MAXIMUS (NYSE: MMS), a leading provider of government services worldwide, today reported financial results for the three and six months ended March 31, 2014. All amounts reflect the stock split on June 28, 2013.
Highlights for the second quarter of fiscal 2014 include:
- Second quarter revenue increased to $439.0 million compared to the same period last year, driven principally by organic growth in the Health Services Segment.
- Second quarter diluted earnings per share from continuing operations increased to $0.59 compared to the same period in 2013.
- Cash and cash equivalents totaled $131.3 million at March 31, 2014.
- Year-to-date signed contract awards totaled $969 million and the sales pipeline remained strong at $2.2 billion at March 31, 2014.
- In addition to the strong delivery in the second quarter, the Company received notification of additional supplemental work in the Health Services Segment, resulting in an increase to fiscal 2014 guidance estimates.
For the second quarter of fiscal 2014, revenue increased 35% to $439.0 million, compared to revenue reported for the same period last year of $326.4 million, which benefitted from $16.0 million of non-recurring revenue from a terminated contract. Revenue grew 37% on a constant currency basis. Excluding the $16.0 million benefit in the prior year, second quarter revenue grew 41% over the same period last year. The year-over-year increase in revenue was driven principally by organic growth in the Health Services Segment from new work and expansion on existing contracts, much of which was related to the Affordable Care Act (ACA). Nearly all growth in the quarter was organic.
For the second quarter of fiscal 2014, income from continuing operations, net of taxes, totaled $41.2 million, or $0.59 per diluted share and included $0.01 of tax benefit offset by $0.01 of legal and settlement expense. As a result, adjusted diluted earnings per share also totaled $0.59. This compares to income from continuing operations of $31.7 million, or $0.45 per diluted share, for the same period last year. The prior-year period included a benefit of $10.9 million in pre-tax income ($6.5 million, net of taxes, or $0.09 per diluted share) related to the contract termination. Excluding this benefit, adjusted diluted earnings per share grew 64% to $0.59 compared to $0.36 in the prior year. As expected, the year-over-year increase in earnings was primarily attributed to accretive growth in the Health Services Segment.
"Our financial results for the second quarter demonstrate our ability to deliver innovative and scalable operations for ACA and Medicaid programs. Clients continue to turn to us to provide additional work in support of these critical programs, which provided an uplift to our fiscal 2014 guidance. Their reliance on MAXIMUS is a testament to the value we provide and our solid performance around the globe. We've also received notification of a reallocation of additional sites in two of our workforce services contracts in Australia. This reallocation reflects our continued strong performance under the Australian Star Ratings program, which is a proven methodology for achieving outcomes that matter to our clients and rewarding solid vendor performance with new work," commented Richard A. Montoni, Chief Executive Officer of MAXIMUS.
Health Services Segment
Health Services Segment revenue for the second quarter of fiscal 2014 increased 64% to $324.1 million compared to $197.9 million last year. The year-over-year revenue increase was principally driven by new work and the expansion of existing contracts, including work supporting the implementation and operation of ACA in the United States; an increase in transaction-based volume growth in the Company's appeals business; and acquired revenue from Health Management. Health Services Segment operating income for the second quarter increased 69% to $48.8 million (15.1% operating margin) driven by accretive revenue growth. This compares to $28.9 million (14.6% operating margin) for the same period last year.
Human Services Segment
Human Services Segment revenue for the second quarter of fiscal 2014 totaled $115.0 million compared to $128.4 million for the same period last year, which included the $16.0 million revenue benefit from the aforementioned terminated contract. Excluding this benefit, second quarter revenue grew 2% (7% on a constant currency basis) compared to last year. Human Services Segment operating income for the second quarter totaled $16.8 million (14.6% operating margin) compared to $21.5 million last year, which included non-recurring pre-tax income of $10.9 million related to the contract termination. Excluding this benefit, operating income increased 59%, driven principally by the expected profit expansion in the Company's international operations and accretive growth tied to short-term engagements in the Company's U.S. consulting operations.
Sales and Pipeline
Year-to-date signed contract awards at March 31, 2014 totaled $969 million. This compares to $886 million reported for the same period last year. In addition, new contracts pending (awarded but unsigned) totaled $76 million compared to $425 million reported for the same period in fiscal 2013, which included approximately $390 million related to two large program rebids and extensions.
Sales pipeline at March 31, 2014 was $2.2 billion (consisting of $628 million in proposals pending, $102 million in proposals in preparation and $1.44 billion in opportunities tracking) and includes opportunities across multiple geographies and both segments. This is consistent with the total pipeline of $2.3 billion for the same period in fiscal 2013. On a sequential basis, the pipeline is slightly lower compared to the $2.4 billion reported for first quarter of fiscal 2014 due to more than $600 million of opportunities converting into new signed contracts. The sales pipeline only reflects opportunities, including new work, rebids and options, where the request for proposal is expected to be released within the next six months.
Balance Sheet and Cash Flows
Cash and cash equivalents at March 31, 2014 totaled $131.3 million, of which approximately 65% were held overseas. For the second quarter of fiscal 2014, cash provided by operating activities from continuing operations totaled $34.6 million, with free cash flow of $25.8 million. Days Sales Outstanding (DSO) from continuing operations were 68 days and remain within the Company's previously stated range of 65 to 80 days.
On February 28, 2014, MAXIMUS paid a quarterly cash dividend of $0.045 per share. On April 8, 2014, the Company announced a $0.045 per share cash dividend, payable on May 30, 2014 to shareholders of record on May 15, 2014.
During the second quarter of fiscal 2014, MAXIMUS repurchased 301,400 shares of the Company's common stock for approximately $13.0 million. At March 31, 2014, the Company had approximately $62.1 million available for future repurchases under its Board-authorized share repurchase program. Subsequent to quarter close and through May 2, 2014, the Company purchased an additional 241,500 shares for approximately $10.3 million.
In addition to its solid delivery in the second quarter, MAXIMUS has been notified by clients of additional work in support of ACA and Medicaid. As a result, the Company is increasing its fiscal year 2014 revenue and earnings guidance. The Company now expects fiscal year 2014 revenue to range between $1.68 billion and $1.73 billion, an increase from the prior range of $1.60 billion to $1.68 billion. MAXIMUS now expects diluted earnings per share from continuing operations to range between $2.00 and $2.10, an increase from the prior range of $1.95 to $2.05.
Website Presentation, Conference Call and Webcast Information
MAXIMUS will host a conference call this morning, May 8, 2014, at 9:00 a.m. (ET). The call is open to the public and can be accessed under the Investor Relations page of the Company's website at http://investor.maximus.com or by calling:
877.407.8289 (Domestic)/201.689.8341 (International)
For those unable to listen to the live call, a replay will be available through May 22, 2014. Callers can access the replay by calling:
877.660.6853 (Domestic)/201.612.7415 (International)
Replay conference ID number: 13580874
MAXIMUS is a leading operator of government health and human services programs in the United States, United Kingdom, Canada, Australia and Saudi Arabia. The Company delivers business process services to improve the cost effectiveness, efficiency and quality of government-sponsored benefit programs, such as Medicaid, Medicare, Children's Health Insurance Program (CHIP), Health Insurance BC (British Columbia), as well as welfare-to-work and child support programs around the globe. The Company's primary customer base includes federal, provincial, state, county and municipal governments. Operating under its founding mission of Helping Government Serve the People®, MAXIMUS has approximately 11,000 employees worldwide. For more information, visit www.maximus.com.
This release refers to non-GAAP financial measures, including free cash flow, adjusted diluted earnings per share from continuing operations, constant currency and results excluding the terminated contract.
We have provided a reconciliation of free cash flow to cash provided by operating activities from continuing operations. We believe that free cash flow is a useful basis for investors to compare our performance across periods or against our competitors. Free cash flow shows the effects of the Company's operations and routine capital expenditure and excludes the cash flow effects of acquisitions, share repurchases, dividend payments and other financing transactions.
We have provided a reconciliation showing the effects of excluding the terminated contract on revenue, operating income and operating margin. We believe that these non-GAAP numbers provide a useful basis for assessing the Company's performance excluding the effects of this one-time, non-cash transaction.
We have provided a reconciliation to adjusted diluted earnings per share. We believe that this measure is a useful basis for assessing the Company's performance excluding the effects of legal and settlement expenses, acquisition expenses, tax benefits and the contract termination in fiscal year 2013.
To provide constant currency information, we calculate fiscal year 2014 revenue for all international businesses using the exchange rates used in the comparative periods in fiscal year 2013. We believe constant currency provides a useful basis for assessing the performance of the business excluding the unpredictable effects of foreign exchange fluctuations.
The presentation of these non-GAAP numbers is not meant to be considered in isolation, nor as alternatives to cash flows from operating activities, diluted earnings per share, 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.