Raises FY24 Earnings & Free Cash Flow
Guidance Following Improved Margin Outlook
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.
"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
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version on businesswire.com: https://www.businesswire.com/news/home/20240207818524/en/
James Francis, VP - IR Jessica Batt, VP - IR & ESG
IR@maximus.com
MAXIMUS (NYSE:MMS)
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