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MAXIMUS, INC. - Quarter Report: 2015 March (Form 10-Q)

Table of Contents

 

 

 

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2015

 

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.)

 

1891 Metro Center Drive
 Reston, Virginia

 

20190

(Address of principal executive offices)

 

(Zip Code)

 

(703) 251-8500

(Registrant’s telephone number, including area code)

 


 

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 x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if smaller reporting company)

 

 

 

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

 

As of April 30, 2015, there were 65,891,694 shares of the registrant’s common stock (no par value) outstanding.

 

 

 



Table of Contents

 

MAXIMUS, Inc.

 

Quarterly Report on Form 10-Q

 For the Quarter Ended March 31, 2015

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements

3

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2015 and 2014 (unaudited)

3

 

 

 

 

Consolidated Statement of Comprehensive Income for the Three and Six Months Ended March 31, 2015 and 2014 (unaudited)

4

 

 

 

 

Consolidated Balance Sheets as of March 31, 2015 (unaudited) and September 30, 2014

5

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2015 and 2014 (unaudited)

6

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended March 31, 2015 and 2014 (unaudited)

7

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

18

 

 

 

Item 4.

Controls and Procedures

18

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

20

 

 

 

Item 6.

Exhibits

20

 

 

 

Signatures

 

21

 

 

 

Exhibit Index

 

22

 



Table of Contents

 

Throughout this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” “our” and “MAXIMUS” 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 Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements that are not historical facts. Words such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” “will” and similar expressions are intended to identify forward-looking statements and convey uncertainty of future events or outcomes. These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward- looking statements due to a number of factors, including without limitation:

 

·                  a failure on our part to comply with laws governing our business, which might result in us being subject to fines, penalties and other sanctions;

 

·                  a failure to meet performance requirements in our contracts, which might lead to contract termination and liquidated damages;

 

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

 

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

 

·                  difficulties in integrating acquired businesses;

 

·                  matters related to business we have disposed of or divested;

 

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

 

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

 

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

 

·                  our ability to manage capital investments and start-up costs incurred before receiving related contract payments;

 

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

 

·                  the costs and outcome of litigation; and

 

·                  other factors set forth in Exhibit 99.1 of our Annual Report on Form 10-K for the year ended September 30, 2014, filed with the Securities and Exchange Commission on November 17, 2014.

 

As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. Additionally, we caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future events or otherwise.

 

2



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements.

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

481,794

 

$

439,015

 

$

948,837

 

$

845,607

 

Cost of revenue

 

357,449

 

318,343

 

705,225

 

619,019

 

Gross profit

 

124,345

 

120,672

 

243,612

 

226,588

 

Selling, general and administrative expenses

 

59,392

 

53,624

 

111,353

 

104,889

 

Amortization of intangible assets

 

1,432

 

1,468

 

2,907

 

2,823

 

Acquisition-related expenses

 

1,514

 

 

2,114

 

 

Legal and settlement expenses

 

 

600

 

 

600

 

Operating income

 

62,007

 

64,980

 

127,238

 

118,276

 

Interest and other income, net

 

219

 

476

 

1,120

 

808

 

Income before income taxes

 

62,226

 

65,456

 

128,358

 

119,084

 

Provision for income taxes

 

23,198

 

23,995

 

46,980

 

44,268

 

Net income

 

39,028

 

41,461

 

81,378

 

74,816

 

(Income)/loss attributable to noncontrolling interests

 

(220

)

(254

)

(709

)

250

 

Net income attributable to MAXIMUS

 

$

38,808

 

$

41,207

 

80,669

 

$

75,066

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to MAXIMUS

 

$

0.59

 

$

0.61

 

$

1.22

 

$

1.10

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to MAXIMUS

 

$

0.58

 

$

0.59

 

$

1.20

 

$

1.08

 

 

 

 

 

 

 

 

 

 

 

Dividends paid per share

 

$

0.045

 

$

0.045

 

$

0.09

 

$

0.09

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

65,862

 

67,884

 

65,899

 

68,143

 

Diluted

 

66,987

 

69,307

 

66,947

 

69,538

 

 

See notes to unaudited consolidated financial statements.

 

3



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MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

 

 

 

Three months
Ended March 31,

 

Six months
Ended March 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Net income

 

$

39,028

 

$

41,461

 

$

81,378

 

$

74,816

 

Foreign currency translation adjustments

 

(10,553

)

1,638

 

(21,033

)

(1,447

)

Comprehensive income

 

28,475

 

43,099

 

60,345

 

73,369

 

Comprehensive (income)/loss attributable to noncontrolling interests

 

(220

)

(254

)

(709

)

250

 

Comprehensive income attributable to MAXIMUS

 

$

28,255

 

$

42,845

 

$

59,636

 

$

73,619

 

 

See notes to unaudited consolidated financial statements.

 

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MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

 

 

March 31,
2015

 

September 30,
2014

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

114,535

 

$

158,112

 

Accounts receivable — billed and billable, net of reserves of $4,004 and $3,138

 

339,527

 

263,011

 

Accounts receivable — unbilled

 

28,845

 

26,556

 

Deferred income taxes

 

32,572

 

28,108

 

Prepaid expenses and other current assets

 

54,530

 

56,673

 

Total current assets

 

570,009

 

532,460

 

 

 

 

 

 

 

Property and equipment, net

 

103,234

 

80,246

 

Capitalized software, net

 

35,311

 

39,734

 

Goodwill

 

162,214

 

170,626

 

Intangible assets, net

 

34,031

 

39,239

 

Deferred contract costs, net

 

19,005

 

12,046

 

Deferred compensation plan assets

 

21,003

 

17,126

 

Other assets, net

 

10,154

 

9,519

 

Total assets

 

$

954,961

 

$

900,996

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

126,122

 

$

103,181

 

Accrued compensation and benefits

 

67,765

 

94,137

 

Deferred revenue

 

55,096

 

55,878

 

Income taxes payable

 

16,887

 

4,693

 

Other liabilities

 

6,951

 

7,432

 

Total current liabilities

 

272,821

 

265,321

 

Deferred revenue, less current portion

 

50,682

 

32,257

 

Deferred income taxes

 

15,930

 

21,383

 

Deferred compensation plan liabilities, less current portion

 

20,973

 

18,768

 

Other liabilities

 

6,326

 

7,082

 

Total liabilities

 

366,732

 

344,811

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common stock, no par value; 100,000 shares authorized; 65,871 and 66,613 shares issued and outstanding at March 31, 2015 and September 30, 2014, at stated amount, respectively

 

438,373

 

429,857

 

Accumulated other comprehensive income/(loss)

 

(20,803

)

230

 

Retained earnings

 

169,802

 

125,875

 

Total MAXIMUS shareholders’ equity

 

587,372

 

555,962

 

Noncontrolling interests

 

857

 

223

 

Total equity

 

588,229

 

556,185

 

Total liabilities and equity

 

$

954,961

 

$

900,996

 

 

See notes to unaudited consolidated financial statements.

 

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MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

 

 

Six Months
Ended March 31,

 

 

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

81,378

 

$

74,816

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of property, equipment and capitalized software

 

23,706

 

20,936

 

Amortization of intangible assets

 

2,907

 

2,823

 

Deferred income taxes

 

(10,134

)

(1,387

)

Stock compensation expense

 

8,436

 

8,561

 

 

 

 

 

 

 

Change in assets and liabilities:

 

 

 

 

 

Accounts receivable — billed and billable

 

(80,883

)

(37,516

)

Accounts receivable — unbilled

 

(2,311

)

(50

)

Prepaid expenses and other current assets

 

(6,043

)

2,539

 

Deferred contract costs

 

(7,105

)

1,979

 

Accounts payable and accrued liabilities

 

27,274

 

3,627

 

Accrued compensation and benefits

 

(12,263

)

(7,450

)

Deferred revenue

 

21,858

 

(6,211

)

Income taxes

 

19,583

 

10,153

 

Other assets and liabilities

 

(4,337

)

3,640

 

Cash provided by operating activities

 

62,066

 

76,460

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(44,226

)

(9,516

)

Capitalized software costs

 

(3,247

)

(7,317

)

Acquisition of business, net of cash acquired

 

 

(2,670

)

Proceeds from note receivable

 

282

 

154

 

Cash used in investing activities

 

(47,191

)

(19,349

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Cash dividends paid

 

(5,928

)

(6,138

)

Repurchases of common stock

 

(32,616

)

(34,696

)

Tax withholding related to RSU vesting

 

(12,453

)

(12,905

)

Expansion of credit facility

 

(1,444

)

 

Borrowings under credit facility

 

 

15,000

 

Repayment of credit facility and other long-term debt

 

(74

)

(15,082

)

Tax benefit due to option exercises and restricted stock units vesting

 

 

2,925

 

Stock option exercises

 

 

518

 

Cash used in financing activities

 

(52,515

)

(50,378

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(5,937

)

(1,027

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(43,577

)

5,706

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

158,112

 

125,617

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

114,535

 

$

131,323

 

 

See notes to unaudited consolidated financial statements.

 

6



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MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

 

 

 

Common
Shares
Outstanding

 

Common
Stock

 

Accumulated
Other
Comprehensive
Income/(Loss)

 

Retained
Earnings

 

Noncontrolling
Interest

 

Total

 

Balance at September 30, 2014

 

66,613

 

$

429,857

 

$

230

 

$

125,875

 

$

223

 

$

556,185

 

Net income

 

 

 

 

80,669

 

709

 

81,378

 

Foreign currency translation

 

 

 

(21,033

)

 

 

(21,033

)

Cash dividends

 

 

 

 

(5,928

)

 

(5,928

)

Dividends on RSUs

 

 

196

 

 

(196

)

 

 

Dividends to noncontrolling interests

 

 

 

 

 

(75

)

(75

)

Repurchases of common stock

 

(753

)

 

 

(30,618

)

 

(30,618

)

Stock compensation expense

 

 

8,436

 

 

 

 

8,436

 

Tax withholding related to RSU vesting

 

 

(116

)

 

 

 

(116

)

RSUs vested

 

11

 

 

 

 

 

 

Balance at March 31, 2015

 

65,871

 

$

438,373

 

$

(20,803

)

$

169,802

 

$

857

 

$

588,229

 

 

 

 

Common
Shares
Outstanding

 

Common
Stock

 

Accumulated
Other
Comprehensive
Income

 

Retained
Earnings

 

Noncontrolling
Interest

 

Total

 

Balance at September 30, 2013

 

68,525

 

$

415,271

 

$

7,987

 

$

106,250

 

$

267

 

$

529,775

 

Net income

 

 

 

 

75,066

 

(250

)

74,816

 

Foreign currency translation

 

 

 

(1,447

)

 

 

(1,447

)

Cash dividends

 

 

 

 

(6,138

)

 

(6,138

)

Dividends on RSUs

 

 

250

 

 

(250

)

 

 

Repurchases of common stock

 

(807

)

 

 

(35,480

)

 

(35,480

)

Stock compensation expense

 

 

8,561

 

 

 

 

8,561

 

Stock compensation tax benefit

 

 

2,925

 

 

 

 

2,925

 

Tax withholding related to RSU vesting

 

 

(1,877

)

 

 

 

(1,877

)

Stock options exercised and RSUs vested

 

171

 

518

 

 

 

 

518

 

Balance at March 31, 2014

 

67,889

 

$

425,648

 

$

6,540

 

$

139,448

 

$

17

 

$

571,653

 

 

See notes to unaudited consolidated financial statements.

 

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Table of Contents

 

MAXIMUS, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Months Ended March 31, 2015 and 2014

 

In these Notes to Unaudited Consolidated Financial Statements, the terms “Company,” “MAXIMUS,” “us,” “we” or “our” refer to MAXIMUS, Inc. and its subsidiaries.

 

1. Organization and Basis of Presentation

 

General

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and six months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2014 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made from prior year to conform with current presentation.

 

The preparation of these financial statements 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. On an ongoing basis, we evaluate our 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. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

 

These financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto at September 30, 2014 and 2013 and for each of the three years ended September 30, 2014, included in our Annual Report on Form 10-K for the year ended September 30, 2014 which was filed with the Securities and Exchange Commission on November 17, 2014.

 

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2. Segment Information

 

The table below provides certain financial information for each of our business segments. The presentation of segments has been updated from our presentation at prior year to show amortization of intangible assets separately and to reflect the transfer of a small business division from the Health Services Segment to the Human Services Segment.

 

 

 

Three Months Ended March 31,

 

Six Months Ended March 31,

 

(Amounts in thousands)

 

2015

 

% (1)

 

2014

 

% (1)

 

2015

 

% (1)

 

2014

 

% (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Services

 

$

370,383

 

100

%

$

323,598

 

100

%

$

721,682

 

100

%

$

622,182

 

100

%

Human Services

 

111,411

 

100

%

115,417

 

100

%

227,155

 

100

%

223,425

 

100

%

Total

 

481,794

 

100

%

439,015

 

100

%

948,837

 

100

%

845,607

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Services

 

91,887

 

24.8

%

84,868

 

26.2

%

177,302

 

24.6

%

161,374

 

25.9

%

Human Services

 

32,458

 

29.1

%

35,804

 

31.0

%

66,310

 

29.2

%

65,214

 

29.2

%

Total

 

124,345

 

25.8

%

120,672

 

27.5

%

243,612

 

25.7

%

226,588

 

26.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Services

 

40,774

 

11.0

%

35,133

 

10.9

%

75,031

 

10.4

%

69,308

 

11.1

%

Human Services

 

18,523

 

16.6

%

18,528

 

16.1

%

36,222

 

15.9

%

35,602

 

15.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

95

 

NM

 

(37

)

NM

 

100

 

NM

 

(21

)

NM

 

Total

 

59,392

 

12.3

%

53,624

 

12.2

%

111,353

 

11.7

%

104,889

 

12.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Services

 

51,113

 

13.8

%

49,735

 

15.4

%

102,271

 

14.2

%

92,066

 

14.8

%

Human Services

 

13,935

 

12.5

%

17,276

 

15.0

%

30,088

 

13.2

%

29,612

 

13.3

%

Amortization of intangible assets

 

(1,432

)

NM

 

(1,468

)

NM

 

(2,907

)

NM

 

(2,823

)

NM

 

Acquisition-related expenses (2)

 

(1,514

)

NM

 

 

NM

 

(2,114

)

NM

 

 

NM

 

Legal and settlement expenses (3)

 

 

NM

 

(600

)

NM

 

 

NM

 

(600

)

NM

 

Other

 

(95

)

NM

 

37

 

NM

 

(100

)

NM

 

21

 

NM

 

Total

 

$

62,007

 

12.9

%

$

64,980

 

14.8

%

$

127,238

 

13.4

%

$

118,276

 

14.0

%

 


(1)                                 Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”

(2)                                 Acquisition-related expenses are costs directly incurred from the purchases of Acentia and Remploy.

(3)                                 Legal and settlement expenses consist of costs related to significant legal settlements and non-routine legal matters, including future probable legal costs expected to be incurred in connection with those matters. Legal expenses incurred in the ordinary course of business are included in their respective operating segments.

 

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3. Earnings Per Share

 

The weighted average number of shares outstanding used to compute earnings per share was as follows:

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

(Amounts in thousands)

 

2015

 

2014

 

2015

 

2014

 

Basic weighted average shares outstanding

 

65,862

 

67,884

 

65,899

 

68,143

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Employee stock options and unvested restricted stock units

 

1,125

 

1,423

 

1,048

 

1,395

 

Denominator for diluted earnings per share

 

66,987

 

69,307

 

66,947

 

69,538

 

 

No shares were excluded from the computation in calculating the earnings per share for the three or six months ended March 31, 2015 or 2014.

 

4. Business combinations

 

Acentia

 

On April 1, 2015 (the “acquisition date”), we acquired 100% of the ownership interests of Acentia, LLC (“Acentia”) for an estimated cash consideration of $294 million. The final cash consideration will be subject to adjustment based upon calculation of the working capital on the acquisition date, as well as certain other adjustments.

 

Acentia provides system modernization, software development, program management and other information technology services and solutions to the United States Federal Government. We acquired Acentia, among other reasons, to expand our ability to provide complementary business services and offerings across government markets. The acquired assets and liabilities will be integrated into our Health Services Segment.

 

As the acquisition occurred after March 31, 2015, no assets, liabilities, results of operations or cash flows related to Acentia are included in these financial statements. We are in the process of allocating the acquisition price to the fair value of the assets and liabilities of Acentia at the acquisition date. In itial estimates of this allocation are shown below but may be subject to change as we complete our assessment of the acquisition date balance sheet.

 

(Amounts in thousands)

 

Preliminary Purchase
Price Accounting

 

Estimated purchase consideration, net of cash acquired

 

$

294,005

 

Billed and unbilled receivables

 

$

35,087

 

Other assets

 

3,635

 

Property and equipment

 

1,619

 

Intangible assets — customer relationships

 

69,900

 

Total identifiable assets acquired

 

110,241

 

Accounts payable and other liabilities

 

30,676

 

Deferred revenue

 

251

 

Total liabilities assumed

 

30,927

 

Net identifiable assets acquired

 

79,314

 

Goodwill

 

214,691

 

Net assets acquired

 

$

294,005

 

 

The excess of the acquisition date consideration over the estimated fair value of the net assets acquired will be recorded as goodwill. We consider the goodwill to represent the value of the assembled workforce of Acentia, as well as the enhanced knowledge and capabilities resulting from this business combination. Approximately 70% of the goodwill balance is anticipated to be deductible for tax purposes.

 

The intangible assets acquired represent customer relationships. These are expected to be amortized on a straight-line basis over 14 years.

 

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The following table presents certain results for the Company for the three and six months ended March 31, 2015 and 2014 as though the acquisition of Acentia had occurred on October 1, 2013. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of the Company if the acquisition had taken place on that date. The pro forma results presented below include amortization charges for acquired intangible assets, adjustments to interest expense incurred and exclude related acquisition expenses.

 

 

 

Unaudited pro forma results

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

(Amounts in thousands, except per share amounts)

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

533,408

 

$

491,720

 

$

1,052,390

 

$

951,669

 

Net income

 

40,984

 

43,783

 

86,668

 

79,314

 

Basic earnings per share attributable to MAXIMUS

 

0.62

 

0.64

 

1.30

 

1.17

 

Diluted earnings per share attributable to MAXIMUS

 

0.61

 

0.63

 

1.28

 

1.14

 

 

Remploy

 

On April 7, 2015 (the “Remploy acquisition date”), we acquired 70% of the ownership interests of Remploy (2015) Limited, whose assets had previously operated under the “Remploy” tradename. The remaining 30% is held in a trust for the benefit of the employees. The acquisition consideration was $3.0 million (£2.0 million). The purchase agreement stipulates that the net assets of Remploy are to be zero on the Remploy acquisition date as calculated using United Kingdom accounting principles.

 

Remploy provides services to the United Kingdom government, particularly in supporting employment opportunities for the disabled. We acquired Remploy to complement our welfare-to-work services in the United Kingdom. The acquired assets and liabilities will be integrated into our Human Services Segment.

 

No financial results related to Remploy are included in our statement of operations for the three and six months ended March 31, 2015. The results of Remploy for periods prior to the Remploy acquisition date would not have had a significant effect on our financial results.

 

5. Goodwill and Intangible Assets

 

The changes in goodwill for the six months ended March 31, 2015 are as follows:

 

(Amounts in thousands)

 

Health Services

 

Human Services

 

Total

 

Balance as of September 30, 2014

 

$

124,920

 

$

45,706

 

$

170,626

 

Foreign currency translation

 

(6,210

)

(2,202

)

(8,412

)

Balance as of March 31, 2015

 

$

118,710

 

$

43,504

 

$

162,214

 

 

The following table sets forth the components of intangible assets:

 

 

 

As of March 31, 2015

 

As of September 30, 2014

 

(Amounts in thousands)

 

Cost

 

Accumulated
Amortization

 

Intangible
Assets, net

 

Cost

 

Accumulated
Amortization

 

Intangible
Assets, net

 

Customer contracts and relationships

 

$

40,027

 

$

9,545

 

$

30,482

 

$

42,403

 

$

7,821

 

$

34,582

 

Technology based intangible assets

 

8,828

 

7,095

 

1,733

 

9,295

 

6,910

 

2,385

 

Trademarks and trade names

 

4,306

 

2,490

 

1,816

 

4,374

 

2,102

 

2,272

 

Total

 

$

53,161

 

$

19,130

 

$

34,031

 

$

56,072

 

$

16,833

 

$

39,239

 

 

Our intangible assets at March 31, 2015 had a weighted average remaining life of 11.5 years, comprising 12.5 years for customer contracts and relationships, 2.9 years for technology-based intangible assets and 2.5 years for the trademarks and trade names. Amortization expense for the six months ended March 31, 2015 and 2014 was $2.9 million and $2.8 million, respectively. Estimated future amortization expense excluding the effects of the Acentia and Remploy acquisitions is as follows (in thousands):

 

Six months ended September 30, 2015

 

$

2,758

 

Year ended September 30, 2016

 

5,354

 

Year ended September 30, 2017

 

4,955

 

Year ended September 30, 2018

 

3,820

 

Year ended September 30, 2019

 

2,936

 

Year ended September 30, 2020

 

1,832

 

 

Amortization expenses related to the Acentia and Remploy acquisitions are not included above. The additional expense is anticipated to be approximately $6 million per year.

 

6. Credit facilities

 

On March 9, 2015, we entered into an amendment to our unsecured credit agreement (the “Credit Agreement”). The Credit Agreement, as amended, provides for a revolving line of credit up to $400 million that may be used for revolving loans, swingline loans (subject to a sublimit of $5 million), and to request letters of credit, subject to a sublimit of $30 million. The line of credit is available for general corporate purposes, including working capital, capital expenditures and acquisitions. The arrangement will terminate on March 9, 2020, at which time all outstanding borrowings must be repaid.

 

We had no borrowings under the Credit Agreement at March 31, 2015.

 

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Table of Contents

 

At March 31, 2015, our only indebtedness under the Credit Agreement was three letters of credit totaling $4.7 million. Each of these letters of credit may be called by customers in the event that the Company defaults under the terms of a contract, the probability of which we believe is remote. In addition, two letters of credit totaling $3.0 million, secured with restricted cash balances, are held with another financial institution to cover similar obligations.

 

The Credit Agreement requires us to comply with certain financial covenants and other covenants including a maximum total leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all covenants as of March 31, 2015. Our obligations under the Credit Agreement are guaranteed by material domestic subsidiaries of the Company. The Credit Facility is currently unsecured. In the event that our total leverage ratio, as defined in the credit agreement, exceeds 2.5 to 1, the Credit Agreement will become secured by the assets of the parent company and certain of its subsidiaries. At March 31, 2015, our total leverage ratio was negligible.

 

The Credit Agreement provides for an annual commitment fee payable on funds not borrowed or utilized for letters of credit. This charge is based upon our leverage and varies between 0.15% and 0.3%. Borrowings under the Credit Agreement bear interest at our choice at either (a) a Base Rate plus a margin that varies between 0.0% and 0.75% per year, (b) a Eurocurrency Rate plus an applicable margin that varies between 1.0% and 1.75% per year or (c) an Index Rate plus an applicable margin which varies between 1.0% and 1.75% per year. The Base Rate, Eurocurrency Rate and Index Rate are defined by the Credit Agreement.

 

On April 1, 2015, in connection with the Acentia acquisition, we borrowed $225 million under our Credit Agreement and issued an additional letter of credit for $0.6 million. We currently estimate that our leverage ratio will be below 1.0:1.0 after this borrowing.

 

7. Supplemental disclosures

 

During the six months ended March 31, 2015 and 2014, we made income tax payments of $37.6 million and $35.5 million, respectively.

 

At March 31, 2015, we held cash and cash equivalents of $114.5 million. Approximately 33% of these funds are denominated and held in jurisdictions outside the United States and we have no requirement or intent at this time to transfer the funds to the United States. Declines in the value of foreign currencies with respect to the United States Dollar, notably the Australian Dollar and British Pound, resulted in a decline in net assets of $21.0 million in the six months ended March 31, 2015, including a $5.9 million decline in our cash and cash equivalents balance and a $8.4 million decline in our goodwill balance. These declines were recorded as losses in our statement of comprehensive income.

 

Our deferred compensation plan assets include $9.6 million invested in mutual funds which have quoted prices in active markets. These assets are recorded at fair value with changes in fair value being recorded in the statement of operations. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other amounts included within current assets and liabilities that meet the definition of a financial instrument are shown at values equivalent to fair value due to the short-term nature of these items. Our accounts receivable balance includes both amounts invoiced and those where amounts are ready to be invoiced and the funds are collectable within standard invoice terms.

 

8. Stock Repurchase Programs

 

Under resolutions adopted in November 2011 and June 2014, our Board of Directors authorized the repurchase, at management’s discretion, of up to an aggregate of $275.0 million of our common stock. The resolution also authorized the use of option exercise proceeds for the repurchase of our common stock. During the six months ended March 31, 2015 and 2014, we repurchased 0.8 million and 0.8 million common shares at a cost of $30.6 million and $35.5 million, respectively. The amount available for future repurchases at March 31, 2015 was $104.6 million.

 

9. Revenue recognition

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This new standard will change the manner in which we evaluate revenue recognition for all contracts with customers, although the effect of the changes on revenue recognition will vary from contract to contract. In April 2015, the FASB proposed a one-year delay in the effective date of the standard. If this proposal is ratified, we would adopt this standard during our 2019 fiscal year. The standard permits a retrospective or cumulative effect transition method. We anticipate that we will adopt the new standard using the retrospective method. We are continuing to evaluate the likely effects on our business.

 

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Table of Contents

 

10. Dividend

 

On April 3, 2015, our Board of Directors declared a quarterly cash dividend of $0.045 for each share of our common stock outstanding. The dividend is payable on May 29, 2015 to shareholders of record on May 15, 2015.

 

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Table of Contents

 

Item 2.                   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included both herein and in our Annual Report on Form 10-K for the year ended September 30, 2014, filed with the Securities and Exchange Commission on November 17, 2014.

 

Business Overview

 

We provide business process services (BPS) to government health and human services agencies under our mission of Helping Government Serve the People.® We are one of the largest pure-play health and human services BPS providers to governments in the United States, Australia, Canada, the United Kingdom and Saudi Arabia. We use our experience, business process management expertise and advanced technological solutions to help government agencies run efficient and cost-effective programs, improve program accountability and outcomes and enhance the quality of services provided to program beneficiaries.

 

Over the past five years, our business has grown significantly.  We believe this growth has been driven by economic and demographic factors, such as aging populations and increased demand for health care, and the need for governments to operate programs effectively and efficiently.  This growth has been driven by reform efforts in the United States, including the Affordable Care Act, as well as internationally with various programs in Australia and the United Kingdom.

 

We believe that governments will continue to seek opportunities to enhance existing processes or address new challenges through companies such as MAXIMUS.  We believe that a combination of our innovative technical solutions, deep subject matter expertise, stringent adherence to our Standards of Business Conduct and Ethics, robust financial performance and global experience gives existing and future customers the confidence that MAXIMUS can reliably operate their high-profile public health and human services programs.

 

On April 1, 2015, we acquired Acentia LLC (“Acentia”) for an estimated cash consideration of $294 million. Acentia provides system modernization, software development, program management and other information technology services and solutions to the United States Federal Government. We acquired Acentia, among other reasons, to expand our ability to provide complementary business services and offerings across government markets. We have provided certain unaudited pro forma financial information for Acentia in a Current Report on Form 8-K dated May 8, 2015. The unaudited pro forma financial information from Acentia for the year ended September 30, 2014 was $212 million and pro forma diluted earnings per share increased from $2.11 to $2.25. The pro forma information is based upon historical information and is not necessarily indicative of what would have been achieved or will be achieved.

 

On April 7, 2015, we acquired 70% of the ownership interests of Remploy (2015) Limited, whose assets had previously operated under the “Remploy” tradename. The remaining 30% is held in a trust for the benefit of the employees. Remploy provides services to the United Kingdom government, particularly in supporting employment opportunities for the disabled. We acquired Remploy to complement our welfare-to-work services in the United Kingdom. We expect the acquisition of Remploy will increase our revenue for the second half of the year by approximately $30 million to $35 million.

 

Our financial results for the three and six month periods ended March 31, 2015 do not include any results related to Acentia or Remploy. The results of these businesses will be included in the Health and Human Services Segments, respectively, in future financial reporting. We expect the acquisitions of Acentia and Remploy will increase our revenues for fiscal year 2015 by $140 million to $160 million and diluted earnings per share by $0.07 to $0.09. The acquisition of Acentia was funded, in part, through a borrowing of $225 million on our revolving line of credit.

 

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Table of Contents

 

Results of Operations

 

Consolidated

 

The following table sets forth, for the periods indicated, selected statements of operations data:

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

(amounts in thousands, except per share data)

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

481,794

 

$

439,015

 

$

948,837

 

$

845,607

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

124,345

 

$

120,672

 

$

243,612

 

$

226,588

 

Gross profit percentage

 

25.8

%

27.5

%

25.7

%

26.8

%

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$

59,392

 

$

53,624

 

$

111,353

 

$

104,889

 

Selling, general and administrative expense as a percentage of revenue

 

12.3

%

12.2

%

11.7

%

12.4

%

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

1,432

 

1,468

 

2,907

 

2,823

 

Acquisition-related expenses

 

1,514

 

 

2,114

 

 

Legal and settlement expenses

 

 

600

 

 

600

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

62,007

 

$

64,980

 

$

127,238

 

$

118,276

 

Operating margin

 

12.9

%

14.8

%

13.4

%

14.0

%

 

 

 

 

 

 

 

 

 

 

Interest and other income, net

 

219

 

476

 

1,120

 

808

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

62,226

 

65,456

 

128,358

 

119,084

 

Provision for income taxes

 

23,198

 

23,995

 

46,980

 

44,268

 

Effective tax rate

 

37.3

%

36.7

%

36.6

%

37.2

%

 

 

 

 

 

 

 

 

 

 

Net income

 

$

39,028

 

$

41,461

 

$

81,378

 

$

74,816

 

(Income)/loss attributable to noncontrolling interests

 

(220

)

$

(254

)

$

(709

)

$

250

 

Net income

 

$

38,808

 

$

41,207

 

$

80,669

 

$

75,066

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to MAXIMUS

 

$

0.59

 

$

0.61

 

$

1.22

 

$

1.10

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to MAXIMUS

 

$

0.58

 

$

0.59

 

$

1.20

 

$

1.08

 

 

The following provides an overview of the significant elements of our Consolidated Statements of Operations. As our business segments have different factors driving revenue growth and profitability, the sections that follow cover these segments in greater detail.

 

All revenue growth for the periods presented is organic, driven by new work and growth in existing work principally within our Health Services Segment. Overall, profit margins have declined due to expected lower volumes in our federal Medicare appeals business.

 

Acquisition-related expenses are costs incurred related to the acquisitions of Acentia and Remploy. These costs include professional fees and other transaction-related costs. Additional expenses were incurred in April 2015 as the transactions closed.

 

Our effective tax rate for the six months ended March 31, 2015 was 36.6%. We anticipate that our tax rate will increase in the second half of this fiscal year as Acentia operates in the United States and will, accordingly, incur taxes at rates higher than our current effective rate.

 

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Table of Contents

 

Health Services Segment

 

The Health Services Segment provides a variety of business process services, as well as related consulting services, for state, provincial and national government programs, including Medicaid, CHIP, Supplemental Nutrition Assistance Program (SNAP), Medicare, the Affordable Care Act (ACA), the Health Assessment and Advisory Service in the United Kingdom and Health Insurance BC (British Columbia).

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

(amounts in thousands)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

370,383

 

$

323,598

 

$

721,682

 

$

622,182

 

Gross profit

 

91,887

 

84,868

 

177,302

 

161,374

 

Operating income

 

51,113

 

49,735

 

102,271

 

92,066

 

 

 

 

 

 

 

 

 

 

 

Gross profit percentage

 

24.8

%

26.2

%

24.6

%

25.9

%

Operating margin percentage

 

13.8

%

15.4

%

14.2

%

14.8

%

 

Revenue for the three and six months ended March 31, 2015 increased 14% and 16% compared to the same period in fiscal year 2014.  Revenue for the current year benefitted from new work as well as expansion of existing contracts including expected accretive change orders. These benefits have been offset by anticipated declines in revenue in our federal Medicare appeals business.

 

Our gross and operating margins have declined in the three and six months ended March 31, 2015 due to lower volumes in our federal Medicare appeals business and new contracts in start-up phase.

 

During the second half of fiscal year 2015, we anticipate the benefits of Acentia’s business and the United Kingdom Health Advisory and Assessment Services contract, which commenced in March 2015.

 

Human Services Segment

 

The Human Services Segment provides national, state and county human services agencies with a variety of business process services and related consulting services for welfare-to-work, child support, higher education and K-12 special education programs.

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

(amounts in thousands)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

111,411

 

$

115,417

 

$

227,155

 

$

223,425

 

Gross profit

 

32,458

 

35,804

 

66,310

 

65,214

 

Operating income

 

13,935

 

17,276

 

30,088

 

29,612

 

 

 

 

 

 

 

 

 

 

 

Gross profit percentage

 

29.1

%

31.0

%

29.2

%

29.2

%

Operating margin percentage

 

12.5

%

15.0

%

13.2

%

13.3

%

 

Revenue and profit have declined for the three months ended March 31, 2015, compared to the corresponding period in the prior year, and increased for the six months ended March 31, 2015 compared to the respective period. The current fiscal year has seen significant effects from currency fluctuations. Revenues for the three and six month periods ended March 31, 2015 would have been $8.2 million and $13.1 million higher if the foreign exchange rates in fiscal year 2014 had prevailed through the current year.

 

Profit margins in fiscal year 2014 were higher due to a number of short-term consulting projects, which typically enjoy higher margins. The margin for the six month period ended March 31, 2015 also had the benefit of incremental revenue and profit from change orders in the first quarter of fiscal year 2015.

 

In March 2015, we were informed that we have been successful in expanding our existing welfare-to-work contract in Australia, starting in July 2015. Although this contract is anticipated to be profitable, the costs of expanding our operations and the structure of reimbursement under the new arrangement is expected to reduce our fourth quarter earnings by between $6 million and $9 million.

 

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Table of Contents

 

Liquidity and Capital Resources

 

Our principal source of liquidity has been our cash flows from operations which, through March 31, 2015, have provided sufficient funds to fund working capital, capital expenditures, business combinations, share repurchases and dividends. In April 2015, we acquired Acentia and utilized $225 million of funds from a revolving credit facility to cover the majority of the $294 million estimated purchase price.

 

Our operating cash inflows are typically driven by our contracts and influenced by payment terms in contracts. For many contracts, including two new projects in the United Kingdom, we are frequently reimbursed up front for the costs of our start-up operations. Although there may be a gap between incurring costs and receiving this reimbursement, we have sufficient funds to cover these costs. Other factors that may cause delays in our realization of customer receipts include customer payments based upon delivering outcomes, which may not correspond with the costs incurred to achieve these outcomes, and short-term payment delays where government budgets are constrained. Our receivables have increased in the first half of fiscal year 2015, driven in part by significant outstanding invoices in the United Kingdom to recover start-up costs related to two large contracts. The related contracts commenced operations in March and, accordingly, revenue included in the calculation of days sales outstanding (DSO) included only one month of revenue whereas receivables included significant billings for start-up costs. The effect on DSO was approximately five days. We do not anticipate any issues in collecting these balances.

 

Days sales outstanding, or DSO, is a measure of how efficiently we manage the billing and collection of our receivable balances. We calculate DSO by dividing billed and unbilled receivable balances at the end of each quarter by revenue per day for the period. Revenue per day for a quarter is determined by dividing total revenue by 91 days. DSO was 70 as of March 31, 2015, compared to 58 as of December 31, 2014.

 

Our credit facility allows us to borrow up to $400 million, subject to standard covenants. We anticipate that our cash flows from operations over the course of the next two years should be sufficient to meet our day-to-day requirements, as well as pay our interest and repay the principal on our existing borrowings.

 

At March 31, 2015, our foreign subsidiaries held approximately $37 million in cash and cash equivalents. We have no requirement or intent to remit this cash to the United States. We consider undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States and, accordingly, no U.S. deferred taxes have been recorded with respect to such earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, we may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various tax planning alternatives we could employ should we decide to repatriate these earnings in a tax-efficient manner.

 

Cash Flows

 

 

 

Six Months Ended
March 31,

 

(amounts in thousands)

 

2015

 

2014

 

 

 

 

 

 

 

Net cash provided by (used in):

 

 

 

 

 

Operating activities

 

$

62,066

 

$

76,460

 

Investing activities

 

(47,191

)

(19,349

)

Financing activities

 

(52,515

)

(50,378

)

Effect of exchange rate changes on cash and cash equivalents

 

(5,937

)

(1,027

)

Net increase/(decrease) in cash and cash equivalents

 

$

(43,577

)

$

5,706

 

 

Cash provided by operating activities declined 19% to $62.1 million for the six months ended March 31, 2015, compared with the period in the prior fiscal year, notwithstanding an increase in revenue and profitability. This decline was driven by increases in our working capital, particularly in accounts receivable, caused by growth in our business and the timing of certain receivable payments.

 

Cash used in investing activities was $47.2 million for the six months ended March 31, 2015, compared to $19.3 million for the six months ended March 31, 2014. This increase has been driven by significant investment in our infrastructure in the United States and the United Kingdom. These types of capital investments typically occur in five-to-seven year cycles. The investments include: facilities, fixed assets, and upgrades in our telephony and back office data centers. We believe these prudent investments will help drive efficiencies in future periods.

 

Cash used in financing activities was $52.5 million and $50.4 million for the six months ended March 31, 2015 and 2014, respectively. We utilized $32.6 million and $34.7 million, respectively, in repurchasing common stock.

 

The effects of exchange rates reduced our cash balances by $5.9 million in the six months ended March 31, 2015, principally in balances denominated in the Australian Dollar and British Pound.

 

To supplement our statements of cash flows presented on a GAAP basis, we use the non-GAAP measure of free cash flows to analyze the funds generated from operations. We believe free cash flow is a useful basis for comparing our performance with our competitors. The presentation of non-GAAP free cash flows is not meant to be considered in isolation, nor as an alternative to net income as an indicator of performance, nor as an alternative to cash flows from operating activities as a measure of liquidity. In addition, this non-GAAP financial measure, as determined and presented by us, may not be comparable to other related or similarly titled measures used by other companies. We calculate free cash flow as follows:

 

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Table of Contents

 

 

 

Six Months Ended
March 31,

 

(amounts in thousands)

 

2015

 

2014

 

 

 

 

 

 

 

Cash provided by operating activities

 

$

62,066

 

$

76,460

 

Purchases of property and equipment

 

(44,226

)

(9,516

)

Capitalized software costs

 

(3,247

)

(7,317

)

Free cash flow

 

$

14,593

 

$

59,627

 

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements 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. On an ongoing basis, we evaluate our estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill and other long-lived assets, and amounts related to contingencies and income tax liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

 

We believe that we do not have material off-balance-sheet risk or exposure to liabilities that are not recorded or disclosed in our financial statements. While we have significant operating lease commitments for office space, those commitments are generally tied to the period of performance under related contracts. Additionally, although on certain contracts we are bound by performance bond commitments and standby letters of credit, we have not had any defaults resulting in draws on performance bonds. Also, we do not speculate in derivative transactions.

 

During the six months ended March 31, 2015, there were no significant changes to the critical accounting policies we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.

 

Item 3.                   Quantitative and Qualitative Disclosures about Market Risk.

 

There have been no material changes in the information presented in Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2014.

 

On April 1, 2015, we borrowed $225 million from our credit facility to assist in acquiring Acentia. Our interest rates are based upon our leverage, as defined in our loan agreement, and market interest rates. Accordingly, changes in interest rates will affect our results prospectively. To mitigate this risk, we entered into a derivative transaction to fix the interest rate on $80 million of this balance.

 

Item 4.                   Controls and Procedures.

 

(a)                                 Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

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(b)                                 Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Following the end of the fiscal quarter, we acquired both Acentia and Remploy. We have reviewed and identified the existing key controls in these entities and will integrate these entities into our existing control environment over the course of the next few months.

 

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Table of Contents

 

PART II.  OTHER INFORMATION

 

Item 1A.              Risk Factors.

 

In connection with information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for fiscal year ended September 30, 2014 should be considered. The risks included in the Form 10-K could materially and adversely affect our business, financial condition and results of operations. There have been no material changes to the factors discussed in our Form 10-K for the year ended September 30, 2014.

 

Item 6.                       Exhibits.

 

The Exhibits filed as part of this Quarterly Report on Form 10-Q are listed on the Exhibit Index immediately following the Signatures. The Exhibit Index is incorporated herein by reference.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

MAXIMUS, INC.

 

 

 

Date: May 8, 2015

By:

/s/ Richard J. Nadeau

 

 

Richard J. Nadeau

 

 

Chief Financial Officer

 

 

(On behalf of the registrant and as Principal Financial and Accounting Officer)

 

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Table of Contents

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

2.1

 

Equity Purchase Agreement dated as of March 6, 2015 by and among Acentia, LLC, Certain of the Equity Holders of Acentia, LLC, SPG Acentia Seller Representative, LLC, MAXIMUS Federal Services, Inc. and MAXIMUS, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed March 9, 2015).

 

 

 

10.1

 

First Amendment to Amended and Restated Credit Agreement dated as of March 9, 2015 among MAXIMUS, Inc., Sun Trust Humphrey Robinson as Administrative Agent and other lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed March 9, 2015).

 

 

 

31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Section 906 Principal Executive Officer Certification.

 

 

 

32.2

 

Section 906 Principal Financial Officer Certification.

 

 

 

101

 

The following materials from the MAXIMUS, Inc. Quarterly Report on Form 10-Q for the year ended March 31, 2015 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii)  Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Changes in Shareholders’ Equity and (vi) Notes to Consolidated Financial Statements. Filed electronically herewith.

 

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