Company reaffirms guidance in strengthened
financial position following significant debt reduction
Maximus (NYSE: MMS), a leading provider of government services
worldwide, reported financial results for the three and six months
ended March 31, 2023.
Highlights for the second quarter of fiscal year 2023
include:
- Revenue increased 2.5% to $1.21 billion, compared to $1.18
billion for the prior year period. Organic growth was 3.9% and
driven by new or expanded programs in the U.S. segments.
- Diluted earnings per share were $0.52, and adjusted diluted
earnings per share were $0.80.
- Record cash flows with cash provided by operating activities
totaling $309.7 million and free cash flow of $291.6 million,
enabling $275 million of debt reduction.
- The company is maintaining revenue and earnings guidance for
fiscal year 2023, with revenue expected to range between $4.85
billion and $5.0 billion and adjusted diluted earnings per share
between $4.00 and $4.30 per share.
- A quarterly cash dividend of $0.28 per share is payable on May
31, 2023, to shareholders of record on May 15, 2023.
"Our second quarter results demonstrated solid execution, and we
are entering the second half of fiscal year 2023 with excellent
visibility into the key drivers to achieve our full-year financial
targets," said Bruce Caswell, President and Chief Executive
Officer. "In the quarter, we de-levered our debt position by a full
half-turn which was driven by record cash flows. We continue to
focus on optimizing our portfolio with the divestiture of two small
businesses in the Outside the U.S. segment, which were not core to
our strategy and did not meet our financial objectives."
Caswell continued, "Last quarter, we noted good line of sight to
key operating assumptions, most notably around Medicaid
redeterminations and volume growth in our Federal clinical services
business driven by PACT Act legislation. I'm pleased that our
outlook has proven durable as we are reaffirming fiscal year 2023
guidance and remain confident in our capability to execute in a
superior manner in support of our customers’ essential
programs."
Second Quarter Results
Revenue for the second quarter of fiscal year 2023 increased
2.5% to $1.21 billion, compared to $1.18 billion for the prior year
period. Organic growth was 3.9% driven by new or expanded programs
in the U.S. segments.
For the second quarter of fiscal year 2023, operating margin was
5.2% and the adjusted operating margin was 7.1%. This compares to
margins of 6.4% and 8.3%, respectively, for the prior year period.
Diluted earnings per share were $0.52 and adjusted diluted earnings
per share were $0.80. This compares to $0.80 and $1.07,
respectively, for the prior-year period.
An operating loss in the Outside the U.S. segment and
lower-than-expected U.S. Federal Services segment profitability
tempered second quarter fiscal year 2023 results. Two small
businesses in the Outside the U.S. segment, which contributed to
the operating loss, were divested in the quarter resulting in an
approximately one-cent reduction to diluted earnings per share for
the second quarter of fiscal year 2023.
Additionally, the prior year period contained profitable
short-term COVID response work in the U.S. segments and had less
interest expense due to a more favorable rate environment.
U.S. Federal Services Segment
U.S. Federal Services Segment revenue for the second quarter of
fiscal year 2023 increased 1.9% to $584.1 million, compared to
$573.3 million reported for the prior year period. All growth was
organic and driven primarily by volume growth on the Veterans
Affairs Medical Disability Exams (MDE) contracts, which comprise
the Veterans Evaluations Services (VES) business.
The segment operating margin for the second quarter of fiscal
year 2023 was 8.2%, compared to 8.1% reported for the prior year,
and slightly lower than company expectations. While MDE contract
volumes increased across the quarter, total volumes were slightly
lower than forecasted, and higher costs were incurred for training
of VES staff to yield full productivity. Strong line of sight
remains on the volume forecast, and the full-year fiscal 2023
margin for the U.S. Federal Services Segment is still expected to
range between 10% and 11%.
U.S. Services Segment
U.S. Services Segment revenue for the second quarter of fiscal
year 2023 increased 13.0% to $449.7 million, compared to $398.1
million reported in the prior year period. All growth was organic
and driven by previously disclosed new work in the core business
areas of eligibility support and clinical services.
The segment operating margin for the second quarter of fiscal
year 2023 was 9.5%, compared to 11.7% reported for the prior year
period that contained profitable, short-term work. The segment's
profitability remained impacted by the paused Medicaid
redeterminations, which are scheduled to restart in the third
quarter. The full-year fiscal 2023 margin for the U.S. Services
Segment is still expected to range between 9% and 11% with a lift
to profitability expected in the fourth quarter reflecting an
expected full-period contribution from redeterminations.
Outside the U.S. Segment
Outside the U.S. Segment revenue for the second quarter of
fiscal year 2023 decreased 16.0% to $173.1 million, compared to
$206.0 million reported in the prior year period. Organic revenue
contracted 8% due primarily to lower revenue in Australia following
last year's rebid outcome and currency was a 7% headwind.
The segment realized an operating loss of $3.7 million for the
second quarter of fiscal year 2023, compared to an operating profit
of $4.3 million in the prior year period. The company is focused on
portions of the segment that are underperforming. Two small
businesses, a commercial division within the United Kingdom and the
employment services business in Sweden, were divested, which had
combined operating losses in the quarter of $1.5 million.
Sales and Pipeline
Year-to-date signed contract awards at March 31, 2023, totaled
$1.22 billion and contracts pending (awarded but unsigned) totaled
$1.27 billion. The book-to-bill ratio at March 31, 2023, was 2.1x
calculated on a trailing twelve-month basis.
The sales pipeline at March 31, 2023, totaled $31.9 billion,
comprised of approximately $5.6 billion in proposals pending, $0.94
billion in proposals in preparation, and $25.3 billion in
opportunities tracking. New work opportunities represent
approximately 78% of the total sales pipeline.
Balance Sheet and Cash Flows
At March 31, 2023, cash and cash equivalents totaled $56.3
million, and gross debt was $1.30 billion. The ratio of debt, net
of allowed cash, to adjusted EBITDA for the quarter ended March 31,
2023, as calculated in accordance with the company's credit
agreement, was 2.5x assisted by $275 million of debt reduction in
the quarter. This compares to 3.0x at December 31, 2022.
For the second quarter of fiscal year 2023, cash provided by
operating activities totaled $309.7 million and free cash flow was
$291.6 million. The record quarterly cash flows made up for the
temporarily low cash flows in the first quarter of fiscal year
2023. DSO was 56 days as of March 31, 2023. Going forward, the
company expects to be in the target range of 60 to 70 days.
On April 6, 2023, our Board of Directors declared a quarterly
cash dividend of $0.28 for each share of our common stock
outstanding. The dividend is payable on May 31, 2023, to
shareholders of record on May 15, 2023.
Reaffirming FY23 Guidance
Maximus is reaffirming fiscal year 2023 guidance from the prior
quarter. Revenue is expected to range between $4.85 billion and
$5.0 billion, and adjusted operating income is expected to range
between $415 million and $440 million, which excludes an estimated
$94 million of expense for amortization of intangible assets.
Adjusted diluted earnings per share is expected to range between
$4.00 and $4.30 per share and free cash flow is expected to range
between $225 million and $275 million.
The company's guidance still assumes that redetermination
activities in the U.S. Services Segment phase in during the third
quarter, making a full period contribution in the fourth quarter of
fiscal year 2023, and volumes continue to ramp on the MDE contracts
in the VES business related to the PACT Act in U.S. Federal
Services.
The company forecasts a slight reduction to interest expense,
now ranging between $82 million and $85 million, an effective
income tax rate between 24.5% and 25.5%, and weighted average
shares outstanding between 61.2 million and 61.3 million shares for
fiscal year 2023.
Conference Call and Webcast Information
Maximus will host a conference call tomorrow, May 4, 2023, at
9:00 a.m. ET. Shareholders are invited to submit questions for
management’s consideration by emailing IR@maximus.com up to one
hour prior to the call.
The call is open to the public and available by webcast or by
phone at:
877.407.8289 (Domestic) / +1.201.689.8341 (International)
For those unable to listen to the live call, a recording of the
webcast will be available on investor.maximus.com.
About Maximus
As a leading strategic partner to governments across the globe,
Maximus helps improve the delivery of public services amid complex
technology, health, economic, environmental, and social challenges.
With a deep understanding of program service delivery, acute
insights that achieve operational excellence, and an extensive
awareness of the needs of the people being served, our employees
advance the critical missions of our partners. Maximus delivers
innovative business process management, impactful consulting
services, and technology solutions that provide improved outcomes
for the public and higher levels of productivity and efficiency of
government-sponsored programs. For more information, visit
maximus.com.
Non-GAAP Measures and Risk Factors
This release refers to non-GAAP measures and other indicators,
including organic growth, free cash flow, operating income and EPS
adjusted for amortization of intangible assets, EBITDA, and other
non-GAAP measures.
A description of these non-GAAP measures, the reasons why we use
and present them, and details as to how they are calculated are
included in our earnings presentation and forthcoming Form
10-Q.
The presentation of these non-GAAP numbers is not meant to be
considered in isolation, nor as alternatives to cash flows from
operations, 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 risks could cause the company’s actual results to differ
materially from those indicated by such forward-looking statements.
A summary of risk factors can be found in Item 1A, "Risk Factors"
in our Annual Report on Form 10-K for the year ended September 30,
2022, which was filed with the Securities and Exchange Commission
(SEC) on November 22, 2022. The Company's SEC reports are
accessible on maximus.com.
Maximus, Inc.
Consolidated Statements of
Operations
(Unaudited)
For the Three Months Ended
For the Six Months Ended
March 31, 2023
March 31, 2022
March 31, 2023
March 31, 2022
(in thousands, except per share
amounts)
Revenue
$
1,206,852
$
1,177,326
$
2,456,098
$
2,328,202
Cost of revenue
978,249
948,875
1,982,748
1,871,596
Gross profit
228,603
228,451
473,350
456,606
Selling, general, and administrative
expenses
142,448
130,307
288,900
254,528
Amortization of intangible assets
23,650
22,856
47,168
45,261
Operating income
62,505
75,288
137,282
156,817
Interest expense
20,999
9,438
42,605
19,076
Other income/(expense), net
818
715
1,084
404
Income before income taxes
42,324
66,565
95,761
138,145
Provision for income taxes
10,536
16,469
23,978
34,719
Net income
$
31,788
$
50,096
$
71,783
$
103,426
Earnings per share:
Basic
$
0.52
$
0.81
$
1.17
$
1.66
Diluted
$
0.52
$
0.80
$
1.17
$
1.66
Weighted average shares outstanding:
Basic
61,120
62,227
61,119
62,256
Diluted
61,383
62,381
61,265
62,409
Dividends declared per share
$
0.28
$
0.28
$
0.56
$
0.56
Maximus, Inc.
Consolidated Balance
Sheets
March 31, 2023
September 30, 2022
(unaudited)
(in thousands)
Assets:
Cash and cash equivalents
$
56,344
$
40,658
Accounts receivable, net
742,387
807,110
Income taxes receivable
12,156
2,158
Prepaid expenses and other current
assets
141,017
182,387
Total current assets
951,904
1,032,313
Property and equipment, net
46,915
52,258
Capitalized software, net
71,393
58,740
Operating lease right-of-use assets
162,633
132,885
Goodwill
1,780,200
1,779,415
Intangible assets, net
751,194
804,904
Deferred contract costs, net
47,498
47,732
Deferred compensation plan assets
42,049
37,050
Deferred income taxes
5,865
4,970
Other assets
39,205
42,447
Total assets
$
3,898,856
$
3,992,714
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued
liabilities
$
259,463
$
264,553
Accrued compensation and benefits
156,990
178,199
Deferred revenue, current portion
66,796
87,146
Income taxes payable
4,482
718
Long-term debt, current portion
84,490
63,458
Operating lease liabilities, current
portion
55,928
63,999
Other current liabilities
53,026
116,374
Total current liabilities
681,175
774,447
Deferred revenue, non-current portion
25,776
21,414
Deferred income taxes
201,079
206,099
Long-term debt, non-current portion
1,205,028
1,292,483
Deferred compensation plan liabilities,
non-current portion
43,706
40,210
Operating lease liabilities, non-current
portion
121,957
86,175
Other liabilities
18,413
22,515
Total liabilities
2,297,134
2,443,343
Shareholders' equity:
Common stock, no par value; 100,000 shares
authorized; 60,784 and 60,774 shares issued and outstanding as of
March 31, 2023, and September 30, 2022, respectively (shares in
thousands)
572,632
557,978
Accumulated other comprehensive loss
(33,303
)
(33,961
)
Retained earnings
1,062,393
1,025,354
Total shareholders' equity
1,601,722
1,549,371
Total liabilities and shareholders'
equity
$
3,898,856
$
3,992,714
Maximus, Inc.
Consolidated Statements of
Cash Flows
(Unaudited)
For the Three Months Ended
For the Six Months Ended
March 31, 2023
March 31, 2022
March 31, 2023
March 31, 2022
(in thousands)
Cash flows from operating activities:
Net income
$
31,788
$
50,096
$
71,783
$
103,426
Adjustments to reconcile net income to
cash flows from operations:
Depreciation and amortization of property,
equipment, and capitalized software
14,041
9,834
26,321
21,199
Amortization of intangible assets
23,650
22,856
47,168
45,261
Amortization of debt issuance costs and
debt discount
601
648
1,635
1,297
Deferred income taxes
(37
)
(3,089
)
(1,368
)
(3,318
)
Stock compensation expense
9,540
6,804
13,943
15,052
Loss on sale of businesses
883
—
883
—
Change in assets and liabilities, net of
effects of business combinations and disposals:
Accounts receivable
263,278
(34,950
)
62,529
(49,064
)
Prepaid expenses and other current
assets
2,788
14,884
13,412
9,769
Deferred contract costs
1,596
380
583
(6,431
)
Accounts payable and accrued
liabilities
(10,003
)
29,405
(6,361
)
(3,047
)
Accrued compensation and benefits
39,049
28,024
(14,222
)
(28,281
)
Deferred revenue
(33,111
)
12,544
(18,347
)
18,473
Income taxes
(16,043
)
(23,836
)
(6,578
)
(13,515
)
Operating lease right-of-use assets and
liabilities
(1,124
)
5,077
(2,072
)
(1,293
)
Other assets and liabilities
(17,200
)
(3,899
)
(14,272
)
2,331
Net cash provided by operating
activities
309,696
114,778
175,037
111,859
Cash flows from investing activities:
Purchases of property and equipment and
capitalized software
(18,054
)
(16,571
)
(33,751
)
(22,898
)
Acquisitions of businesses, net of cash
acquired
—
(4
)
—
(4
)
Proceeds from sale of businesses
9,124
—
9,124
—
Net cash used in investing activities
(8,930
)
(16,575
)
(24,627
)
(22,902
)
Cash flows from financing activities:
Cash dividends paid to Maximus
shareholders
(17,016
)
(17,312
)
(34,033
)
(34,659
)
Purchases of Maximus common stock
—
(24,464
)
—
(25,843
)
Tax withholding related to RSU vesting
—
—
(8,475
)
(9,673
)
Payments for contingent consideration
(2,626
)
—
(4,041
)
—
Proceeds from borrowings
193,696
140,000
462,398
240,000
Principal payments for debt
(469,105
)
(287,023
)
(530,460
)
(303,708
)
Restricted cash movements
(47,587
)
—
(57,060
)
—
Net cash used in financing activities
(342,638
)
(188,799
)
(171,671
)
(133,883
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
765
(48
)
3,186
324
Net change in cash, cash equivalents, and
restricted cash
(41,107
)
(90,644
)
(18,075
)
(44,602
)
Cash, cash equivalents and restricted
cash, beginning of period
159,827
202,612
136,795
156,570
Cash, cash equivalents and restricted
cash, end of period
$
118,720
$
111,968
$
118,720
$
111,968
Maximus, Inc.
Consolidated Results of
Operations by Segment
(Unaudited)
For the Three Months Ended
For the Six Months Ended
March 31, 2023
March 31, 2022
March 31, 2023
March 31, 2022
Amount
% (1)
Amount
% (1)
Amount
% (1)
Amount
% (1)
(dollars in thousands)
Revenue:
U.S. Federal Services
$
584,075
$
573,288
$
1,202,242
$
1,155,159
U.S. Services
449,703
398,077
889,181
784,494
Outside the U.S.
173,074
205,961
364,675
388,549
Revenue
$
1,206,852
$
1,177,326
$
2,456,098
$
2,328,202
Gross
profit:
U.S. Federal Services
$
122,874
21.0
%
$
115,153
20.1
%
$
245,568
20.4
%
$
241,729
20.9
%
U.S. Services
86,016
19.1
%
84,971
21.3
%
169,614
19.1
%
174,670
22.3
%
Outside the U.S.
19,713
11.4
%
28,327
13.8
%
58,168
16.0
%
40,207
10.3
%
Gross profit
$
228,603
18.9
%
$
228,451
19.4
%
$
473,350
19.3
%
$
456,606
19.6
%
Selling, general,
and administrative expenses:
U.S. Federal Services
$
75,050
12.8
%
$
68,949
12.0
%
$
146,699
12.2
%
$
133,874
11.6
%
U.S. Services
43,415
9.7
%
38,273
9.6
%
89,257
10.0
%
73,375
9.4
%
Outside the U.S.
23,425
13.5
%
24,011
11.7
%
51,814
14.2
%
45,351
11.7
%
Loss on sale of businesses (2)
883
NM
—
NM
883
NM
—
NM
Other (3)
(325
)
NM
(926
)
NM
247
NM
1,928
NM
Selling, general, and administrative
expenses
$
142,448
11.8
%
$
130,307
11.1
%
$
288,900
11.8
%
$
254,528
10.9
%
Operating
income/(loss):
U.S. Federal Services
$
47,824
8.2
%
$
46,204
8.1
%
$
98,869
8.2
%
$
107,855
9.3
%
U.S. Services
42,601
9.5
%
46,698
11.7
%
80,357
9.0
%
101,295
12.9
%
Outside the U.S.
(3,712
)
(2.1
)%
4,316
2.1
%
6,354
1.7
%
(5,144
)
(1.3
)%
Amortization of intangible assets
(23,650
)
NM
(22,856
)
NM
(47,168
)
NM
(45,261
)
NM
Loss on sale of businesses (2)
(883
)
NM
—
NM
(883
)
NM
—
NM
Other (3)
325
NM
926
NM
(247
)
NM
(1,928
)
NM
Operating income
$
62,505
5.2
%
$
75,288
6.4
%
$
137,282
5.6
%
$
156,817
6.7
%
(1)
Percentage of respective segment
revenue. Percentages not considered meaningful are marked "NM."
(2)
During the second quarter of
fiscal year 2023, we sold a small commercial practice in the United
Kingdom and our employment operations business in Sweden, both
subsidiaries within our Outside the U.S. Segment, resulting in a
loss.
(3)
Other includes credits and costs
that are not allocated to a particular segment.
Maximus, Inc.
Consolidated Free Cash Flows -
Non-GAAP
(Unaudited)
For the Three Months Ended
For the Six Months Ended
March 31, 2023
March 31, 2022
March 31, 2023
March 31, 2022
(in thousands)
Net cash provided by operating
activities
$
309,696
$
114,778
$
175,037
$
111,859
Purchases of property and equipment and
capitalized software
(18,054
)
(16,571
)
(33,751
)
(22,898
)
Free cash flow
$
291,642
$
98,207
$
141,286
$
88,961
Maximus, Inc.
Non-GAAP Adjusted Results
Excluding Amortization of Intangible Assets
(Unaudited)
For the Three Months Ended
For the Six Months Ended
March 31, 2023
March 31, 2022
March 31, 2023
March 31, 2022
(dollars in thousands, except per
share data)
Operating income
$
62,505
$
75,288
$
137,282
$
156,817
Add back: Amortization of intangible
assets
23,650
22,856
47,168
45,261
Adjusted operating income excluding
amortization of intangible assets (Non-GAAP)
$
86,155
$
98,144
$
184,450
$
202,078
Adjusted operating income margin excluding
amortization of intangible assets (Non-GAAP)
7.1
%
8.3
%
7.5
%
8.7
%
Net income
$
31,788
$
50,096
$
71,783
$
103,426
Add back: Amortization of intangible
assets, net of tax
17,446
16,884
34,806
33,414
Adjusted net income excluding amortization
of intangible assets (Non-GAAP)
$
49,234
$
66,980
$
106,589
$
136,840
Diluted earnings per share
$
0.52
$
0.80
$
1.17
$
1.66
Add back: Effect of amortization of
intangible assets on diluted earnings per share
0.28
0.27
0.57
0.53
Adjusted diluted earnings per share
excluding amortization of intangible assets (Non-GAAP)
$
0.80
$
1.07
$
1.74
$
2.19
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503005976/en/
James Francis, VP - IR Jessica Batt, VP - IR & ESG
IR@maximus.com
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