FOR IMMEDIATE RELEASE CONTACT: Lisa Miles 703.251.8637 lisamiles@maximus.com Date: May 10, 2018

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FOR IMMEDIATE RELEASE
 
CONTACT:
Lisa Miles 703.251.8637
 
 
 
lisamiles@maximus.com
Date: May 10, 2018
 
 
 

MAXIMUS Reports Fiscal Year 2018 Second Quarter Results

(RESTON, Va. - May 10, 2018) - MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and six months ended March 31, 2018.

Highlights for the second quarter of fiscal year 2018 include:

Revenue of $612.8 million compared to $622.0 million reported for the same period last year

Diluted earnings per share of $0.84 compared to $0.80 for the same period last year

Cash flows from operations of $78.7 million and free cash flow of $72.0 million

Year-to-date signed contract awards of $1.4 billion and contracts pending (awarded but unsigned) of
$489.1 million at March 31, 2018

Sales pipeline of $3.0 billion at March 31, 2018

Updated fiscal 2018 revenue and diluted earnings per share guidance

For the second quarter of fiscal 2018, revenue decreased 1% to $612.8 million compared to $622.0 million reported for the same period last year. The decrease was due to the expected revenue decline in the
U.S. Federal Services Segment from contracts that ended.

Total company operating margin for the second quarter of fiscal 2018 was 11.6% and tempered by $2.3 million of restructuring costs (or $0.02 of diluted earnings per share). The restructuring is part of the Company's ongoing efforts to right-size resources in its U.K. human services business as mainstream employment services programs come to an expected end and governments focus on more specialized health and employment programs supporting people with disabilities and other vulnerable populations.

For the second quarter of fiscal 2018, net income attributable to MAXIMUS totaled $55.5 million (or $0.84 of diluted earnings per share). Diluted earnings per share for the second quarter benefited by $0.02 from the lower provision for income taxes due to a revision to the estimate of the one-time benefit for the reduction in deferred income taxes, resulting from the new tax reform law. This compares to fiscal 2017 second quarter diluted earnings per share of $0.80.





1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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Health Services Segment
Health Services Segment revenue for the second quarter of fiscal 2018 increased 5% to $365.6 million compared to $349.0 million reported for the same period last year. The increase in revenue was driven by organic growth and favorable currency exchange movements. On a constant currency basis, segment revenue growth would have been 2%.

Operating margin for the second quarter of fiscal 2018 was strong at 17.2% compared to 16.2% reported for the prior-year period. Operating margin expansion was driven by solid operational performance in certain contracts including the U.K. Health Assessment Advisory Service that achieved its full year volume targets for contract year three, and to a lesser extent, benefits tied to certain contracts, including the terminated
Fit for Work contract as the Company closed out major elements of the program during the second quarter.

U.S. Federal Services Segment
U.S. Federal Services Segment revenue for the second quarter of fiscal 2018 decreased 20% to $116.3 million compared to $145.4 million reported for the same period last year. As previously disclosed, the lower revenue was largely due to contracts that ended, including non-recurring temporary disaster relief work that ended earlier than anticipated.

Operating margin for the second quarter of fiscal 2018 was 8.5% compared to 12.1% reported for the prior-year period. Operating margin was lower in the second quarter due to a one-time $2.9 million charge to renegotiate a relationship with one of the Company's subcontractors on a large BPO program. Under the new arrangement, MAXIMUS will now assume the majority of this work, which will increase revenue and operating income on this contract in future periods.

Human Services Segment
Human Services Segment revenue for the second quarter of fiscal 2018 increased 2% to $130.8 million compared to $127.7 million reported for the same period last year driven by favorable foreign exchange rates. On a constant currency basis, segment revenue would have decreased 1%.

Operating margin for the second quarter of fiscal 2018 was 2.6% compared to 7.5% reported for the prior-year period. Operating margin was lower than expected due to a contract extension that was not signed during the quarter and lower volumes on a contract outside the U.S. As expected, operating margin was also tempered by a number of new contracts that are in the start-up phase but performing as expected.

Sales and Pipeline
Year-to-date signed contract awards at March 31, 2018 totaled $1.4 billion and contracts pending (awarded but unsigned) totaled $489.1 million. During the quarter, MAXIMUS received notification of award for the Australia Disability Employment Services rebid.
 
The sales pipeline at March 31, 2018 was $3.0 billion (comprised of approximately $0.7 billion in proposals pending, $0.3 billion in proposals in preparation, and $2.0 billion in opportunities tracking). This compares to a pipeline of $3.2 billion at December 31, 2017. The sequential decline is due to the conversion of the Australia Disability Employment Services rebid into awarded unsigned (contracts pending), as well as the delay of approximately $600 million in requests for proposals (RFPs) that moved out of the pipeline’s six-month horizon.

Balance Sheet and Cash Flows
Cash and cash equivalents at March 31, 2018 totaled $253.2 million. For the three months ended March 31, 2018, cash flows from operations totaled $78.7 million, with free cash flow of $72.0 million.



1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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At March 31, 2018, days sales outstanding (DSO) were 68 and consistent with the prior year.

On February 28, 2018, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On April 11, 2018, the Company announced a $0.045 per share cash dividend, payable on May 31, 2018 to shareholders of record on May 15, 2018.

Outlook
MAXIMUS is updating its fiscal 2018 revenue and earnings guidance. The Company now expects revenue to range between $2.400 billion and $2.440 billion for fiscal 2018. This compares to the Company's previous revenue guidance of $2.475 billion and $2.550 billion. MAXIMUS has revised its guidance because it has not booked sufficient new in-year awards.

As a result of the lowered revenue, MAXIMUS is narrowing its fiscal 2018 earnings guidance and now expects GAAP diluted earnings per share to range between $3.30 and $3.40 for fiscal 2018. This compares to the Company's previous earnings guidance of $3.30 to $3.50.

The Company’s guidance does not include any future acquisitions or future legal expenses or recoveries.

"The core of our business is sound and the macro trends remain in our favor. We have a number of initiatives underway to comprehensively determine the best path for long-term growth. We are analyzing current markets where we could play a more meaningful role, taking a fresh look at adjacent markets that hold promise, and continuing to advance our M&A strategy. We have taken immediate steps to best align MAXIMUS for the long term and we will execute our plan over the next 24 months," commented MAXIMUS CEO Bruce Caswell.

Conference Call and Webcast Information
MAXIMUS will host a conference call this morning, May 10, 2018, at 9:00 a.m. (ET). The call is open to the public and is available by webcast at http://investor.maximus.com or by phone at:
    
877.407.8289 (Domestic)/+1.201.689.8341 (International)

For those unable to listen to the live call, a replay will be available through May 24, 2018. Callers can access the replay by calling:

877.660.6853 (Domestic)/+1.201.612.7415 (International)
Replay conference ID number: 13679058

About MAXIMUS
Since 1975, MAXIMUS has operated under its founding mission of Helping Government Serve the People®, enabling citizens around the globe to successfully engage with their governments at all levels and across a variety of health and human services programs. MAXIMUS delivers innovative business process management and technology solutions that contribute to improved outcomes for citizens and higher levels of productivity, accuracy, accountability and efficiency of government-sponsored programs. With more than 20,000 employees worldwide, MAXIMUS is a proud partner to government agencies in the United States, Australia, Canada, Saudi Arabia, Singapore and the United Kingdom. For more information, visit maximus.com.

Non-GAAP Measures
We utilize non-GAAP measures where we believe it will assist the user of our financial statements in understanding our business. The presentation of these measures is meant to complement, and not replace, other financial measures in this document. The presentation of non-GAAP numbers is not meant to be


1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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considered in isolation, nor as alternatives to revenue growth, cash flows from operations or net income as measures of performance. These non-GAAP measures, as determined and presented by us, may not be comparable to related or similarly titled measures presented by other companies.

In this news release, we use the non-GAAP measures organic revenue growth, constant currency movement and free cash flow. A description of these measures, including a description of our use of these measures and our methodology for calculating them, is included in our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 20, 2017. We have included a reconciliation of free cash flow to cash flows from operations in this news release.

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, acquisitions, technology-driven innovations, digital transformation, market demand or acceptance of the Company’s current or future products or services, are forward-looking statements that involve risks and uncertainties. These uncertainties could cause the Company’s actual results to differ materially from those indicated by such forward-looking statements and include reliance on government clients; risks associated with government contracting; risks involved in managing government projects; legislative changes and political developments; opposition from government unions; challenges resulting from growth; adverse publicity; and legal, economic, and other risks detailed in Exhibit 99.1 to the Company’s most recent Annual Report filed with the Securities and Exchange Commission, found on maximus.com.




1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
612,787

 
$
622,047

 
$
1,235,935

 
$
1,229,611

Cost of revenue
463,984

 
469,730

 
935,172

 
932,476

Gross profit
148,803

 
152,317

 
300,763

 
297,135

Selling, general and administrative expenses
72,559

 
68,596

 
142,118

 
133,994

Amortization of intangible assets
2,603

 
3,386

 
5,321

 
6,788

Restructuring costs
2,320

 

 
2,320

 
2,242

Operating income
71,321

 
80,335

 
151,004

 
154,111

Interest expense
157

 
744

 
325

 
1,593

Other income, net
1,392

 
417

 
1,679

 
680

Income before income taxes
72,556

 
80,008

 
152,358

 
153,198

Provision for income taxes
17,450

 
26,911

 
37,300

 
53,772

Net income
55,106

 
53,097

 
115,058

 
99,426

(Loss)/income attributable to noncontrolling interests
(386
)
 
582

 
475

 
247

Net income attributable to MAXIMUS
$
55,492

 
$
52,515

 
$
114,583

 
$
99,179

Basic earnings per share attributable to MAXIMUS
$
0.84

 
$
0.80

 
$
1.74

 
$
1.51

Diluted earnings per share attributable to MAXIMUS
$
0.84

 
$
0.80

 
$
1.73

 
$
1.50

Dividends paid per share
$
0.045

 
$
0.045

 
$
0.09

 
$
0.09

Weighted average shares outstanding:
 
 
 
 

 
 
Basic
65,856

 
65,549

 
65,857

 
65,669

Diluted
66,268

 
65,947

 
66,223

 
65,989














1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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MAXIMUS, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
March 31, 2018
 
September 30, 2017
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
253,227

 
$
166,252

Accounts receivable — billed and billable
415,008

 
394,338

Accounts receivable  unbilled
41,202

 
36,475

Income taxes receivable
1,677

 
4,528

Prepaid expenses and other current assets
47,918

 
55,649

Total current assets
759,032

 
657,242

Property and equipment, net
90,741

 
101,651

Capitalized software, net
22,601

 
26,748

Goodwill
405,082

 
402,976

Intangible assets, net
94,109

 
98,769

Deferred contract costs, net
14,673

 
16,298

Deferred compensation plan assets
29,703

 
28,548

Deferred income taxes
7,625

 
7,691

Other assets
6,934

 
10,739

Total assets
$
1,430,500

 
$
1,350,662

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
119,589

 
$
122,083

Accrued compensation and benefits
81,833

 
105,667

Deferred revenue
52,743

 
71,722

Income taxes payable
11,652

 
4,703

Other liabilities
13,534

 
12,091

Total current liabilities
279,351

 
316,266

Deferred revenue, less current portion
23,802

 
28,182

Deferred income taxes
10,997

 
20,106

Deferred compensation plan liabilities, less current portion
30,904

 
30,707

Other liabilities
19,118

 
9,633

Total liabilities
364,172

 
404,894

Shareholders’ equity:
 
 
 
Common stock, no par value
487,385

 
475,592

Accumulated other comprehensive loss
(24,435
)
 
(27,619
)
Retained earnings
599,630

 
492,112

Total MAXIMUS shareholders’ equity
1,062,580

 
940,085

Noncontrolling interests
3,748

 
5,683

Total equity
1,066,328

 
945,768

Total liabilities and equity
$
1,430,500

 
$
1,350,662



1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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MAXIMUS, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
Six Months Ended
March 31,
 
 
2018
 
2017
 
2018
 
2017
Cash flows from operations:
 
 
 
 
 
 
 
 
Net income
 
$
55,106

 
$
53,097

 
$
115,058

 
$
99,426

Adjustments to reconcile net income to cash flows from operations:
 
 
 
 
 
 
 
 
Depreciation and amortization of property, equipment and capitalized software
 
13,355

 
15,405

 
27,074

 
29,967

Amortization of intangible assets
 
2,603

 
3,386

 
5,321

 
6,788

Deferred income taxes
 
(14,886
)
 
(11,631
)
 
(9,179
)
 
(5,721
)
Stock compensation expense
 
5,922

 
5,345

 
11,324

 
10,234

 
 
 
 
 
 
 
 
 
Change in assets and liabilities:
 
 
 
 
 
 
 
 
Accounts receivable — billed and billable
 
25,859

 
(4,657
)
 
(18,522
)
 
10,030

Accounts receivable — unbilled
 
(10,265
)
 
(1,447
)
 
(4,730
)
 
(3,445
)
Prepaid expenses and other current assets
 
2,507

 
1,267

 
8,526

 
7,512

Deferred contract costs
 
381

 
954

 
1,794

 
998

Accounts payable and accrued liabilities
 
(14,558
)
 
(3,144
)
 
(3,171
)
 
(17,719
)
Accrued compensation and benefits
 
14,197

 
10,944

 
(15,391
)
 
(6,293
)
Deferred revenue
 
(11,384
)
 
(5,757
)
 
(23,789
)
 
(15,853
)
Income taxes
 
8,992

 
3,813

 
18,634

 
20,715

Other assets and liabilities
 
872

 
(1,867
)
 
3,620

 
209

Cash flows from operations
 
78,701

 
65,708

 
116,569

 
136,848

 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
Purchases of property and equipment and capitalized software costs
 
(6,661
)
 
(5,207
)
 
(13,175
)
 
(12,975
)
Acquisition of part of noncontrolling interest
 
(157
)
 

 
(157
)
 

Proceeds from the sale of a business
 

 

 

 
385

Other
 
138

 
175

 
183

 
218

Cash used in investing activities
 
(6,680
)
 
(5,032
)
 
(13,149
)
 
(12,372
)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Cash dividends paid to MAXIMUS shareholders
 
(2,935
)
 
(2,917
)
 
(5,865
)
 
(5,837
)
Repurchases of common stock
 

 
(91
)
 
(1,038
)
 
(28,858
)
Tax withholding related to RSU vesting
 

 
(12
)
 
(8,529
)
 
(9,267
)
Borrowings under credit facility
 
65,000

 
70,000

 
124,683

 
135,000

Repayment of credit facility and other long-term debt
 
(76,596
)
 
(104,761
)
 
(124,752
)
 
(184,828
)
Other
 
(2,130
)
 

 
(2,130
)
 
(1,145
)
Cash used in financing activities
 
(16,661
)
 
(37,781
)
 
(17,631
)
 
(94,935
)
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
962

 
2,200

 
1,186

 
(878
)
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
 
56,322

 
25,095

 
86,975

 
28,663

 
 
 
 
 
 
 
 
 
Cash and cash equivalents, beginning of period
 
196,905

 
69,767

 
166,252

 
66,199

 
 
 
 
 
 
 
 
 
Cash and cash equivalents, end of period
 
$
253,227

 
$
94,862

 
$
253,227

 
$
94,862

 
 


 
 
 
 
 
 


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MAXIMUS, Inc.
SEGMENT INFORMATION
(Amounts in thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
 
2018
 
% (1)
 
2017
 
% (1)
 
2018
 
% (1)
 
2017
 
% (1)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health Services
 
$
365,633

 
100
%
 
$
348,994

 
100
%
 
$
717,723

 
100
%
 
$
689,723

 
100
%
U.S. Federal Services
 
116,327

 
100
%
 
145,370

 
100
%
 
249,310

 
100
%
 
286,668

 
100
%
Human Services
 
130,827

 
100
%
 
127,683

 
100
%
 
268,902

 
100
%
 
253,220

 
100
%
Total
 
$
612,787

 
100
%
 
$
622,047

 
100
%
 
$
1,235,935

 
100
%
 
$
1,229,611

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health Services
 
$
98,207

 
26.9
%
 
$
86,454

 
24.8
%
 
$
189,263

 
26.4
%
 
$
164,688

 
23.9
%
U.S. Federal Services
 
27,374

 
23.5
%
 
36,571

 
25.2
%
 
60,732

 
24.4
%
 
74,147

 
25.9
%
Human Services
 
23,222

 
17.8
%
 
29,292

 
22.9
%
 
50,768

 
18.9
%
 
58,300

 
23.0
%
Total
 
$
148,803

 
24.3
%
 
$
152,317

 
24.5
%
 
$
300,763

 
24.3
%
 
$
297,135

 
24.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health Services
 
$
35,190

 
9.6
%
 
$
29,914

 
8.6
%
 
$
68,606

 
9.6
%
 
$
58,021

 
8.4
%
U.S. Federal Services
 
17,540

 
15.1
%
 
18,927

 
13.0
%
 
34,188

 
13.7
%
 
38,622

 
13.5
%
Human Services
 
19,829

 
15.2
%
 
19,663

 
15.4
%
 
39,324

 
14.6
%
 
36,902

 
14.6
%
Other (2)
 

 
NM

 
92

 
NM

 

 
NM

 
449

 
NM

Total (3)
 
$
72,559

 
11.8
%
 
$
68,596

 
11.0
%
 
$
142,118

 
11.5
%
 
$
133,994

 
10.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health Services
 
$
63,017

 
17.2
%
 
$
56,540

 
16.2
%
 
$
120,657

 
16.8
%
 
$
106,667

 
15.5
%
U.S. Federal Services
 
9,834

 
8.5
%
 
17,644

 
12.1
%
 
26,544

 
10.6
%
 
35,525

 
12.4
%
Human Services
 
3,393

 
2.6
%
 
9,629

 
7.5
%
 
11,444

 
4.3
%
 
21,398

 
8.5
%
Amortization of intangible assets
 
(2,603
)
 
NM

 
(3,386
)
 
NM

 
(5,321
)
 
NM

 
(6,788
)
 
NM

Restructuring costs (4)
 
(2,320
)
 
NM

 

 
NM

 
(2,320
)
 
NM

 
(2,242
)
 
NM

Other (2)
 

 
NM

 
(92
)
 
NM

 

 
NM

 
(449
)
 
NM

Total
 
$
71,321

 
11.6
%
 
$
80,335

 
12.9
%
 
$
151,004

 
12.2
%
 
$
154,111

 
12.5
%

(1)    Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”
(2)
Other costs and credits relate to SG&A balances that do not relate directly to segment business activities. During the six months ended March 31, 2017 we incurred $0.4 million of legal costs pertaining to a matter which occurred in fiscal year 2009.
(3)
During fiscal year 2018, we updated our methodology for allocation of costs which resulted in certain costs which had been within Cost of Revenue now being classified as SG&A. If we had utilized the same methodology in fiscal year 2018 as we had in fiscal year 2017, we estimate that SG&A would have been lower by approximately $1.3 million and $2.5 million during the three and six months ended March 31, 2018, respectively.
(4)
During fiscal years 2018 and 2017, we incurred costs in restructuring our United Kingdom human services business.


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MAXIMUS, Inc.
FREE CASH FLOW
(Non-GAAP measure)
(Amounts in thousands)
(Unaudited)

 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
 
2018
 
2017
 
2018
 
2017
Cash flows from operations
 
$
78,701

 
$
65,708

 
$
116,569

 
$
136,848

Purchases of property and equipment and capitalized software costs
 
(6,661
)
 
(5,207
)
 
(13,175
)
 
(12,975
)
Free cash flow
 
$
72,040

 
$
60,501

 
$
103,394

 
$
123,873

 
 
 
 
 
 
 
 
 



-XXX-


1891 METRO CENTER DRIVE | RESTON, VIRGINIA 20190 | 703.251.8500 | MAXIMUS.COM

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