mms-20221231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________.

Commission file number: 1-12997


Maximus, Inc.
(Exact name of registrant as specified in its charter)

Virginia						54-1000588
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1600 Tysons Boulevard, McLean, Virginia						22102
(Address of principal executive offices)						(Zip Code)

(703) 251-8500
(Registrant's telephone number, including the area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

MMS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

There were 60,773,258 shares of the registrant's Common Stock outstanding as of February 6, 2023.

Table of Contents

Table of Contents to First Quarter 2023 Form 10-Q


	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
Part I - Financial Information		4
Item 1.	Financial Statements	4
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Changes in Shareholders’ Equity	8
	Notes to Consolidated Financial Statements	9
	1. Organization	9
	2. Significant Accounting Policies	9
	3. Business Segments	10
	4. Revenue Recognition	12
	5. Earnings Per Share	13
	6. Debt and Derivatives	14
	7. Fair Value Measurements	15
	8. Equity	16
	9. Other Balance Sheet Items	17
	10. Commitments and Contingencies	18
	11. Subsequent Event	18
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Business Overview	19
	Financial Overview	20
	Results of Operations	20
	Liquidity and Capital Resources	24
	Critical Accounting Policies and Estimates	25
	Non-GAAP and Other Measures	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II - Other Information		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30

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Unless otherwise specified, references in this Quarterly Report on Form 10-Q to "our," "we," "us," "Maximus," the "Company," and "our business" refer to Maximus, Inc. and its subsidiaries.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "opportunity," "could," "potential," "believe," "project," "estimate," "expect," "continue," "forecast," "strategy," "future," "likely," "may," "should," "will," and similar references to future periods.

Forward-looking statements that are not historical facts, including statements about our confidence, strategies and initiatives, and our expectations about revenues, results of operations, profitability, liquidity, market demand, the impact of the coronavirus ("COVID-19") global pandemic and related policy implications, and our recent acquisitions, are forward-looking statements that are subject to risks and uncertainties. These risks could cause our actual results to differ materially from those indicated by such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

•a failure to meet performance requirements could lead to penalties, liquidated damages, actual damages, adverse settlement agreements, and/or contract termination;

•our failure to successfully bid for and accurately price contracts to generate our desired profit;

•the effects of future legislative or government budgetary and spending changes;

•the impact of the Biden Administration on federal procurement, federal funding to states' safety-net programs, and the overall decision-making process related to our industry, including our business and customers;

•our ability to manage our growth, including acquired businesses;

•difficulties in integrating or achieving projected revenues, earnings, and other benefits associated with acquired businesses;

•the outcome of reviews or audits, which might result in financial penalties and impair our ability to respond to invitations for new work;

•our ability to manage capital investments and startup costs incurred before receiving related contract payments;

•our ability to manage our debt;

•the extent and impact of the continuation of the global pandemic and the actions taken or to be taken by us, our customers, and the governments or jurisdictions in which we operate in response to the COVID-19 pandemic, including the U.S. federal government's ongoing Public Health Emergency declaration;

•our ability to maintain technology systems and otherwise protect confidential or protected information;

•our ability to attract and retain executive officers, senior managers and other qualified personnel to execute our business;

•the ability of government customers to terminate contracts on short notice, with or without cause;

•our ability to maintain relationships with key government entities from whom a substantial portion of our revenue is derived;

•a failure to comply with laws governing our business, which might result in the Company being subject to fines, penalties, suspension, debarment, and other sanctions;

•the costs and outcome of litigation;

•the effects of changes in laws and regulations governing our business, including tax laws, and applicable interpretations and guidance thereunder, or changes in accounting policies, rules, methodologies, and practices, and our ability to estimate the impact of such changes;

•matters related to business we disposed of or divested; and

•other factors set forth in Item 1A, "Risk Factors" of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 22, 2022.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments, or otherwise.

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PART I - Financial Information

Item 1. Financial Statements

Maximus, Inc.

Consolidated Statements of Operations

(Unaudited)


	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands, except per share amounts)
Revenue	$	1,249,246	$	1,150,876
Cost of revenue	1,004,499		922,721
Gross profit	244,747		228,155
Selling, general, and administrative expenses	146,452		124,221
Amortization of intangible assets	23,518		22,405
Operating income	74,777		81,529
Interest expense	21,606		9,638
Other income/(expense), net	266		(311)
Income before income taxes	53,437		71,580
Provision for income taxes	13,442		18,250
Net income	$	39,995	$	53,330

Earnings per share:
Basic	$	0.65	$	0.86
Diluted	$	0.65	$	0.85
Weighted average shares outstanding:
Basic	61,117		62,262
Diluted	61,196		62,445

Dividends declared per share	$	0.28	$	0.28

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Net income	$	39,995	$	53,330
Other comprehensive income, net of tax:
Foreign currency translation adjustments	8,036		459
Net (losses)/gains on cash flow hedges, net of tax effect of $(1,349) and $957, respectively	(3,781)		2,685
Other comprehensive income	4,255		3,144
Comprehensive income	$	44,250	$	56,474

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Balance Sheets


	December 31, 2022		September 30, 2022
	(unaudited)
	(in thousands)
Assets:
Cash and cash equivalents	$	63,050	$	40,658
Accounts receivable, net	1,014,046		807,110
Income taxes receivable	4,486		2,158
Prepaid expenses and other current assets	174,505		182,387
Total current assets	1,256,087		1,032,313
Property and equipment, net	50,181		52,258
Capitalized software, net	64,963		58,740
Operating lease right-of-use assets	162,289		132,885
Goodwill	1,783,239		1,779,415
Intangible assets, net	782,821		804,904
Deferred contract costs, net	49,030		47,732
Deferred compensation plan assets	39,606		37,050
Deferred income taxes	5,038		4,970
Other assets	41,661		42,447
Total assets	$	4,234,915	$	3,992,714
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued liabilities	$	272,196	$	264,553
Accrued compensation and benefits	118,505		178,199
Deferred revenue, current portion	96,201		87,146
Income taxes payable	12,422		718
Long-term debt, current portion	77,479		63,458
Operating lease liabilities, current portion	59,553		63,999
Other current liabilities	109,866		116,374
Total current liabilities	746,222		774,447
Deferred revenue, non-current portion	29,624		21,414
Deferred income taxes	203,545		206,099
Long-term debt, non-current portion	1,486,975		1,292,483
Deferred compensation plan liabilities, non-current portion	44,688		40,210
Operating lease liabilities, non-current portion	119,081		86,175
Other liabilities	23,773		22,515
Total liabilities	2,653,908		2,443,343
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 60,774 shares issued and outstanding as of December 31, 2022 and September 30 2022, respectively (shares in thousands)	562,679		557,978
Accumulated other comprehensive loss	(29,706)		(33,961)
Retained earnings	1,048,034		1,025,354
Total shareholders' equity	1,581,007		1,549,371
Total liabilities and shareholders' equity	$	4,234,915	$	3,992,714

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	For the Three Months Ended
	December 31, 2022		December 31, 2021
	(in thousands)
Cash flows from operating activities:
Net income	$	39,995	$	53,330
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization of property, equipment and capitalized software	12,280		11,365
Amortization of intangible assets	23,518		22,405
Amortization of debt issuance costs and debt discount	1,034		649


Deferred income taxes	(1,331)		(229)
Stock compensation expense	4,403		8,248

Change in assets and liabilities, net of effects of business combinations:
Accounts receivable	(200,749)		(14,114)
Prepaid expenses and other current assets	10,624		(5,115)
Deferred contract costs	(1,013)		(6,811)
Accounts payable and accrued liabilities	3,642		(32,452)
Accrued compensation and benefits	(53,271)		(56,305)
Deferred revenue	14,764		5,929
Income taxes	9,465		10,321
Operating lease right-of-use assets and liabilities	(948)		(6,370)

Other assets and liabilities	2,928		6,230
Net cash used in operating activities	(134,659)		(2,919)
Cash flows from investing activities:
Purchases of property and equipment and capitalized software	(15,697)		(6,327)




Net cash used in investing activities	(15,697)		(6,327)
Cash flows from financing activities:
Cash dividends paid to Maximus shareholders	(17,017)		(17,347)
Purchases of Maximus common stock	—		(1,379)
Tax withholding related to RSU vesting	(8,475)		(9,673)
Payments for contingent consideration	(1,415)		—

Proceeds from borrowings	268,702		100,000
Principal payments for debt	(61,355)		(16,685)
Restricted cash movements	(9,473)		—
Net cash provided by financing activities	170,967		54,916
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	2,421		372
Net change in cash, cash equivalents, and restricted cash	23,032		46,042
Cash, cash equivalents and restricted cash, beginning of period	136,795		156,570
Cash, cash equivalents and restricted cash, end of period	$	159,827	$	202,612

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)


	Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Equity
	Shares	Amount
	(in thousands)
Balance at September 30, 2022	60,774	$	557,978	$	(33,961)	$	1,025,354	$	1,549,371
Net income	—	—		—		39,995		39,995
Foreign currency translation	—	—		8,036		—		8,036
Cash flow hedge, net of tax	—	—		(3,781)		—		(3,781)
Cash dividends	—	—		—		(17,017)		(17,017)
Dividends on RSUs	—	298		—		(298)		—

Stock compensation expense	—	4,403		—		—		4,403

Balance as of December 31, 2022	60,774	$	562,679	$	(29,706)	$	1,048,034	$	1,581,007

	Common Stock			Accumulated Other Comprehensive Loss		Retained Earnings		Total Equity
	Shares	Amount
	(in thousands)
Balance at September 30, 2021	61,954	$	532,411	$	(39,908)	$	987,826	$	1,480,329
Net income	—	—		—		53,330		53,330
Foreign currency translation	—	—		459		—		459
Cash flow hedge, net of tax	—	—		2,685		—		2,685
Cash dividends	—	—		—		(17,347)		(17,347)
Dividends on RSUs	—	272		—		(272)		—
Purchases of Maximus common stock	(18)	—		—		(1,379)		(1,379)
Stock compensation expense	—	8,248		—		—		8,248
Tax withholding adjustment related to RSU vesting	—	2,101		—		—		2,101
Balance as of December 31, 2021	61,936	$	543,032	$	(36,764)	$	1,022,158	$	1,528,426

See accompanying notes to consolidated financial statements.

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Maximus, Inc.

Notes to the Consolidated Financial Statements

1. ORGANIZATION

Maximus, a Virginia corporation established in 1975, is a leading operator of government health and human services programs and provider of technology solutions to governments. Under our mission of Moving People Forward, we offer industry-leading expertise, including citizen engagement, eligibility and program integrity, independent clinical assessments, case management, and technology modernization services to enable citizens around the globe to successfully engage with their governments at all levels. We are a proud partner to government agencies in the United States, Australia, Canada, Italy, Saudi Arabia, Singapore, South Korea, Sweden, United Arab Emirates, and the United Kingdom.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements, including the notes, include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. We believe that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly our financial position and the results of operations and cash flows for the periods presented.

The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for the year or future periods. The financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended September 30, 2022 included in our Annual Report on Form 10-K for the fiscal year then ended (the "2022 10-K"). We have continued to follow the accounting policies set forth in those financial statements.

Use of Estimates

The preparation of these financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenue and expenses. At each reporting period end, we make estimates, including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill, and amounts related to income taxes, certain accrued liabilities, and contingencies and litigation.

In May 2021, we acquired VES Group, Inc. As part of the acquisition, we allocated a valuation of $27 million to certain technology assets used by the business, which we elected to amortize over twelve years, which was our best estimate of asset life at that time. In fiscal year 2023, we have taken the opportunity to improve our technology portfolio, including the development of technology which will eventually replace much of the acquired technology. Accordingly, we have revised the asset life on the existing technology assuming the assets will cease being used by September 2026. This change in estimated useful life will result in additional annual amortization expense of $3.8 million per year. In the three months ended December 31, 2022, this change reduced our diluted earnings per share by approximately $0.01.

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3. BUSINESS SEGMENTS

We conduct our operations through three business segments: U.S. Federal Services, U.S. Services, and Outside the U.S.

U.S. Federal Services

Our U.S. Federal Services Segment delivers end-to-end solutions that help various U.S. federal government agencies better deliver on their mission, including program operations and management, clinical services, and technology solutions. This also includes appeals and assessments services, system and application development, IT modernization, and maintenance services. The segment also contains certain state-based assessments and appeals work that is part of the segment's heritage which continues to be managed within this segment. Benefiting from the 2021 acquisition of the Attain Federal business, now managed as Technology Consulting Services, the segment executes on its digital strategy to deliver technology solutions that advance agency missions, including the challenge to modernize, provide better customer experience, and drive process efficiencies. The segment continues to expand its clinical solutions with the acquisition of VES Group, Inc., which manages the clinical evaluation process for U.S. veterans and service members on behalf of the U.S. Department of Veterans Affairs.

U.S. Services

Our U.S. Services Segment provides a variety of business process services ("BPS"), such as program administration, assessments, and related consulting work for U.S. state and local government programs. These services support a variety of programs, including the Affordable Care Act ("ACA"), Medicaid, the Children's Health Insurance Program ("CHIP"), Temporary Assistance to Needy Families ("TANF"), and child support programs. As part of the government's COVID-19 response efforts, the segment supported contact tracing, disease investigation, and vaccine distribution support services during the peak of the pandemic. The segment also successfully expanded into the unemployment insurance market where longer term opportunities have materialized. As part of the broader strategy to evolve clinically and address societal macro trends such as aging populations and rising costs, the segment continues to expand its offerings in public health with new work in in-person assessments.

Outside the U.S.

Our Outside the U.S. Segment provides BPS for international governments and commercial clients, transforming the lives of people around the world. Helping people find employment, access vital support, and remain healthy, these services include health and disability assessments, program administration for employment services, wellbeing solutions, and other job seeker-related services. We support programs and deliver services in the U.K., including the Health Assessment Advisory Service ("HAAS") and Restart; Australia, including Workforce Australia and the Disability Employment Service; Canada, including the Employment Program of British Columbia; in addition to Italy, Saudi Arabia, Singapore, South Korea, Sweden, and UAE where we predominantly provide employment support and job seeker services.

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Table 3.1: Results of Operation by Business Segment
	For the Three Months Ended
	December 31, 2022				December 31, 2021
	Amount		% (1)		Amount		% (1)
	(dollars in thousands)
Revenue:
U.S. Federal Services	$	618,167			$	581,871
U.S. Services	439,478				386,417
Outside the U.S.	191,601				182,588
Revenue	$	1,249,246			$	1,150,876
Gross profit:
U.S. Federal Services	$	122,694	19.8	%	$	126,576	21.8	%
U.S. Services	83,598		19.0	%	89,699		23.2	%
Outside the U.S.	38,455		20.1	%	11,880		6.5	%
Gross profit	$	244,747	19.6	%	$	228,155	19.8	%
Selling, general, and administrative expenses:
U.S. Federal Services	$	71,649	11.6	%	$	64,925	11.2	%
U.S. Services	45,842		10.4	%	35,102		9.1	%
Outside the U.S.	28,389		14.8	%	21,340		11.7	%
Other (2)	572		NM		2,854		NM
Selling, general, and administrative expenses	$	146,452	11.7	%	$	124,221	10.8	%
Operating income:
U.S. Federal Services	$	51,045	8.3	%	$	61,651	10.6	%
U.S. Services	37,756

SEC Form 10-Q filed by Maximus Inc.