Maximus reports fiscal year 2022 third quarter results
Tysons, va.--(business wire)--maximus (nyse: mms), a leading provider of government services worldwide, reported financial results for the three and nine months ended june 30, 2022. highlights for the third quarter of fiscal year 2022 include: revenue decreased $118 million to $1.13 billion, compared to $1.24 billion for the prior year period, which is net of a $413 million expected decline in short-term covid-19 response work. this decrease was offset by organic growth and acquired growth from the u.s. federal services segment acquisitions. operating margin was 4.8%, or 6.9% adjusting for amortization of intangible assets. diluted earnings per share were $0.51, or $0.78 adjusting for amortization of intangible assets. earnings negatively impacted by a contract in outside the u.s. segment requiring a write-down of $11.7 million, or $0.14 of diluted earnings per share. as a result, the company is revising earnings guidance for fiscal year 2022, with earnings per share estimated to range between $2.85 and $3.05 per share, or $3.95 to $4.15 per share adjusting for amortization of intangible assets. revenue guidance midpoint of $4.6 billion is unchanged from prior guidance with ranges tightened to between $4.55 billion and $4.65 billion. year-to-date signed contract awards at june 30, 2022, totaled $4.02 billion and contracts pending (awarded but unsigned) totaled $476 million. a quarterly cash dividend of $0.28 per share payable on august 31, 2022, to shareholders of record on august 15, 2022. "despite near-term headwinds as covid work subsides and the public health emergency (phe) continues, maximus is well-positioned for future growth as evidenced by our strong new work awards and pipeline, and capacity to take on anticipated volume expansion in our core programs," shared bruce caswell, president and chief executive officer. "our recently refreshed strategic plan sharpens our focus while expanding our addressable market substantially. already, we see early points on the board in the form of wins related to our future of health and technology services growth pillars." caswell continued, "while near term pandemic-related disruptions remain out of our control, i am pleased with how we’ve taken control in other areas, advanced our capabilities, and positioned for future organic growth, some of which has been years in the making. as evidence of this, for the first time we were recently ranked by washington technology as a top 20 u.s. federal contractor by prime obligations." third quarter results revenue for the third quarter of fiscal year 2022 decreased $118 million to $1.13 billion, compared to $1.24 billion for the prior year period, which is net of a $413 million expected decline in short-term covid-19 response work. the decline was offset by a combination of organic growth and acquired growth from the u.s. federal services segment acquisitions. adjusting for covid-19 response work, normalized organic growth would be approximately 21% over the prior year period. operating income for the third quarter of fiscal year 2022 totaled $54.6 million yielding an operating margin of 4.8%, or 6.9% adjusting for amortization of intangible assets. this compares to an operating margin of 11.2% for the prior year period, or 12.2% adjusting for amortization. diluted earnings per share were $0.51, or $0.78 adjusting for amortization as compared to $1.51 per share, or $1.66 adjusting for amortization, for the prior year period. earnings for the third quarter of fiscal year 2022 were negatively impacted by a contract in the outside the u.s. segment that required a write-down of $11.7 million, or $0.14 diluted earnings per share. absent the write-down, results were in-line with the company's expectations for lower earnings caused by declines in profitable short-term covid-19 response work and lower volumes in core programs as medicaid redeterminations remain paused. u.s. services segment the u.s. services segment reported revenue of $399 million for the third quarter of fiscal year 2022 compared to $436 million reported in the prior year period. the revenue decline was due to the expected reduction in short-term covid-19 response work. adjusting for this work, normalized organic growth in the segment was nearly 40% driven by ramping of new core work and covid-19 response work that has evolved into longer term work with new customers gained during the pandemic. operating margin for the third quarter of fiscal year 2022 was 8.0% for the segment compared to 14.3% reported for the prior year period. the lower comparative margin was in-line with company expectations due to declines in profitable, short term covid-19 response work while the redetermination activities tied to the ongoing public health emergency (phe) remain paused. u.s. federal services segment u.s. federal services segment revenue for the third quarter of fiscal year 2022 decreased to $526 million, compared to $618 million reported for the prior year. the decline was driven by expected reductions in short term covid-19 response work, partially offset by contributions from the acquisitions of ves and aidvantage. adjusting for covid-19 response work, normalized organic growth in the segment was approximately 6% over the prior year period. the segment's operating margin for the third quarter of fiscal year 2022 was 10.4% which was in-line with the company's expectation. this compares to 13.9% reported for the prior year period which benefited from particularly high volumes of covid-19 response work. outside the u.s. segment outside the u.s. segment revenue for the third quarter of fiscal year 2022 increased 6.0% to $201 million as compared to $190 million reported for the prior year. results were net of a 9% currency headwind. adjusting for covid-19 response work, normalized organic growth in the segment was approximately 21% over the prior year period and driven primarily by ramping of the u.k. restart programme. the segment realized an operating loss of $11.2 million for the third quarter of fiscal year 2022 as compared to operating income of $8.3 million for the prior year period. the loss was driven by a write-down on a project in the implementation phase. due to higher forecasted costs, a forward loss provision was recorded this quarter, putting the contract on a path to breakeven over the remaining life. sales and pipeline year-to-date signed contract awards at june 30, 2022, totaled $4.02 billion and contracts pending (awarded but unsigned) totaled $476 million. awards booked in the third quarter include the previously-disclosed indiana eligibility operations support new contract, a one-year extension on the cms contact center operations contract, and various rebid wins. the sales pipeline at june 30, 2022, was $32.5 billion (comprised of approximately $7.3 billion in proposals pending, $3.6 billion in proposals in preparation, and $21.6 billion in opportunities tracking). new work opportunities represent approximately 59% of the total sales pipeline. balance sheet and cash flows at june 30, 2022, cash and cash equivalents totaled $93.7 million and gross debt was $1.49 billion. the ratio of debt, net of allowed cash, to pro-forma ebitda for the quarter ended june 30, 2022, as calculated in accordance with our credit agreement, was 2.9x. for the third quarter of fiscal year 2022, cash from operating activities totaled $57.9 million, and free cash flow was $44.9 million. as of june 30, 2022, days sales outstanding (dso) were 70 days and within the company's typical range of 65 to 80 days. large collections that were delayed several days were responsible for lower-than-expected cash flows and a higher dso in the quarter. purchases of maximus common stock totaled $48.0 million in the third quarter of fiscal year 2022. subsequent to quarter-end, an additional $22.3 million of purchases have been made. on july 8, 2022, 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, 2022, to shareholders of record on august 15, 2022. updated fiscal year 2022 guidance the company expects revenue for fiscal year 2022 to range between $4.55 billion and $4.65 billion, yielding a $4.6 billion midpoint that is unchanged from prior guidance. diluted earnings per share is estimated to range between $2.85 and $3.05 per share, or $3.95 to $4.15 per share adjusting for amortization of intangible assets. earnings guidance is revised following third quarter results inclusive of the write-down in the outside the u.s. segment. in addition, ramp-up costs to prepare for higher volumes anticipated in the u.s. federal services segment's clinical business in fiscal year 2023, along with retention efforts for the existing staff, results in an $8 million to $10 million investment in the second half of fiscal year 2022. this contributed to pressure on fiscal year 2022 guidance but will provide a benefit to next fiscal year. for fiscal year 2022, cash flows from operations are expected to range between $220 million and $260 million, and free cash flow to range between $170 million and $210 million. the effective income tax rate is expected to range between 25.0% and 25.5%, weighted average shares outstanding to range between 61.8 million and 62.0 million, absent further share purchase activity, and interest expense to be approximately $42 million for fiscal year 2022. mr. caswell added, "as the short-term covid-19 response work sunsets, we already see examples of longer-term tailwinds in the business in the form of solid wins, including re-competes, add-on scope, and new wins. we are well-positioned to help our state customers with near-term priorities like the phe unwinding and to deliver increased assessment capacity at the federal level as well as it modernization and transformation which represent customer priorities over the longer run." conference call and webcast information maximus will host a conference call tomorrow, august 4, 2022, 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 normalized for the effects of covid-19 response work, free cash flow, operating income and eps adjusted for amortization of intangible assets 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, 2021, which was filed with the securities and exchange commission (sec) on november 18, 2021. the company's sec reports are accessible on maximus.com. maximus, inc. consolidated statements of operations (unaudited) for the three months ended for the nine months ended june 30, 2022 june 30, 2021 june 30, 2022 june 30, 2021 (in thousands, except per share amounts) revenue $ 1,125,785 $ 1,243,520 $ 3,453,987 $ 3,148,354 cost of revenue 915,564 951,664 2,787,160 2,419,785 gross profit 210,221 291,856 666,827 728,569 selling, general, and administrative expenses 132,974 140,129 387,502 364,498 amortization of intangible assets 22,690 12,132 67,951 23,718 operating income 54,557 139,595 211,374 340,353 interest expense (10,791 ) (3,087 ) (29,867 ) (4,049 ) other income/(expense), net (2,497 ) (8,289 ) (2,093 ) (9,584 ) income before income taxes 41,269 128,219 179,414 326,720 provision for income taxes 9,934 33,724 44,653 87,534 net income $ 31,335 $ 94,495 $ 134,761 $ 239,186 earnings per share: basic $ 0.51 $ 1.52 $ 2.17 $ 3.86 diluted $ 0.51 $ 1.51 $ 2.17 $ 3.84 weighted average shares outstanding: basic 61,607 62,064 62,038 62,028 diluted 61,756 62,453 62,190 62,300 dividends declared per share $ 0.28 $ 0.28 $ 0.84 $ 0.84 maximus, inc. consolidated balance sheets june 30, 2022 september 30, 2021 (unaudited) (in thousands) assets: cash and cash equivalents $ 93,748 $ 135,061 accounts receivable, net 868,010 834,819 income taxes receivable 15,608 5,413 prepaid expenses and other current assets 94,218 104,201 total current assets 1,071,584 1,079,494 property and equipment, net 55,908 62,627 capitalized software, net 48,478 42,868 operating lease right-of-use assets 143,545 179,349 goodwill 1,783,870 1,774,406 intangible assets, net 829,179 879,168 deferred contract costs, net 43,723 36,486 deferred compensation plan assets 38,729 46,738 deferred income taxes 4,776 990 other assets 38,131 16,839 total assets $ 4,057,923 $ 4,118,965 liabilities and shareholders' equity: liabilities: accounts payable and accrued liabilities $ 259,016 $ 305,565 accrued compensation and benefits 182,434 186,809 deferred revenue, current portion 106,797 98,588 income taxes payable 4,071 6,782 long-term debt, current portion 59,698 80,555 operating lease liabilities, current portion 67,680 76,077 other current liabilities 50,510 35,057 total current liabilities 730,206 789,433 deferred revenue, non-current portion 23,518 35,932 deferred income taxes 196,691 194,638 long-term debt, non-current portion 1,423,276 1,429,137 deferred compensation plan liabilities, non-current portion 39,006 47,405 operating lease liabilities, non-current portion 93,035 121,771 other liabilities 30,629 20,320 total liabilities 2,536,361 2,638,636 shareholders' equity: common stock, no par value; 100,000 shares authorized; 60,904 and 61,954 shares issued and outstanding as of march 31, 2022 and september 30, 2021, respectively (shares in thousands) 557,656 532,411 accumulated other comprehensive loss (31,991 ) (39,908 ) retained earnings 995,897 987,826 total shareholders' equity 1,521,562 1,480,329 total liabilities and shareholders' equity $ 4,057,923 $ 4,118,965 maximus, inc. consolidated statements of cash flows (unaudited) for the three months ended for the nine months ended june 30, 2022 june 30, 2021 june 30, 2022 june 30, 2021 (in thousands) cash flows from operating activities: net income $ 31,335 $ 94,495 $ 134,761 $ 239,186 adjustments to reconcile net income to cash flows from operating activities: depreciation and amortization of property, equipment and capitalized software 8,676 10,829 29,875 33,664 amortization of intangible assets 22,690 12,132 67,951 23,718 amortization of debt issuance costs and debt discount 649 — 1,946 — costs related to debt financing — 8,509 — 8,509 deferred income taxes (3,861 ) (4,319 ) (7,179 ) 3,632 stock compensation expense 7,028 7,344 22,080 20,823 change in assets and liabilities, net of effects of business combinations accounts receivable 9,067 (324,521 ) (39,997 ) (254,304 ) prepaid expenses and other current assets (315 ) (532 ) 9,454 7,542 deferred contract costs (1,271 ) (6,589 ) (7,702 ) (15,773 ) accounts payable and accrued liabilities (39,530 ) 104,478 (42,577 ) 116,873 accrued compensation and benefits 42,127 51,148 13,846 34,387 deferred revenue (18,131 ) 10,328 342 23,624 income taxes 693 11,935 (12,822 ) 15,165 operating lease right-of-use assets and liabilities (37 ) 1,491 (1,330 ) 1,077 other assets and liabilities (1,203 ) (9,767 ) 1,128 (11,464 ) net cash provided by/(used in) operating activities 57,917 (33,039 ) 169,776 246,659 purchases of property and equipment and capitalized software (13,038 ) (8,549 ) (35,936 ) (32,133 ) acquisitions of businesses, net of cash acquired (14,140 ) (1,365,533 ) (14,144 ) (1,779,473 ) other 2,000 — 2,000 — net cash used in investing activities (25,178 ) (1,374,082 ) (48,080 ) (1,811,606 ) cash flows from financing activities: cash dividends paid to maximus shareholders (17,103 ) (17,211 ) (51,762 ) (51,625 ) purchases of maximus common stock (48,021 ) — (73,864 ) (3,363 ) tax withholding related to rsu vesting — — (9,673 ) (9,818 ) payments for debt financing — (22,759 ) — (22,759 ) proceeds from borrowings 175,000 1,784,838 415,000 2,285,000 principal payments for debt (139,265 ) (344,042 ) (442,973 ) (607,880 ) other — (1 ) — (2,763 ) net cash (used in)/provided by financing activities (29,389 ) 1,400,825 (163,272 ) 1,586,792 effect of exchange rate changes on cash, cash equivalents, and restricted cash (4,693 ) (433 ) (4,369 ) 2,830 net change in cash, cash equivalents, and restricted cash (1,343 ) (6,729 ) (45,945 ) 24,675 cash, cash equivalents and restricted cash, beginning of period 111,968 119,965 156,570 88,561 cash, cash equivalents and restricted cash, end of period $ 110,625 $ 113,236 $ 110,625 $ 113,236 maximus, inc. consolidated results of operations by segment (unaudited) for the three months ended for the nine months ended june 30, 2022 june 30, 2021 june 30, 2022 june 30, 2021 amount % (1) amount % (1) amount % (1) amount % (1) (dollars in thousands) revenue: u.s. services $ 399,320 $ 436,338 $ 1,183,814 $ 1,269,487 u.s. federal services 525,519 617,601 1,680,678 1,352,982 outside the u.s. 200,946 189,581 589,495 525,885 revenue $ 1,125,785 $ 1,243,520 $ 3,453,987 $ 3,148,354 gross profit: u.s. services $ 74,135 18.6 % $ 104,814 24.0 % $ 248,805 21.0 % $ 323,256 25.5 % u.s. federal services 124,203 23.6 % 155,776 25.2 % 365,932 21.8 % 312,405 23.1 % outside the u.s. 11,883 5.9 % 31,266 16.5 % 52,090 8.8 % 92,908 17.7 % gross profit $ 210,221 18.7 % $ 291,856 23.5 % $ 666,827 19.3 % $ 728,569 23.1 % selling, general, and administrative expenses: u.s. services $ 42,351 10.6 % $ 42,606 9.8 % $ 115,726 9.8 % $ 116,655 9.2 % u.s. federal services 69,466 13.2 % 69,647 11.3 % 203,340 12.1 % 172,877 12.8 % outside the u.s. 23,101 11.5 % 22,973 12.1 % 68,452 11.6 % 65,018 12.4 % other (2) (1,944 ) nm 4,903 nm (16 ) nm 9,948 nm selling, general, and administrative expenses $ 132,974 11.8 % $ 140,129 11.3 % $ 387,502 11.2 % $ 364,498 11.6 % operating income/(loss): u.s. services $ 31,784 8.0 % $ 62,208 14.3 % $ 133,079 11.2 % $ 206,601 16.3 % u.s. federal services 54,737 10.4 % 86,129 13.9 % 162,592 9.7 % 139,528 10.3 % outside the u.s. (11,218 ) (5.6 ) % 8,293 4.4 % (16,362 ) (2.8 ) % 27,890 5.3 % amortization of intangible assets (22,690 ) nm (12,132 ) nm (67,951 ) nm (23,718 ) nm other (2) 1,944 nm (4,903 ) nm 16 nm (9,948 ) nm operating income/(loss) $ 54,557 4.8 % $ 139,595 11.2 % $ 211,374 6.1 % $ 340,353 10.8 % percentage of respective segment revenue. percentages not considered meaningful are marked "nm." other selling, general, and administrative expenses includes costs that are not allocated to a particular segment. this includes legal expenses and settlements and expenses incurred as part of our acquisitions, as well as potential acquisitions which have not been or may not be completed. our results for the three and nine months ended june 30, 2022 included a $2.3 million credit related to changes in acquisition related contingent consideration. maximus, inc. consolidated free cash flow - non-gaap (unaudited) for the three months ended for the nine months ended june 30, 2022 june 30, 2021 june 30, 2022 june 30, 2021 (in thousands) net cash provided by/(used in) operating activities $ 57,917 $ (33,039 ) $ 169,776 $ 246,659 purchases of property and equipment and capitalized software costs (13,038 ) (8,549 ) (35,936 ) (32,133 ) free cash flow (non-gaap) $ 44,879 $ (41,588 ) $ 133,840 $ 214,526 maximus, inc. non-gaap adjusted results excluding amortization of intangible assets (unaudited) for the three months ended for the nine months ended june 30, 2022 june 30, 2021 june 30, 2022 june 30, 2021 (dollars in thousands, except per share data) operating income $ 54,557 $ 139,595 $ 211,374 $ 340,353 add back: amortization of intangible assets 22,690 12,132 67,951 23,718 adjusted operating income excluding amortization of intangible assets (non-gaap) $ 77,247 $ 151,727 $ 279,325 $ 364,071 adjusted operating income margin excluding amortization of intangible assets (non-gaap) 6.9 % 12.2 % 8.1 % 11.6 % net income $ 31,335 $ 94,495 $ 134,761 $ 239,186 add back: amortization of intangible assets, net of tax 16,750 8,941 50,164 17,364 adjusted net income excluding amortization of intangible assets (non-gaap) $ 48,085 $ 103,436 $ 184,925 $ 256,550 diluted earnings per share $ 0.51 $ 1.51 $ 2.17 $ 3.84 add back: effect of amortization of intangible assets on diluted earnings per share 0.27 0.15 0.80 0.28 adjusted diluted earnings per share excluding amortization of intangible assets (non-gaap) $ 0.78 $ 1.66 $ 2.97 $ 4.12
