MAXIMUS (MMS) Beats On Q2 Earnings, Narrows 2019 Guidance

MAXIMUS, Inc. (NYSE:MMS) reported mixed second-quarter fiscal 2019 results, with earnings beating the Zacks Consensus Estimate but revenues lagging the same.

Earnings per share came in at $1.07 compared with 82 cents reported in the year-ago quarter. The bottom line beat the consensus mark by 15 cents and was benefited by strong performance of the U.S. Health and Human Services, and U.S. Federal Services Segments.

Revenues of $736.5 million missed the consensus mark by $30 million but improved 20% year over year, mainly driven by the acquisition of citizen engagement centers in the U.S. Federal Services Segment.

At the call, management stated that the company continues to execute on its three-pronged strategy of digital transformation, clinical evolution and market expansion.

MAXIMUS shares have gained 12% year to date, significantly underperforming the 25.3% rally of the industry it belongs to.

Revenues by Segment

U.S. Health and Human Services segment revenues of $290.7 million decreased 5% year over year mainly due to the rebid or extension of certain larger contracts in the portfolio.

U.S. Federal Services segment revenues of $289.7 million were up more than 100% from the year-ago quarter. The uptick was driven by the buyout of citizen engagement centers, revenues from which totaled $176 million.

Outside U.S. segment revenues of $156 million decreased 18% year over year on a reported basis and 12% on a constant currency basis due to decreases in welfare-to-work contracts in the United Kingdom and Australia.

Maximus, Inc. Revenue (TTM)

Salas and Pipeline

Year-to-date signed contract awards at Mar 31, 2019 totaled $1 billion and contracts pending (awarded but unsigned) totaled $725 million.

The sales pipeline at Mar 31, 2019, was $21.9 billion. This included roughly $1.3 billion in proposals pending, $2.5 billion in proposals in preparation and $18.1 billion in opportunities tracking.

Operating Performance

Operation income of $81.8 million declined 14.7% year over year. Operating margin of 11.1% declined 50 basis points (bps).

Balance Sheet and Cash Flow

The company ended the quarter with cash and cash equivalents balance of $46.8 million compared with $54.7 million in the prior quarter. Long-term debt at the end of the quarter was $120.3 million.

The company generated $67.9 million of cash from operating activities and capex was $8.6 million. Free cash flow at the end of the quarter was $59.3 million.

Share Repurchase and Dividend Payout

MAXIMUS repurchased shares for $5.1 million and paid dividends of $16 million during the reported quarter.

Outlook

MAXIMUS narrowed its fiscal 2019 earnings and revenue guidance. It now expects earnings per share in the range of $3.65 to $3.75, compared with the previous guidance of $3.55-$3.75. The Zacks Consensus Estimate is pegged at $3.72.

The company expects revenues between $2.925 billion and $2.950 billion, compared with the previous guidance of $2.925-$3.0 billion. The Zacks Consensus Estimate is pegged at $2.96 billion.

Zacks Rank & Stocks to Consider

MAXIMUS currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are WEX (NYSE:WEX) , Navigant Consulting (NYSE:NCI) and FLEETCOR Technologies (NYSE:FLT) . While WEX and Navigant Consulting (NCI) sport a Zacks Rank #1 (Strong Buy), FLEETCOR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS (three to five years) growth rate for WEX, Navigant Consulting and FLEETCOR is 15%, 13.5% and 16.5%, respectively.

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