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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
Commission File Number: 1-12997
MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
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Virginia | | 54-1000588 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1891 Metro Center Drive, Reston, Virginia | | 20190 |
(Address of principal executive offices) | | (Zip Code) |
(703) 251-8500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ý | | Accelerated filer o |
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Non-accelerated filer o | | Smaller reporting company o |
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| | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, no par value | | MMS | | New York Stock Exchange |
As of May 6, 2019, there were 63,810,845 shares of the registrant’s common stock (no par value) outstanding.
MAXIMUS, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2019
INDEX
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PART I. FINANCIAL INFORMATION | | | |
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Item 1. | | | |
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Item 2. | | | |
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Item 3. | | | |
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Item 4. | | | |
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PART II. OTHER INFORMATION | | | |
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Item 1. | | | |
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Item 1A. | | | |
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Item 2. | | | |
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Item 6. | | | |
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Throughout this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” “our” and “MAXIMUS” refer to MAXIMUS, Inc. and its subsidiaries, unless the context requires otherwise.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements that are not historical facts. Words such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” “will” and similar expressions are intended to identify forward-looking statements and convey uncertainty of future events or outcomes. These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward-looking statements due to a number of factors, including without limitation:
•a failure to meet performance requirements in our contracts, which might lead to contract termination and actual or liquidated damages;
•the effects of future legislative or government budgetary and spending changes;
•our failure to successfully bid for and accurately price contracts to generate our desired profit;
•our ability to maintain technology systems and otherwise protect confidential or protected information;
•our ability to attract and retain executive officers, senior managers and other qualified personnel to execute our business;
•our ability to manage capital investments and startup costs incurred before receiving related contract payments;
•our ability to manage our growth, including acquired businesses;
•the ability of government customers to terminate contracts on short notice, with or without cause;
•our ability to maintain relationships with key government entities from whom a substantial portion of our revenue is derived;
•the outcome of reviews or audits, which might result in financial penalties and impair our ability to respond to invitations for new work;
•a failure to comply with laws governing our business, which might result in the Company being subject to fines, penalties, suspension, debarment and other sanctions;
•the costs and outcome of litigation;
•difficulties in integrating or achieving projected revenues, earnings and other benefits associated with acquired businesses;
•the effects of changes in laws and regulations governing our business, including tax laws, and applicable interpretations and guidance thereunder, or changes in accounting policies, rules, methodologies and practices, and our ability to estimate the impact of such changes;
•matters related to business we have disposed of or divested; and
•other factors set forth in Exhibit 99.1, under the caption "Special Considerations and Risk Factors," in our Annual Report on Form 10-K for the year ended September 30, 2018, which was filed with the Securities and Exchange Commission on November 20, 2018.
As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. Additionally, we caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenue | $ | 736,520 | | $ | 612,787 | | $ | 1,401,139 | | $ | 1,235,935 |
Cost of revenue | 567,098 | | 463,984 | | 1,072,452 | | 935,172 |
Gross profit | 169,422 | | 148,803 | | 328,687 | | 300,763 |
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Selling, general and administrative expenses | 78,102 | | 74,879 | | 157,773 | | 144,438 |
Amortization of intangible assets | 9,519 | | 2,603 | | 14,977 | | 5,321 |
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Operating income | 81,801 | | 71,321 | | 155,937 | | 151,004 |
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Interest expense | 1,569 | | 157 | | 2,194 | | 325 |
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Other income, net | 447 | | 1,392 | | 2,492 | | 1,679 |
Income before income taxes | 80,679 | | 72,556 | | 156,235 | | 152,358 |
Provision for income taxes | 18,913 | | 17,450 | | 38,746 | | 37,300 |
Net income | 61,766 | | 55,106 | | 117,489 | | 115,058 |
(Loss)/income attributable to noncontrolling interests | (158) | | (386) | | (348) | | 475 |
Net income attributable to MAXIMUS | $ | 61,924 | | $ | 55,492 | | $ | 117,837 | | $ | 114,583 |
Basic earnings per share attributable to MAXIMUS | $ | 0.96 | | $ | 0.84 | | $ | 1.82 | | $ | 1.74 |
Diluted earnings per share attributable to MAXIMUS | $ | 0.96 | | $ | 0.84 | | $ | 1.82 | | $ | 1.73 |
Dividends paid per share | $ | 0.25 | | $ | 0.045 | | $ | 0.50 | | $ | 0.09 |
Weighted average shares outstanding: | | | | | | | |
Basic | 64,369 | | 65,856 | | 64,600 | | 65,857 |
Diluted | 64,643 | | 66,268 | | 64,817 | | 66,223 |
See notes to unaudited consolidated financial statements.
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
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| Three Months Ended March 31, | | | | Six Months Ended March 31, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 61,766 | | $ | 55,106 | | $ | 117,489 | | $ | 115,058 |
Foreign currency translation adjustments | 3,537 | | 2,869 | | (2,183) | | 3,184 |
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Comprehensive income | 65,303 | | 57,975 | | 115,306 | | 118,242 |
Comprehensive (loss)/income attributable to noncontrolling interests | (158) | | (386) | | (348) | | 475 |
Comprehensive income attributable to MAXIMUS | $ | 65,461 | | $ | 58,361 | | $ | 115,654 | | $ | 117,767 |
See notes to unaudited consolidated financial statements.
MAXIMUS, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
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| March 31, 2019 | | September 30, 2018 |
| (unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 46,799 | | $ | 349,245 |
Short-term investments | — | | 20,264 |
Accounts receivable — billed and billable, net of reserves of $6,073 and $4,285 | 491,560 | | 357,613 |
Accounts receivable — unbilled | 131,250 | | 31,536 |
Income taxes receivable | 20,733 | | 5,979 |
Prepaid expenses and other current assets | 49,668 | | 43,995 |
Total current assets | 740,010 | | 808,632 |
Property and equipment, net | 76,693 | | 77,544 |
Capitalized software, net | 25,232 | | 22,429 |
Goodwill | 587,751 | | 399,882 |
Intangible assets, net | 195,354 | | 88,035 |
Deferred contract costs, net | 19,771 | | 14,380 |
Deferred compensation plan assets | 32,387 | | 34,305 |
Deferred income taxes | 209 | | 6,834 |
Other assets | 10,309 | | 9,959 |
Total assets | $ | 1,687,716 | | $ | 1,462,000 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 169,099 | | $ | 114,378 |
Accrued compensation and benefits | 87,698 | | 95,555 |
Deferred revenue | 39,215 | | 51,182 |
Income taxes payable | 3,159 | | 4,438 |
Current portion of long-term debt and other borrowings | 3,681 | | 136 |
Other liabilities | 17,909 | | 11,760 |
Total current liabilities | 320,761 | | 277,449 |
Deferred revenue, less current portion | 24,910 | | 20,394 |
Deferred income taxes | 51,060 | | 26,377 |
Long-term debt | 75,295 | | 374 |
Deferred compensation plan liabilities, less current portion | 32,622 | | 33,497 |
Other liabilities | 15,487 | | 17,490 |
Total liabilities | 520,135 | | 375,581 |
Shareholders’ equity: | | | |
Common stock, no par value; 100,000 shares authorized; 63,811 and 64,371 shares issued and outstanding at March 31, 2019, and September 30, 2018, at stated amount, respectively | 498,269 | | 487,539 |
Accumulated other comprehensive loss | (39,136) | | (36,953) |
Retained earnings | 705,824 | | 633,281 |
Total MAXIMUS shareholders’ equity | 1,164,957 | | 1,083,867 |
Noncontrolling interests | 2,624 | | 2,552 |
Total equity | 1,167,581 | | 1,086,419 |
Total liabilities and equity | $ | 1,687,716 | | $ | 1,462,000 |
See notes to unaudited consolidated financial statements.
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended March 31, | | |
| 2019 | | 2018 |
Cash flows from operations: | | | |
Net income | $ | 117,489 | | $ | 115,058 |
Adjustments to reconcile net income to cash flows from operations: | | | |
Depreciation and amortization of property and equipment and capitalized software | 22,407 | | 27,074 |
Amortization of intangible assets | 14,977 | | 5,321 |
Deferred income taxes | 17,764 | | (9,179) |
Stock compensation expense | 9,904 | | 11,324 |
| | | |
Change in assets and liabilities excluding acquired assets and liabilities: | | | |
Accounts receivable — billed and billable | (72,720) | | (18,522) |
Accounts receivable — unbilled | 9,189 | | (4,730) |
Prepaid expenses and other current assets | (5,118) | | 8,526 |
Deferred contract costs | (5,415) | | 1,794 |
Accounts payable and accrued liabilities | 42,080 | | (3,171) |
Accrued compensation and benefits | (7,443) | | (15,391) |
Deferred revenue | 4,435 | | (23,789) |
Income taxes | (16,496) | | 18,634 |
Other assets and liabilities | (3,842) | | 3,811 |
Cash flows from operations | 127,211 | | 116,760 |
Cash flows from investing activities: | | | |
Purchases of property and equipment and capitalized software costs | (18,541) | | (13,175) |
Acquisitions | (421,809) | | (157) |
| | | |
Redemption of short-term investments | 19,996 | | — |
Other | 284 | | 541 |
Cash used in investing activities | (420,070) | | (12,791) |
Cash flows from financing activities: | | | |
Cash dividends paid to MAXIMUS shareholders | (31,983) | | (5,865) |
Purchases of MAXIMUS common stock | (46,068) | | (1,038) |
Tax withholding related to RSU vesting | (8,915) | | (8,529) |
| | | |
Borrowings | 320,048 | | 124,683 |
Repayment of credit facility and other long-term debt | (241,539) | | (124,752) |
| | | |
| | | |
Other | (133) | | (2,130) |
Cash used in financing activities | (8,590) | | (17,631) |
Effect of exchange rate changes on cash and cash equivalents | (632) | | 1,070 |
Net (decrease)/increase in cash, cash equivalents and restricted cash | (302,081) | | 87,408 |
Cash, cash equivalents and restricted cash, beginning of period | 356,559 | | 179,727 |
Cash, cash equivalents and restricted cash, end of period | $ | 54,478 | | $ | 267,135 |
See notes to unaudited consolidated financial statements.
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Outstanding | | Common Stock | | Accumulated Other Comprehensive Income/(Loss) | | Retained Earnings | | Noncontrolling Interest | | Total |
Balance at Balance at December 31, 2018 | 63,717 | | $ | 492,938 | | $ | (42,673) | | $ | 664,332 | | $ | 2,782 | | $ | 1,117,379 |
Net income | — | | — | | — | | 61,924 | | (158) | | 61,766 |
Foreign currency translation | — | | — | | 3,537 | | — | | — | | 3,537 |
Cash dividends | — | | — | | — | | (15,950) | | — | | (15,950) |
Dividends on RSUs | — | | 398 | | — | | (398) | | — | | — |
Purchases of common stock | (62) | | — | | — | | (4,084) | | — | | (4,084) |
Stock compensation expense | — | | 4,933 | | — | | — | | — | | 4,933 |
| | | | | | | | | | | |
| | | | | | | | | | | |
RSUs vested | 156 | | — | | — | | — | | — | | — |
| | | | | | | | | | | |
Balance at March 31, 2019 | 63,811 | | $ | 498,269 | | $ | (39,136) | | $ | 705,824 | | $ | 2,624 | | $ | 1,167,581 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Outstanding | | Common Stock | | Accumulated Other Comprehensive Income/(Loss) | | Retained Earnings | | Noncontrolling Interest | | Total |
Balance at September 30, 2018 | 64,371 | | $ | 487,539 | | $ | (36,953) | | $ | 633,281 | | $ | 2,552 | | $ | 1,086,419 |
Cumulative impact from adopting ASC Topic 606 on October 1, 2018 | — | | — | | — | | 32,929 | | 553 | | 33,482 |
Net income | — | | — | | — | | 117,837 | | (348) | | 117,489 |
Foreign currency translation | — | | — | | (2,183) | | — | | — | | (2,183) |
| | | | | | | | | | | |
Cash dividends | — | | — | | — | | (31,983) | | (133) | | (32,116) |
Dividends on RSUs | — | | 826 | | — | | (826) | | — | | — |
Purchases of common stock | (716) | | — | | — | | (45,414) | | — | | (45,414) |
Stock compensation expense | — | | 9,904 | | — | | — | | — | | 9,904 |
| | | | | | | | | | | |
| | | | | | | | | | | |
RSUs vested | 156 | | — | | — | | — | | — | | — |
| | | | | | | | | | | |
Balance at March 31, 2019 | 63,811 | | $ | 498,269 | | $ | (39,136) | | $ | 705,824 | | $ | 2,624 | | $ | 1,167,581 |
MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Outstanding | | Common Stock | | Accumulated Other Comprehensive Income/(Loss) | | Retained Earnings | | Noncontrolling Interest | | Total |
Balance at Balance at December 31, 2017 | 65,120 | | $ | 481,261 | | $ | (27,304) | | $ | 547,151 | | $ | 6,544 | | $ | 1,007,652 |
Net income | — | | — | | — | | 55,492 | | (386) | | 55,106 |
Foreign currency translation | — | | — | | 2,869 | | — | | — | | 2,869 |
Cash dividends | — | | — | | — | | (2,935) | | (2,129) | | (5,064) |
Dividends on RSUs | — | | 78 | | — | | (78) | | — | | — |
| | | | | | | | | | | |
| | | | | | | | | | | |
Stock compensation expense | — | | 5,922 | | — | | — | | — | | 5,922 |
| | | | | | | | | | | |
| | | | | | | | | | | |
RSUs vested | 123 | | — | | — | | — | | — | | — |
Addition of noncontrolling interest from acquisition | — | | 124 | | — | | — | | (281) | | (157) |
Balance at March 31, 2018 | 65,243 | | $ | 487,385 | | $ | (24,435) | | $ | 599,630 | | $ | 3,748 | | $ | 1,066,328 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares Outstanding | | Common Stock | | Accumulated Other Comprehensive Income / (Loss) | | Retained Earnings | | Noncontrolling Interest | | Total |
Balance at September 30, 2017 | 65,137 | | $ | 475,592 | | $ | (27,619) | | $ | 492,112 | | $ | 5,683 | | $ | 945,768 |
Net income | — | | — | | — | | 114,583 | | 475 | | 115,058 |
Foreign currency translation | — | | — | | 3,184 | | — | | — | | 3,184 |
| | | | | | | | | | | |
Cash dividends | — | | — | | — | | (5,865) | | (2,129) | | (7,994) |
Dividends on RSUs | — | | 162 | | — | | (162) | | — | | — |
Purchases of common stock | (17) | | — | | — | | (1,038) | | — | | (1,038) |
Stock compensation expense | — | | 11,324 | | — | | — | | — | | 11,324 |
| | | | | | | | | | | |
Tax withholding related to RSU vesting | — | | 183 | | — | | — | | — | | 183 |
RSUs vested | 123 | | — | | — | | — | | — | | — |
Addition of noncontrolling interest from acquisition | — | | 124 | | — | | — | | (281) | | (157) |
Balance at March 31, 2018 | 65,243 | | $ | 487,385 | | $ | (24,435) | | $ | 599,630 | | $ | 3,748 | | $ | 1,066,328 |
See notes to unaudited consolidated financial statements.
MAXIMUS, Inc.
Notes to Unaudited Consolidated Financial Statements
For the Three and Six Months Ended March 31, 2019 and 2018
1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted by these instructions, they do not include all of the information and notes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three and six months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2018, has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.
Certain financial results have been reclassified to conform with our current period presentation.
•Our consolidated statement of cash flows for the six months ended March 31, 2018, includes a reclassification to reflect the effect of new accounting guidance.
•Our consolidated balance sheet at September 30, 2018, includes a reclassification to show a comparative balance for current and long-term debt, which were previously reported within "other liabilities."
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill and amounts related to income taxes, certain accrued liabilities and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
These financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto at September 30, 2018 and 2017, and for each of the three years ended September 30, 2018, included in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on November 20, 2018.
Changes in financial reporting
Segments
As previously reported, effective October 1, 2018, our Chief Executive Officer reorganized our reporting segments based on the way that management intends to allocate resources, manage performance and evaluate results. This reorganization of segments responds to recent changes in the markets in which we operate, the increasing integration of health and human services programs worldwide and the evolving needs of our government clients as they aim to deliver services in a more holistic manner to their citizens. Our results for the three and six months ended March 31, 2018, were recast to conform with these new segments. See "Note 2. Segment Information" for more details of this change.
Revenue recognition
We adopted Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) on October 1, 2018, using the modified retrospective method and, accordingly, we recognized the cumulative effect of adoption as an adjustment of $32.9 million to our opening retained earnings balance on October 1, 2018. We applied this standard only to contracts that had not been completed as of the date of adoption. For contracts that had been modified prior to October 1, 2018, we calculated the cumulative effect of Topic 606 on each contract based upon the aggregate effect of all of the modifications at that date.
Topic 606 applies to all of our contracts with customers and supersedes all previous standards on revenue recognition. In adopting Topic 606, we are required to follow a five-step process in order to identify and recognize revenue based upon a principle that revenue should be recognized as goods and services are transferred to customers in amounts that reflect the consideration to which we expect to be entitled for those goods and services. It did not change the actual amount of revenue being recognized for the majority of our contracts but did change the methodology by which we identified that revenue.
In the most significant change under Topic 606, we are required to estimate and recognize revenue on contracts over the period where we provide a service. This affects contracts where performance outcomes are achieved over time, most notably for welfare-to-work contracts where we are compensated for placing individuals in sustained employment. Under our former methodology of recognizing revenue, we deferred recognizing this outcome-based revenue until the outcome was achieved. Under Topic 606, we estimate our anticipated future fees and recognize them over the expected period of performance. As a result, more judgments and estimates are required within the process of recognizing revenue than were required under the former methodology.
The adoption of Topic 606 resulted in the following changes to our opening balance sheet:
| | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | Balance at September 30, 2018 | | Adjustments due to adoption of new standard | | Opening balance at October 1, 2018 |
Assets | | | | | | |
Accounts receivable - unbilled | | $ | 31,536 | | $ | 35,414 | | $ | 66,950 |
Deferred income taxes | | 6,834 | | (6,625) | | 209 |
Liabilities and shareholders' equity | | | | | | |
Deferred revenue - current | | 51,182 | | (11,767) | | 39,415 |
Deferred income taxes - long-term | | 26,377 | | 7,074 | | 33,451 |
Retained earnings | | 633,281 | | 32,929 | | 666,210 |
Noncontrolling interests | | 2,552 | | 553 | | 3,105 |
The table below shows the effects of the adoption of Topic 606 on our consolidated statement of operations for the three and six months ended March 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2019 | | | | | | Six months ended March 31, 2019 | | | | |
(dollars in thousands) | | Balance under previous accounting guidance | | Adjustments due to adoption of new standard | | Balance as reported | | Balance under previous accounting guidance | | Adjustments due to adoption of new standard | | Balance as reported |
Revenue | | $ | 735,487 | | $ | 1,033 | | $ | 736,520 | | $ | 1,399,372 | | $ | 1,767 | | $ | 1,401,139 |
| | | | | | | | | | | | |
Income before income taxes | | 79,646 | | 1,033 | | 80,679 | | 154,468 | | 1,767 | | 156,235 |
Provision for income taxes | | 18,628 | | 285 | | 18,913 | | 38,467 | | 279 | | 38,746 |
Net income | | 61,018 | | 748 | | 61,766 | | 116,001 | | 1,488 | | 117,489 |
(Loss)/income attributable to noncontrolling interests | | (328) | | 170 | | (158) | | (838) | | 490 | | (348) |
Net income attributable to MAXIMUS | | $ | 61,346 | | $ | 578 | | $ | 61,924 | | $ | 116,839 | | $ | 998 | | $ | 117,837 |
The effect on our balance sheet would have been as follows:
| | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | Balance at March 31, 2019, under previous accounting guidance | | Adjustments due to adoption of new standard | | Balance at March 31, 2019, as reported |
Assets | | | | | | |
Accounts receivable - unbilled | | $ | 95,796 | | $ | 35,454 | | $ | 131,250 |
Deferred income taxes | | 6,858 | | (6,649) | | 209 |
Liabilities and shareholders' equity | | | | | | |
Deferred revenue - current | | 51,963 | | (12,748) | | 39,215 |
Deferred income taxes - long-term | | 43,957 | | 7,103 | | 51,060 |
Accumulated other comprehensive loss | | (38,617) | | (519) | | (39,136) |
Retained earnings | | 671,897 | | 33,927 | | 705,824 |
Noncontrolling interests | | 1,581 | | 1,043 | | 2,624 |
Additional information and disclosures relating to this change are included within "Note 3. Revenue recognition."
Statement of cash flows
We adopted ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on October 1, 2018, using the retrospective method. The most notable change relates to the treatment of balances we consider to be "restricted cash." Restricted cash represents funds which are held in our bank accounts but which we are precluded from using for general business needs through contractual requirements; these requirements include serving as collateral for lease, credit card or letter of credit arrangements or where we hold funds on behalf of clients. As we did not consider these restricted cash balances to be cash or cash equivalents, we did not previously include them within our cash flow statement except where restrictions over cash were imposed or lapsed. Beginning on October 1, 2018, we are required to include movements in cash, cash equivalents and restricted cash within our consolidated statements of cash flows.
Accordingly, we have presented our consolidated statement of cash flows using the new rules for all periods shown. Our balances for cash, cash equivalents and restricted cash are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance as of | | | | | | |
(dollars in thousands) | | March 31, 2019 | | September 30, 2018 | | March 31, 2018 | | September 30, 2017 |
Cash and cash equivalents | | $ | 46,799 | | $ | 349,245 | | $ | 253,227 | | $ | 166,252 |
Restricted cash (recorded within "other current assets") | | 7,679 | | 7,314 | | 13,908 | | 13,475 |
Cash, cash equivalents and restricted cash | | $ | 54,478 | | $ | 356,559 | | $ | 267,135 | | $ | 179,727 |
Consolidated Statements of Changes in Shareholders' Equity
In August 2018, the United States Securities and Exchange Commission (SEC) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of shareholders' equity presented in the balance sheet must be provided in a note or separate statement. The amendments became effective on November 5, 2018, and did not have a material effect on the Company's consolidated financial statements for fiscal year 2019. We have adopted these changes to the Consolidated Statements of Changes in Shareholders’ Equity in this filing.
2. Segment Information
The table below provides certain financial information for each of our business segments.
As noted in "Note 1. Organization and Basis of Presentation," we have made changes to our business segments in fiscal year 2019. Accordingly, the comparative results shown for the three and six months ended March 31, 2018, are presented differently from those shown in previous filings.
From October 1, 2018, we operated our business through three segments.
•Our U.S. Health and Human Services Segment provides a variety of business process services such as program administration, appeals and assessments work, and related consulting work for U.S. state and local government programs. These services support a variety of programs including Medicaid, the Children’s Health Insurance Program, the Affordable Care Act and Temporary Assistance for Needy Families.
•Our U.S. Federal Services Segment provides business process solutions, including program administration, appeals and assessment services as well as system and software development and maintenance services for various U.S. federal civilian programs. This segment also contains certain state-based assessments and appeals work that is part of the segment's heritage within the Medicare Appeals portfolio and continues to be managed within this segment.
•Our Outside the U.S. Segment provides business process solutions for governments and commercial clients outside the U.S., including health and disability assessments, program administration for welfare-to-work services and other related services. We support programs and deliver services in the United Kingdom, including the Health Assessment Advisory Service, the Work & Health Programme and Fair Start; Australia, including jobactive and the Disability Employment Service; Canada, including Health Insurance British Columbia and the Employment Program of British Columbia; Saudi Arabia and Singapore.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | | | | | Six Months Ended March 31, | | | | | | |
(dollars in thousands) | | 2019 | | % (1) | | 2018 | | % (1) | | 2019 | | % (1) | | 2018 | | % (1) |
Revenue: | | | | | | | | | | | | | | | | |
U.S. Health & Human Services | | $ | 290,737 | | | | $ | 306,249 | | | | $ | 584,950 | | | | $ | 610,490 | | |
U.S. Federal Services | | 289,736 | | | | 116,327 | | | | 506,723 | | | | 249,310 | | |
Outside the U.S. | | 156,047 | | | | 190,211 | | | | 309,466 | | | | 376,135 | | |
Total | | $ | 736,520 | | | | $ | 612,787 | | | | $ | 1,401,139 | | | | $ | 1,235,935 | | |
Gross profit: | | | | | | | | | | | | | | | | |
U.S. Health & Human Services | | $ | 86,260 | | 29.7% | | | $ | 86,586 | | 28.3% | | | $ | 174,291 | | 29.8% | | | $ | 170,817 | | 28.0% | |
U.S. Federal Services | | 60,696 | | 20.9% | | | 27,374 | | 23.5% | | | 108,681 | | 21.4% | | | 60,732 | | 24.4% | |
Outside the U.S. | | 22,466 | | 14.4% | | | 34,843 | | 18.3% | | | 45,715 | | 14.8% | | | 69,214 | | 18.4% | |
Total | | $ | 169,422 | | 23.0% | | | $ | 148,803 | | 24.3% | | | $ | 328,687 | | 23.5% | | | $ | 300,763 | | 24.3% | |
Selling, general & administrative expense: | | | | | | | | | | | | | | | | |
U.S. Health & Human Services | | $ | 29,400 | | 10.1% | | | $ | 36,616 | | 12.0% | | | $ | 61,539 | | 10.5% | | | $ | 71,421 | | 11.7% | |
U.S. Federal Services | | 31,104 | | 10.7% | | | 17,540 | | 15.1% | | | 57,736 | | 11.4% | | | 34,188 | | 13.7% | |
Outside the U.S. | | 17,992 | | 11.5% | | | 18,403 | | 9.7% | | | 36,800 | | 11.9% | | | 36,509 | | 9.7% | |
Restructuring costs | | — | | NM | | 2,320 | | NM | | — | | NM | | 2,320 | | NM |
Other | | (394) | | NM | | — | | NM | | 1,698 | | NM | | — | | NM |
Total | | $ | 78,102 | | 10.6% | | | $ | 74,879 | | 12.2% | | | $ | 157,773 | | 11.3% | | | $ | 144,438 | | 11.7% | |
Operating income: | | | | | | | | | | | | | | | | |
U.S. Health & Human Services | | $ | 56,860 | | 19.6% | | | $ | 49,970 | | 16.3% | | | $ | 112,752 | | 19.3% | | | $ | 99,396 | | 16.3% | |
U.S. Federal Services | | 29,592 | | 10.2% | | | 9,834 | | 8.5% | | | 50,945 | | 10.1% | | | 26,544 | | 10.6% | |
Outside the U.S. | | 4,474 | | 2.9% | | | 16,440 | | 8.6% | | | 8,915 | | 2.9% | | | 32,705 | | 8.7% | |
Amortization of intangible assets | | (9,519) | | NM | | (2,603) | | NM | | (14,977) | | NM | | (5,321) | | NM |
Restructuring costs (2) | | — | | NM | | (2,320) | | NM | | — | | NM | | (2,320) | | NM |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other (3) | | 394 | | NM | | — | | NM | | (1,698) | |