RESTON, Va.--(BUSINESS WIRE)--May 8, 2014--MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and six months ended March 31, 2014. All amounts reflect the stock split on June 28, 2013.

For the second quarter of fiscal 2014, revenue increased 35% to $439.0 million, compared to revenue reported for the same period last year of $326.4 million, which benefitted from $16.0 million of non-recurring revenue from a terminated contract. Revenue grew 37% on a constant currency basis. Excluding the $16.0 million benefit in the prior year, second quarter revenue grew 41% over the same period last year. The year-over-year increase in revenue was driven principally by organic growth in the Health Services Segment from new work and expansion on existing contracts, much of which was related to the Affordable Care Act (ACA). Nearly all growth in the quarter was organic.

For the second quarter of fiscal 2014, income from continuing operations, net of taxes, totaled $41.2 million, or $0.59 per diluted share and included $0.01 of tax benefit offset by $0.01 of legal and settlement expense. As a result, adjusted diluted earnings per share also totaled $0.59. This compares to income from continuing operations of $31.7 million, or $0.45 per diluted share, for the same period last year. The prior-year period included a benefit of $10.9 million in pre-tax income ($6.5 million, net of taxes, or $0.09 per diluted share) related to the contract termination. Excluding this benefit, adjusted diluted earnings per share grew 64% to $0.59 compared to $0.36 in the prior year. As expected, the year-over-year increase in earnings was primarily attributed to accretive growth in the Health Services Segment.

“Our financial results for the second quarter demonstrate our ability to deliver innovative and scalable operations for ACA and Medicaid programs. Clients continue to turn to us to provide additional work in support of these critical programs, which provided an uplift to our fiscal 2014 guidance. Their reliance on MAXIMUS is a testament to the value we provide and our solid performance around the globe. We’ve also received notification of a reallocation of additional sites in two of our workforce services contracts in Australia. This reallocation reflects our continued strong performance under the Australian Star Ratings program, which is a proven methodology for achieving outcomes that matter to our clients and rewarding solid vendor performance with new work,” commented Richard A. Montoni, Chief Executive Officer of MAXIMUS.

Health Services Segment revenue for the second quarter of fiscal 2014 increased 64% to $324.1 million compared to $197.9 million last year. The year-over-year revenue increase was principally driven by new work and the expansion of existing contracts, including work supporting the implementation and operation of ACA in the United States; an increase in transaction-based volume growth in the Company’s appeals business; and acquired revenue from Health Management. Health Services Segment operating income for the second quarter increased 69% to $48.8 million (15.1% operating margin) driven by accretive revenue growth. This compares to $28.9 million (14.6% operating margin) for the same period last year.

Human Services Segment revenue for the second quarter of fiscal 2014 totaled $115.0 million compared to $128.4 million for the same period last year, which included the $16.0 million revenue benefit from the aforementioned terminated contract. Excluding this benefit, second quarter revenue grew 2% (7% on a constant currency basis) compared to last year. Human Services Segment operating income for the second quarter totaled $16.8 million (14.6% operating margin) compared to $21.5 million last year, which included non-recurring pre-tax income of $10.9 million related to the contract termination. Excluding this benefit, operating income increased 59%, driven principally by the expected profit expansion in the Company’s international operations and accretive growth tied to short-term engagements in the Company’s U.S. consulting operations.

Year-to-date signed contract awards at March 31, 2014 totaled $969 million. This compares to $886 million reported for the same period last year. In addition, new contracts pending (awarded but unsigned) totaled $76 million compared to $425 million reported for the same period in fiscal 2013, which included approximately $390 million related to two large program rebids and extensions.

Sales pipeline at March 31, 2014 was $2.2 billion (consisting of $628 million in proposals pending, $102 million in proposals in preparation and $1.44 billion in opportunities tracking) and includes opportunities across multiple geographies and both segments. This is consistent with the total pipeline of $2.3 billion for the same period in fiscal 2013. On a sequential basis, the pipeline is slightly lower compared to the $2.4 billion reported for first quarter of fiscal 2014 due to more than $600 million of opportunities converting into new signed contracts. The sales pipeline only reflects opportunities, including new work, rebids and options, where the request for proposal is expected to be released within the next six months.

Cash and cash equivalents at March 31, 2014 totaled $131.3 million, of which approximately 65% were held overseas. For the second quarter of fiscal 2014, cash provided by operating activities from continuing operations totaled $34.6 million, with free cash flow of $25.8 million. Days Sales Outstanding (DSO) from continuing operations were 68 days and remain within the Company’s previously stated range of 65 to 80 days.

On February 28, 2014, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On April 8, 2014, the Company announced a $0.045 per share cash dividend, payable on May 30, 2014 to shareholders of record on May 15, 2014.

During the second quarter of fiscal 2014, MAXIMUS repurchased 301,400 shares of the Company’s common stock for approximately $13.0 million. At March 31, 2014, the Company had approximately $62.1 million available for future repurchases under its Board-authorized share repurchase program. Subsequent to quarter close and through May 2, 2014, the Company purchased an additional 241,500 shares for approximately $10.3 million.

In addition to its solid delivery in the second quarter, MAXIMUS has been notified by clients of additional work in support of ACA and Medicaid. As a result, the Company is increasing its fiscal year 2014 revenue and earnings guidance. The Company now expects fiscal year 2014 revenue to range between $1.68 billion and $1.73 billion, an increase from the prior range of $1.60 billion to $1.68 billion. MAXIMUS now expects diluted earnings per share from continuing operations to range between $2.00 and $2.10, an increase from the prior range of $1.95 to $2.05.

MAXIMUS will host a conference call this morning, May 8, 2014, 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:

For those unable to listen to the live call, a replay will be available through May 22, 2014. Callers can access the replay by calling:

877.660.6853 (Domestic)/201.612.7415 (International)
Replay conference ID number: 13580874

MAXIMUS is a leading operator of government health and human services programs in the United States, United Kingdom, Canada, Australia and Saudi Arabia. The Company delivers business process services to improve the cost effectiveness, efficiency and quality of government-sponsored benefit programs, such as Medicaid, Medicare, Children's Health Insurance Program (CHIP), Health Insurance BC (British Columbia), as well as welfare-to-work and child support programs around the globe. The Company's primary customer base includes federal, provincial, state, county and municipal governments. Operating under its founding mission of Helping Government Serve the People^®, MAXIMUS has approximately 11,000 employees worldwide. For more information, visit www.maximus.com.

This release refers to non-GAAP financial measures, including free cash flow, adjusted diluted earnings per share from continuing operations, constant currency and results excluding the terminated contract.

We have provided a reconciliation of free cash flow to cash provided by operating activities from continuing operations. We believe that free cash flow is a useful basis for investors to compare our performance across periods or against our competitors. 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 showing the effects of excluding the terminated contract on revenue, operating income and operating margin. We believe that these non-GAAP numbers provide a useful basis for assessing the Company’s performance excluding the effects of this one-time, non-cash transaction.

We have provided a reconciliation to adjusted diluted earnings per share. We believe that this measure is a useful basis for assessing the Company’s performance excluding the effects of legal and settlement expenses, acquisition expenses, tax benefits and the contract termination in fiscal year 2013.

To provide constant currency information, we calculate fiscal year 2014 revenue for all international businesses using the exchange rates used in the comparative periods in fiscal year 2013. We believe constant currency provides a useful basis for assessing the performance of the business excluding the unpredictable effects of foreign exchange fluctuations.

The presentation of these non-GAAP numbers is not meant to be considered in isolation, nor as alternatives to cash flows from operating activities, diluted earnings per share, revenue growth or net income as measures of performance. These non-GAAP financial measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

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 www.maximus.com.


MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)

	Three Months					Six Months
	Ended March 31,					Ended March 31,
	2014		2013			2014		2013
Revenue	$	439,015	$	326,351		$	845,607	$	612,617
Cost of revenue		318,343		228,907			619,019		438,643
Gross profit		120,672		97,444			226,588		173,974
Selling, general and administrative expenses		55,129		46,693			107,732		88,915
Acquisition-related expenses		—		16			—		164
Legal and settlement expenses		600		—			600		142
Operating income from continuing operations		64,943		50,735			118,256		84,753
Interest and other income, net		183		637			904		1,743
Income from continuing operations before income taxes		65,126		51,372			119,160		86,496
Provision for income taxes		23,964		19,658			44,198		32,999
Income from continuing operations		41,162		31,714			74,962		53,497

Discontinued operations, net of income taxes:
Income (loss) from discontinued operations		22		(91	)		12		(594	)
Gain on disposal		23		66			92		102
Income (loss) from discontinued operations		45		(25	)		104		(492	)

Net income	$	41,207	$	31,689		$	75,066	$	53,005

Basic earnings (loss) per share:
Income from continuing operations	$	0.61	$	0.47		$	1.10	$	0.78
Income (loss) from discontinued operations		—		(0.01	)		—		—
Basic earnings per share	$	0.61	$	0.46		$	1.10	$	0.78

Diluted earnings (loss) per share:
Income from continuing operations	$	0.59	$	0.45		$	1.08	$	0.77
Income (loss) from discontinued operations		—		—			—		(0.01	)
Diluted earnings per share	$	0.59	$	0.45		$	1.08	$	0.76

Dividends paid per share	$	0.045	$	0.045		$	0.09	$	0.09

Weighted average shares outstanding:
Basic		67,884		68,179			68,143		68,171
Diluted		69,307		69,909			69,538		69,835


MAXIMUS, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

	March 31,		September 30,
	2014		2013
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	131,323	$	125,617
Restricted cash		12,073		12,176
Accounts receivable — billed, net of reserves of $5,430 and $3,828		309,784		272,636
Accounts receivable — unbilled		20,303		20,320
Prepaid income taxes		75		358
Deferred income taxes		29,928		26,443
Prepaid expenses and other current assets		31,966		32,049
Total current assets		535,452		489,599

Property and equipment, net		70,982		77,710
Capitalized software, net		41,542		40,456
Goodwill		173,191		171,867
Intangible assets, net		42,974		42,039
Deferred contract costs, net		12,321		14,318
Deferred income taxes		590		1,179
Deferred compensation plan assets		10,977		10,314
Other assets, net		8,950		10,496
Total assets	$	896,979	$	857,978

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	109,654	$	109,020
Accrued compensation and benefits		64,651		83,280
Deferred revenue		53,042		53,137
Current portion of long-term debt		158		170
Income taxes payable		18,379		8,327
Other liabilities		10,115		8,373
Total current liabilities		255,999		262,307
Deferred revenue, less current portion		27,065		32,953
Long-term debt		1,149		1,319
Deferred compensation plan liabilities, less current portion		16,161		13,953
Other liabilities		24,969		17,938
Total liabilities		325,343		328,470

Shareholders’ equity:
Common stock, no par value; 100,000 shares authorized; 67,889 and 68,525 shares issued and outstanding at March 31, 2014 and September 30, 2013, at stated amount, respectively		425,648		415,271
Accumulated other comprehensive income		6,540		7,987
Retained earnings		139,448		106,250
Total shareholders’ equity		571,636		529,508
Total liabilities and shareholders’ equity	$	896,979	$	857,978


MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

	Three Months						Six Months
	Ended March 31,						Ended March 31,
	2014			2013			2014			2013
Cash flows from operating activities:
Net income	$	41,207		$	31,689		$	75,066		$	53,005
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations		(45	)		25			(104	)		492
Depreciation and amortization		11,737			7,959			23,759			17,934
Deferred income taxes		(9,046	)		7,368			(1,387	)		6,757
Non-cash equity based compensation		4,480			3,587			8,561			7,062

Change in assets and liabilities:
Accounts receivable — billed		(32,250	)		(6,931	)		(37,516	)		(33,311	)
Accounts receivable — unbilled		1,245			(7,307	)		(50	)		(8,152	)
Prepaid expenses and other current assets		2,338			(2,593	)		2,539			(2,521	)
Deferred contract costs		625			3,932			1,979			(1,413	)
Accounts payable and accrued liabilities		4,306			(1,798	)		3,835			8,728
Accrued compensation and benefits		10,504			5,817			(7,450	)		(1,877	)
Deferred revenue		(5,168	)		(9,397	)		(6,211	)		(2,934	)
Income taxes		4,081			(4,328	)		10,153			(6,561	)
Other assets and liabilities		568			1,352			3,390			2,285
Cash provided by operating activities – continuing ops		34,582			29,375			76,564			39,494
Cash used in operating activities – discontinued ops		(68	)		(61	)		(104	)		(554	)
Cash provided by operating activities		34,514			29,314			76,460			38,940

Cash flows from investing activities:
Purchases of property and equipment		(5,076	)		(6,264	)		(9,516	)		(13,351	)
Capitalized software costs		(3,733	)		(4,776	)		(7,317	)		(8,240	)
Acquisition of Business		(2,670	)		—			(2,670	)		—
Proceeds from settlement of final PSI price		—			3,380			—			3,380
Proceeds from note receivable		39			112			154			172
Cash used in investing activities		(11,440	)		(7,548	)		(19,349	)		(18,039	)

Cash flows from financing activities:
Repurchases of common stock		(13,166	)		—			(34,696	)		(15,403	)
Employee tax withholding on restricted stock units vesting		(101	)		—			(12,905	)		(6,677	)
Tax benefit due to option exercises and RSU vesting		2,925			2,315			2,925			4,680
Cash dividends paid		(3,053	)		(3,067	)		(6,138	)		(6,131	)
Stock option exercises		191			—			518			1,752
Issuance of long-term debt		15,000			—			15,000			—
Repayment of long-term debt		(15,040	)		(43	)		(15,082	)		(87	)
Cash used in financing activities		(13,244	)		(795	)		(50,378	)		(21,866	)

Effect of exchange rate changes on cash and cash equivalents		909			(766	)		(1,027	)		(1,004	)

Net increase/(decrease) in cash and cash equivalents		10,739			20,205			5,706			(1,969	)

Cash and cash equivalents, beginning of period		120,584			167,138			125,617			189,312

Cash and cash equivalents, end of period	$	131,323		$	187,343		$	131,323		$	187,343


MAXIMUS, Inc.
SEGMENT INFORMATION – GAAP BASIS
(Amounts in thousands)
(Unaudited)

	Three Months Ended March 31,									Six Months Ended March 31,
	2014		% ⁽¹⁾		2013			% ⁽¹⁾		2014		% ⁽¹⁾		2013			% ⁽¹⁾

Revenue:
Health Services	$	324,060	100	%	$	197,948		100	%	$	623,218	100	%	$	373,946		100	%
Human Services	114,955		100	%	128,403			100	%	222,389		100	%	238,671			100	%
Total	439,015		100	%	326,351			100	%	845,607		100	%	612,617			100	%

Gross Profit:
Health Services	85,061		26.2	%	54,651			27.6	%	161,879		26	.0%	99,910			26.7	%
Human Services	35,611		31.0	%	42,793			33.3	%	64,709		29	.1%	74,064			31.0	%
Total	120,672		27.5	%	97,444			29.9	%	226,588		26	.8%	173,974			28.4	%

Selling, general, and administrative expense:
Health Services	36,285		11.2	%	25,742			13.0	%	71,550		11.5	%	50,375			13.5	%
Human Services	18,844		16.4	%	21,334			16.6	%	36,182		16.3	%	38,923			16.3	%
Corporate/Other	—		NM		(383		)	NM		—		NM		(383		)	NM
Total	55,129		12.6	%	46,693			14.3	%	107,732		12.7	%	88,915			14.5	%

Operating income from continuing operations:
Health Services	48,776		15.1	%	28,909			14.6	%	90,329		14.5	%	49,535			13.2	%
Human Services	16,767		14.6	%	21,459			16.7	%	28,527		12.8	%	35,141			14.7	%
Corporate/other	—		NM		383			NM		—		NM		383			NM
Subtotal:
Segment operating income	65,543		14.9	%	50,751			15.6	%	118,856		14.1	%	85,059			13.9	%
Acquisition-related expenses	—		NM		16			NM		—		NM		164			NM
Legal and settlement expenses	600		NM		—			NM		600		NM		142			NM
Consolidated operating income from continuing operations	$	64,943	14.8	%	$	50,735		15.5	%	$	118,256	14.0	%	$	84,753		13.8	%

(1) Percentage of respective segment revenue. Changes not considered meaningful are marked “NM.”


MAXIMUS, Inc.
Non-GAAP Measures

ADJUSTED REVENUE AND OPERATING INCOME RELATED TO TERMINATED CONTRACT
(Amounts in thousands)
(Unaudited)

	Three Months			Six Months
	Ended March 31,			Ended March 31,
	2013			2013

Total company revenue	$	326,351		$	612,617
Revenue from terminated contract	16,035			16,035
Total company revenue excluding terminated contract	$	310,316		$	596,582

Total company operating income	$	50,735		$	84,753
Operating income from terminated contract		10,900			10,900
Total company operating income, excluding terminated contract	$	39,835		$	73,853

Total company operating margin, excluding terminated contract		12.8	%		12.4	%

	Three Months			Six Months
	Ended March 31,			Ended March 31,
	2013			2013

Human Services revenue	$	128,403		$	238,671
Revenue from terminated contract	16,035			16,035
Human Services revenue, excluding terminated contract	$	112,368		$	222,636

Human Services operating income	$	21,459		$	35,141
Operating income from terminated contract		10,900			10,900
Human Services operating income, excluding terminated contract	$	10,559		$	24,241

Human Services operating margin, excluding terminated contract		9.4	%		10.9	%


MAXIMUS, Inc.
ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS
FY 2014 and FY 2013
(Unaudited)

	Quarter Ended
	Dec. 31,		Mar. 31,
	2013		2014
Diluted EPS from continuing operations-GAAP basis	$	0.48	$	0.59

Adjustments:
Legal and settlement expenses		–		0.01
Tax Adjustment		–		(0.01	)
Subtotal pro forma adjustments		–		–

Adjusted diluted EPS from continuing operations	$	0.48	$	0.59

	Quarter Ended								Year Ended
	Dec. 31,		Mar. 31,			Jun. 30,	Sept. 30,		Sept. 30,
	2012		2013			2013	2013		2013
Diluted EPS from continuing operations-GAAP basis	$	0.31	$	0.45		$0.40	$	0.51	$	1.68

Adjustments:
Legal, settlement and acquisition-related expenses, net		–		–		0.01		–		0.01
Terminated Contract		–		(0.09	)	–		–		(0.09	)
Subtotal pro forma adjustments		–		(0.09	)	0.01		–		(0.08	)

Adjusted Diluted EPS from continuing operations	$	0.31	$	0.36		$0.41	$	0.51	$	1.60


MAXIMUS, Inc.
FREE CASH FLOW
(Amounts in thousands)
(Unaudited)

	Three Months						Six Months
	Ended March 31,						Ended March 31,
	2014			2013			2014			2013
Cash provided by operating activities – continuing operations	$	34,582		$	29,375		$	76,564		$	39,494
Purchases of property and equipment		(5,076	)		(6,264	)		(9,516	)		(13,351	)
Capitalized software costs		(3,733	)		(4,776	)		(7,317	)		(8,240	)
Free cash flow from continuing operations	$	25,773		$	18,335		$	59,731		$	17,903