Maximus reports fourth quarter and full year results for fiscal year 2022
Tysons, va.--(business wire)--maximus (nyse: mms), a leading provider of government services worldwide, reported financial results for the three months and year ended september 30, 2022. highlights for fiscal year 2022 include: revenue increased 8.9% to $4.63 billion, compared to $4.25 billion for the prior year. a combination of organic and acquired growth more than offset the $800 million decline in covid-19 response work. diluted earnings per share were $3.29, and adjusted diluted earnings per share were $4.37. results for the three months ended september 30, 2022, included combined benefits of $0.33 earnings per share from several contractual and legal items and a one-time gain on sale. record signed contracts awards of $10.5 billion, which includes awarded centers for medicare & medicaid services contract for contact center operations valued at $6.6 billion. a quarterly cash dividend of $0.28 per share payable on november 30, 2022, to shareholders of record on november 15, 2022. "our fiscal year 2022 results provide us confidence that the foundation we laid for the core business is yielding the desired outcome. there were record signed contract awards and the backlog of business is at an all-time high," said bruce caswell, president and chief executive officer. "expansion of core work and new business wins that take full advantage of our capabilities more than replaced the anticipated decline in short-term work." consolidated fiscal year 2022 results revenue for fiscal year 2022 increased 8.9% to $4.63 billion, compared to $4.25 billion for the prior year. organic growth from new or expanded programs and full-period contributions of the u.s. federal services acquisitions drove the $377 million revenue increase, which was net of $800 million less short-term covid-19 response work. adjusting for covid-19 response work, normalized organic growth was approximately 18% over the prior year and driven by contributions from all three segments. for fiscal year 2022, the operating margin was 7.0% and the adjusted margin operating margin was 9.0%. this compares to margins of 9.6% and 10.6%, respectively, for the prior year. diluted earnings per share were $3.29 and adjusted diluted earnings per share were $4.37. this compares to $4.67 and $5.19, respectively, for the prior-year period. results for the three months ended september 30, 2022, included combined benefits of $28 million, or $0.33 earnings per share, from several contractual and legal items worth $17 million, or $0.20 earnings per share, resolved in the quarter and a one-time gain on the sale of the company's former headquarters worth $11.0 million, or $0.13 diluted earnings per share. the outside the u.s. segment realized a loss in fiscal year 2022 primarily due to the unfortunate rebid outcome in australia, which included severance costs and the write-down on a percentage of completion project disclosed in the third quarter. u.s. federal services segment u.s. federal services segment revenue for fiscal year 2022 increased 19.4% to $2.26 billion, compared to $1.89 billion reported for the prior year. the acquisitions of attain federal, veterans evaluation services (ves), and aidvantage had full-period contributions. organic growth stemming from new work wins and expansion on recompete wins helped offset the decline in the covid-19 response work. adjusting for covid-19 response work, normalized organic growth in the segment was approximately 4.8% over the prior year. the segment operating margin for fiscal year 2022 was 10.4% as compared to 10.0% reported for the prior year. approximately one-third of the contractual and legal items benefited segment results for the three months ended september 30, 2022. u.s. services segment u.s. services segment revenue for fiscal year 2022 decreased by 3.3% to $1.61 billion, compared to $1.66 billion reported in the prior year. the expected decline in covid-19 response work was tempered by growth from previously disclosed new contract wins in the segment. adjusting for covid-19 response work, normalized organic growth in the segment was more than 30% over the prior year. the segment operating margin for fiscal year 2022 was 11.3% compared to 15.3% reported for the prior-year period. approximately one-third of the contractual and legal items benefited segment results for the three months ended september 30, 2022. margins were comparatively lower over the prior year, particularly in the second half of fiscal year 2022, as the highly-profitable short-term covid-19 response work concluded. meanwhile, redetermination activities remained paused as a result of the phe, acting as a headwind to the earnings potential of the segment. outside the u.s. segment outside the u.s. segment revenue for fiscal year 2022 increased 9.2% to $763.7 million as compared to $699.1 million reported for the prior year, which was net of a 6% currency headwind. organic growth in the segment was approximately 11% with u.k. restart programme being the largest contributor as caseload ramped across fiscal year 2022. the segment realized an operating loss of $15.2 million for fiscal year 2022, compared to an operating profit of $20.1 million in the prior year. the fiscal 2022 loss was primarily due to an unfortunate rebid outcome in australia and a write-down on a percentage of completion project disclosed in the prior quarter. sales and pipeline year-to-date signed contract awards at september 30, 2022, totaled $10.5 billion and contracts pending (awarded but unsigned) totaled $800.1 million. these awards include the previously announced centers for medicare & medicaid services contract for contact center operations valued at $6.6 billion, which contributed to the higher 2.3x book-to-bill ratio at september 30, 2022. the sales pipeline at september 30, 2022, was $30.7 billion (comprised of approximately $3.4 billion in proposals pending, $3.10 billion in proposals in preparation, and $24.2 billion in opportunities tracking). new work opportunities represent 73.5% of the total sales pipeline. balance sheet and cash flows at september 30, 2022, cash and cash equivalents totaled $40.7 million and gross debt was $1.37 billion. the ratio of debt, net of allowed cash, to pro-forma ebitda for the full year ended september 30, 2022, as calculated in accordance with our credit agreement, was 2.6x. this reflects debt pay downs of approximately $128 million in the most recent quarter and compares to 2.9x at june 30, 2022. in the near term, the company plans to continue prioritizing debt pay downs using its free cash flow. for fiscal year 2022, cash flows from operating activities totaled $289.8 million and free cash flow was $233.7 million. this compares to $517.3 million and $480.8 million, respectively, in the prior year, which benefited from additional short-term covid-19 response work earnings and working capital benefits totaling more than $100 million. as of september 30, 2022, dso were 62 days. the company is updating its target range to 60 to 70 days. on october 7, 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 november 30, 2022, to shareholders of record on november 15, 2022. fy23 outlook maximus is establishing fiscal year 2023 guidance. the company expects revenue to range between $4.75 billion and $4.90 billion. adjusted operating income is expected to range between $390 million and $415 million which excludes an estimated $94 million of expense for amortization of intangible assets. adjusted diluted earnings per share is expected to range between $3.70 and $4.00 per share. guidance assumes that redetermination activities in the u.s. services segment continue to be paused across fiscal year 2023 as there is currently no projected end date to the phe. in addition, the short-term covid response work has concluded and does not contribute to the company's forecast for fiscal year 2023. free cash flow is expected to range between $225 million and $275 million for fiscal year 2023. the company forecasts interest expense between $85 million and $95 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. "as we enter fiscal year 2023, we conclude a formative but somewhat volatile period for the business, and now have the opportunity to capitalize on the organic growth we are seeing in the core business, and execution of our recently refreshed strategy," caswell continued. "our expectations for the upcoming year illustrate while there remain elements in our environment influenced by federal policy decisions, they represent upside opportunity for the business on top of a base that is supported by a stable business model with long-term contracts that provide essential and in-demand government services." conference call and webcast information maximus will host a conference call tomorrow, november 22, 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, pro-forma 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-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. 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 will be 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 september 30, for the year ended september 30, 2022 2021 2022 2021 (in thousands, except per share amounts) revenue $ 1,177,031 $ 1,106,131 $ 4,631,018 $ 4,254,485 cost of revenue 904,048 887,725 3,691,208 3,307,510 gross profit 272,983 218,406 939,810 946,975 selling, general, and administrative expenses 146,991 129,590 534,493 494,088 amortization of intangible assets 22,514 20,639 90,465 44,357 gain on sale of land and building 11,046 — 11,046 — operating income 114,524 68,177 325,898 408,530 interest expense 16,098 10,695 45,965 14,744 other expense, net 742 521 2,835 10,105 income before income taxes 97,684 56,961 277,098 383,681 provision for income taxes 28,617 4,947 73,270 92,481 net income $ 69,067 $ 52,014 $ 203,828 $ 291,200 earnings per share: basic $ 1.13 $ 0.84 $ 3.30 $ 4.69 diluted $ 1.13 $ 0.83 $ 3.29 $ 4.67 weighted average shares outstanding: basic 61,010 62,082 61,774 62,072 diluted 61,292 62,506 61,969 62,365 dividends declared per share $ 0.28 $ 0.28 $ 1.12 $ 1.12 maximus, inc. consolidated balance sheets (unaudited) as of september 30, 2022 2021 (in thousands) assets: cash and cash equivalents $ 40,658 $ 135,061 accounts receivable, net 807,110 834,819 income taxes receivable 2,158 5,413 prepaid expenses and other current assets 182,387 104,201 total current assets 1,032,313 1,079,494 property and equipment, net 52,258 62,627 capitalized software, net 58,740 42,868 operating lease right-of-use assets 132,885 179,349 goodwill 1,779,415 1,774,406 intangible assets, net 804,904 879,168 deferred contract costs, net 47,732 36,486 deferred compensation plan assets 37,050 46,738 deferred income taxes 4,970 990 other assets 42,447 16,839 total assets $ 3,992,714 $ 4,118,965 liabilities and shareholders' equity: liabilities: accounts payable and accrued liabilities $ 264,553 $ 305,565 accrued compensation and benefits 178,199 186,809 deferred revenue, current portion 87,146 98,588 income taxes payable 718 6,782 long-term debt, current portion 63,458 80,555 operating lease liabilities, current portion 63,999 76,077 other current liabilities 116,374 35,057 total current liabilities 774,447 789,433 deferred revenue, non-current portion 21,414 35,932 deferred income taxes 206,099 194,638 long-term debt, non-current portion 1,292,483 1,429,137 deferred compensation plan liabilities, non-current portion 40,210 47,405 operating lease liabilities, non-current portion 86,175 121,771 other liabilities 22,515 20,320 total liabilities 2,443,343 2,638,636 shareholders' equity: common stock, no par value; 100,000 shares authorized; 60,774 and 61,954 shares issued and outstanding as of september 30, 2022 and 2021, respectively (shares in thousands) 557,978 532,411 accumulated other comprehensive loss (33,961 ) (39,908 ) retained earnings 1,025,354 987,826 total shareholders' equity 1,549,371 1,480,329 total liabilities and shareholders' equity $ 3,992,714 $ 4,118,965 maximus, inc. consolidated statements of cash flows (unaudited) for the three months ended september 30, for the year ended september 30, 2022 2021 2022 2021 (in thousands) cash flows from operating activities: net income $ 69,067 $ 52,014 $ 203,828 $ 291,200 adjustments to reconcile net income to cash flows from operations: depreciation and amortization of property, equipment and capitalized software 12,455 12,697 42,330 46,361 amortization of intangible assets 22,514 20,639 90,465 44,357 amortization of debt issuance costs and debt discount 1,066 865 3,012 865 costs related to debt financing — — — 8,509 gain on sale of land and building (11,046 ) — (11,046 ) — deferred income taxes 17,383 (10,209 ) 10,204 (6,577 ) stock compensation expense 8,396 7,731 30,476 28,554 change in assets and liabilities, net of effects of business combinations: accounts receivable 54,129 292,882 14,132 38,578 prepaid expenses and other current assets (16,199 ) (24,268 ) (6,745 ) (16,726 ) deferred contract costs (4,354 ) 347 (12,056 ) (15,426 ) accounts payable and accrued liabilities 9,855 (89,969 ) (32,722 ) 26,904 accrued compensation and benefits (10,558 ) (16,275 ) 3,288 18,112 deferred revenue (19,684 ) 30,028 (19,342 ) 53,652 income taxes (688 ) (17,898 ) (13,510 ) (2,733 ) operating lease right-of-use assets and liabilities 218 4,237 (1,112 ) 5,314 other assets and liabilities (12,491 ) 7,842 (11,363 ) (3,622 ) net cash provided by operating activities 120,063 270,663 289,839 517,322 cash flows from investing activities: purchases of property and equipment and capitalized software (20,209 ) (4,432 ) (56,145 ) (36,565 ) acquisitions of businesses, net of cash acquired (151 ) (19,442 ) (14,295 ) (1,798,915 ) proceeds from the sale of land and building 14,431 — 16,431 — net cash used in investing activities (5,929 ) (23,874 ) (54,009 ) (1,835,480 ) cash flows from financing activities: cash dividends paid to maximus shareholders (16,954 ) (17,213 ) (68,716 ) (68,838 ) purchases of maximus common stock (22,255 ) — (96,119 ) (3,363 ) tax withholding related to rsu vesting — — (9,673 ) (9,818 ) payments for contingent consideration (1,369 ) — (1,369 ) — payments for debt financing costs — (454 ) — (23,213 ) proceeds from borrowings 200,000 33,129 615,000 2,318,129 principal payments for debt (327,685 ) (216,603 ) (770,658 ) (824,483 ) other 83,264 42 83,264 (2,721 ) net cash (used in)/provided by financing activities (84,999 ) (201,099 ) (248,271 ) 1,385,693 effect of exchange rate changes on cash, cash equivalents, and restricted cash (2,965 ) (2,356 ) (7,334 ) 474 net change in cash, cash equivalents, and restricted cash 26,170 43,334 (19,775 ) 68,009 cash, cash equivalents and restricted cash, beginning of period 110,625 113,236 156,570 88,561 cash, cash equivalents and restricted cash, end of period $ 136,795 $ 156,570 $ 136,795 $ 156,570 maximus, inc. consolidated results of operations by segment (unaudited) for the three months ended september 30, for the year ended september 30, 2022 2021 2022 2021 amount (1) % (2) amount (1) % (2) amount (1) % (2) amount (1) % (2) (dollars in thousands) revenue: u.s. federal services $ 579,066 $ 540,302 $ 2,259,744 $ 1,893,284 u.s. services 423,798 392,623 1,607,612 1,662,110 outside the u.s. 174,167 173,206 763,662 699,091 revenue $ 1,177,031 $ 1,106,131 $ 4,631,018 $ 4,254,485 gross profit: u.s. federal services $ 153,508 26.5 % $ 120,146 22.2 % $ 519,440 23.0 % $ 432,551 22.8 % u.s. services 94,199 22.2 % 84,794 21.6 % 343,004 21.3 % 408,050 24.6 % outside the u.s. 25,276 14.5 % 13,466 7.8 % 77,366 10.1 % 106,374 15.2 % gross profit $ 272,983 23.2 % $ 218,406 19.7 % $ 939,810 20.3 % $ 946,975 22.3 % selling, general, and administrative expenses: u.s. federal services $ 81,169 14.0 % $ 70,608 13.1 % $ 284,509 12.6 % $ 243,485 12.9 % u.s. services 45,176 10.7 % 36,954 9.4 % 160,902 10.0 % 153,609 9.2 % outside the u.s. 24,084 13.8 % 21,230 12.3 % 92,536 12.1 % 86,248 12.3 % other (4) (3,438 ) nm 798 nm (3,454 ) nm 10,746 nm selling, general, and administrative expenses $ 146,991 12.5 % $ 129,590 11.7 % $ 534,493 11.5 % $ 494,088 11.6 % operating income: u.s. federal services $ 72,339 12.5 % $ 49,538 9.2 % $ 234,931 10.4 % $ 189,066 10.0 % u.s. services 49,023 11.6 % 47,840 12.2 % 182,102 11.3 % 254,441 15.3 % outside the u.s. 1,192 0.7 % (7,764 ) (4.5 )% (15,170 ) (2.0 )% 20,126 2.9 % amortization of intangible assets (22,514 ) nm (20,639 ) nm (90,465 ) nm (44,357 ) nm gain on sale of land and building (3) 11,046 nm — nm 11,046 nm — nm other (4) 3,438 nm (798 ) nm 3,454 nm (10,746 ) nm operating income $ 114,524 9.7 % $ 68,177 6.2 % $ 325,898 7.0 % $ 408,530 9.6 % expenses that are not specifically included in the segments are included in other categories, including amortization of intangible assets and the direct costs of acquisitions. these costs are excluded from measuring each segment's operating performance. percentage of respective segment revenue. percentages not considered meaningful are marked "nm." during fiscal year 2022, we sold the land and building which held our corporate headquarters, resulting in a gain on sale of $11.0 million. 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 september 30, for the year ended september 30, 2022 2021 2022 2021 (in thousands) net cash provided by operating activities 120,063 $ 270,663 289,839 517,322 purchases of property and equipment and capitalized software (20,209 ) (4,432 ) (56,145 ) (36,565 ) free cash flow $ 99,854 $ 266,231 $ 233,694 $ 480,757 maximus, inc. non-gaap adjusted results excluding amortization of intangible assets (unaudited) for the three months ended september 30, for the year ended september 30, 2022 2021 2022 2021 (dollars in thousands, except per share data) operating income $ 114,524 $ 68,177 $ 325,898 $ 408,530 add back: amortization of intangible assets 22,514 20,639 90,465 44,357 adjusted operating income excluding amortization of intangible assets (non-gaap) $ 137,038 $ 88,816 $ 416,363 $ 452,887 adjusted operating income margin excluding amortization of intangible assets (non-gaap) 11.6 % 8.0 % 9.0 % 10.6 % net income $ 69,067 $ 52,014 $ 203,828 $ 291,200 add back: amortization of intangible assets, net of tax 16,622 15,388 66,786 32,752 adjusted net income excluding amortization of intangible assets (non-gaap) $ 85,689 $ 67,402 $ 270,614 $ 323,952 diluted earnings per share $ 1.12 $ 0.83 $ 3.29 $ 4.67 add back: effect of amortization of intangible assets on diluted earnings per share 0.28 0.25 1.08 0.52 adjusted diluted earnings per share excluding amortization of intangible assets (non-gaap) $ 1.40 $ 1.08 $ 4.37 $ 5.19
