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MAXIMUS Reports Third Quarter Results for Fiscal Year 2016

08/04/2016

- The Company Updates Guidance for Fiscal 2016 -

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, 2016.

Highlights for the third quarter of fiscal year 2016 include:

  • Revenue growth of 8% to $617.1 million compared to the same period last year
  • Diluted earnings per share of $0.79 (which included a $0.06 gain on the sale of the K-12 education business partially offset by legal expenses of $0.02); in addition to these unusual items, the better-than-expected earnings were due to the accelerated timing of revenue and profit contributions that were recorded in the third quarter but were previously forecast to occur in the fourth quarter
  • Year-to-date signed contract awards of $1.3 billion and new contracts pending (awarded but unsigned) of $421.3 million at June 30, 2016
  • An update to fiscal year 2016 revenue and earnings guidance with revenue now expected to range between $2.375 billion and $2.4 billion and GAAP-basis diluted earnings per share now expected to range between $2.60 and $2.70

For the third quarter of fiscal 2016, revenue increased 8% to $617.1 million compared to $572.3 million reported for the same period last year. The increase in revenue included organic revenue growth of 8% driven by the Health Services Segment, as well as acquired growth of 2% from the acquisitions of Ascend and Assessments Australia. This was partially offset by a 2% decline from unfavorable foreign currency translation; on a constant currency basis, revenue growth would have been 10%.

For the third quarter of fiscal 2016, net income attributable to MAXIMUS totaled $52.2 million, or $0.79 of diluted earnings per share, compared to diluted earnings per share of $0.62 for the third quarter of fiscal 2015. For the third quarter of fiscal 2016, diluted earnings per share included a $0.06 gain on the sale of the Company's K-12 education business, which was partially offset by approximately $0.02 of legal costs. In addition to the unusual items, the better-than-expected earnings delivery in the third quarter were due to the accelerated timing of revenue and profit contributions from the start-up of a large expansion to an existing contract. The Company previously expected the start-up contributions to occur in the fourth quarter.

Total Company operating margin for the third quarter of fiscal 2016 was 13.7%.

"Overall, we are pleased with the performance of the portfolio, led by the strong performance of the Health Services Segment," commented MAXIMUS CEO Richard A. Montoni.

Montoni continued, “During the quarter, MAXIMUS was awarded the Part A West Medicare Appeals contract, won a key rebid for pre-admission screening and resident review services for the State of Tennessee, and expanded our footprint with a new contact center for health-related services in New York. We remain keenly focused on helping our government clients run effective and efficient programs, delivering high-quality services to program participants, and meeting our contractual obligations. Demand for our services remains strong and we continue to see industry trends that complement our core capabilities and serve as markers for long-term growth opportunities."

Health Services Segment

Health Services Segment revenue for the third quarter of fiscal 2016 increased 12% to $333.7 million compared to $298.5 million reported for the same period last year. Organic revenue grew 12%, driven by growth on existing contracts, including the Health Assessment Advisory Service in the U.K. and new expansion in New York State. The Ascend acquisition, which occurred in the second fiscal quarter of 2016, accounted for approximately 2% of segment growth. Revenue growth was partially offset by a 2% decline from unfavorable foreign currency translation; on a constant currency basis, revenue growth would have been 14%.

Operating margin for the third quarter of fiscal 2016 increased to 15.1% compared to 14.9% reported in the prior-year period. Operating margin benefited from the accelerated timing of revenue and profit contributions from the start-up of an expansion to an existing contract in New York. The Company previously expected the start-up contributions to occur in the fourth quarter.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the third quarter of fiscal 2016 increased 6% to $149.6 million compared to $141.0 million reported for the same period last year. All growth in the quarter was organic and resulted from the ongoing ramp-up of the U.S. Department of Education contract and a large health contract where MAXIMUS is performing as a subcontractor.

Operating margin for the third quarter was 12.8% compared to 11.0% reported for the prior-year period. Segment operating margin for the third quarter of fiscal 2016 was bolstered by approximately $3.5 million of benefits related to various contracts, much of which are not expected to repeat in the fourth quarter.

Human Services Segment

Human Services Segment revenue for the third quarter of fiscal 2016 increased 1% to $133.8 million compared to $132.7 million for the same period last year. Year-over-year revenue growth was mostly attributable to the jobactive contract in Australia, but was partially offset by the expected declines in the U.K. Work Programme due to lower volumes. Acquired revenue accounted for 3% of growth. The segment was unfavorably impacted by a 3% decline in foreign currency translation; on a constant currency basis, revenue growth would have been 4%.

Operating margin for the third quarter was 10.7% compared to 12.7% for the same period last year. The anticipated reduction in margin was principally due to the ongoing ramp up of the new jobactive contract in Australia.

Sales and Pipeline

Year-to-date signed contract awards at June 30, 2016 totaled $1.3 billion. New contracts pending (awarded but unsigned) totaled $421.3 million.

The sales pipeline at June 30, 2016 increased to $4.2 billion (comprised of approximately $578.1 million in proposals pending, $1.6 billion in proposals in preparation, and $2.1 billion in opportunities tracking). Of the $4.2 billion, approximately $1.0 billion is related to extensions and option periods and more than half is associated with new work across multiple business lines and geographies. This compares to a pipeline of $2.8 billion at June 30, 2015.

The Company’s reported pipeline only reflects those opportunities where MAXIMUS expects the request for proposal to be released within the next six months.

Balance Sheet and Cash Flows

Cash and cash equivalents at June 30, 2016 totaled $50.6 million. For the three months ended June 30, 2016, cash provided by operating activities totaled $86.3 million, with free cash flow of $72.0 million.

At June 30, 2016, Days Sales Outstanding (DSOs) were within the Company’s expected range at 67, and improved sequentially by three days compared to DSOs of 70 days in the second quarter of fiscal 2016.

On May 31, 2016, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On July 12, 2016, the Company announced a $0.045 per share cash dividend, payable on August 31, 2016 to shareholders of record on August 15, 2016.

During the third quarter of fiscal 2016, MAXIMUS repurchased 43,794 shares of the Company's common stock for $2.2 million, at a weighted average price of $50.14. At June 30, 2016, MAXIMUS had $137.5 million available for repurchases under its Board-authorized share repurchase program.

Outlook

The Company is updating its fiscal 2016 revenue and earnings guidance. MAXIMUS is estimating an unfavorable revenue impact from foreign currency translation due to the weakening of the British Pound with the greatest impact occurring in the fourth quarter. In addition, the Company has already disclosed lower revenue contributions from three of its start-up contracts including the Health Assessment Advisory Service (HAAS), Fit for Work and jobactive contracts. As a result, MAXIMUS now expects revenue to range between $2.375 billion and $2.4 billion for fiscal 2016. This compares to the Company's prior range of $2.4 billion to $2.5 billion.

MAXIMUS is narrowing its earnings guidance and now expects GAAP diluted earnings per share to range between $2.60 and $2.70 for fiscal 2016. This compares to the Company’s prior range of $2.50 to $2.70 of GAAP diluted earnings per share. The Company’s guidance does not include any future acquisitions or future legal expenses or recoveries.

Website Presentation, Conference Call and Webcast Information

MAXIMUS will host a conference call this morning, August 4, 2016, 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 http://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 August 18, 2016. Callers can access the replay by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay conference ID number: 13641526

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 16,000 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.

Since March 2015, we have acquired Acentia, Ascend, Assessments Australia and Remploy. We believe users of our financial statements wish to evaluate the performance of our underlying business, excluding changes that have arisen due to businesses acquired. We provide organic revenue growth as a useful basis for assessing this. To calculate organic revenue growth, we compare current year revenue less revenue from these acquisitions to our prior year revenue.

In the first nine months of fiscal year 2016, 29% of our business has been generated outside the United States. We believe that users of our financial statements wish to understand the performance of our foreign operations using a methodology which excludes the effect of year-over-year exchange rate fluctuations. We provide constant currency revenue movement as a useful basis for assessing this. To calculate constant currency revenue movement, we determine the current year’s revenue for all foreign businesses using the exchange rates in the prior year.

In order to sustain our cash flows from operations, we require regular refreshing of our fixed assets and technology. We believe that users of our financial statements wish to understand the cash flows that directly correspond with our operations and the investments we must make in those operations using a methodology which combines operating cash flows and capital expenditures. We provide free cash flow to complement our statement of cash flows. Free cash flow shows the effects of the Company’s operations and routine capital expenditure and excludes the cash flow effects of acquisitions, share repurchases, dividend payments and other financing transactions. We have provided a reconciliation of free cash flow to cash provided by operating activities.

To sustain our operations, our principal source of financing comes from receiving payments from our customers. We believe that users of our financial statements wish to evaluate our efficiency in converting revenue into cash receipts. Accordingly, we provide days sales outstanding, or DSO. We calculate DSO by dividing billed and unbilled receivable balances at the end of each quarter by revenue per day for the period. Revenue per day for a quarter is determined by dividing total revenue by 91 days.

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 .

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 
  Three Months Ended June 30,   Nine Months Ended June 30,
2016   2015 2016   2015
Revenue $ 617,094 $ 572,301 $ 1,780,269 $ 1,521,138
Cost of revenue   465,715   428,503   1,371,008   1,133,728
Gross profit 151,379 143,798 409,261 387,410
Less:
Selling, general and administrative expenses 69,706 66,997 199,916 178,350
Amortization of intangible assets 3,517 3,275 9,928 6,182
Acquisition-related expenses 2,459 575 4,573
Add:
Gain on sale of a business   6,453     6,453  
Operating income 84,609 71,067 205,295 198,305
Less:
Interest expense 1,029 689 3,291 689
Add:
Other income, net   62   8   3,402   1,128
Income before income taxes 83,642 70,386 205,406 198,744
Provision for income taxes   30,892   28,127   76,433   75,108
Net income 52,750 42,259 128,973 123,636
Income attributable to noncontrolling interests   525   593   1,354   1,302
Net income attributable to MAXIMUS $ 52,225 $ 41,666 $ 127,619 $ 122,334
Basic earnings per share attributable to MAXIMUS $ 0.79 $ 0.63 $ 1.94 $ 1.86
Diluted earnings per share attributable to MAXIMUS $ 0.79 $ 0.62 $ 1.93 $ 1.83
Dividends paid per share $ 0.045 $ 0.045 $ 0.135 $ 0.135
Weighted average shares outstanding:
Basic   65,766   65,901   65,836   65,900
Diluted   66,194   67,098   66,200   67,003
 
 

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 
  June 30, 2016   September 30, 2015
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 50,609 $ 74,672
Accounts receivable — billed and billable, net of reserves of $5,173 and $3,385 421,132 396,177
Accounts receivable - unbilled 36,331 30,929
Income taxes receivable 5,072 7,310
Prepaid expenses and other current assets   50,073     52,819  
Total current assets 563,217 561,907
Property and equipment, net 136,295 137,830
Capitalized software, net 30,983 32,483
Goodwill 398,929 376,302
Intangible assets, net 112,966 102,358
Deferred contract costs, net 17,068 19,126
Deferred compensation plan assets 22,015 19,310
Deferred income taxes 5,047 11,058
Other assets   11,573     11,184  
Total assets $ 1,298,093   $ 1,271,558  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 133,162 $ 155,411
Accrued compensation and benefits 78,086 99,700
Deferred revenue 70,302 77,642
Income taxes payable 8,401 11,709
Long-term debt, current portion 326 356
Other liabilities   10,585     11,562  
Total current liabilities 300,862 356,380
Deferred revenue, less current portion 43,875 52,954
Deferred income taxes 5,757 6,546
Long-term debt 210,683 210,618
Deferred compensation plan liabilities, less current portion 22,801 20,635
Other liabilities   8,594     8,726  
Total liabilities 592,572 655,859
Shareholders’ equity:
Common stock, no par value; 100,000 shares authorized; 64,892 and 65,437 shares issued and outstanding at June 30, 2016 and September 30, 2015, at stated amount, respectively 460,409 446,132
Accumulated other comprehensive income/(loss) (34,349 ) (22,365 )
Retained earnings   275,846     188,611  
Total MAXIMUS shareholders’ equity 701,906 612,378
Noncontrolling interests   3,615     3,321  
Total equity   705,521     615,699  
Total liabilities and equity $ 1,298,093   $ 1,271,558  
 
 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 
  Three Months Ended June 30,   Nine Months Ended June 30,
2016   2015 2016   2015
Cash flows from operating activities:
Net income $ 52,750 $ 42,259 $ 128,973 $ 123,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and capitalized software 13,387 13,911 39,246 37,617
Amortization of intangible assets 3,517 3,275 9,928 6,182
Deferred income taxes (1,420 ) 1,213 (1,747 ) (8,921 )
Stock compensation expense 4,667 4,349 13,818 12,785
Gain on sale of a business (6,453 ) (6,453 )
 
Change in assets and liabilities:
Accounts receivable — billed and billable 7,582 (547 ) (27,469 ) (81,430 )
Accounts receivable — unbilled (705 ) 4,520 (5,556 ) 2,209
Prepaid expenses and other current assets (1,065 ) 2,547 4,378 (3,496 )
Deferred contract costs 146 (285 ) 956 (7,390 )
Accounts payable and accrued liabilities (668 ) 17,790 (20,617 ) 45,064
Accrued compensation and benefits 4,237 7,717 (9,974 ) (4,546 )
Deferred revenue (9,694 ) 10,566 (11,703 ) 32,424
Income taxes 21,632 17,893 (965 ) 37,476
Other assets and liabilities   (1,645 )   (6,294 )   (4,683 )   (10,630 )
Cash provided by operating activities 86,268 118,914 108,132 180,980
 
Cash flows from investing activities:
Purchases of property and equipment and capitalized software costs (14,267 ) (25,694 ) (34,103 ) (73,167 )
Acquisition of businesses, net of cash acquired (4,924 ) (289,612 ) (46,736 ) (289,612 )
Proceeds from the sale of a business 5,515 5,515
Other   171     124     381     406  
Cash used in investing activities (13,505 ) (315,182 ) (74,943 ) (362,373 )
 
Cash flows from financing activities:
Cash dividends paid to MAXIMUS shareholders (2,920 ) (2,963 ) (8,780 ) (8,891 )
Repurchases of common stock (2,197 ) (33,335 ) (32,616 )
Tax withholding related to RSU vesting (11,597 ) (12,451 )
Expansion of credit facility (1,444 )
Borrowings under credit facility 9,260 255,993 139,823 255,993
Repayment of credit facility and other long-term debt (84,598 ) (90,038 ) (139,817 ) (90,112 )
Tax benefit/(provision) due to option exercises and restricted stock units vesting (1,208 ) (1,208 )
Stock option exercises 205 521 205 521
Other   (533 )   (73 )   (533 )   (75 )
Cash (used in)/provided by financing activities (80,783 ) 162,232 (54,034 ) 109,717
 
Effect of exchange rate changes on cash and cash equivalents   (2,154 )   1,378     (3,218 )   (4,559 )
 
Net decrease in cash and cash equivalents (10,174 ) (32,658 ) (24,063 ) (76,235 )
 
Cash and cash equivalents, beginning of period   60,783     114,535     74,672     158,112  
 
Cash and cash equivalents, end of period $ 50,609   $ 81,877   $ 50,609   $ 81,877  
 
 

MAXIMUS, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

 
  Three Months Ended June 30,   Nine Months Ended June 30,
(Amounts in thousands) 2016   % (1)   2015   % (1) 2016   % (1)   2015   % (1)
Revenue:
Health Services $ 333,699 100 % $ 298,549 100 % $ 956,169 100 % $ 813,037 100 %
U.S. Federal Services 149,601 100 % 141,011 100 % 445,077 100 % 348,205 100 %
Human Services   133,794   100 %   132,741   100 %   379,023   100 %   359,896   100 %
Total $ 617,094   100 % $ 572,301   100 % $ 1,780,269   100 % $ 1,521,138   100 %
 
Gross Profit:
Health Services $ 76,775 23.0 % $ 69,813 23.4 % $ 211,464 22.1 % $ 199,533 24.5 %
U.S. Federal Services 38,980 26.1 % 34,780 24.7 % 100,639 22.6 % 82,362 23.7 %
Human Services   35,624   26.6 %   39,205   29.5 %   97,158   25.6 %   105,515   29.3 %
Total $ 151,379   24.5 % $ 143,798   25.1 % $ 409,261   23.0 % $ 387,410   25.5 %
 
Selling, general, and administrative expense:
Health Services $ 26,345 7.9 % $ 25,343 8.5 % $ 77,312 8.1 % $ 75,747 9.3 %
U.S. Federal Services 19,861 13.3 % 19,244 13.6 % 55,821 12.5 % 43,871 12.6 %
Human Services 21,373 16.0 % 22,402 16.9 % 64,006 16.9 % 58,624 16.3 %
Other (2)   2,127   NM   8   NM   2,777   NM   108   NM
Total $ 69,706   11.3 % $ 66,997   11.7 % $ 199,916   11.2 % $ 178,350   11.7 %
 
Operating income:
Health Services $ 50,430 15.1 % $ 44,470 14.9 % $ 134,152 14.0 % $ 123,786 15.2 %
U.S. Federal Services 19,119 12.8 % 15,536 11.0 % 44,818 10.1 % 38,491 11.1 %
Human Services 14,251 10.7 % 16,803 12.7 % 33,152 8.7 % 46,891 13.0 %
Amortization of intangible assets (3,517 ) NM (3,275 ) NM (9,928 ) NM (6,182 ) NM
Gain on sale of a business 6,453 NM NM 6,453 NM NM
Acquisition-related expenses (3) NM (2,459 ) NM (575 ) NM (4,573 ) NM
Other (2)   (2,127 ) NM   (8 ) NM   (2,777 ) NM   (108 ) NM
Total $ 84,609   13.7 % $ 71,067   12.4 % $ 205,295   11.5 % $ 198,305   13.0 %
 
(1)   Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”
 
(2) During the three and nine months ended June 30, 2016, we incurred $2.1 million and $2.8 million, respectively, of expenses related to a litigation matter from fiscal year 2014, which is classified in Other SG&A expense.
 
(3) Acquisition-related expenses are costs directly incurred from the purchases of Assessments Australia in the first quarter of fiscal year 2016, the purchase of Ascend in the second quarter of fiscal year 2016 and the purchase of Acentia in fiscal year 2015, as well as other transaction-related activity.
 
 

MAXIMUS, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

 
  Three Months Ended
June 30,
 

Nine Months Ended
June 30,

2016   2015 2016   2015
Cash provided by operating activities $ 86,268 $ 118,914 $ 108,132 $ 180,980
Purchases of property and equipment and capitalized software costs   (14,267 )   (25,694 )   (34,103 )   (73,167 )
Free cash flow $ 72,001   $ 93,220   $ 74,029   $ 107,813  
 

MAXIMUS
Lisa Miles, 703-251-8637
lisamiles@maximus.com

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