Maximus, Inc. Fiscal 2023 Form 10-K Summary
Business context and reporting period
Maximus provides business-process, clinical, employment, and technology services primarily to government agencies. The filing covers the fiscal year ended September 30, 2023, rather than a standalone fourth quarter. Operations are reported through U.S. Federal Services, U.S. Services, and Outside the U.S.
- Revenue mix: approximately 48% U.S. federal, 37% U.S. state, 14% foreign government, and 2% other sources.
- Segment revenue mix: U.S. Federal Services 49%, U.S. Services 37%, and Outside the U.S. 14%.
- Approximately 39,600 employees and 12,400 contingent workers at September 30, 2023.
Financial performance, cash flow, margins, debt, and liquidity
| Metric | Fiscal 2023 | Fiscal 2022 | Change |
|---|---|---|---|
| Revenue | $4.905 billion | $4.631 billion | +5.9% |
| Gross profit | $1.029 billion | $940 million | +9.4% |
| Gross margin | 21.0% | 20.3% | +70 basis points |
| Operating income | $294.8 million | $325.9 million | -9.5% |
| Operating margin | 6.0% | 7.0% | -100 basis points |
| Net income | $161.8 million | $203.8 million | -20.6% |
| Diluted EPS | $2.63 | $3.29 | -20.1% |
| Cash flow from operations | $314.3 million | $289.8 million | +$24.5 million |
| Free cash flow | $223.6 million | $233.7 million | -4.3% |
- U.S. Federal Services revenue increased to $2.404 billion, with operating income of $249.7 million and a 10.4% operating margin.
- U.S. Services revenue increased 12.7% to $1.812 billion; operating income was $182.6 million and margin declined to 10.1% from 11.3%.
- Outside the U.S. revenue declined 9.8% to $689.1 million; the segment reported a $9.1 million operating loss, an improvement from a $15.2 million loss.
- Cash and cash equivalents were $65.4 million. Accounts receivable were $826.9 million, and days sales outstanding improved to 60 days from 62 days.
- Funded debt was $1.258 billion, or $1.250 billion net of debt issuance costs and discounts. The effective interest rate was 5.97%, up from 4.69%.
- Available borrowing capacity under the revolving facility was $600 million. The company was in compliance with its debt covenants; net leverage was 2.19x and net interest coverage was 6.28x.
- Approximately $650 million of debt was hedged through interest-rate swaps. A 100-basis-point change in SOFR was estimated to affect annual net income by approximately $6.1 million.
- Quarterly dividends were $0.28 per share during fiscal 2023; the company declared a $0.30 per-share dividend for the first quarter of fiscal 2024. No share repurchases occurred in fiscal 2023.
Material changes versus the prior comparable period
- Revenue and gross profit grew primarily from U.S. contract growth, resumed Medicaid eligibility redeterminations, increased VA medical disability examination volumes, and Aidvantage activity.
- SG&A increased to $639.2 million from $534.5 million, including $29.3 million for investigation and remediation of the MOVEit cybersecurity incident, $0.9 million of divestiture losses, and $2.9 million of impairment-related charges for businesses sold after year-end.
- Interest expense rose to $84.1 million from $46.0 million due principally to higher market interest rates.
- The effective tax rate declined to 23.1% from 26.4%, primarily due to higher U.S. tax credits, stock-vesting benefits, and jurisdictional profit mix.
- Performance-based revenue increased to 49.5% of total revenue from 45.2%; time-and-materials revenue declined to 10.7% from 14.3%.
- Backlog increased to approximately $20.7 billion from $19.8 billion, with an average weighted remaining contract life of approximately 5.92 years. Management expects approximately 24% of backlog to convert to fiscal 2024 revenue.
- Goodwill was $1.779 billion and net intangible assets were $703.6 million. No goodwill impairment was recorded, although $9.5 million of long-lived-asset impairment charges were recognized during fiscal 2023.
Guidance, outlook, commentary, risks, and unusual items
- Management expects U.S. Federal Services operating margins of approximately 11% to 12% in fiscal 2024 as VA examination and Aidvantage volumes increase.
- Management expects U.S. Services full-year operating margins of approximately 11% as Medicaid redetermination volumes normalize.
- Management expects the Outside the U.S. segment to reach approximately break-even operating margin in fiscal 2024 following divestitures in Italy, Singapore, and Canada. Additional charges, including impairment charges, remain possible.
- Fiscal 2024 effective tax rate guidance is 24.5% to 25.5%.
- The MOVEit incident resulted in unauthorized access to personal information of a significant number of individuals. Multiple class and individual lawsuits have been filed, and the company cannot estimate the ultimate loss or outcome.
- A Department of Justice civil investigation demand regarding the Census project remains outstanding. Maximus accrued $3.4 million and stated that additional losses may be possible but cannot currently be estimated.
- Key risks include government budget changes or shutdowns, contract termination or non-renewal, performance penalties, competitive rebids, fixed-price contract execution, labor and wage inflation, higher variable-rate debt costs, cybersecurity and data-privacy liabilities, AI/ML governance, litigation, audits, and acquisition or divestiture execution.
- Approximately 49% of revenue came from performance-based contracts and 15% from fixed-price contracts, increasing sensitivity to volumes, estimates, milestones, costs, and execution.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The principal critical audit matter was estimation of variable consideration in performance-based contracts.
Most important facts for investors to verify
- Whether Medicaid redetermination volumes and related operating leverage support the projected U.S. Services margin recovery.
- Whether VA medical examination and Aidvantage volumes support the projected U.S. Federal Services margin expansion.
- The ultimate financial, legal, regulatory, and reputational effects of the MOVEit cybersecurity incident.
- Debt repayment capacity, refinancing requirements through the May 2026 and May 2028 maturities, and sensitivity to SOFR and other interest-rate changes.
- Execution and financial effects of the international divestitures and whether the Outside the U.S. segment reaches break-even in fiscal 2024.
- Recoverability of $1.779 billion of goodwill, $703.6 million of intangible assets, and capitalized software assets, particularly on underperforming or changing contracts.
- Conversion timing and quality of the $20.7 billion backlog, recognizing that performance-based backlog depends on estimated caseloads and transaction volumes.
- Potential liabilities from government audits, the Census DOJ investigation, performance bonds, contract disputes, and other litigation.