MAXIMUS(MMS) - 2024 Q1 - Quarterly Report

Part I Financial Statements The unaudited consolidated financial statements for Q1 FY2024 reflect significant year-over-year growth in revenue and net income, stable asset and equity growth, and a strong recovery in operating cash flow Consolidated Statements of Operations For the three months ended December 31, 2023, the company reported a 6.2% increase in revenue to $1.33 billion and a 60.4% increase in net income to $64.1 million | Metric | Dec 31, 2023 (in $K) | Dec 31, 2022 (in $K) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Revenue | $1,327,041 | $1,249,246 | +6.2% | | Gross Profit | $300,054 | $244,747 | +22.6% | | Operating Income | $107,510 | $74,777 | +43.8% | | Net Income | $64,148 | $39,995 | +60.4% | | Diluted EPS | $1.04 | $0.65 | +60.0% | Consolidated Balance Sheets As of December 31, 2023, total assets slightly increased to $4.02 billion, total liabilities marginally decreased to $2.30 billion, and total shareholders' equity grew to $1.72 billion | Metric | Dec 31, 2023 (in $K) | Sep 30, 2023 (in $K) | | :--- | :--- | :--- | | Total Current Assets | $1,109,619 | $1,055,466 | | Total Assets | $4,016,861 | $3,985,797 | | Total Current Liabilities | $658,366 | $723,014 | | Total Liabilities | $2,299,055 | $2,317,962 | | Total Shareholders' Equity | $1,717,806 | $1,667,835 | Consolidated Statements of Cash Flows For Q1 FY2024, the company generated $21.6 million in operating cash flow, a significant turnaround from the prior year, with $20.4 million used in investing and $28.4 million provided by financing activities | Cash Flow Activity | Q1 FY2024 (in $K) | Q1 FY2023 (in $K) | | :--- | :--- | :--- | | Net cash from operating activities | $21,608 | $(134,659) | | Net cash used in investing activities | $(20,432) | $(15,697) | | Net cash provided by financing activities | $28,382 | $170,967 | Notes to Consolidated Financial Statements The notes detail accounting policies, segment performance, revenue recognition, debt, and legal contingencies, highlighting strong U.S. segment growth, a decline in the Outside the U.S. segment, and ongoing cybersecurity litigation Segment Performance (Q1 FY2024 vs Q1 FY2023) | Segment | Revenue (Q1 FY2024, in $M) | Revenue (Q1 FY2023, in $M) | Operating Income (Q1 FY2024, in $M) | Operating Income (Q1 FY2023, in $M) | | :--- | :--- | :--- | :--- | :--- | | U.S. Federal Services | $677.1 | $618.2 | $68.8 | $51.0 | | U.S. Services | $489.8 | $439.5 | $66.1 | $37.8 | | Outside the U.S. | $160.1 | $191.6 | $(0.1) | $10.1 | - Performance-based contracts constitute the largest portion of revenue at 53.1% for the quarter, an increase from 45.6% in the prior-year period[43] - The company is involved in multiple class-action lawsuits consolidated into a Multidistrict Litigation (MDL) related to the MOVEit cybersecurity incident; the ultimate outcome and potential loss cannot be reasonably estimated at this time[84] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 FY2024 performance to organic growth in U.S. segments and improved profit margins, while the Outside the U.S. segment faced challenges, and liquidity substantially improved with positive operating cash flow Results of Operations Q1 FY2024 total revenue increased by 6.2% driven by organic growth, with expanded gross and operating margins, while U.S. segments grew significantly and the Outside the U.S. segment declined due to divestitures and lower volumes Revenue Change Analysis (Q1 FY2024 vs Q1 FY2023) | Component | Revenue Change (in $K) | Percentage Change | | :--- | :--- | :--- | | Organic effect | $86,799 | +6.9% | | Disposal of businesses | $(13,736) | -1.1% | | Currency effect | $4,732 | +0.4% | | Total Change | $77,795 | +6.2% | - U.S. Federal Services revenue growth was driven by increased volumes on expanded programs, including the U.S. Department of VA's Medical Disability Examinations (MDE) contracts[110] - U.S. Services segment benefited from expanded eligibility support programs and the resumption of Medicaid redetermination activities, leading to a significant improvement in operating margin from 8.6% to 13.5%[113][114] - The Outside the U.S. segment's performance was impacted by lower employment services volumes and the divestiture of businesses in Canada, Italy, and Singapore[117][118] Liquidity and Capital Resources The company's liquidity significantly strengthened with positive operating cash flow of $21.6 million, total debt principal at $1.32 billion, and compliance with all financial covenants as of December 31, 2023 - The significant improvement in operating cash flow was driven by stronger cash collections, with Days Sales Outstanding (DSO) improving to 59 days at December 31, 2023, compared to 74 days at December 31, 2022[125][126] Debt Covenant Ratios as of Dec 31, 2023 | Covenant Ratio | Actual | Requirement | | :--- | :--- | :--- | | Consolidated Net Total Leverage Ratio | 2.14 | Cannot exceed 4.00:1.00 | | Consolidated Net Interest Coverage Ratio | 6.66 | Cannot be less than 3.00:1.00 | Free Cash Flow (Non-GAAP) | Metric (in $K) | Q1 FY2024 | Q1 FY2023 | | :--- | :--- | :--- | | Net cash from operating activities | $21,608 | $(134,659) | | Purchases of property and equipment | $(22,247) | $(15,697) | | Free cash flow | $(639) | $(150,356) | Non-GAAP and Other Measures The company presents non-GAAP financial measures to provide insight into core operational performance, with adjusted diluted EPS at $1.34 for Q1 FY2024 compared to GAAP diluted EPS of $1.04 Reconciliation of GAAP to Non-GAAP Results (Q1 FY2024) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Operating Income (in $M) | $107.5 | +$24.4 | $131.9 | | Net Income (in $M) | $64.1 | +$18.2 | $82.4 | | Diluted EPS | $1.04 | +$0.30 | $1.34 | Quantitative and Qualitative Disclosures About Market Risk The company's market risk disclosures, covering interest rates and foreign currency, have not materially changed from its Annual Report on Form 10-K for FY2023 - There have been no material changes to the company's market rate risk disclosures during the three-month period ended December 31, 2023[145] Controls and Procedures As of December 31, 2023, management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[146] - No changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[147] Part II Legal Proceedings This section refers to Note 10 for details on legal proceedings, primarily concerning the MOVEit cybersecurity incident litigation and a DOJ investigation into the Census project - For details on legal proceedings, the report refers to Note 10, which discusses litigation concerning the MOVEit cybersecurity incident and a DOJ investigation into the Census project[150][81][89] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for FY2023 were reported - No material changes to the risk factors disclosed in the 2023 Form 10-K were reported for the quarter ended December 31, 2023[151] Other Information This section discloses that the Chief Financial Officer and Chief Human Resources Officer adopted new Rule 10b5-1 trading arrangements during the quarter - David W. Mutryn, Chief Financial Officer, adopted a new Rule 10b5-1 trading arrangement on November 17, 2023[154] - Michelle Link, Chief Human Resources Officer, adopted a new Rule 10b5-1 trading arrangement on December 15, 2023[154]