Business Wire | Aug 6, 2020 06:30AM EDT

Maximus Reports Fiscal Year 2020 Third Quarter Results

Aug. 06, 2020

RESTON, Va.--(BUSINESS WIRE)--Aug. 06, 2020--Maximus (NYSE: MMS), a leading provider of government services worldwide, reported financial results for the three and nine months ended June 30, 2020.

Highlights for the third quarter of fiscal 2020 include:

* The Company's continued focus on safeguarding employees and strategic technology investments have enabled continued support of our customers and citizens through the COVID-19 pandemic

* Revenue increased to $901.3 million as compared to $730.7 million 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 such as contact tracing and assistance with unemployment benefits

* Diluted earnings per share were $1.04 and benefited from a previously disclosed change order totaling $0.11 per diluted share

* Revenue and earnings were better than expected principally due to new work and the expansion of existing contracts as a result of COVID-19, and an improved outlook in our Australia operations. As a result, the Company increased revenue and earnings guidance for fiscal 2020 with revenue expected to range between $3.375 billion and $3.425 billion and diluted earnings per share to range between $3.20 and $3.30 per share

* A quarterly cash dividend of $0.28 for each share of our common stock outstanding payable on August 31, 2020, to shareholders of record on August 14, 2020.

COVID-19 Status Update

Overall, the Company is navigating the COVID-19 pandemic using a hybrid operational model which maintains delivery of services through a mix of safe, on-site working arrangements and work-from-home arrangements. The pandemic continues to impact all segments. The Outside the U.S. Segment remains impacted by the temporary halt on face-to-face health assessments and a general pandemic related slowdown in employment services. Within U.S. operations, disruptions persist on several performance-based contracts from ongoing COVID-19 response efforts by our government clients. For example, these programs have relaxed certain program requirements to allow vulnerable citizens continued access to vital services resulting in lower volumes and revenues.

These negative impacts have been offset by new COVID-19 response work, the restructuring of certain employment services contracts Outside the U.S. to reflect more equitable pay models, and an increase in expected revenue and earnings from the Census contract in the U.S. Federal Services Segment.

"Our employees have shown true resilience, working tirelessly to help citizens navigate challenging circumstances as governments have responded. The necessity of the health and human services programs we are entrusted to administer is no more apparent than during an economic crisis precipitated by the current global pandemic," shared Bruce Caswell, President and Chief Executive Officer. "Meanwhile, we continue to execute upon our three goals of Digital Transformation, which has helped us quickly transition to a hybrid operational model, Clinical Evolution, and the expansion of clinical BPO support services in response to COVID-19, and Market Expansion, supporting our strategic trajectory in the face of this global disruption."

Third Quarter Results

For the third quarter of fiscal 2020, revenue increased to $901.3 million as compared to $730.7 million reported for the prior-year period last year driven by the Census contract in the U.S. Federal Services Segment and COVID-19 response work such, as contact tracing and assistance with unemployment benefits. Excluding the citizen engagement centers business acquired in November 2018, which includes the Census contract, organic growth for the third quarter of fiscal 2020 was 3.5% compared to the prior-year period and tempered by declines in the Outside the U.S. Segment.

For the third quarter of fiscal 2020, operating income totaled $87.3 million, yielding an operating margin of 9.7%. This compares to 11.4% for the same period last year. The operating margin was lower due to decreased revenue from performance-based contracts and a greater mix of lower margin, cost-plus work related to the Census contract.

For the third quarter of fiscal 2020, net income attributable to Maximus totaled $64.5 million, or $1.04 of diluted earnings per share, which includes a $9 million change order that benefited results by $0.11 per diluted share. This compares to the third quarter of fiscal 2019 diluted earnings per share of $0.97.

U.S. Health & Human Services Segment

Revenue in the U.S. Health & Human Services Segment for the third quarter of fiscal 2020 increased 15.7% to $337.0 million compared to $291.1 million reported for the same period last year. All growth in this segment was organic and attributable to new work, including work tied to COVID-19 response efforts, and the expansion of existing contracts.

Operating margin for the third quarter of fiscal 2020 was 18.1% compared to 18.6% reported for the prior-year period. Operating margin for the third quarter of fiscal 2020 was 15.9% without the benefit of the aforementioned change order. The operating margin was impacted by operational disruptions related to the pandemic. As an example, the Company has experienced lower revenue and earnings on a significant performance-based state Medicaid program, where our government client paused renewals to ensure that individuals and families retain vital access to healthcare.

Continued disruptions are expected in the U.S. Health & Human Services Segment while still forecasted to deliver an operating margin between 17% and 18% for the full year.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the third quarter of fiscal 2020 increased to $450.1 million compared to $292.3 million reported for the same period last year. All revenue growth in this segment was organic. Excluding the citizen engagement centers business, organic revenue growth was 4.1% driven by new work, including that tied to COVID-19 response efforts, and growth on existing contracts.

Operating margin for the third quarter of fiscal 2020 was 8.7% compared to 11.6% reported for the prior-year period and was impacted by a combination of reduced volumes and revenue on certain performance-based contracts and a greater mix of cost-plus contracts which typically have lower operating margins. For example, the volume of independent medical reviews has decreased significantly due to a precipitous drop in workers' compensation claims.

The Census contract continued to operate at peak levels in the quarter due to the Census Bureau's extended response period. This contract delivered approximately $170 million and $380 million of revenue for the three and nine months ended June 30, 2020, respectively, and is expected to deliver approximately $500 million of revenue in fiscal year 2020.

The U.S. Federal Services Segment is expected to deliver an operating margin between 8% and 9% for the full year with a bias toward the lower end of the range.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the third quarter of fiscal 2020 decreased to $114.2 million compared to $147.3 million reported for the same period last year. Operating loss for the third quarter of fiscal 2020 was $5.8 million compared to an operating profit of $5.0 million and an operating margin of 3.4% reported for the prior-year period. This segment contains several significant employment services contracts, most notably in the U.K. and Australia, and the Health Assessment Advisory Service (HAAS) contract in the U.K., which all continue to operate at reduced levels.

The operating loss for the third quarter of fiscal 2020 is less than previously forecasted due to greater visibility of future outcome payments on the employment services contracts. The Company also successfully modified the contractual terms on certain employment services contracts to allow for more equitable pay points or cost reimbursement arrangements.

The Segment is still expected to end the full year in an operating loss position, although a significant loss is not expected in the fourth quarter of fiscal 2020. Face-to-face assessments on the HAAS contract remain suspended and other programs continue to be impacted by COVID-19. However, in fiscal 2021, the Company anticipates an expanded need and pent-up demand for employment services as geographies begin to emerge from the pandemic and may face unprecedented unemployment levels.

Sales and Pipeline

Year-to-date signed contract awards at June 30, 2020, totaled $1.5 billion and contracts pending (awarded but unsigned) totaled $672 million. These awards reflect total contract value.

The sales pipeline at June 30, 2020, was $28.9 billion (comprised of approximately $1.9 billion in proposals pending, $1.9 billion in proposals in preparation, and $25.1 billion in opportunities tracking).

Mr. Caswell continued, "The pipeline dynamics continue to be unique since the pandemic began in March. We still see procurements being completed in record time for efforts to support COVID-19. As you would expect, that focus has taken away from previously planned, normal course procurements. It continues to be a fluid situation that is changing daily where we anticipate both positive and negative impacts."

Balance Sheet and Cash Flows

Cash and cash equivalents at June 30, 2020, totaled $81.5 million and excludes $14.4 million of restricted cash included in the Consolidated Statement of Cash Flows. Outstanding draws on the Company's credit facility totaled $145.0 million at the end of the third quarter, leaving $255.0 million of available capacity.

For the nine months ended June 30, 2020, cash from operations totaled $96.1 million and free cash flow was $67.6 million. Year-to-date cash from operations has been negatively impacted due to the additional investment in working capital required by increases to revenue, the timing of collections, and lower income attributable to the Outside the U.S. Segment. Days sales outstanding (DSO) of 84 days at June 30, 2020, caused negative cash flows for the three months ended June 30, 2020.

At June 30, 2020, DSO were 84 days and outside the Company's typical range of 65 to 80 days. Subsequent to June 30, 2020, more than $90 million of accounts receivable were collected and DSO would have been 74 days with those payments included.

On July 3, 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 August 31, 2020, to shareholders of record on August 14, 2020.

Outlook

Maximus is increasing revenue and earnings guidance for fiscal 2020 following new work wins and the expansion of existing work tied to the COVID-19 response, including the extension of the Census contract. The Company anticipates fiscal 2020 revenue will range between $3.375 and $3.425 billion and diluted earnings per share will range between $3.20 and $3.30 per share. Cash flows from operations are expected to range between $200 and $220 million and free cash flow between $180 and $200 million.

Mr. Caswell added, "We are proud that our customers trust our experience and abilities to provide solutions and continued support during this critical time. We cannot predict with certainty how long the pandemic will last but we feel prepared to continue operating in our current manner and our strong financial standing furthers that ability."

Conference Call and Webcast Information

Maximus will host a conference call this morning, August 6, 2020, at 9:00 a.m. (ET).

The call is open to the public and available by webcast.

To receive dial-in details, participants must register prior to the call. Once registered, dial-in details will be sent to the participant by email.

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, Sweden, and the United Kingdom. For more information, visit maximus.com.

Non-GAAP Measures

This release refers to non-GAAP financial measures, including free cash flow, constant currency, 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 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 Exhibit 99.1 to the Company's most recent Annual Report filed with the Securities and Exchange Commission, found on maximus.com.

Maximus, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended June Nine Months Ended June 30, 30,

2020 2019 2020 2019

Revenue $ 901,337 $ 730,710 $ 2,537,701 $ 2,131,849

Cost of revenue 715,734 556,463 2,023,550 1,628,915

Gross profit 185,603 174,247 514,151 502,934

Selling, general andadministrative 89,582 81,604 283,662 239,377 expenses

Amortization of 8,712 9,049 26,734 24,026 intangible assets

Operating income 87,309 83,594 203,755 239,531

Interest expense 616 420 1,565 2,614

Other (expense)/ (671 ) 556 621 3,048 income, net

Income before income 86,022 83,730 202,811 239,965 taxes

Provision for income 21,558 20,765 51,963 59,511 taxes

Net income 64,464 62,965 150,848 180,454

Income/(loss)attributable to - 67 - (281 )noncontrollinginterests

Net incomeattributable to $ 64,464 $ 62,898 $ 150,848 $ 180,735 Maximus

Basic earnings per $ 1.04 $ 0.98 $ 2.38 $ 2.80 share

Diluted earnings per $ 1.04 $ 0.97 $ 2.37 $ 2.79 share

Dividends paid per $ 0.28 $ 0.25 $ 0.84 $ 0.75 share

Weighted average shares outstanding:

Basic 61,882 64,405 63,463 64,534

Diluted 62,102 64,759 63,666 64,800

Maximus, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

June 30, 2020 September 30, 2019

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents $ 81,548 $ 105,565

Accounts receivable - billed and billable, net of 626,471 476,690 reserves of $13,031 and $5,382

Accounts receivable - unbilled 203,267 123,884

Income taxes receivable 8,284 20,805

Prepaid expenses and other current assets 59,942 62,481

Total current assets 979,512 789,425

Property and equipment, net 73,319 99,589

Capitalized software, net 35,447 32,369

Operating lease right-of-use assets 171,041 -

Goodwill 586,757 584,469

Intangible assets, net 151,115 179,250

Deferred contract costs, net 20,267 18,921

Deferred compensation plan assets 33,834 32,908

Deferred income taxes 3,450 186

Other assets 8,244 8,615

Total assets $ 2,062,986 $ 1,745,732

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities $ 217,831 $ 177,786

Accrued compensation and benefits 130,396 106,789

Deferred revenue 48,743 43,344

Income taxes payable 4,725 13,952

Current portion of long-term debt and other 7,000 9,658 borrowings

Operating lease liabilities 74,878 -

Other liabilities 18,971 12,709

Total current liabilities 502,544 364,238

Deferred revenue, less current portion 30,090 32,341

Deferred income taxes 44,532 46,560

Long-term debt, less current portion 145,161 231

Deferred compensation plan liabilities, less 34,302 34,079 current portion

Operating lease liabilities, less current portion 103,236 -

Other liabilities 8,174 20,082

Total liabilities 868,039 497,531

Shareholders' equity:

Common stock, no par value; 100,000 sharesauthorized; 61,313 and 63,979 shares issued and 517,200 498,433 outstanding at June 30, 2020, and September 30,2019, at stated amount, respectively

Accumulated other comprehensive loss (46,684 ) (45,380 )

Retained earnings 724,431 794,739

Total Maximus shareholders' equity 1,194,947 1,247,792

Noncontrolling interests - 409

Total equity 1,194,947 1,248,201

Total liabilities and equity $ 2,062,986 $ 1,745,732

Maximus, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Three Months Ended June Nine Months Ended June 30, 30,

2020 2019 2020 2019

Cash flows from operations:

Net income $ 64,464 $ 62,965 $ 150,848 $ 180,454

Adjustments to reconcilenet income to cash flows from operations:

Depreciation andamortization of property, 16,278 12,181 47,496 34,588 equipment and capitalizedsoftware

Amortization of intangible 8,712 9,049 26,734 24,026 assets

Deferred income taxes (8,248 ) (6,568 ) (5,210 ) 11,196

Stock compensation expense 5,758 5,419 17,558 15,323

Gain on sale of a business (1,706 ) - (1,706 ) -



Change in assets andliabilities net of effects of business combinations:

Accounts receivable - (94,756 ) (35,411 ) (147,626 ) (108,131 )billed and billable

Accounts receivable - (82,556 ) 36,983 (80,267 ) 46,172 unbilled

Prepaid expenses and other (3,733 ) 2,185 529 (2,933 )current assets

Deferred contract costs (899 ) (2,727 ) (1,396 ) (8,142 )

Accounts payable and 26,300 11,382 48,622 53,462 accrued liabilities

Accrued compensation and 29,808 16,725 33,647 9,282 benefits

Deferred revenue (2,494 ) 3,422 2,806 7,857

Income taxes 28,269 19,635 563 3,139

Operating leaseright-of-use assets and (1,237 ) - (1,071 ) - liabilities

Other assets and 2,851 1,260 4,556 (2,582 )liabilities

Cash flows (used in)/from (13,189 ) 136,500 96,083 263,711 operations



Cash flows from investing activities:

Purchases of property andequipment and capitalized (9,314 ) (20,492 ) (28,436 ) (39,033 )software costs

Acquisitions of businesses, (60 ) (240 ) (2,611 ) (422,049 )net of cash acquired

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

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

Other 287 96 385 380

Cash used in investing (5,837 ) (20,636 ) (27,412 ) (440,706 )activities



Cash flows from financing activities:

Cash dividends paid to (17,175 ) (15,953 ) (52,988 ) (47,936 )Maximus shareholders

Purchases of Maximus common - - (166,959 ) (46,068 )stock

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

Borrowings under creditfacility and other loan 79,773 - 421,488 320,048 agreements

Repayment of creditfacility and other (87,715 ) (75,058 ) (278,971 ) (316,597 )long-term debt

Other (305 ) - (957 ) (133 )

Cash used in financing (25,422 ) (91,011 ) (89,001 ) (99,601 )activities



Effect of exchange ratechanges on cash, cash 1,694 (362 ) (174 ) (994 )equivalents and restrictedcash



Net (decrease)/increase incash, cash equivalents and (42,754 ) 24,491 (20,504 ) (277,590 )restricted cash



Cash, cash equivalents andrestricted cash, beginning 138,742 54,478 116,492 356,559 of period



Cash, cash equivalents andrestricted cash, end of $ 95,988 $ 78,969 $ 95,988 $ 78,969 period



Maximus, Inc.

SEGMENT INFORMATION

(Amounts in thousands)

(Unaudited)

Three Months Ended June 30, Nine Months Ended June 30,

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

Revenue:

U.S. Health & $ 336,950 $ 291,132 $ 957,929 $ 876,082 Human Services

U.S. Federal 450,143 292,295 1,210,105 799,018 Services

Outside the 114,244 147,283 369,667 456,749 U.S.

Total $ 901,337 $ 730,710 $ 2,537,701 $ 2,131,849



Gross Profit:

U.S. Health & $ 93,029 27.6 % $ 86,664 29.8 % $ 268,073 28.0 % $ 260,955 29.8 %Human Services

U.S. Federal 84,723 18.8 % 66,803 22.9 % 232,502 19.2 % 175,484 22.0 %Services

Outside the 7,851 6.9 % 20,780 14.1 % 13,576 3.7 % 66,495 14.6 %U.S.

Total $ 185,603 20.6 % $ 174,247 23.8 % $ 514,151 20.3 % $ 502,934 23.6 %



Selling,general, and administrativeexpense:

U.S. Health & $ 31,996 9.5 % $ 32,414 11.1 % $ 102,633 10.7 % $ 93,953 10.7 %Human Services

U.S. Federal 45,490 10.1 % 32,896 11.3 % 131,455 10.9 % 90,632 11.3 %Services

Outside the 13,668 12.0 % 15,791 10.7 % 47,125 12.7 % 52,591 11.5 %U.S.

Gain on saleof a business (1,706 ) NM - NM (1,706 ) NM - NM(3)

Other (2) 134 NM 503 NM 4,155 NM 2,201 NM

Total $ 89,582 9.9 % $ 81,604 11.2 % $ 283,662 11.2 % $ 239,377 11.2 %



Operating income:

U.S. Health & $ 61,033 18.1 % $ 54,250 18.6 % $ 165,440 17.3 % $ 167,002 19.1 %Human Services

U.S. Federal 39,233 8.7 % 33,907 11.6 % 101,047 8.4 % 84,852 10.6 %Services

Outside the (5,817 ) (5.1 ) 4,989 3.4 % (33,549 ) (9.1 ) 13,904 3.0 %U.S. % %

Amortizationof intangible (8,712 ) NM (9,049 ) NM (26,734 ) NM (24,026 ) NMassets

Gain on saleof a business 1,706 NM - NM 1,706 NM - NM(3)

Other (2) (134 ) NM (503 ) NM (4,155 ) NM (2,201 ) NM

Total $ 87,309 9.7 % $ 83,594 11.4 % $ 203,755 8.0 % $ 239,531 11.2 %

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



Other selling, general and administrative expenses includes credits and(2) costs that are not allocated to a particular segment, including the costs for actual and potential acquisitions of other businesses.



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

Maximus, Inc.

FREE CASH FLOW

(Non-GAAP measure)

(Amounts in thousands)

(Unaudited)

Three Months Ended June Nine Months Ended June 30, 30,

2020 2019 2020 2019

Cash flows (used in)/from $ (13,189 ) $ 136,500 $ 96,083 $ 263,711 operations

Purchases of property andequipment and capitalized (9,314 ) (20,492 ) (28,436 ) (39,033 )software costs

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

Free cash flow $ (22,503 ) $ 116,008 $ 67,647 $ 229,220



Purchases of property and equipment and capitalized software costs(1) 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200806005286/en/

CONTACT: Lisa Miles 703.251.8637 lisamiles@maximus.com