MAXIMUS(MMS) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the three months ended December 31, 2020, showing a 15.6% year-over-year revenue increase to $945.6 million and a rise in net income to $64.1 million | Financial Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Revenue | $945.6 million | $818.2 million | | Gross Profit | $206.1 million | $175.5 million | | Operating Income | $87.6 million | $79.1 million | | Net Income | $64.1 million | $58.7 million | | Diluted Earnings Per Share | $1.03 | $0.91 | | Balance Sheet Item | Dec 31, 2020 (unaudited) | Sep 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $986.8 million | $932.6 million | | Total Assets | $2.07 billion | $2.02 billion | | Total Current Liabilities | $547.4 million | $561.2 million | | Total Liabilities | $767.9 million | $782.9 million | | Total Shareholders' Equity | $1.30 billion | $1.24 billion | | Cash Flow Activity | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Cash flows from operations | $98.1 million | $87.3 million | | Cash used in investing activities | ($9.3 million) | ($10.5 million) | | Cash used in financing activities | ($31.5 million) | ($33.8 million) | | Net increase in cash | $61.3 million | $44.5 million | Note 2. Segment Information The company operates through three segments: U.S. Services, U.S. Federal Services, and Outside the U.S., with U.S. Federal Services as the largest revenue contributor and U.S. Services generating the highest operating income - The company's operations are divided into three segments: U.S. Services (state and local government programs), U.S. Federal Services (federal civilian programs), and Outside the U.S. (international government and commercial clients)[38][39][40] | Segment | Revenue (Q1 FY21) | Operating Income (Q1 FY21) | Operating Margin (Q1 FY21) | | :--- | :--- | :--- | :--- | | U.S. Services | $384.9 million | $61.5 million | 16.0% | | U.S. Federal Services | $405.2 million | $30.2 million | 7.5% | | Outside the U.S. | $155.4 million | $4.5 million | 2.9% | Note 3. Revenue Recognition Revenue is disaggregated by service, contract type, customer, and geography, with cost-plus contracts as the largest source and a $10.2 million benefit from changes in estimates on performance-based contracts | Contract Type | Revenue (Q1 FY21) | Revenue (Q1 FY20) | | :--- | :--- | :--- | | Performance-based | $294.0 million | $292.8 million | | Cost-plus | $384.5 million | $362.8 million | | Fixed price | $120.8 million | $119.2 million | | Time and materials | $146.3 million | $43.4 million | - Changes in contract estimates resulted in a benefit to revenue of $10.2 million and a benefit to diluted EPS of $0.12 for the three months ended December 31, 2020, compared to a decline of $1.4 million in the prior fiscal year[56] - As of December 31, 2020, the company had approximately $400 million of remaining performance obligations, with about 55% expected to be recognized as revenue within the next 12 months[59] Note 8. Litigation The company is involved in various legal matters, notably a potential $31 million liability from CMS disallowances related to a past Medicaid contract, where Maximus believes its exposure is limited to its fees - The company faces a potential liability of approximately $31 million from two CMS disallowances related to a past contract with a state Medicaid agency[75][76] - Maximus believes its exposure is limited to its fees and that the responsible school districts will cover the remainder[75][76] Note 9. Subsequent Events On January 8, 2021, the Board of Directors declared a quarterly cash dividend of $0.28 per share, with an anticipated total payment of approximately $17 million - On January 8, 2021, the Board of Directors declared a quarterly cash dividend of $0.28 per share, with an anticipated total payment of approximately $17 million[77] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2021 financial results, highlighting a 15.6% revenue increase to $945.6 million driven by organic performance and new COVID-19 response work Financial Overview Consolidated revenue grew 15.6% year-over-year to $945.6 million, primarily driven by approximately $160 million from COVID-response work, while SG&A expenses increased due to severance and IT initiatives - Organic revenue growth was experienced across all segments, largely driven by new services to assist U.S. governments with COVID-response efforts, which contributed approximately $160 million in revenue[86] | Revenue Change Driver | Dollar Change (in millions) | Percentage Change | | :--- | :--- | :--- | | Organic effect | $128.8 million | 15.7% | | Net acquired growth | $2.4 million | 0.3% | | Currency effect | $5.9 million | 0.7% | | Effect of CQA contract | ($9.6 million) | (1.2)% | | Total Change | $127.3 million | 15.6% | - SG&A expenses increased year-over-year due to approximately $5.4 million in severance, IT initiatives (cloud migration), costs to address the COVID pandemic, and increased business development activity[91] U.S. Services Segment The U.S. Services segment reported a 23% revenue increase to $384.9 million from COVID-related administration contracts, but operating margin declined to 16.0% due to reduced volumes on core performance-based programs | Metric | Q1 FY21 | Q1 FY20 | | :--- | :--- | :--- | | Revenue | $384.9 million | $312.3 million | | Operating Income | $61.5 million | $58.2 million | | Operating Margin | 16.0% | 18.6% | - The segment received approximately $114 million of short-term revenue from assisting customers with COVID-related administration[96] - Profitability was negatively impacted by temporary program changes, particularly the pause in Medicaid redeterminations, which reduced volumes on core, performance-based programs[96] U.S. Federal Services Segment Revenue for the U.S. Federal Services segment grew 10.6% to $405.2 million, driven by COVID-response work and the CQA contract, though operating margin decreased to 7.5% due to lower margins on short-term work | Metric | Q1 FY21 | Q1 FY20 | | :--- | :--- | :--- | | Revenue | $405.2 million | $366.6 million | | Operating Income | $30.2 million | $31.6 million | | Operating Margin | 7.5% | 8.6% | - Key revenue drivers included approximately $60 million from the CQA contract and an estimated $46 million in incremental revenue from assisting the U.S. Federal Government with its COVID-response[100] - The operating margin declined due to lower margins on short-term work, reduced volumes on performance-based contracts like independent medical reviews, and increased spending on business development[100] Outside the United States Segment The Outside the U.S. segment's revenue increased 11.5% to $155.4 million, achieving a $4.5 million operating income turnaround driven by organic growth, acquisitions, and favorable currency effects | Metric | Q1 FY21 | Q1 FY20 | | :--- | :--- | :--- | | Revenue | $155.4 million | $139.4 million | | Operating Income/(Loss) | $4.5 million | ($1.0 million) | | Operating Margin | 2.9% | (0.7)% | - Revenue growth stemmed from organic growth in employment services contracts, particularly a temporary spike in demand in Australia, as well as contributions from recent acquisitions and favorable currency translation[103][104][105] - The company anticipates operating margins for this segment to be in a loss position in Q2 FY2021 due to upfront costs for new work, but expects the segment to be approximately breakeven for the full fiscal year[108] Liquidity and Capital Resources The company maintains a strong liquidity position with $132.6 million in cash and $400 million available on its credit facility, while cash flow from operations increased to $98.1 million | Cash Flow Metric (in millions) | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Cash flows from operations | $98.1 million | $87.3 million | | Free cash flow (non-GAAP) | $89.0 million | $76.8 million | | Period End | Days Sales Outstanding (DSO) | | :--- | :--- | | December 31, 2019 | 71 | | September 30, 2020 | 77 | | December 31, 2020 | 75 | - At December 31, 2020, the company had approximately $132.6 million in unrestricted cash and $400 million of liquidity available on its corporate credit facility[109] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is foreign currency exchange rates, with $162.3 million in net foreign-denominated assets, while interest rate risk is considered minimal - The company's main market risk is foreign currency exchange rates, with $162.3 million in net assets denominated in currencies other than the U.S. Dollar at December 31, 2020[126] | Impact of 10% Unfavorable Exchange Rate Movement | December 31, 2020 (in millions) | | :--- | :--- | | Comprehensive income attributable to Maximus | $(16.2 million) | | Net decrease in cash and cash equivalents | $(7.8 million) | - Interest rate risk is low, with no borrowings under the corporate credit facility at December 31, 2020, and outstanding foreign debt of $32.6 million considered to have insignificant interest rate exposure[129] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[130] - No change in internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal controls[131] PART II. OTHER INFORMATION Legal Proceedings This section refers readers to "Note 8. Litigation" in Part I, Item 1 of the report for information regarding the company's legal proceedings - For details on legal proceedings, the report refers to the disclosures in "Note 8. Litigation" within the financial statements section[133] Risk Factors The company directs readers to the "Risk Factors" section of its Annual Report on Form 10-K for a comprehensive discussion of potential risks - The report states that the risk factors discussed in the Form 10-K for the fiscal year ended September 30, 2020, should be considered[134] Unregistered Sales of Equity Securities and Use of Proceeds Maximus repurchased 51,735 shares of common stock for approximately $3.4 million during the quarter, with $146.7 million remaining available for future repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2020 | 51,735 | $64.98 | | Nov 1 - Nov 30, 2020 | — | — | | Dec 1 - Dec 31, 2020 | — | — | | Total | 51,735 | — | - As of December 31, 2020, $146.7 million remained available for future stock repurchases under the company's authorized program[67] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in XBRL format - The exhibits filed with the report include CEO and CFO certifications under Sarbanes-Oxley and financial data in XBRL format[137]