legal and settlement
expense 3.0 6.1 33.0 42.1
-------- -------- --------- --------
Pro forma income before taxes
(non-GAAP) $ 10.8 $ 16.5 $ 24.0 $ 51.3
======== ======== ========= ========
Diluted earnings per share, as
reported (GAAP) $ (0.48) $ 0.11 $ (0.65) $ (1.02)
Add back Texas project loss
(1) 0.71 0.18 - 0.89
Add back legal and settlement
expense 0.09 0.16 1.30 1.55
-------- -------- --------- --------
Pro forma diluted earnings per
share (non-GAAP) $ 0.32 $ 0.45 $ 0.65 $ 1.42
======== ======== ========= ========
(1) Pro forma adjustments for the Texas project loss are for periods
presented through March 31, 2007. No pro forma adjustment is
presented for the three months ended June 30, 2007 on the basis
that the Texas project was profitable.
Source: MAXIMUS
Released August 7, 2007