Business Wire | Feb 4, 2021 06:30AM EST

Maximus Reports Fiscal Year 2021 First Quarter Results

Feb. 04, 2021

RESTON, Va.--(BUSINESS WIRE)--Feb. 04, 2021--Maximus (NYSE: MMS), a leading provider of government services worldwide, reported financial results for the three months ended December 31, 2020.

Highlights for the first quarter of fiscal 2021 include:

* Revenue increased 15.6% to $945.6 million as compared to $818.2 million reported for the prior-year period, driven by new COVID-response work such as contact tracing, disease investigation, vaccination support, unemployment insurance program support, and other key initiatives.

* Operating income margin was 9.3% and diluted earnings per share were $1.03. The Company continues to face unfavorable headwinds related to temporary changes on mature core programs resulting from the pandemic and offsetting the growth from new work.

* Results for the quarter were ahead of consensus estimates, and in line with the Company's expectations, which put the Company on solid footing for the remainder of the year. As a result, the outlook for fiscal 2021 has improved, driven by recent awards, scope increases, and contract extensions. The Company is raising revenue and earnings guidance for fiscal 2021 with revenue expected to range between $3.400 billion and $3.525 billion and diluted earnings per share to range between $3.55 and $3.75 per share.

* A quarterly cash dividend of $0.28 for each share of our common stock outstanding payable on February 26, 2021, to shareholders of record on February 12, 2021.

"Maximus is at the forefront of providing government much needed support in their efforts to control the spread and address the challenges of the global pandemic," shared Bruce Caswell, President and Chief Executive Officer. "Recently, we expanded our pandemic-response work with new contracts supporting vaccination administration efforts. We are proud that our customers rely on our proven agility and scalability in providing effective business process services under compressed timelines. As the new administration launches many initiatives, Maximus is uniquely positioned to further leverage our core capabilities in response to President Biden's commitment to public health, social welfare, and affordable healthcare. The ongoing value of partners like Maximus was evidenced over the last year through our ability to maintain continuity of vital programs, while also supporting new economic relief and public health initiatives to ensure that individuals and families continue to have access to needed services."

First Quarter Results

For the first quarter of fiscal 2021, revenue increased 15.6% to $945.6 million as compared to $818.2 million reported for the prior-year period driven by COVID-response work including contact tracing, disease investigation, vaccination support, unemployment insurance program support, and other key initiatives. Organic growth excluding the effects of currency for the first quarter of fiscal 2021 was 14.6%. COVID-response work contributed approximately $160 million in revenue for the period.

As expected, revenue and earnings growth were offset by the ongoing impacts of the global pandemic tied to program changes on volume-based contracts which have been implemented at the direction of customers.

For the first quarter of fiscal 2021, operating income totaled $87.6 million, yielding an operating margin of 9.3%. This compares to 9.7% for the prior-year period. Results were in line with the Company's expectations but with some variability between the segments.

U.S. Services Segment

Revenue in the U.S. Services Segment for the first quarter of fiscal 2021 increased 23.3% to $384.9 million compared to $312.3 million reported for the prior-year period. An estimated $114 million of COVID-response work contributed to the segment's revenue.

Operating margin for the first quarter of fiscal 2021 was 16.0% compared to 18.6% reported for the prior-year period. As expected, margins were depressed by temporary program changes and lower revenue and profit from performance-based contracts as a result of the global pandemic.

There continues to be a significant revenue and profit headwind resulting from lower volumes on some of the Company's largest state Medicaid programs. State customers must adhere to certain conditions as they continue utilizing enhanced U.S. Federal matching funds for Medicaid. This includes pausing Medicaid redeterminations to ensure beneficiaries have continued access to vital healthcare services during the global public health crisis. Redeterminations are a significant level of activity within certain Medicaid programs.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the first quarter of fiscal 2021 increased to $405.2 million compared to $366.6 million reported for the prior-year period. The Census contract contributed $60 million in the period compared to $70 million in the prior year period. Excluding the Census contract, organic growth for this segment was 13.5% and driven principally by an estimated $46 million of revenue from COVID-response work.

Due to a delay in executing a contract, approximately $4 million of revenue and profit was not recognized in the first quarter. Subsequent to December 31, 2020, the Company finalized the contract and will record revenue and profit in the second quarter of fiscal 2021.

As a result, operating margin for the first quarter of fiscal 2021 was 7.5% compared to 8.6% reported for the prior-year period, coming in slightly lower than the Company's expectations.

We continue to expect the segment to deliver operating margins in the range of 6% to 7% for fiscal 2021. Operating margin for the segment's second quarter of fiscal 2021 (including the $4 million of revenue and profit benefit) is expected to step down. The segment has been able to successfully backfill some of the temporary shortfalls created by reduced volumes, revenue, and profit from accretive, performance-based contracts with COVID-response work.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the first quarter of fiscal 2021 increased 11.5% to $155.4 million compared to $139.4 million reported for the prior-year period. Organic growth excluding the effects of currency was 4.8%.

Operating income for the first quarter of fiscal 2021 was $4.5 million which yielded an operating margin of 2.9%. This compares to an operating loss of $1.0 million and an operating loss percentage of 0.7% reported for the prior-year period. The result was better than expected and primarily due to job placement activities in Australia driven by a seasonal spike in demand for qualified job seekers during the holiday season. The Company views this seasonal spike as unique to the first quarter in fiscal 2021.

Nevertheless, the Company is experiencing strong demand for employment services across all international operations. Volumes on current programs, most notably Australia, are expected to drive strong revenue growth in the second half of fiscal 2021. Expected new work in the segment will supplement this growth but this work will incur losses during the ramp up phase, with profit improvement as these new programs mature.

While the additional new employment services work will have a negative profit impact in the early stages, the new work is expected to yield solid operating margins over the life of each program. The Company expects these start-up programs will put the segment in a loss position in the second quarter, with steady improvement through the remainder of the year. The segment is expected to be approximately breakeven on an operating income basis for fiscal 2021.

Maximus enjoys a long history, strong reputation, and demonstrated success in delivering employment services. The investment is anticipated to position the segment for favorable economics over the life of the contracts, outweighing the temporary adverse impact in profit for the remainder of fiscal 2021.

Sales and Pipeline

Year-to-date signed contract awards at December 31, 2020, totaled $594 million and contracts pending (awarded but unsigned) totaled $1.1 billion. These awards reflect total contract value.

The sales pipeline at December 31, 2020, was $31.6 billion (comprised of approximately $3.6 billion in proposals pending, $1.4 billion in proposals in preparation, and $26.7 billion in opportunities tracking).

Mr. Caswell continued, "I'm pleased that our new work pipeline continues to be strong, representing about 71% of the total pipeline. We have good opportunities across all three segments. For the COVID-response work, it's remarkable how quickly this work is being bid. Often, it enters our pipeline and then quickly exits as it becomes awarded."

Balance Sheet and Cash Flows

Cash and cash equivalents at December 31, 2020, totaled $132.6 million. There were no outstanding draws on the Company's corporate credit facility at the end of the first quarter of fiscal 2021.

For the three months ended December 31, 2020, cash from operations totaled $98.1 million and free cash flow was $89.0 million. Days sales outstanding (DSO) were 75 days at December 31, 2020 compared to 77 days at September 30, 2020.

On January 8, 2021, 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 February 26, 2021, to shareholders of record on February 12, 2021.

Increased Outlook

Maximus is increasing revenue, earnings, and cash flow guidance for fiscal 2021 following recent awards, scope increases, and contract extensions related to COVID-response work. The Company anticipates fiscal 2021 revenue will range between $3.400 billion and $3.525 billion and diluted earnings per share will range between $3.55 and $3.75 per share.

Cash from operations are expected to range between $350 million and $400 million and free cash flow between $310 million and $360 million. Expectations for fiscal 2021 effective tax rate and weighted average shares remain unchanged from the November 19, 2020, earnings call.

The COVID-response work is providing a positive tailwind but it has shorter periods of performance than core contracts. As previously discussed, there is no assurance that the conclusion of positive impacts from COVID-response work will coincide with the return of core contracts to previous volume and performance levels.

Earnings continue to be impacted by unfavorable headwinds related to the pandemic and the temporary changes on mature core programs. The result has been a reduction in accretive revenue which continues to temper operating income margins and diluted earnings per share. The Company anticipates that as the world emerges from the pandemic, many of these programs will begin to return to historical volume levels.

Mr. Caswell added, "Maximus is well positioned to be a transformative partner for government. We offer scalable, cost-effective, and operationally efficient services for a wide range of government programs. We believe our portfolio mix of core business, near adjacencies, and new growth platforms will allow us to achieve a healthy growth trajectory for years to come. Our ability to quickly respond to unprecedented customer demand in the wake of the global health crisis further cements our unparalleled position as the partner of choice for critical government services delivery."

Conference Call and Webcast Information

Maximus will host a conference call this morning, February 4, 2021, 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 34,000 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.

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 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, "Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2020, which was filed with the Securities and Exchange Commission on November 19, 2020 and found on maximus.com.

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

Three Months Ended December 31,

2020 2019

Revenue $ 945,554 $ 818,229

Cost of revenue 739,499 642,779

Gross profit 206,055 175,450

Selling, general and administrative expenses 111,967 87,227

Amortization of intangible assets 6,516 9,088

Operating income 87,572 79,135

Interest expense 206 484

Other (expense)/income, net (775 ) 719

Income before income taxes 86,591 79,370

Provision for income taxes 22,514 20,636

Net income $ 64,077 $ 58,734

Basic earnings per share $ 1.03 $ 0.91

Diluted earnings per share $ 1.03 $ 0.91

Dividends paid per share $ 0.28 $ 0.28

Weighted average shares outstanding:

Basic 62,038 64,597

Diluted 62,135 64,758

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

December 31, September 30, 2020 2020

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents $ 132,597 $ 71,737

Accounts receivable - billed and billable, 662,059 622,871 net of allowance of $6,579 and $6,051

Accounts receivable - unbilled 120,764 163,332

Income taxes receivable 2,472 2,075

Prepaid expenses and other current assets 68,935 72,543

Total current assets 986,827 932,558

Property and equipment, net 62,548 66,721

Capitalized software, net 40,434 38,033

Operating lease right-of-use assets 165,448 177,159

Goodwill 595,927 593,129

Intangible assets, net 140,484 145,893

Deferred contract costs, net 21,294 20,891

Deferred compensation plan assets 42,350 36,819

Deferred income taxes 222 1,915

Other assets 10,699 11,584

Total assets $ 2,066,233 $ 2,024,702

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities $ 266,038 $ 253,338

Accrued compensation and benefits 93,443 137,101

Deferred revenue 58,307 51,655

Income taxes payable 22,685 5,377

Current portion of long-term debt and other 14,159 10,878 borrowings

Operating lease liabilities 72,482 80,748

Other current liabilities 20,286 22,071

Total current liabilities 547,400 561,168

Deferred revenue, less current portion 27,428 27,311

Deferred income taxes 24,417 24,737

Long-term debt, less current portion 18,481 18,017

Deferred compensation plan liabilities, less 45,304 38,654 current portion

Operating lease liabilities, less current 95,678 104,011 portion

Other liabilities 9,214 8,985

Total liabilities 767,922 782,883

Shareholders' equity:

Common stock, no par value; 100,000 sharesauthorized; 61,452 and 61,504 shares issued 520,357 513,959 and outstanding at December 31, 2020, andSeptember 30, 2020, respectively

Accumulated other comprehensive loss (35,715 ) (42,638 )

Retained earnings 813,669 770,498

Total shareholders' equity 1,298,311 1,241,819

Total liabilities and shareholders' equity $ 2,066,233 $ 2,024,702

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

Three Months Ended December 31,

2020 2019

Cash flows from operations:

Net income $ 64,077 $ 58,734

Adjustments to reconcile net income to cash flows from operations:

Depreciation and amortization of property, 11,817 15,318 equipment and capitalized software

Amortization of intangible assets 6,516 9,088

Deferred income taxes 1,298 422

Stock compensation expense 6,062 5,397



Change in assets and liabilities, net of effects of business combinations

Accounts receivable - billed and billable (35,729 ) (31,016 )

Accounts receivable - unbilled 43,538 2,013

Prepaid expenses and other current assets 4,893 4,063

Deferred contract costs (205 ) 848

Accounts payable and accrued liabilities 11,199 2,403

Accrued compensation and benefits (35,682 ) 6,842

Deferred revenue 5,757 (1,345 )

Income taxes 16,947 13,984

Operating lease right-of-use assets and (4,927 ) (1,622 ) liabilities

Other assets and liabilities 2,554 2,138

Cash flows from operations 98,115 87,267



Cash flows from investing activities:

Purchases of property and equipment and (9,094 ) (10,487 ) capitalized software costs

Other (159 ) 25

Cash used in investing activities (9,253 ) (10,462 )



Cash flows from financing activities:

Cash dividends paid to Maximus shareholders (17,207 ) (17,913 )

Purchases of Maximus common stock (3,363 ) (1,898 )

Tax withholding related to RSU vesting (9,818 ) (10,614 )

Borrowings of debt 147,852 83,419

Repayment of debt (146,188 ) (86,301 )

Other (2,763 ) (493 )

Cash used in financing activities (31,487 ) (33,800 )



Effect of exchange rate changes on cash, cash 3,882 1,452 equivalents, and restricted cash



Net increase in cash, cash equivalents, and 61,257 44,457 restricted cash



Cash, cash equivalents, and restricted cash, 88,561 116,492 beginning of period



Cash, cash equivalents, and restricted cash, $ 149,818 $ 160,949 end of period



Maximus, Inc. SEGMENT INFORMATION (Amounts in thousands) (Unaudited)

Three Months Ended December 31,

2020 % (1) 2019 % (1)

Revenue:

U.S. Services $ 384,934 $ 312,281

U.S. Federal Services 405,245 366,571

Outside the U.S. 155,375 139,377

Total $ 945,554 $ 818,229



Gross Profit:

U.S. Services $ 99,002 25.7 % $ 89,590 28.7 %

U.S. Federal Services 82,496 20.4 % 70,821 19.3 %

Outside the U.S. 24,557 15.8 % 15,039 10.8 %

Total $ 206,055 21.8 % $ 175,450 21.4 %



Selling, general, and administrative expense:

U.S. Services $ 37,456 9.7 % $ 31,398 10.1 %

U.S. Federal Services 52,252 12.9 % 39,239 10.7 %

Outside the U.S. 20,032 12.9 % 16,053 11.5 %

Other (2) 2,227 NM 537 NM

Total $ 111,967 11.8 % $ 87,227 10.7 %



Operating income:

U.S. Services $ 61,546 16.0 % $ 58,192 18.6 %

U.S. Federal Services 30,244 7.5 % 31,582 8.6 %

Outside the U.S. 4,525 2.9 % (1,014 ) (0.7 ) %

Amortization of intangible assets (6,516 ) NM (9,088 ) NM

Acquisition-related expenses (1,873 ) NM - NM

Other (2) (354 ) NM (537 ) NM

Total $ 87,572 9.3 % $ 79,135 9.7 %

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

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

Maximus, Inc. FREE CASH FLOW (Non-GAAP measure) (Amounts in thousands) (Unaudited)

Three Months Ended December 31,

2020 2019

Cash flows from operations $ 98,115 $ 87,267

Purchases of property and equipment and capitalized (9,094 ) (10,487 ) software costs

Free cash flow $ 89,021 $ 76,780



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CONTACT: Lisa Miles 703.251.8637 lisamiles@maximus.com