Business Wire | Nov 19, 2020 06:30AM EST

Maximus Reports Fourth Quarter and Full Year Results for Fiscal Year 2020

Nov. 19, 2020

RESTON, Va.--(BUSINESS WIRE)--Nov. 19, 2020--Maximus (NYSE: MMS), a leading provider of government services worldwide, reported financial results for the three months and year ended September 30, 2020.

Highlights for fiscal 2020 include:

* Revenue increased to $3.46 billion compared to $2.89 billion reported for the same period last year, driven by the Census contract in the U.S. Federal Services Segment and new COVID-19 response work to assist governments in supporting individuals and families during the global pandemic

* Organic growth of 15.7% in fiscal 2020, or 4.6% excluding the Census contract

* Operating margin of 8.3% and diluted earnings per share of $3.39 for fiscal 2020 were lower compared to the prior year. Reduced volumes on core programs in the U.S. where pandemic-related program changes were instituted at the direction of our state and federal clients, a greater mix of cost-plus work in fiscal 2020, and unfavorable pandemic-related impacts in operations outside the U.S.

* Renamed the U.S. Health & Human Services Segment to the U.S. Services Segment

* A quarterly cash dividend of $0.28 for each share of our common stock outstanding payable on November 30, 2020, to shareholders of record on November 13, 2020

"Fiscal year 2020 demonstrated our ability to quickly respond and rapidly scale operations in order to support the significant increase in demand from governments to address the extraordinary needs of citizens in the wake of the pandemic. Our ongoing investments in technology and digital capabilities allowed us to enable thousands of employees into remote work environments in a span of weeks," shared Bruce Caswell, President and Chief Executive Officer.

Consolidated FY20 Results

Revenue for fiscal 2020 increased to $3.46 billion, compared to $2.89 billion reported for the prior year driven by the Census contract in the U.S. Federal Services Segment and COVID-19 response work. The Company is supporting governments with their public health responses in areas such as contact tracing, disease investigation, COVID-19 information lines, unemployment insurance claims processing, and other COVID-related assistance. Organic growth for fiscal 2020 was 15.7%, or 4.6% excluding the Census contract, and tempered by declines in the Outside the U.S. Segment.

Operating income for fiscal 2020 totaled $288.3 million, yielding an operating margin of 8.3%. This compares to $317.1 million and 11.0%, respectively, for the prior fiscal year. For fiscal 2020, net income attributable to Maximus totaled $214.5 million, or $3.39 of diluted earnings per share, compared to $240.8 million and $3.72, respectively, for the prior fiscal year.

Fiscal 2020 earnings were lower due to three primary areas of impact: 1) reduced volumes on large U.S. programs where state and federal government clients temporarily instituted changes in response to the COVID-19 pandemic to ensure that individuals and families retain access to vital programs, 2) a greater mix of cost-plus work in fiscal 2020 driven by the Census contract in the U.S. Federal Services Segment, and 3) COVID-related impacts outside the United States.

The effective tax rate for fiscal 2020 was 25.3%, compared to 24.2% in the prior fiscal year. The higher rate was attributable to normal course vesting of stock compensation which had a reduced benefit tied to a lower share price.

U.S. Services Segment

U.S. Services Segment revenue for fiscal 2020 increased 13% to $1.33 billion, compared to $1.18 billion reported in the prior fiscal year. All growth in this segment was organic and attributable to new work, including COVID-19 response efforts, and the expansion of existing contracts which offset temporary volume and revenue declines in certain core programs stemming from the pandemic. An estimated $129 million of revenue was attributable to COVID-19 response work in this segment for fiscal 2020.

The Families First Coronavirus Response Act provided states with a temporary increase to federal matching funds for Medicaid in exchange for meeting certain requirements, including ensuring continuous care for current Medicaid enrollees. As a result, Medicaid redeterminations have halted on some of our largest Medicaid programs and the reduced activity caused a significant revenue and earnings headwind for this segment in fiscal 2020. In addition, state budgetary pressures have created the need to work closely with clients to provide needed relief through adjustments to scope of work on certain contracts.

These impacts contributed to an operating margin of 17.1% for the U.S. Services Segment in fiscal 2020. Operating margin for this segment was 18.8% in the prior fiscal year.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for fiscal 2020 increased to $1.63 billion, compared to $1.11 billion reported in the prior fiscal year, driven most significantly by the $330 million increase of the Census contract. Organic growth excluding the Census contract was 8.0%. The Census contract delivered approximately $515 million of total revenue for fiscal 2020, compared to $185 million in the prior fiscal year.

Additionally, this segment realized growth from new contracts and new work related to the COVID-19 response efforts. An estimated $71.0 million of revenue was attributable to COVID-19 response work in the U.S. Federal Services Segment for fiscal 2020, which excludes the increases to the Census contract also tied to the pandemic-related extended response period.

The segment's operating income was tempered by: 1) a greater mix of cost-plus revenue related primarily to the Census contract and the Contact Center Operations (CCO) contract, also known as 1-800-MEDICARE, which carry lower margins, 2) a reduction in volumes, revenue, and profit on performance-based contracts as a result of the pandemic, and 3) ongoing investment in business development and marketing to support further expansion into the U.S. federal market.

As a result of these pressures, operating margin for the U.S. Federal Services Segment was 8.1% for fiscal 2020. Operating margin for this segment was 10.4% in the prior fiscal year.

"It is expected that business development and marketing activities take time to gain traction, and the pandemic has added to this timeline," commented Mr. Caswell. "But I am pleased that progress has been made in expanding scope in certain agencies such as the IRS. We are supporting the agency in responding to general inquiries regarding the CARES Act and the Economic Impact Plan. This is the first time the IRS has used a public sector partner for citizen engagement to this scale. We are extremely proud to be entrusted with this work."

Outside the U.S. Segment

Outside the U.S. Segment revenue for fiscal 2020 decreased to $498.9 million, compared to $599.1 million reported in the prior fiscal year. Operating loss for fiscal 2020 was $34.1 million, compared to an operating profit of $16.1 million and an operating margin of 2.7% reported in the prior fiscal year.

The segment experienced the most pronounced impact from the pandemic in fiscal 2020. The employment services contracts realized a significant decline in the number of employment opportunities available to those individuals looking for work. As a result, in the second quarter of fiscal 2020, the Company took a write-down of approximately $24 million or $0.28 of diluted earnings per share, which related to a decline in estimates for future period outcomes-based payments. Operating performance for the Outside the U.S. Segment improved in subsequent quarters and the fourth quarter of fiscal 2020 reported a loss of $0.6 million.

Approximately one-third of revenues for this segment are realized from the Health Assessment Advisory Service contract in the U.K. In March, the Department for Work and Pensions halted all face-to-face assessments, resulting in reduced activity levels and financial performance.

An improved outlook for this segment is expected in fiscal 2021 with forecasted revenue growth of $175 million, compared to fiscal 2020. The predominant driver of this growth is rising unemployment which is leading to increasing volumes on the Company's employment services contracts that support individuals back into long-term, sustained employment. The Company is already experiencing a rise in volumes in markets where economies have started to emerge from the global pandemic, such as Australia. This segment will also benefit from new work wins that will begin to monetize in fiscal 2021.

This segment is forecasted to be profitable in fiscal 2021, remaining in a loss position for the first half of the year and returning to profit in the second half of the year. The outlook may continue to be adversely impacted by the pandemic, but the Company remains poised to help governments navigate significant challenges as the world emerges from the global pandemic.

Sales and Pipeline

Signed contract awards for the year-ended September 30, 2020, totaled $2.7 billion and contracts pending (awarded but unsigned) totaled $744 million. These awards reflect total contract value.

The sales pipeline at September 30, 2020, was $33.0 billion (comprised of approximately $2.0 billion in proposals pending, $1.5 billion in proposals in preparation, and $29.6 billion in opportunities tracking).

Balance Sheet and Cash Flows

Cash and cash equivalents at September 30, 2020, totaled $71.7 million and excludes $16.8 million of restricted cash included in the Consolidated Statement of Cash Flows. At September 30, 2020, there were no outstanding draws on the Company's corporate credit facility, leaving $400 million of available capacity, and draws of $28.4 million in smaller facilities outside the U.S.

For fiscal 2020, cash from operations totaled $244.6 million and free cash flow was $203.9 million. Cash from operations was negatively impacted in the year due to the additional investment in working capital required by full year increases to revenue in fiscal 2020 and the timing of collections.

At September 30, 2020, DSO were 77 days and within the Company's typical range of 65 to 80 days.

On October 2, 2020, 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 November 30, 2020, to shareholders of record on November 13, 2020.

Outlook

Maximus is establishing fiscal 2021 guidance. The Company expects revenue to range between $3.20 billion and $3.40 billion. Diluted earnings per share is expected to range between $3.45 and $3.70. Cash from operations is expected to range between $340 million and $390 million, and free cash flow to range between $300 million and $350 million.

For fiscal 2021, the effective income tax rate is expected to range between 25.75% and 26.50% and weighted average shares outstanding to range between 62.1 million and 62.2 million, absent significant share purchase activity.

Revenue and earnings guidance is a wider range than in prior years due to the uncertainty related to the duration of COVID-19 response work and the length of disruption to core programs. Forecasted earnings for fiscal 2021 reflect the challenges faced when operating during the pandemic, including lower volumes in many core programs primarily in the United States. This is expected to be offset by increased revenue and profit from operations outside the United States where some economies have started to emerge from the global pandemic.

Mr. Caswell added, "We will continue to support our clients' evolving needs and we stand ready to provide additional support as governments strive to slow the global pandemic. As we look into fiscal 2021, we anticipate that we will begin to benefit from increasing caseloads in our employment services markets outside the United States. Our continued strong execution, healthy financial condition, robust cash flow and reliable delivery, positions Maximus for future pent-up demand as governments seek much needed assistance from private sector partners to support, operate, and scale critical safety-net programs."

Conference Call and Webcast Information

Maximus will host a conference call this morning, November 19, 2020, at 9:00 a.m. (ET).

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

Since 1975, Maximus has operated under its founding mission of Helping Government Serve the People(r), enabling citizens around the globe to successfully engage with their governments at all levels and across a variety of health and human services programs. Maximus delivers innovative business process management and technology solutions that contribute to improved outcomes for citizens and higher levels of productivity, accuracy, accountability, and efficiency of government-sponsored programs. With more than 30,000 employees worldwide, Maximus is a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore, South Korea, Sweden, and the United Kingdom. For more information, visit maximus.com.

Non-GAAP Measures

This release refers to non-GAAP measures and other indicators, including organic growth, free cash flow, and days sales outstanding.

We have provided a reconciliation of free cash flow to cash flows from operations.

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 Annual Report on Form 10-K.

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 such as those related to the impact of the COVID-19 pandemic including but not limited to:

* The ultimate duration of the pandemic * The threat of further negative pandemic-related impacts * Delays in our core programs returning to normal volumes and operations * The potential impacts resulting from budget challenges with our government clients * The possibility of delayed or missed payments by customers * The potential for further supply chain disruptions impacting IT or safety equipment * The impact of further legislation and government policies on the programs we operate

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 of our Annual Report on Form 10-K to be filed shortly with the Securities and Exchange Commission and found on maximus.com.

Maximus, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

Three Months Ended Twelve Months Ended September September 30, 30,

2020 2019 2020 2019

(Unaudited) (Unaudited) (Unaudited)

Revenue $ 923,836 $ 754,966 $ 3,461,537 $ 2,886,815

Cost of revenue 726,985 586,716 2,750,535 2,215,631

Gross profit 196,851 168,250 711,002 671,184

Selling, general andadministrative 103,428 81,646 387,090 321,023 expenses

Amortization of 8,900 9,028 35,634 33,054 intangible assets

Operating income 84,523 77,576 288,278 317,107

Interest expense 494 343 2,059 2,957

Other income, net 222 122 843 3,170

Income before income 84,251 77,355 287,062 317,320 taxes

Provision for income 20,590 17,314 72,553 76,825 taxes

Net income 63,661 60,041 214,509 240,495

Loss attributable tononcontrolling - (48) - (329) interests

Net incomeattributable to $ 63,661 $ 60,089 $ 214,509 $ 240,824 Maximus

Basic earnings per $ 1.03 $ 0.93 $ 3.40 $ 3.73 share

Diluted earnings per $ 1.02 $ 0.93 $ 3.39 $ 3.72 share

Dividends per share $ 0.28 $ 0.25 $ 1.12 $ 1.00

Weighted average shares outstanding:

Basic 61,874 64,397 63,062 64,498

Diluted 62,256 64,848 63,322 64,820

Maximus, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

September 30, September 30, 2020 2019

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents $ 71,737 $ 105,565

Accounts receivable - billed and billable, net 622,871 476,690

Accounts receivable - unbilled 163,332 123,884

Income taxes receivable 2,075 20,805

Prepaid expenses and other current assets 72,543 62,481

Total current assets 932,558 789,425

Property and equipment, net 66,721 99,589

Capitalized software, net 38,033 32,369

Operating lease right-of-use assets 177,159 -

Goodwill 593,129 584,469

Intangible assets, net 145,893 179,250

Deferred contract costs, net 20,891 18,921

Deferred compensation plan assets 36,819 32,908

Deferred income taxes 1,915 186

Other assets 11,584 8,615

Total assets $ 2,024,702 $ 1,745,732

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities $ 253,338 $ 177,786

Accrued compensation and benefits 137,101 106,789

Deferred revenue 51,655 43,344

Income taxes payable 5,377 13,952

Current portion of long-term debt and other 10,878 9,658 borrowings

Operating lease liabilities 80,748 -

Other current liabilities 22,071 12,709

Total current liabilities 561,168 364,238

Deferred revenue, less current portion 27,311 32,341

Deferred income taxes 24,737 46,560

Long-term debt, less current portion 18,017 231

Deferred compensation plan liabilities, less 38,654 34,079 current portion

Operating lease liabilities, less current portion 104,011 -

Other liabilities 8,985 20,082

Total liabilities 782,883 497,531

Commitments and contingencies

Shareholders' equity:

Common stock, no par value; 100,000 sharesauthorized; 61,504 and 63,979 shares issued and 513,959 498,433 outstanding at September 30, 2020 and 2019, atstated amount, respectively

Accumulated other comprehensive loss (42,638) (45,380)

Retained earnings 770,498 794,739

Total Maximus shareholders' equity 1,241,819 1,247,792

Noncontrolling interests - 409

Total equity $ 1,241,819 $ 1,248,201

Total liabilities and equity $ 2,024,702 $ 1,745,732

Maximus, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

Three Months Ended Twelve Months Ended September 30, 2020 September 30, 2020

2020 2019 2020 2019

(Unaudited) (Unaudited) (Unaudited)

Cash flows from operations:

Net income $ 63,661 $ 60,041 $ 214,509 $ 240,495

Adjustments to reconcilenet income to cash flows from operations:

Depreciation andamortization of property 17,031 17,816 64,527 52,404 and equipment andcapitalized software

Amortization of 8,900 9,028 35,634 33,054 intangible assets

Deferred income taxes (13,935) 1,465 (19,145) 12,661

Stock compensation 6,150 5,451 23,708 20,774 expense

Gain on sale of a (12) - (1,718) - business

Changes in assets andliabilities, net of effects of businesscombinations

Accounts receivable - 5,784 47,818 (141,842) (60,313) billed and billable

Accounts receivable - 41,362 (31,354) (38,905) 14,818 unbilled

Prepaid expenses and (10,368) (12,650) (9,839) (15,583) other current assets

Deferred contract costs (515) 3,472 (1,911) (4,670)

Accounts payable and 31,308 (5,882) 79,930 47,580 accrued liabilities

Accrued compensation and (4,163) (6,994) 29,484 2,288 benefits

Deferred revenue (415) 8,631 2,391 16,488

Income taxes 2,927 (7,859) 3,490 (4,720)

Operating leaseright-of-use assets and 515 - (556) - liabilities

Other assets and 279 4,033 4,835 1,451 liabilities

Cash flows from 148,509 93,016 244,592 356,727 operations

Cash flows from investing activities:

Purchases of property andequipment and capitalized (12,271) (27,813) (40,707) (66,846) software costs

Acquisition ofbusinesses, net of cash (4,455) (14,790) (7,066) (436,839) acquired

Acquisition of - (647) - (647) noncontrolling interests

Proceeds from the sale of - - 3,250 - a business

Maturities of short-term - - - 19,996 investments

Other - 73 385 453

Cash used in investing (16,726) (43,177) (44,138) (483,883) activities

Cash flows from financing activities:

Cash dividends paid to (17,167) (15,951) (70,155) (63,887) Maximus shareholders

Purchases of Maximus - (1,378) (166,959) (47,446) common stock

Tax withholding related - - (10,614) (8,915) to RSU vesting

Borrowings of debt 216,560 94,616 638,048 414,664

Repayment of debt (340,474) (88,545) (619,445) (405,142)

Other (8) - (965) (133)

Cash used in financing (141,089) (11,258) (230,090) (110,859) activities

Effect of exchange ratechanges on cash, cash 1,879 (1,058) 1,705 (2,052) equivalents andrestricted cash

Net (decrease)/increasein cash, cash equivalents (7,427) 37,523 (27,931) (240,067) and restricted cash

Cash, cash equivalentsand restricted cash, 95,988 78,969 116,492 356,559 beginning of period

Cash, cash equivalentsand restricted cash, end $ 88,561 $ 116,492 $ 88,561 $ 116,492 of period

Maximus, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

Three Months Ended September 30, 2020 Twelve Months Ended September 30,2020

2020 % (1) 2019 % (1) 2020 % (1) 2019 % (1)

Revenue:

U.S. Services $ 371,345 $ 300,406 $ 1,329,274 $ 1,176,488

U.S. Federal 423,232 312,179 1,633,337 1,111,197 Services

Outside the U.S. 129,259 142,381 498,926 599,130

Total $ 923,836 $ 754,966 $ 3,461,537 $ 2,886,815



Gross profit:

U.S. Services $ 92,199 24.8 % $ 83,154 27.7 % $ 360,272 27.1 % $ 344,109 29.2 %

U.S. Federal 86,423 20.4 % 66,586 21.3 % 318,925 19.5 % 242,070 21.8 %Services

Outside the U.S. 18,229 14.1 % 18,510 13.0 % 31,805 6.4 % 85,005 14.2 %

Total $ 196,851 21.3 % $ 168,250 22.3 % $ 711,002 20.5 % $ 671,184 23.2 %



Selling, generaland administrative expense:

U.S. Services $ 29,856 8.0 % $ 29,322 9.8 % $ 132,489 10.0 % $ 123,275 10.5 %

U.S. Federal 54,568 12.9 % 35,496 11.4 % 186,023 11.4 % 126,128 11.4 %Services

Outside the U.S. 18,813 14.6 % 16,353 11.5 % 65,938 13.2 % 68,944 11.5 %

Gain on sale of a (12) NM - NM (1,718) NM - NMbusiness (2)

Other (3) 203 NM 475 NM 4,358 NM 2,676 NM

Total $ 103,428 11.2 % $ 81,646 81646000 10.8 % $ 387,090 11.2 % $ 321,023 11.1 %



Operating income:

U.S. Services $ 62,343 16.8 % $ 53,832 17.9 % $ 227,783 17.1 % $ 220,834 18.8 %

U.S. Federal 31,855 7.5 % 31,090 10.0 % 132,902 8.1 % 115,942 10.4 %Services

Outside the U.S. (584) (0.5) % 2,157 1.5 % (34,133) (6.8) % 16,061 2.7 %

Amortization of (8,900) NM (9,028) NM (35,634) NM (33,054) NMintangible assets

Acquisition-related (459) NM - NM (4,621) NM (2,691) NMexpenses (4)

Gain on sale of a 12 NM - NM $ 1,718 NM - NMbusiness (2)

Other 256 NM (475) NM 263 NM 15 NM

Total $ 84,523 9.1 % $ 77,576 10.3 % $ 288,278 8.3 % $ 317,107 11.0 %

(1) Percentage of respective segment revenue. Percentages not considered meaningful are marked "NM."

(2) During fiscal year 2020, we sold Q2 Administrators LLC, a subsidiary within our U.S. Federal Services Segment, resulting in a gain.

(3) Other selling, general and administrative expenses includes credits and costs that are not allocated to a particular segment.

(4) Acquisition-related expenses are costs of completed business combinations as well as the costs of any unsuccessful transactions.

Maximus, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

Three Months Ended Twelve Months Ended September 30, September 30,

2020 2019 2020 2019

Cash from operations $ 148,509 $ 93,016 $ 244,592 $ 356,727

Purchases of property andequipment and capitalized (12,271) (27,813) (40,707) (66,846) software costs

Capital expenditure as a - - - 4,542 result of acquisition (1)

Free cash flow $ 136,238 $ 65,203 $ 203,885 $ 294,423



(1) Purchases of property and equipment and capitalized software costs included $4.5 million in one-time payments to cover software licenses required for employees joining us through the citizen engagement centers acquisition in November 2018.

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CONTACT: Lisa Miles 703.251.8637