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Maximus Reports Fourth Quarter and Full Year Results for Fiscal Year 2022

Establishes Guidance for Fiscal Year 2023

TYSONS, Va., November 21, 2022--(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

%

(1)

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.

(2)

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

(3)

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.

(4)

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20221121005910/en/

Contacts

James Francis 703.251.8526
Jessica Batt 703.251.8634
IR@maximus.com