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Maximus Reports Fiscal Year 2023 First Quarter Results

Raises FY23 Revenue and Earnings Guidance Following Scheduled Restart of Medicaid Redeterminations

Maximus (NYSE: MMS), a leading provider of government services worldwide, reported financial results for the three months ended December 31, 2022.

Highlights for the first quarter of fiscal year 2023 include:

  • Revenue increased 8.5% to $1.25 billion, compared to $1.15 billion for the prior year period. Organic growth was 10.3% and driven by new or expanded programs in all three segments.
  • Diluted earnings per share were $0.65, and adjusted diluted earnings per share were $0.94.
  • The company is raising revenue and earnings guidance for fiscal year 2023 following the restart of Medicaid redeterminations scheduled to begin in the third quarter. Fiscal year 2023 revenue is now expected to range between $4.85 billion and $5.0 billion with adjusted diluted earnings per share between $4.00 and $4.30 per share.
  • A quarterly cash dividend of $0.28 per share is payable on February 28, 2023, to shareholders of record on February 15, 2023.

"We are pleased with our solid first quarter results which reflect good execution, and we expect continued momentum in fiscal 2023," said Bruce Caswell, President and Chief Executive Officer. "Our increased guidance for fiscal 2023 is significant as it represents a clearing of the last remaining pandemic-related headwind in our U.S. Services business. Restarting Medicaid redeterminations is an unprecedented undertaking and as a long-term public partner to government, we are poised to support our current customers and see solid demand for our capabilities across the broader Medicaid market."

Caswell continued, "We are capitalizing on the organic growth potential of the core business and executing well on our recently refreshed strategy, including making definitive headway in the key areas of clinical services and technology modernization. The remainder of fiscal year 2023, underpinned by our stable business model, should see us continue to successfully capture the upside potential of in-demand government services."

First Quarter Results

Revenue for the first quarter of fiscal year 2023 increased 8.5% to $1.25 billion, compared to $1.15 billion for the prior year period, which was net of a 1.9% currency headwind. Organic growth was 10.3% from new or expanded programs in all three segments resulting from strong demand for the company's services.

For the first quarter of fiscal year 2023, operating margin was 6.0% and the adjusted operating margin was 7.9%. This compares to margins of 7.1% and 9.0%, respectively, for the prior year period. Diluted earnings per share were $0.65 and adjusted diluted earnings per share were $0.94. This compares to $0.85 and $1.12, respectively, for the prior-year period which contained profitable short-term COVID response work in the domestic segments and had less interest expense due to a more favorable rate environment.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the first quarter of fiscal year 2023 increased 6.2% to $618.2 million, compared to $581.9 million reported for the prior year period. All growth was organic and driven primarily by volume growth in the segment's clinical services business and an anticipated higher run rate on a large cost-plus contract.

The segment operating margin for the first quarter of fiscal year 2023 was 8.3%, compared to 10.6% reported for the prior year, and in-line with company expectations. 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 first quarter of fiscal year 2023 increased 13.7% to $439.5 million, compared to $386.4 million reported in the prior year period. All growth was organic and driven by previously disclosed new work in the core business areas of eligibility support and clinical services.

The segment operating margin for the first quarter of fiscal year 2023 was 8.6%, compared to 14.1% reported for the prior year period, reflecting the headwind to the segment's profitability from the paused Medicaid redeterminations. The full-year fiscal 2023 margin for the U.S. Services Segment is expected to range between 9% and 11% with a lift to profitability expected later in the fiscal year due to the scheduled restart of redeterminations.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the first quarter of fiscal year 2023 increased 4.9% to $191.6 million, compared to $182.6 million reported in the prior year period, which was net of a 12% currency headwind. Organic growth in the segment was approximately 16% driven primarily by the U.K. Restart Programme reaching full capacity.

The segment operating income for the first quarter of fiscal year 2023 was $10.1 million, or 5.3% on a margin basis. This compares to an operating loss of $9.5 million in the prior year period due primarily to contracts with planned start-up losses, such as the U.K. Restart Programme. The full-year fiscal 2023 margin for Outside the U.S. Segment is still expected near the lower end of a 3% to 7% range.

Sales and Pipeline

Year-to-date signed contract awards at December 31, 2022, totaled $481 million and contracts pending (awarded but unsigned) totaled $661 million. The book-to-bill ratio at December 31, 2022, was 2.2x calculated on trailing twelve month basis.

The sales pipeline at December 31, 2022, totaled $30.5 billion, comprised of approximately $6.0 billion in proposals pending, $1.71 billion in proposals in preparation, and $22.8 billion in opportunities tracking. New work opportunities represent 74.5% of the total sales pipeline.

Balance Sheet and Cash Flows

At December 31, 2022, cash and cash equivalents totaled $63.1 million, and gross debt was $1.57 billion. The ratio of debt, net of allowed cash, to adjusted EBITDA for the quarter ended December 31, 2022, as calculated in accordance with our credit agreement, was 3.0x. This compares to 2.6x at September 30, 2022.

For the first quarter of fiscal year 2023, cash used in operating activities totaled $134.7 million and free cash flow was an outflow of $150.4 million. Collections for the month of December were lower than expected, contributing to weaker cash flows and a high debt ratio at quarter end. DSO increased to 74 days as of December 31, 2022, reflecting what is expected to be a temporary increase to the target range of 60 to 70 days.

In the month of January, improved collections enabled the company to repay approximately $75 million of debt. The company continues to prioritize debt reduction using its free cash flow.

On January 6, 2023, our Board of Directors declared a quarterly cash dividend of $0.28 for each share of our common stock outstanding. The dividend is payable on February 28, 2023, to shareholders of record on February 15, 2023.

Raising FY23 Guidance

Maximus is raising fiscal year 2023 revenue and earnings guidance following passage of the Consolidated Appropriations Act, 2023 (omnibus spending bill), which directs states to resume Medicaid redeterminations on a prescribed timeline. The company now expects revenue to range between $4.85 billion and $5.0 billion, compared to prior revenue guidance of between $4.75 billion and $4.90 billion.

Adjusted operating income is expected to range between $415 million and $440 million, compared to a previous range between $390 million and $415 million. Adjusted operating income excludes an estimated $94 million of expense for amortization of intangible assets. Adjusted diluted earnings per share is now expected to range between $4.00 and $4.30 per share, compared to prior adjusted diluted earnings guidance of between $3.70 and $4.00 per share.

The company's guidance assumes that redetermination activities in the U.S. Services Segment phase in during the third quarter and make a full period contribution in the fourth quarter of fiscal year 2023.

Free cash flow is still expected to range between $225 million and $275 million for fiscal year 2023 and reflects expected working capital increases as a result of higher revenue later in the fiscal year. The company forecasts a slight reduction to interest expense, now ranging between $85 million and $90 million, an effective income tax rate between 24.5% and 25.5%, and weighted average shares outstanding between 61.2 million and 61.3 million shares for fiscal year 2023.

Conference Call and Webcast Information

Maximus will host a conference call tomorrow, February 9, 2023, at 9:00 a.m. ET. Shareholders are invited to submit questions for management’s consideration by emailing IR@maximus.com up to one hour prior to the call.

The call is open to the public and available by webcast or by phone at:

877.407.8289 (Domestic) / +1.201.689.8341 (International)

For those unable to listen to the live call, a recording of the webcast will be available on investor.maximus.com.

About Maximus

As a leading strategic partner to governments across the globe, Maximus helps improve the delivery of public services amid complex technology, health, economic, environmental, and social challenges. With a deep understanding of program service delivery, acute insights that achieve operational excellence, and an extensive awareness of the needs of the people being served, our employees advance the critical missions of our partners. Maximus delivers innovative business process management, impactful consulting services, and technology solutions that provide improved outcomes for the public and higher levels of productivity and efficiency of government-sponsored programs. For more information, visit maximus.com.

Non-GAAP Measures and Risk Factors

This release refers to non-GAAP measures and other indicators, including organic growth, free cash flow, operating income and EPS adjusted for amortization of intangible assets, adjusted EBITDA, and other non-GAAP measures.

A description of these non-GAAP measures, the reasons why we use and present them, and details as to how they are calculated are included in our earnings presentation and forthcoming Form 10-Q.

The presentation of these non-GAAP numbers is not meant to be considered in isolation, nor as alternatives to cash flows from operations, revenue growth, or net income as measures of performance. These non-GAAP financial measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

Statements that are not historical facts, including statements about the company’s confidence and strategies, and the company’s expectations about revenues, results of operations, profitability, future contracts, market opportunities, market demand, or acceptance of the company’s products are forward-looking statements that involve risks and uncertainties.

These risks could cause the Company’s actual results to differ materially from those indicated by such forward-looking statements. A summary of risk factors can be found in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2022, which was filed with the Securities and Exchange Commission (SEC) on November 22, 2022. The Company's SEC reports are accessible on maximus.com.

Maximus, Inc.

Consolidated Statements of Operations

(Unaudited)

   

 

For the Three Months Ended

 

December 31, 2022

 

December 31, 2021

 

(in thousands, except per share amounts)

Revenue

$

1,249,246

 

 

$

1,150,876

 

Cost of revenue

 

1,004,499

 

 

 

922,721

 

Gross profit

 

244,747

 

 

 

228,155

 

Selling, general, and administrative expenses

 

146,452

 

 

 

124,221

 

Amortization of intangible assets

 

23,518

 

 

 

22,405

 

Operating income

 

74,777

 

 

 

81,529

 

Interest expense

 

21,606

 

 

 

9,638

 

Other income/(expense), net

 

266

 

 

 

(311

)

Income before income taxes

 

53,437

 

 

 

71,580

 

Provision for income taxes

 

13,442

 

 

 

18,250

 

Net income

$

39,995

 

 

$

53,330

 

 

 

 

 

Earnings per share:

 

 

 

Basic

$

0.65

 

 

$

0.86

 

Diluted

$

0.65

 

 

$

0.85

 

Weighted average shares outstanding:

 

 

 

Basic

 

61,117

 

 

 

62,262

 

Diluted

 

61,196

 

 

 

62,445

 

 

 

 

 

Dividends declared per share

$

0.28

 

$

0.28

 

Maximus, Inc.

Consolidated Balance Sheets

  

 

 

December 31, 2022

 

September 30, 2022

 

(unaudited)

 

 

 

(in thousands)

Assets:

 

 

 

Cash and cash equivalents

$

63,050

 

 

$

40,658

 

Accounts receivable, net

 

1,014,046

 

 

 

807,110

 

Income taxes receivable

 

4,486

 

 

 

2,158

 

Prepaid expenses and other current assets

 

174,505

 

 

 

182,387

 

Total current assets

 

1,256,087

 

 

 

1,032,313

 

Property and equipment, net

 

50,181

 

 

 

52,258

 

Capitalized software, net

 

64,963

 

 

 

58,740

 

Operating lease right-of-use assets

 

162,289

 

 

 

132,885

 

Goodwill

 

1,783,239

 

 

 

1,779,415

 

Intangible assets, net

 

782,821

 

 

 

804,904

 

Deferred contract costs, net

 

49,030

 

 

 

47,732

 

Deferred compensation plan assets

 

39,606

 

 

 

37,050

 

Deferred income taxes

 

5,038

 

 

 

4,970

 

Other assets

 

41,661

 

 

 

42,447

 

Total assets

$

4,234,915

 

 

$

3,992,714

 

Liabilities and Shareholders' Equity:

 

 

 

Liabilities:

 

 

 

Accounts payable and accrued liabilities

$

272,196

 

 

$

264,553

 

Accrued compensation and benefits

 

118,505

 

 

 

178,199

 

Deferred revenue, current portion

 

96,201

 

 

 

87,146

 

Income taxes payable

 

12,422

 

 

 

718

 

Long-term debt, current portion

 

77,479

 

 

 

63,458

 

Operating lease liabilities, current portion

 

59,553

 

 

 

63,999

 

Other current liabilities

 

109,866

 

 

 

116,374

 

Total current liabilities

 

746,222

 

 

 

774,447

 

Deferred revenue, non-current portion

 

29,624

 

 

 

21,414

 

Deferred income taxes

 

203,545

 

 

 

206,099

 

Long-term debt, non-current portion

 

1,486,975

 

 

 

1,292,483

 

Deferred compensation plan liabilities, non-current portion

 

44,688

 

 

 

40,210

 

Operating lease liabilities, non-current portion

 

119,081

 

 

 

86,175

 

Other liabilities

 

23,773

 

 

 

22,515

 

Total liabilities

 

2,653,908

 

 

 

2,443,343

 

Shareholders' equity:

 

 

 

Common stock, no par value; 100,000 shares authorized; 60,774 issued and outstanding as of December 31, 2022 and September 30 2022, respectively (shares in thousands)

 

562,679

 

 

 

557,978

 

Accumulated other comprehensive loss

 

(29,706

)

 

 

(33,961

)

Retained earnings

 

1,048,034

 

 

 

1,025,354

 

Total shareholders' equity

 

1,581,007

 

 

 

1,549,371

 

Total liabilities and shareholders' equity

$

4,234,915

 

 

$

3,992,714

 

Maximus, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

   

 

For the Three Months Ended

 

December 31, 2022

 

December 31, 2021

 

(in thousands)

Cash flows from operating activities:

 

 

 

Net income

$

39,995

 

 

$

53,330

 

Adjustments to reconcile net income to cash flows from operations:

 

 

 

Depreciation and amortization of property, equipment and capitalized software

 

12,280

 

 

 

11,365

 

Amortization of intangible assets

 

23,518

 

 

 

22,405

 

Amortization of debt issuance costs and debt discount

 

1,034

 

 

 

649

 

Deferred income taxes

 

(1,331

)

 

 

(229

)

Stock compensation expense

 

4,403

 

 

 

8,248

 

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

 

 

 

Accounts receivable

 

(200,749

)

 

 

(14,114

)

Prepaid expenses and other current assets

 

10,624

 

 

 

(5,115

)

Deferred contract costs

 

(1,013

)

 

 

(6,811

)

Accounts payable and accrued liabilities

 

3,642

 

 

 

(32,452

)

Accrued compensation and benefits

 

(53,271

)

 

 

(56,305

)

Deferred revenue

 

14,764

 

 

 

5,929

 

Income taxes

 

9,465

 

 

 

10,321

 

Operating lease right-of-use assets and liabilities

 

(948

)

 

 

(6,370

)

Other assets and liabilities

 

2,928

 

 

 

6,230

 

Net cash used in operating activities

 

(134,659

)

 

 

(2,919

)

Cash flows from investing activities:

 

 

 

Purchases of property and equipment and capitalized software

 

(15,697

)

 

 

(6,327

)

Net cash used in investing activities

 

(15,697

)

 

 

(6,327

)

Cash flows from financing activities:

 

 

 

Cash dividends paid to Maximus shareholders

 

(17,017

)

 

 

(17,347

)

Purchases of Maximus common stock

 

 

 

 

(1,379

)

Tax withholding related to RSU vesting

 

(8,475

)

 

 

(9,673

)

Payments for contingent consideration

 

(1,415

)

 

 

 

Proceeds from borrowings

 

268,702

 

 

 

100,000

 

Principal payments for debt

 

(61,355

)

 

 

(16,685

)

Restricted cash movements

 

(9,473

)

 

 

 

Net cash provided by financing activities

 

170,967

 

 

 

54,916

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

2,421

 

 

 

372

 

Net change in cash, cash equivalents, and restricted cash

 

23,032

 

 

 

46,042

 

Cash, cash equivalents and restricted cash, beginning of period

 

136,795

 

 

 

156,570

 

Cash, cash equivalents and restricted cash, end of period

$

159,827

 

 

$

202,612

 

Maximus, Inc.

Consolidated Results of Operations by Segment

(Unaudited)

   

 

For the Three Months Ended

 

December 31, 2022

 

December 31, 2021

 

Amount

 

% (1)

 

Amount

 

% (1)

 

(dollars in thousands)

Revenue:

 

 

 

 

 

 

 

U.S. Federal Services

$

618,167

 

 

 

 

$

581,871

 

 

 

U.S. Services

 

439,478

 

 

 

 

 

386,417

 

 

 

Outside the U.S.

 

191,601

 

 

 

 

 

182,588

 

 

 

Revenue

$

1,249,246

 

 

 

 

$

1,150,876

 

 

 

Gross profit:

 

 

 

 

 

 

 

U.S. Federal Services

$

122,694

 

 

19.8

%

 

$

126,576

 

 

21.8

%

U.S. Services

 

83,598

 

 

19.0

%

 

 

89,699

 

 

23.2

%

Outside the U.S.

 

38,455

 

 

20.1

%

 

 

11,880

 

 

6.5

%

Gross profit

$

244,747

 

 

19.6

%

 

$

228,155

 

 

19.8

%

Selling, general, and administrative expenses:

 

 

 

 

 

 

 

U.S. Federal Services

$

71,649

 

 

11.6

%

 

$

64,925

 

 

11.2

%

U.S. Services

 

45,842

 

 

10.4

%

 

 

35,102

 

 

9.1

%

Outside the U.S.

 

28,389

 

 

14.8

%

 

 

21,340

 

 

11.7

%

Other (2)

 

572

 

 

NM

 

 

 

2,854

 

 

NM

 

Selling, general, and administrative expenses

$

146,452

 

 

11.7

%

 

$

124,221

 

 

10.8

%

Operating income:

 

 

 

 

 

 

 

U.S. Federal Services

$

51,045

 

 

8.3

%

 

$

61,651

 

 

10.6

%

U.S. Services

 

37,756

 

 

8.6

%

 

 

54,597

 

 

14.1

%

Outside the U.S.

 

10,066

 

 

5.3

%

 

 

(9,460

)

 

(5.2

)%

Amortization of intangible assets

 

(23,518

)

 

NM

 

 

 

(22,405

)

 

NM

 

Other (2)

 

(572

)

 

NM

 

 

 

(2,854

)

 

NM

 

Operating income

$

74,777

 

 

6.0

%

 

$

81,529

 

 

7.1

%

(1)

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

(2)

Other expenses includes credits and costs that are not allocated to a particular segment. This includes expenses incurred as part of our acquisitions, as well as potential acquisitions which have not been or may not be completed.

Maximus, Inc.

Consolidated Free Cash Flows - Non-GAAP

(Unaudited)

   

 

For the Three Months Ended

 

December 31, 2022

 

December 31, 2021

 

(in thousands)

Net cash used in operating activities

 

(134,659

)

 

 

(2,919

)

Purchases of property and equipment and capitalized software

 

(15,697

)

 

 

(6,327

)

Free cash flow

$

(150,356

)

 

$

(9,246

)

Maximus, Inc.

Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets

(Unaudited)

   

 

For the Three Months Ended

 

December 31, 2022

 

December 31, 2021

 

(dollars in thousands, except per share data)

Operating income

$

74,777

 

 

$

81,529

 

Add back: Amortization of intangible assets

 

23,518

 

 

 

22,405

 

Adjusted operating income excluding amortization of intangible assets (Non-GAAP)

$

98,295

 

 

$

103,934

 

Adjusted operating income margin excluding amortization of intangible assets (Non-GAAP)

 

7.9

%

 

 

9.0

%

 

 

 

 

Net income

$

39,995

 

 

$

53,330

 

Add back: Amortization of intangible assets, net of tax

 

17,360

 

 

 

16,530

 

Adjusted net income excluding amortization of intangible assets (Non-GAAP)

$

57,355

 

 

$

69,860

 

 

 

 

 

Diluted earnings per share

$

0.65

 

 

$

0.85

 

Add back: Effect of amortization of intangible assets on diluted earnings per share

 

0.29

 

 

 

0.27

 

Adjusted diluted earnings per share excluding amortization of intangible assets (Non-GAAP)

$

0.94

 

 

$

1.12

 

 

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