Domestic segments successfully deliver on
expectations driving core business
Maximus (NYSE: MMS), a leading provider of government services
worldwide, reported financial results for the three and nine months
ended June 30, 2023.
Highlights for the third quarter of fiscal year 2023
include:
- Revenue increased 5.6% to $1.19 billion, compared to $1.13
billion for the prior year period. Organic growth was 6.7% and
driven by higher volumes on key programs in the U.S. segments.
- Diluted earnings per share were $0.50 and adjusted diluted
earnings per share were $0.78, both of which include an
approximately $22 million expense, or $0.26 per share impact,
related to the previously-disclosed cybersecurity incident.
- U.S. Federal Services segment margin was 12.7%, and U.S.
Services segment was 10.5%, which demonstrate successful delivery
on ramping PACT Act volumes and commencement of Medicaid
redeterminations.
- The company is tightening revenue guidance and updating
earnings guidance to account for the cybersecurity incident in
third-quarter results. For fiscal year 2023, revenue is expected to
range between $4.875 billion and $4.975 billion, and adjusted
diluted earnings per share between $3.74 and $3.94 per share, which
is equivalent to between $4.00 and $4.20 excluding the
cybersecurity incident.
- A quarterly cash dividend of $0.28 per share is payable on
August 31, 2023, to shareholders of record on August 15, 2023.
"Our third quarter results show successful execution on the key
drivers to which we previously felt there was excellent visibility,
so we feel confident in achieving our full-year financial targets,"
said Bruce Caswell, President and Chief Executive Officer. "Those
targets have been updated to reflect the accrual arising from the
cybersecurity incident. Nevertheless, the fundamentals of the
business remain as strong as ever, both in the near term and well
into future periods."
Caswell continued, "Medicaid redeterminations are commencing as
anticipated, enabling us to regain operating leverage in U.S.
Services and overcoming a multi-year headwind. There is meaningful
volume growth which we expect to continue in our U.S. Federal
clinical services business driven by PACT Act legislation. Finally,
we are focused on a broad range of new work opportunities on the
horizon aligned with our strategy and underpinned by recent
recompete wins that secure the base of the business."
Third Quarter Results
Revenue for the third quarter of fiscal year 2023 increased 5.6%
to $1.19 billion, compared to $1.13 billion for the prior year
period. Organic growth was 6.7%, driven by volume growth in key
programs in the U.S. segments.
For the third quarter of fiscal year 2023, operating margin was
4.9% and the adjusted operating margin was 6.9%. This compares to
margins of 4.8% and 6.9%, respectively, for the prior year period.
Diluted earnings per share were $0.50 and adjusted diluted earnings
per share were $0.78. This compares to $0.51 and $0.78,
respectively, for the prior year period.
Adjusted diluted earnings per share of $0.78 this quarter
includes the $0.26 per share detriment related to the cybersecurity
incident and would have been $1.04 excluding these costs. On July
26, 2023, the company announced a cybersecurity incident related to
a third-party file-sharing application. Results for the third
quarter of fiscal year 2023 contained in this release include an
approximately $22 million expense for total investigation and
remediation costs related to the incident, reflecting the best
estimate based on the currently available information.
In addition, the Outside the U.S. segment realized an operating
loss totaling $15.2 million driven by macroeconomic factors that
have caused expectations to deteriorate on the segment's employment
services contracts.
U.S. Federal Services Segment
U.S. Federal Services Segment revenue for the third quarter of
fiscal year 2023 increased 11.1% to $584.0 million, compared to
$525.5 million reported for the prior year period. All growth was
organic and driven by volume growth on both the Veterans Affairs
Medical Disability Exams (MDE) contracts, which comprise the
Veterans Evaluation Services (VES) business, and the student loan
servicing contract.
The segment operating margin for the third quarter of fiscal
year 2023 was 12.7%, compared to 10.4% reported for the prior year,
and results this quarter slightly beat expectations. The MDE
contracts had strong delivery on a higher level of volumes driven
by the PACT Act. 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 third quarter of fiscal
year 2023 increased 12.5% to $449.1 million, compared to $399.3
million reported in the prior year period. All growth was organic
and driven by contributions from last year's new work wins as well
as revenue from the commencement of Medicaid redeterminations.
The segment operating margin for the third quarter of fiscal
year 2023 was 10.5%, compared to 8.0% reported for the prior year,
which was impacted by the ongoing pause to Medicaid
redeterminations. Results this quarter were aligned with
expectations for an improving segment margin over the remaining
fiscal year as redeterminations resume. The full-year fiscal 2023
margin for the U.S. Services Segment is still expected to range
between 9% and 11%.
Outside the U.S. Segment
Outside the U.S. Segment revenue for the third quarter of fiscal
year 2023 decreased 22.5% to $155.7 million, compared to $200.9
million reported in the prior year period. Organic revenue
contracted 16.6% due primarily to lower revenue in Australia
following last year's rebid outcome and a $14.4 million reduction
to estimates for future period outcomes-based payments on
employment services programs. The divestiture of two small
businesses in the second quarter of fiscal year 2023 reduced
revenue by 4.5%, and currency was a 1.8% headwind.
The segment realized an operating loss of $15.2 million for the
third quarter of fiscal year 2023, compared to an operating loss of
$11.2 million in the prior year period. The higher-than-anticipated
loss this quarter was driven by a $14.4 million revenue reduction
to estimates which directly impacted the segment's income and
resulted from macroeconomic factors causing expectations to decline
on the segment's employment services contracts. The company remains
focused on portions of the segment that are underperforming and is
committed to shaping the segment, within practical constraints, to
be aligned strategically and deliver consistent profitability.
Sales and Pipeline
Year-to-date signed contract awards at June 30, 2023, totaled
$4.27 billion, and contracts pending (awarded but unsigned) totaled
$3.10 billion. The book-to-bill ratio at June 30, 2023, was 2.2x
calculated on a trailing twelve-month basis and includes the
Contact Center Operations contract valued at $6.6 billion awarded
in September 2022. The book-to-bill ratio excluding this contract
was 1.1x at June 30, 2023.
The sales pipeline at June 30, 2023, totaled $32.1 billion,
comprised of approximately $2.6 billion in proposals pending, $0.85
billion in proposals in preparation, and $28.7 billion in
opportunities tracking. New work opportunities represent
approximately 80% of the total sales pipeline.
Balance Sheet and Cash Flows
At June 30, 2023, cash and cash equivalents totaled $35.0
million, and gross debt was $1.32 billion. The ratio of debt, net
of allowed cash, to EBITDA for the quarter ended June 30, 2023, as
calculated in accordance with the company's credit agreement, was
2.5x and unchanged from the quarter ended March 31, 2023.
For the third quarter of fiscal year 2023, cash used in
operating activities totaled $5.3 million, and free cash outflow
was $30.4 million. DSO increased to 61 days at June 30, 2023,
compared to DSO of 56 days at March 31, 2023, leading to an
increase in working capital. In addition, the month of June this
year included an extra payday, which had timing impact for cash
flows for the three months ended June 30, 2023.
On July 7, 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 August 31, 2023, to
shareholders of record on August 15, 2023.
Updated FY23 Guidance
Maximus expects revenue for fiscal year 2023 revenue guidance to
range between $4.875 billion and $4.975 billion, yielding a $4.925
billion midpoint which is unchanged from prior guidance of between
$4.85 billion and $5.0 billion.
Adjusted operating income, which excludes the expense for
amortization of intangible assets, is expected to range between
$387 million and $401 million, as compared to prior guidance of
between $415 million and $440 million. Costs related to the
cybersecurity incident are included in the updated guidance,
whereas adjusted operating income would be expected to range
between $409 million and $423 million, excluding the charge in the
third quarter of fiscal year 2023.
Adjusted diluted earnings per share, which excludes the expense
for amortization of intangible assets, is expected to range between
$3.74 and $3.94 per share, as compared to prior guidance of between
$4.00 and $4.30. Excluding the cybersecurity incident costs,
adjusted diluted earnings per share would be expected to range
between $4.00 and $4.20 per share.
Free cash flow is expected to range between $190 million and
$230 million, as compared to prior guidance of between $225 million
and $275 million. Excluding the cybersecurity incident costs, free
cash flow would be expected to range between $212 million and $252
million.
The company's guidance implies strong earnings growth for the
fourth quarter of fiscal year 2023, which is largely unchanged from
prior guidance, and driven by further increasing volumes in the VES
business in U.S. Federal Services and an anticipated moderate
sequential increase to Medicaid redeterminations in U.S.
Services.
The company forecasts interest expense to still range between
$82 million and $85 million, an updated effective income tax rate
between 23.0% and 23.5%, and an updated weighted average shares
outstanding between 61.4 million and 61.5 million shares for fiscal
year 2023.
Conference Call and Webcast Information
Maximus will host a conference call tomorrow, August 3, 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 accompanying earnings presentation slides, including
relevant financial charts, are available at
investor.maximus.com.
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, and in our Form 10-Q expected to be
filed shortly. The Company's SEC reports are accessible on
maximus.com.
On July 26, 2023, the company announced a cybersecurity incident
related to a third-party file-sharing application. Results for the
third quarter of fiscal year 2023 contained in this release include
an approximately $22 million expense for total investigation and
remediation costs related to the incident, which reflects our best
estimate based on the currently available information. This
estimate is preliminary and could change prior to the time we file
our Form 10-Q for the third fiscal quarter of 2023.
Maximus, Inc.
Consolidated Statements of
Operations
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
(in thousands, except per share
amounts)
Revenue
$
1,188,677
$
1,125,785
$
3,644,775
$
3,453,987
Cost of revenue
924,313
915,564
2,907,061
2,787,160
Gross profit
264,364
210,221
737,714
666,827
Selling, general, and administrative
expenses
182,545
132,974
471,445
387,502
Amortization of intangible assets
23,431
22,690
70,599
67,951
Operating income
58,388
54,557
195,670
211,374
Interest expense
21,026
10,791
63,631
29,867
Other expense/(income), net
1,005
2,497
(79
)
2,093
Income before income taxes
36,357
41,269
132,118
179,414
Provision for income taxes
5,494
9,934
29,472
44,653
Net income
$
30,863
$
31,335
$
102,646
$
134,761
Earnings per share:
Basic
$
0.50
$
0.51
$
1.68
$
2.17
Diluted
$
0.50
$
0.51
$
1.67
$
2.17
Weighted average shares outstanding:
Basic
61,141
61,607
61,125
62,038
Diluted
61,544
61,756
61,368
62,190
Dividends declared per share
$
0.28
$
0.28
$
0.84
$
0.84
Maximus, Inc.
Consolidated Balance
Sheets
(in thousands)
June 30, 2023
September 30, 2022
(unaudited)
Assets:
Cash and cash equivalents
$
35,007
$
40,658
Accounts receivable, net
798,509
807,110
Income taxes receivable
34,435
2,158
Prepaid expenses and other current
assets
128,085
182,387
Total current assets
996,036
1,032,313
Property and equipment, net
44,808
52,258
Capitalized software, net
88,007
58,740
Operating lease right-of-use assets
160,563
132,885
Goodwill
1,780,884
1,779,415
Intangible assets, net
727,956
804,904
Deferred contract costs, net
45,928
47,732
Deferred compensation plan assets
44,412
37,050
Deferred income taxes
5,771
4,970
Other assets
48,819
42,447
Total assets
$
3,943,184
$
3,992,714
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued
liabilities
$
283,686
$
264,553
Accrued compensation and benefits
140,007
178,199
Deferred revenue, current portion
64,822
87,146
Income taxes payable
70
718
Long-term debt, current portion
86,901
63,458
Operating lease liabilities, current
portion
53,385
63,999
Other current liabilities
54,430
116,374
Total current liabilities
683,301
774,447
Deferred revenue, non-current portion
14,860
21,414
Deferred income taxes
207,145
206,099
Long-term debt, non-current portion
1,223,133
1,292,483
Deferred compensation plan liabilities,
non-current portion
47,363
40,210
Operating lease liabilities, non-current
portion
120,766
86,175
Other liabilities
13,763
22,515
Total liabilities
2,310,331
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
June 30, 2023, and September 30, 2022, respectively
581,338
557,978
Accumulated other comprehensive loss
(24,311
)
(33,961
)
Retained earnings
1,075,826
1,025,354
Total shareholders' equity
1,632,853
1,549,371
Total liabilities and shareholders'
equity
$
3,943,184
$
3,992,714
Maximus, Inc.
Consolidated Statements of
Cash Flows
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
(in thousands)
Cash flows from operating activities:
Net income
$
30,863
$
31,335
$
102,646
$
134,761
Adjustments to reconcile net income to
cash flows from operations:
Depreciation and amortization of property,
equipment, and capitalized software
10,771
8,676
37,092
29,875
Amortization of intangible assets
23,431
22,690
70,599
67,951
Amortization of debt issuance costs and
debt discount
601
649
2,236
1,946
Deferred income taxes
3,743
(3,861
)
2,375
(7,179
)
Stock compensation expense
8,296
7,028
22,239
22,080
Loss on sale of businesses
—
—
883
—
Change in assets and liabilities, net of
effects of business combinations and disposals:
Accounts receivable
(54,854
)
9,067
7,675
(39,997
)
Prepaid expenses and other current
assets
7,689
(315
)
21,101
9,454
Deferred contract costs
1,662
(1,271
)
2,245
(7,702
)
Accounts payable and accrued
liabilities
23,276
(39,530
)
16,915
(42,577
)
Accrued compensation and benefits
(17,390
)
42,127
(31,612
)
13,846
Deferred revenue
(13,400
)
(18,131
)
(31,747
)
342
Income taxes
(26,608
)
693
(33,186
)
(12,822
)
Operating lease right-of-use assets and
liabilities
(1,670
)
(37
)
(3,742
)
(1,330
)
Other assets and liabilities
(1,696
)
(1,203
)
(15,968
)
1,128
Net cash (used in)/provided by operating
activities
(5,286
)
57,917
169,751
169,776
Cash flows from investing activities:
Purchases of property and equipment and
capitalized software
(25,112
)
(13,038
)
(58,863
)
(35,936
)
Acquisitions of businesses, net of cash
acquired
—
(14,140
)
—
(14,144
)
Proceeds from sale of businesses
—
—
9,124
—
Proceeds from sale of land and
building
—
2,000
—
2,000
Net cash used in investing activities
(25,112
)
(25,178
)
(49,739
)
(48,080
)
Cash flows from financing activities:
Cash dividends paid to Maximus
shareholders
(17,020
)
(17,103
)
(51,053
)
(51,762
)
Purchases of Maximus common stock
—
(48,021
)
—
(73,864
)
Tax withholding related to RSU vesting
—
—
(8,475
)
(9,673
)
Payments for contingent consideration
(2,621
)
—
(6,662
)
—
Proceeds from borrowings
220,000
175,000
682,398
415,000
Principal payments for debt
(200,054
)
(139,265
)
(730,514
)
(442,973
)
Restricted cash movements
2,517
—
(54,543
)
—
Net cash provided by/(used in) financing
activities
2,822
(29,389
)
(168,849
)
(163,272
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
549
(4,693
)
3,735
(4,369
)
Net change in cash, cash equivalents, and
restricted cash
(27,027
)
(1,343
)
(45,102
)
(45,945
)
Cash, cash equivalents and restricted
cash, beginning of period
118,720
111,968
136,795
156,570
Cash, cash equivalents and restricted
cash, end of period
$
91,693
$
110,625
$
91,693
$
110,625
Maximus, Inc.
Consolidated Results of
Operations by Segment
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Amount
% (1)
Amount
% (1)
Amount
% (1)
Amount
% (1)
(dollars in thousands)
Revenue:
U.S. Federal Services
$
583,960
$
525,519
$
1,786,202
$
1,680,678
U.S. Services
449,061
399,320
1,338,242
1,183,814
Outside the U.S.
155,656
200,946
520,331
589,495
Revenue
$
1,188,677
$
1,125,785
$
3,644,775
$
3,453,987
Gross
profit:
U.S. Federal Services
$
156,945
26.9
%
$
124,203
23.6
%
$
402,513
22.5
%
$
365,932
21.8
%
U.S. Services
98,538
21.9
%
74,135
18.6
%
268,152
20.0
%
248,805
21.0
%
Outside the U.S.
8,881
5.7
%
11,883
5.9
%
67,049
12.9
%
52,090
8.8
%
Gross profit
$
264,364
22.2
%
$
210,221
18.7
%
$
737,714
20.2
%
$
666,827
19.3
%
Selling, general,
and administrative expenses:
U.S. Federal Services
$
82,892
14.2
%
$
69,466
13.2
%
$
229,591
12.9
%
$
203,340
12.1
%
U.S. Services
51,536
11.5
%
42,351
10.6
%
140,793
10.5
%
115,726
9.8
%
Outside the U.S.
24,122
15.5
%
23,101
11.5
%
75,936
14.6
%
68,452
11.6
%
Loss on sale of businesses (2)
—
NM
—
NM
883
NM
—
NM
Other (3)
23,995
NM
(1,944
)
NM
24,242
NM
(16
)
NM
Selling, general, and administrative
expenses
$
182,545
15.4
%
$
132,974
11.8
%
$
471,445
12.9
%
$
387,502
11.2
%
Operating
income/(loss):
U.S. Federal Services
$
74,053
12.7
%
$
54,737
10.4
%
$
172,922
9.7
%
$
162,592
9.7
%
U.S. Services
47,002
10.5
%
31,784
8.0
%
127,359
9.5
%
133,079
11.2
%
Outside the U.S.
(15,241
)
(9.8
)%
(11,218
)
(5.6
)%
(8,887
)
(1.7
)%
(16,362
)
(2.8
)%
Amortization of intangible assets
(23,431
)
NM
(22,690
)
NM
(70,599
)
NM
(67,951
)
NM
Loss on sale of businesses (2)
—
NM
—
NM
(883
)
NM
—
NM
Other (3)
(23,995
)
NM
1,944
NM
(24,242
)
NM
16
NM
Operating income
$
58,388
4.9
%
$
54,557
4.8
%
$
195,670
5.4
%
$
211,374
6.1
%
(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. In the three and nine months ended June 30,
2023, these charges include $22.1 million related to the costs of a
previously disclosed cybersecurity incident. Other charges include
those related to acquisitions.
Maximus, Inc.
Consolidated Free Cash Flows -
Non-GAAP
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
(in thousands)
Net cash (used in)/provided by operating
activities
$
(5,286
)
$
57,917
$
169,751
$
169,776
Purchases of property and equipment and
capitalized software
(25,112
)
(13,038
)
(58,863
)
(35,936
)
Free cash flow
$
(30,398
)
$
44,879
$
110,888
$
133,840
Maximus, Inc.
Non-GAAP Adjusted Results
Excluding Amortization of Intangible Assets
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
(dollars in thousands, except per
share data)
Operating income
$
58,388
$
54,557
$
195,670
$
211,374
Add back: Amortization of intangible
assets
23,431
22,690
70,599
67,951
Adjusted operating income excluding
amortization of intangible assets (Non-GAAP)
$
81,819
$
77,247
$
266,269
$
279,325
Adjusted operating income margin excluding
amortization of intangible assets (Non-GAAP)
6.9
%
6.9
%
7.3
%
8.1
%
Net income
$
30,863
$
31,335
$
102,646
$
134,761
Add back: Amortization of intangible
assets, net of tax
17,276
16,750
52,082
50,164
Adjusted net income excluding amortization
of intangible assets (Non-GAAP)
$
48,139
$
48,085
$
154,728
$
184,925
Diluted earnings per share
$
0.50
$
0.51
$
1.67
$
2.17
Add back: Effect of amortization of
intangible assets on diluted earnings per share
0.28
0.27
0.85
0.80
Adjusted diluted earnings per share
excluding amortization of intangible assets (Non-GAAP)
$
0.78
$
0.78
$
2.52
$
2.97
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802521666/en/
James Francis, VP - IR Jessica Batt, VP - IR & ESG
IR@maximus.com
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