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Maximus Reports Fiscal Year 2024 First Quarter Results

Raises FY24 Earnings & Free Cash Flow Guidance Following Improved Margin Outlook

TYSONS, Va., February 07, 2024--(BUSINESS WIRE)--Maximus (NYSE: MMS), a leading provider of government services worldwide, reported financial results for the three months ended December 31, 2023.

Highlights for the first quarter of fiscal year 2024 include:

  • Revenue increased 6.2% to $1.33 billion, compared to $1.25 billion for the prior year period. Organic growth was 6.9% and driven by expanded programs as well as resumed programs tied to Medicaid redeterminations.

  • Diluted earnings per share were $1.04 and adjusted diluted earnings per share were $1.34, compared to $0.65 and $0.94, respectively, for the prior year period.

  • The company is raising earnings and free cash flow guidance for fiscal year 2024. Adjusted operating income guidance is increasing by $15 million, adjusted diluted earnings per share by $0.15, and free cash flow by $10 million.

  • A quarterly cash dividend of $0.30 per share is payable on February 29, 2024, to shareholders of record on February 15, 2024.

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"Our operational performance was excellent this quarter as we focused on delivery of programs critical to the wellbeing of individuals and families, including veteran exams, redeterminations for Medicaid, return to repayment for millions of borrowers, and recently-completed open enrollment," said Bruce Caswell, President and Chief Executive Officer. "The improved outlook for fiscal 2024 signifies the business is in great health and benefiting from scale. We continue to focus on creating growth opportunities for our employees while using technology to improve the citizen experience and deliver on our customers' missions."

Caswell continued, "More broadly, we believe the current economic climate will continue to favor Maximus, given our current base underpinned by essential work and a strategy squarely aligned to prioritized areas of government spend."

First Quarter Results

Revenue for the first quarter of fiscal year 2024 increased 6.2% to $1.33 billion, compared to $1.25 billion for the prior year period. Organic growth was 6.9% from expanded programs in the domestic segments as well as resumed programs in the U.S. Services Segment tied to the restart of Medicaid redeterminations.

For the first quarter of fiscal year 2024, operating margin was 8.1% and the adjusted operating margin was 9.9%. This compares to margins of 6.0% and 7.9%, respectively, for the prior year period. Diluted earnings per share were $1.04 and adjusted diluted earnings per share were $1.34. This compares to $0.65 and $0.94, respectively, for the prior-year period. The margin improvement is attributable to higher transactional volumes across both expanded and resumed programs.

U.S. Federal Services Segment

U.S. Federal Services Segment revenue for the first quarter of fiscal year 2024 increased 9.5% to $677.1 million, compared to $618.2 million reported for the prior year period. All growth was organic and driven primarily by volume growth on expanded programs, including the VA's Medical Disability Exam (MDE) contracts.

The segment operating margin for the first quarter of fiscal year 2024 was 10.2%. This compares to 8.3% reported for the prior year, which reflected the hiring of resources in anticipation of the higher volumes. The anticipated profile for the U.S. Federal Services Segment is an increasing margin across the year with a full-year margin expected to range between 11% and 12%.

U.S. Services Segment

U.S. Services Segment revenue for the first quarter of fiscal year 2024 increased 11.5% to $489.8 million, compared to $439.5 million reported in the prior year period. All growth was organic and driven by the resumption of Medicaid redetermination activities and expanded programs in eligibility support and clinical services.

The segment operating margin for the first quarter of fiscal year 2024 was 13.5%. This compares to 8.6% reported for the prior year period when redetermination activities were paused. Since resumed, beneficiary engagement drove the highest margin expected for the segment in fiscal year 2024, with slight moderation expected in subsequent quarters as engagement levels normalize. The full-year fiscal 2024 margin for the U.S. Services Segment is expected to range between 11% and 12%.

Outside the U.S. Segment

Outside the U.S. Segment revenue for the first quarter of fiscal year 2024 decreased 16.4% to $160.1 million, compared to $191.6 million reported in the prior year period. Approximately 7% of decline was attributable to disposal of businesses and the remaining decline was due to both lower employment services volumes and currency impacts.

The segment broke even in the first quarter of fiscal year 2024. This compares to an operating margin of 5.3% in the prior year period which benefited from higher employment services volumes. The Outside the U.S. Segment is expected to be slightly above breakeven for the full-year fiscal 2024. Continued shaping of the segment to reduce volatility and deliver consistent profitability is a management priority this year.

Sales and Pipeline

Year-to-date signed contract awards at December 31, 2023, totaled $422 million, and contracts pending (awarded but unsigned) totaled $802 million. The book-to-bill ratio at December 31, 2023, was 1.2x calculated on a trailing twelve-month basis.

The sales pipeline at December 31, 2023, totaled $37.7 billion, comprised of approximately $933 million in proposals pending, $1.01 billion in proposals in preparation, and $35.7 billion in opportunities tracking. New work opportunities represent approximately 77% of the total sales pipeline.

Balance Sheet and Cash Flows

At December 31, 2023, cash and cash equivalents totaled $104.2 million, and gross debt was $1.32 billion. The ratio of debt, net of allowed cash, to adjusted EBITDA for the quarter ended December 31, 2023, as calculated in accordance with our credit agreement, was 2.1x. This compares to 2.2x at September 30, 2023.

For the first quarter of fiscal year 2024, cash provided operating activities totaled $21.6 million and free cash flow was an outflow of approximately $1 million. Days sales outstanding (DSO) were 59 days as of December 31, 2023, reflecting good collections and offset by seasonality from the timing of payments that were expected this quarter. Free cash flow guidance is increasing for the full fiscal year 2024.

On January 5, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 for each share of our common stock outstanding. The dividend is payable on February 29, 2024, to shareholders of record on February 15, 2024.

Raising FY24 Earnings and Free Cash Flow Guidance

Maximus is raising fiscal year 2024 earnings and free cash flow guidance following first quarter results and improved margin outlook for the rest of the fiscal year. Revenue guidance is maintained between $5.05 billion and $5.20 billion.

Adjusted operating income is now expected to range between $503 million and $528 million, representing an increase of $15 million from prior guidance. Adjusted operating income excludes an estimated $88 million of expense for amortization of intangible assets and $1 million of divestiture-related charges incurred this quarter.

Adjusted diluted earnings per share is now expected to range between $5.20 and $5.50 per share, representing an increase of $0.15 per share from prior guidance.

Free cash flow is now expected to range between $300 million and $350 million as a result of the increased earnings guidance. Other estimates include interest expense of approximately $73 million, an effective income tax rate between 24.5% and 25.5%, and weighted average shares outstanding between 62.0 million and 62.2 million shares for fiscal year 2024.

Conference Call and Webcast Information

Maximus will host a conference call tomorrow, February 8, 2024, 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 and divestiture-related charges, 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, 2023, which was filed with the Securities and Exchange Commission (SEC) on November 16, 2023. The Company's SEC reports are accessible on maximus.com.

Maximus, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

For the Three Months Ended

 

December 31, 2023

 

December 31, 2022

 

(in thousands, except per share amounts)

Revenue

$

1,327,041

 

$

1,249,246

 

Cost of revenue

 

1,026,987

 

 

1,004,499

 

Gross profit

 

300,054

 

 

244,747

 

Selling, general, and administrative expenses

 

169,195

 

 

146,452

 

Amortization of intangible assets

 

23,349

 

 

23,518

 

Operating income

 

107,510

 

 

74,777

 

Interest expense

 

21,507

 

 

21,606

 

Other expense/(income), net

 

488

 

 

(266

)

Income before income taxes

 

85,515

 

 

53,437

 

Provision for income taxes

 

21,367

 

 

13,442

 

Net income

$

64,148

 

$

39,995

 

 

 

 

 

Earnings per share:

 

 

 

Basic

$

1.05

 

$

0.65

 

Diluted

$

1.04

 

$

0.65

 

Weighted average shares outstanding:

 

 

 

Basic

 

61,322

 

 

61,117

 

Diluted

 

61,535

 

 

61,196

 

 

 

 

 

Dividends declared per share

$

0.30

 

$

0.28

 

Maximus, Inc.

Consolidated Balance Sheets

 

 

 

December 31, 2023

 

September 30, 2023

 

(unaudited)

 

 

 

(in thousands)

Assets:

 

 

 

Cash and cash equivalents

$

104,186

 

 

$

65,405

 

Accounts receivable, net

 

860,409

 

 

 

826,873

 

Income taxes receivable

 

15,850

 

 

 

16,556

 

Prepaid expenses and other current assets

 

129,174

 

 

 

146,632

 

Total current assets

 

1,109,619

 

 

 

1,055,466

 

Property and equipment, net

 

34,976

 

 

 

38,831

 

Capitalized software, net

 

125,383

 

 

 

107,811

 

Operating lease right-of-use assets

 

154,929

 

 

 

163,929

 

Goodwill

 

1,781,092

 

 

 

1,779,215

 

Intangible assets, net

 

680,309

 

 

 

703,648

 

Deferred contract costs, net

 

46,439

 

 

 

45,372

 

Deferred compensation plan assets

 

47,273

 

 

 

42,919

 

Deferred income taxes

 

2,204

 

 

 

2,459

 

Other assets

 

34,637

 

 

 

46,147

 

Total assets

$

4,016,861

 

 

$

3,985,797

 

Liabilities and Shareholders' Equity:

 

 

 

Liabilities:

 

 

 

Accounts payable and accrued liabilities

$

267,623

 

 

$

282,081

 

Accrued compensation and benefits

 

115,864

 

 

 

194,251

 

Deferred revenue, current portion

 

63,032

 

 

 

60,477

 

Income taxes payable

 

23,717

 

 

 

451

 

Long-term debt, current portion

 

90,443

 

 

 

86,844

 

Operating lease liabilities, current portion

 

48,490

 

 

 

49,852

 

Other current liabilities

 

49,197

 

 

 

49,058

 

Total current liabilities

 

658,366

 

 

 

723,014

 

Deferred revenue, non-current portion

 

37,221

 

 

 

38,849

 

Deferred income taxes

 

198,317

 

 

 

203,898

 

Long-term debt, non-current portion

 

1,222,243

 

 

 

1,163,149

 

Deferred compensation plan liabilities, non-current portion

 

51,507

 

 

 

46,432

 

Operating lease liabilities, non-current portion

 

118,594

 

 

 

129,367

 

Other liabilities

 

12,807

 

 

 

13,253

 

Total liabilities

 

2,299,055

 

 

 

2,317,962

 

Shareholders' equity:

 

 

 

Common stock, no par value; 100,000 shares authorized; 61,031 and 60,998 shares issued and outstanding as of December 31, 2023 and September 30 2023, respectively

 

585,278

 

 

 

577,898

 

Accumulated other comprehensive loss

 

(30,588

)

 

 

(27,615

)

Retained earnings

 

1,163,116

 

 

 

1,117,552

 

Total shareholders' equity

 

1,717,806

 

 

 

1,667,835

 

Total liabilities and shareholders' equity

$

4,016,861

 

 

$

3,985,797

 

Maximus, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

For the Three Months Ended

 

December 31, 2023

 

December 31, 2022

 

(in thousands)

Cash flows from operating activities:

 

 

 

Net income

$

64,148

 

 

$

39,995

 

Adjustments to reconcile net income to cash flows from operations:

 

 

 

Depreciation and amortization of property, equipment, and capitalized software

 

8,411

 

 

 

12,280

 

Amortization of intangible assets

 

23,349

 

 

 

23,518

 

Amortization of debt issuance costs and debt discount

 

601

 

 

 

1,034

 

Deferred income taxes

 

(2,165

)

 

 

(1,331

)

Stock compensation expense

 

9,427

 

 

 

4,403

 

Loss on sale of a businesses

 

1,018

 

 

 

 

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

 

 

 

Accounts receivable

 

(35,379

)

 

 

(200,749

)

Prepaid expenses and other current assets

 

10,056

 

 

 

10,624

 

Deferred contract costs

 

(888

)

 

 

(1,013

)

Accounts payable and accrued liabilities

 

(15,543

)

 

 

3,642

 

Accrued compensation and benefits

 

(67,392

)

 

 

(53,271

)

Deferred revenue

 

877

 

 

 

14,764

 

Income taxes

 

22,250

 

 

 

9,465

 

Operating lease right-of-use assets and liabilities

 

(1,088

)

 

 

(948

)

Other assets and liabilities

 

3,926

 

 

 

2,928

 

Net cash provided by/(used in) operating activities

 

21,608

 

 

 

(134,659

)

Cash flows from investing activities:

 

 

 

Purchases of property and equipment and capitalized software

 

(22,247

)

 

 

(15,697

)

Proceeds from divestitures

 

1,815

 

 

 

 

Net cash used in investing activities

 

(20,432

)

 

 

(15,697

)

Cash flows from financing activities:

 

 

 

Cash dividends paid to Maximus shareholders

 

(18,299

)

 

 

(17,017

)

Tax withholding related to RSU vesting

 

(13,455

)

 

 

(8,475

)

Payments for contingent consideration

 

(2,819

)

 

 

(1,415

)

Proceeds from borrowings

 

228,409

 

 

 

268,702

 

Principal payments for debt

 

(166,658

)

 

 

(61,355

)

Cash-collateralized escrow liabilities

 

1,204

 

 

 

(9,473

)

Net cash provided by financing activities

 

28,382

 

 

 

170,967

 

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

 

1,846

 

 

 

2,421

 

Net change in cash, cash equivalents, and restricted cash

 

31,404

 

 

 

23,032

 

Cash, cash equivalents, and restricted cash, beginning of period

 

122,091

 

 

 

136,795

 

Cash, cash equivalents, and restricted cash, end of period

$

153,495

 

 

$

159,827

 

Maximus, Inc.

Consolidated Results of Operations by Segment

(Unaudited)

 

 

For the Three Months Ended

 

December 31, 2023

 

December 31, 2022

 

Amount

 

% (1)

 

Amount

 

% (1)

 

(dollars in thousands)

Revenue:

 

 

 

 

 

 

 

U.S. Federal Services

$

677,078

 

 

 

 

$

618,167

 

 

 

U.S. Services

 

489,845

 

 

 

 

 

439,478

 

 

 

Outside the U.S.

 

160,118

 

 

 

 

 

191,601

 

 

 

Revenue

$

1,327,041

 

 

 

 

$

1,249,246

 

 

 

Gross profit:

 

 

 

 

 

 

 

U.S. Federal Services

$

156,662

 

 

23.1

%

 

$

122,694

 

 

19.8

%

U.S. Services

 

118,363

 

 

24.2

%

 

 

83,598

 

 

19.0

%

Outside the U.S.

 

25,029

 

 

15.6

%

 

 

38,455

 

 

20.1

%

Gross profit

$

300,054

 

 

22.6

%

 

$

244,747

 

 

19.6

%

Selling, general, and administrative expenses:

 

 

 

 

 

 

 

U.S. Federal Services

$

87,855

 

 

13.0

%

 

$

71,649

 

 

11.6

%

U.S. Services

 

52,300

 

 

10.7

%

 

 

45,842

 

 

10.4

%

Outside the U.S.

 

25,141

 

 

15.7

%

 

 

28,389

 

 

14.8

%

Divestiture-related charges (2)

 

1,018

 

 

NM

 

 

 

 

 

NM

 

Other (3)

 

2,881

 

 

NM

 

 

 

572

 

 

NM

 

Selling, general, and administrative expenses

$

169,195

 

 

12.7

%

 

$

146,452

 

 

11.7

%

Operating income:

 

 

 

 

 

 

 

U.S. Federal Services

$

68,807

 

 

10.2

%

 

$

51,045

 

 

8.3

%

U.S. Services

 

66,063

 

 

13.5

%

 

 

37,756

 

 

8.6

%

Outside the U.S.

 

(112

)

 

(0.1

)%

 

 

10,066

 

 

5.3

%

Amortization of intangible assets

 

(23,349

)

 

NM

 

 

 

(23,518

)

 

NM

 

Divestiture-related charges (2)

 

(1,018

)

 

NM

 

 

 

 

 

NM

 

Other (3)

 

(2,881

)

 

NM

 

 

 

(572

)

 

NM

 

Operating income

$

107,510

 

 

8.1

%

 

$

74,777

 

 

6.0

%

(1)

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

(2)

In November 2023, we sold our businesses in Italy and Singapore, as well as our employment services business in Canada, recording a loss of $1.0 million. We previously recorded an impairment charge of $2.9 million related to these assets.

(3)

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, 2023

 

December 31, 2022

 

(in thousands)

Net cash provided by/(used in) operating activities

 

21,608

 

 

 

(134,659

)

Purchases of property and equipment and capitalized software

 

(22,247

)

 

 

(15,697

)

Free cash flow (Non-GAAP)

$

(639

)

 

$

(150,356

)

Maximus, Inc.

Non-GAAP Adjusted Results Excluding Amortization of Intangible Assets

(Unaudited)

 

 

For the Three Months Ended

 

December 31, 2023

 

December 31, 2022

 

(dollars in thousands, except per share data)

Operating income

$

107,510

 

 

$

74,777

 

Add back: Amortization of intangible assets

 

23,349

 

 

 

23,518

 

Add back: Divestiture-related charges

 

1,018

 

 

 

 

Adjusted operating income excluding amortization of intangible assets and divestiture-related charges (Non-GAAP)

$

131,877

 

 

$

98,295

 

Adjusted operating income margin excluding amortization of intangible assets and divestiture-related charges (Non-GAAP)

 

9.9

%

 

 

7.9

%

 

 

 

 

Net income

$

64,148

 

 

$

39,995

 

Add back: Amortization of intangible assets, net of tax

 

17,208

 

 

 

17,360

 

Add back: Divestiture-related charges

 

1,018

 

 

 

 

Adjusted net income excluding amortization of intangible assets and divestiture-related charges (Non-GAAP)

$

82,374

 

 

$

57,355

 

 

 

 

 

Diluted earnings per share

$

1.04

 

 

$

0.65

 

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

 

0.28

 

 

 

0.29

 

Add back: Effect of divestiture-related charges on diluted earnings per share

 

0.02

 

 

 

 

Adjusted diluted earnings per share excluding amortization of intangible assets and divestiture-related charges (Non-GAAP)

$

1.34

 

 

$

0.94

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240207818524/en/

Contacts

James Francis, VP - IR
Jessica Batt, VP - IR & ESG
IR@maximus.com