Establishes Guidance for Fiscal Year 2023

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

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