MAXIMUS Reports Fourth Quarter and Full Year Results; Completes Strategic Review Process and Launches $150 Million Accelerated Share Repurchase Program

RESTON, Va.--(BUSINESS WIRE)--

MAXIMUS (NYSE:MMS), a leading provider of government services, today reported results for its fourth quarter and fiscal year ended September 30, 2007. Concurrently, MAXIMUS announced that its Board of Directors has completed its process to explore the Company's strategic alternatives and has authorized the repurchase of up to $150 million of the Company's outstanding shares under an Accelerated Share Repurchase program (ASR), which represents approximately 15% of the Company's outstanding stock based on the current stock price.

    Highlights include:

    --  Fourth quarter and full year revenue totaling $201.9 million
        and $738.6 million, respectively,

    --  Fourth quarter diluted earnings per share of $0.63, which
        includes approximately $2.5 million, or $0.06 per diluted
        share, in legal expense,

    --  Fourth quarter operating margin of 10.8%, above management's
        target margin of 10%,

    --  Pro forma earnings per share of $2.01 for fiscal 2007, as
        presented in the supplemental pro forma information provided
        in the financial tables,

    --  Cash, cash equivalents and marketable securities at September
        30, 2007 of $196.7 million,

    --  Days Sales Outstanding of 80 days at September 30, 2007,

    --  Backlog of $1.3 billion at September 30, 2007,

    --  New sales awards totaling $569 million at September 30, 2007
        and a total pipeline of $1.7 billion at November 8, 2007,

    --  Completion of the strategic review process: MAXIMUS launches a
        $150 million ASR program and plans to secure a $50 million to
        $75 million line of credit to provide additional financial
        flexibility, in addition to refining its focus on core health
        and human services operations and seeking possible
        alternatives for certain non-core assets.

Revenue for the fourth quarter increased 17.5% to $201.9 million compared to $171.8 million reported for the same period last year. Net income increased to $14.2 million, or $0.63 per diluted share, which includes legal and settlement expense of approximately $2.5 million, or $0.06 per diluted share, primarily related to ongoing arbitration. Prior-year-period net income was $2.0 million, or $0.09 per diluted share, which included a pre-tax loss of $12.7 million, or $0.36 per diluted share, related to the now-terminated Texas subcontract with Accenture. The Company is now serving as prime contractor and directly supporting the Texas Health and Human Services Commission.

For the full year, fiscal 2007 revenue increased 5.4% to $738.6 million compared to $700.9 million last year. Excluding revenue from the divested businesses for fiscal 2006, year-over-year organic growth was 6.8%. Net loss for the full year was $8.3 million, or $0.38 per share, which included approximately $44.6 million, or $1.61 per share, in legal and settlement expense, $25.2 million net loss, or $0.67 per share, from the now-terminated Accenture subcontract and a loss of $4.2 million or $0.11 per share from the Ontario project. This compares to fiscal 2006 net income of $2.5 million, or $0.11 per diluted share. Fiscal 2006 results included a pre-tax loss of $49.4 million, or $1.38 per diluted share, from the now-terminated subcontract with Accenture and other legal settlement expense of $9.4 million or $0.27 per diluted share.

"I'm pleased with our ongoing, strong financial performance in the fourth quarter and believe we have completed fiscal 2007 in a substantially improved position from the prior year," commented Richard Montoni, Chief Executive Officer of MAXIMUS. "In the past 12 months, our focus on quality and risk management has resulted in the elimination of several legacy issues, more favorable contract terms on new awards, improved operating margins and accelerating top-line growth. MAXIMUS is refining its focus around its core competencies and moving in a direction that builds on the progress made in fiscal 2007. We will emphasize those businesses which offer us more predictable, recurring streams of revenue and sustainable levels of profitability."

Consulting Segment

Consulting Segment revenue was $22.5 million in the fiscal 2007 fourth quarter compared to $26.1 million in the same period last year. For the full fiscal year, Consulting Segment revenue was $93.7 million, or 13% of total revenue, versus $102.8 million last year.

Fourth quarter operating income for the Consulting Segment was $0.6 million compared to $5.2 million reported for the same period last year. For the full year, operating income totaled $6.4 million versus $14.5 million last year. The reduction in revenue and operating income for the fourth quarter and full year relates primarily to the timing and billing of work as well as the Company's transition away from contingency-based federal healthcare engagements.

Systems Segment

Systems Segment revenue increased 24.8% to $37.4 million in the fourth quarter versus $30.0 million in the prior-year period. Systems Segment revenue represented 19% of total Company revenue in fiscal 2007 and grew to $141.3 million versus $127.2 million last year. Revenue growth for both periods was driven primarily by new ERP contracts.

The Systems Segment reported operating income of $0.5 million in the fourth quarter compared to a loss of $2.0 million for the same period last year which included the deferral of revenue and income related to two software sales to future periods. For the full year, the Systems segment had an operating loss of $4.7 million, compared to a loss of $0.9 million for fiscal 2006. Strong results in the Asset Solutions and ERP divisions offset softness in the Justice and Education divisions.

Operations Segment

Operations Segment revenue for the fourth quarter increased 22.7% to $141.9 million compared to $115.7 million in the prior-year period. Operations Segment revenue accounted for 68% of total Company revenue in fiscal 2007 and totaled $503.6 million compared to $470.9 million in the prior year which included $29.8 million in revenue from voter hardware sales and divested businesses which did not recur in fiscal 2007.

Operations Segment operating income for the fourth quarter was $23.5 million, compared to a loss of $2.9 million reported for the fourth quarter of last year and for the full fiscal year totaled $39.1 million compared to a loss of $9.5 million in fiscal 2006. The improved profitability in the fourth quarter and the full year compared to the prior year periods was driven by the turnaround on the Texas project as well as strong organic growth.

Backlog, Sales and Pipeline

Backlog at September 30, 2007 totaled $1.3 billion compared to $1.5 billion reported for the prior year period. Year-to-date signed contract wins at September 30, 2007, totaled $569 million, compared to $717 million reported last year. New contracts pending at September 30, 2007, (awarded but unsigned) totaled $310 million compared to $103 million reported last year. Sales opportunities (pipeline) at November 8, 2007, totaled $1.7 billion (consisting of $418 million in proposals pending, $177 million in proposals in preparation, and $1.06 billion in proposals tracking) compared to $1.1 billion the prior year.

Balance Sheet and Cash Flows

At September 30, 2007, cash, cash equivalents, and marketable securities totaled $196.7 million. Days Sales Outstanding (DSO) increased modestly on a sequential basis to 80 days at September 30, 2007. MAXIMUS paid a quarterly cash dividend of $0.10 per share on August 31, 2007. Net cash used from operations in the fourth quarter was $8.2 million. For fiscal 2007 the Company generated net cash from operating activities of $51.2 million and free cash flow, which the Company defines as cash from operations less purchased property and equipment and capitalized software costs, totaled $33.4 million.

Completion of Strategic Review Process and Accelerated Share Repurchase (ASR) Program

The Board of Directors has completed the strategic review process announced on July 23, 2007. After a thorough review process, the Board of Directors has concluded that launching a $150 million ASR program, concentrating the Company's strategic focus on core health and human services offerings and considering alternatives for certain non-core assets, provides the best current opportunity to maximize shareholder value, reflecting the Company's strong financial position and future growth prospects. Under the ASR program, MAXIMUS will purchase up to $150 million of shares from an affiliate of UBS Investment Bank at the closing market price on November 15, 2007, subject to a future price adjustment based on the volume weighted average trading price of the shares. MAXIMUS will finance the program with cash on hand. In addition, MAXIMUS has approximately $40.0 million available under its previously board-authorized share repurchase program and intends to resume this program after the completion of the ASR.

Peter Pond, MAXIMUS' chairman stated, "The Company, working with its financial advisors UBS, undertook an extensive process reviewing all possible alternatives, including a potential sale of MAXIMUS. While there was a substantial amount of interest among various parties with all options under consideration, the process was impacted largely by eroded capital market conditions and we ultimately concluded that remaining an independent public Company was the best option for all our constituencies."

Mr. Montoni commented, "The share repurchase program announced today represents an efficient mechanism to return value to shareholders. The ASR increases earnings per share and improves the efficiency of our capital structure while maintaining our ability to properly fund growth. Lastly, we also remain committed to increasing shareholder value on an ongoing basis through the opportunistic repurchase of shares pursuant to our current board authorized stock repurchase program, upon the completion of the ASR."

Outlook

The Company expects fiscal 2008 revenue to be in the range of approximately $850 million to $880 million. The Company estimates that approximately 83% of its fiscal 2008 forecasted revenue is presently in the form of backlog. Diluted earnings per share for fiscal 2008 are expected to be in the range of $2.40 to $2.65. Earnings in the first fiscal quarter are traditionally lower compared to the rest of the year, and as a result the Company expects diluted earnings per share of $0.45 to $0.50. This guidance does not include the positive benefit from the expected $0.15 to $0.20 accretion from the ASR plan in fiscal 2008.

    Website Presentation, Conference Call and Webcast Information

MAXIMUS will host a conference call on Thursday, November 15, 2007, at 8:30 a.m. (ET). The Company has also posted a presentation on its website, under the Investor Relations page, for analysts to follow along with during the conference call.

The call is open to the public and can be accessed under the Investor Relations page of the Company's website at www.maximus.com or by calling:

888.881.3328 (Domestic)/206.902.3258 (International)

A replay will be available through November 22, 2007. Callers can access the replay by registering for the digital playback at the below website. Upon registration, participants will receive an email with the call back information.

http://reg.linkconferencecall.com/DigitalPlayback/

DigitalPlaybackRegistration.aspx?recid=5826 (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

MAXIMUS is one of America's leading government services companies devoted to providing program management, consulting and information technology services. The Company has more than 5,200 employees located in more than 220 offices in the United States, Canada and Australia. In 1999, 2001, 2002, 2003, and 2005 MAXIMUS was selected by Forbes Magazine as one of the Best 200 Small Companies in America for that year. Additionally, MAXIMUS is included in the Russell 2000 Index and the S&P SmallCap 600 Index.

Statements that are not historical facts, including statements about the Company's confidence and strategies and the Company's expectations about revenues, results of operations, profitability, future contracts, market opportunities, market demand or acceptance of the Company's products are forward-looking statements that involve risks and uncertainties. These uncertainties could cause the Company's actual results to differ materially from those indicated by such forward-looking statements and include reliance on government clients; risks associated with government contracting; risks involved in managing government projects; legislative changes and political developments; opposition from government unions; challenges resulting from growth; adverse publicity; and legal, economic, and other risks detailed in Exhibit 99.1 to the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (file number 001-12997).

Non-GAAP Financial Information

This press release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to MAXIMUS financial statements as prepared under generally accepted accounting principles (GAAP) are included in this press release. MAXIMUS discloses net income and earnings per share excluding legal settlement expense and losses from the Texas project in the first half of fiscal 2007, and provides certain additional information, such as non-recurring reserves, regarding earnings per share for fiscal 2007. MAXIMUS management believes providing investors with this information gives additional insights into MAXIMUS results of operations. While MAXIMUS management believes that these non-GAAP financial measures are useful in evaluating MAXIMUS operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.

                            MAXIMUS, Inc.
                CONDENSED CONSOLIDATED BALANCE SHEETS
                        (Dollars in thousands)
                             (Unaudited)

                                                      September 30,
                                                    ------------------
                                                      2006      2007
                                                    --------  --------
                      ASSETS
Current assets:
  Cash and cash equivalents                         $ 39,545  $ 70,472
  Marketable securities                              117,315   126,210
  Restricted cash                                      1,512       325
  Accounts receivable -- billed, net                 153,399   132,962
  Accounts receivable -- unbilled                     47,728    42,200
  Income taxes receivable                              9,003        --
  Deferred income taxes                                6,844    17,409
  Prepaid expenses and other current assets            8,334     9,159
                                                    --------  --------
   Total current assets                              383,680   398,737
Property and equipment, net                           33,429    35,901
Software development costs, net                       33,925    29,540
Deferred contract costs, net                          11,165     8,116
Goodwill                                              86,688    86,086
Intangible assets, net                                 5,720     3,603
Other assets                                           3,894     2,481
                                                    --------  --------
   Total assets                                     $558,501   564,464
                                                    ========  ========
       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                  $ 54,484  $ 54,425
  Accrued compensation and benefits                   24,426    29,449
  Deferred revenue                                    46,669    38,545
  Income taxes payable                                    --     5,487
  Current portion of capital lease obligations         1,690     1,627
  Other accrued liabilities                            1,600     2,059
                                                    --------  --------
   Total current liabilities                         128,869   131,592
Capital lease obligations, less current portion        2,044       417
Long term deferred revenue                             7,745    10,143
Deferred income taxes                                 14,944    12,912
                                                    --------  --------
   Total liabilities                                 153,602   155,064
Commitments and contingencies
Shareholders' equity:
  Common stock, no par value; 60,000,000 shares
   authorized; 21,544,964 and 22,194,489 shares
   issued and outstanding at September 30, 2006 and
   2007, at stated amount, respectively              156,349   175,208
  Accumulated other comprehensive income (loss)         (916)    1,730
  Retained earnings                                  249,466   232,462
                                                    --------  --------
   Total shareholders' equity                        404,899   409,400
                                                    --------  --------
   Total liabilities and shareholders' equity       $558,501  $564,464
                                                    ========  ========
                            MAXIMUS, Inc.
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (In thousands, except per share data)
                             (Unaudited)

                                            Year ended September 30,
                                           --------------------------
                                             2005     2006     2007
                                           -------- -------- --------

Revenue                                    $647,538 $700,894 $738,646
Cost of revenue                             467,588  547,539  561,563
Write-off of deferred contract costs             --   17,109       --
                                           -------- -------- --------
   Gross profit                             179,950  136,246  177,083
Selling, general and administrative
 expenses                                   116,676  129,678  135,581
Legal and settlement expense                  7,000    9,394   44,638
                                           -------- -------- --------
Income (loss) from operations                56,274   (2,826)  (3,136)
Interest and other income, net                3,345    6,859    5,804
Gain on sale of business                         --       --      451
                                           -------- -------- --------
   Income before income taxes                59,619    4,033    3,119
Provision for income taxes                   23,550    1,573   11,374
                                           -------- -------- --------
   Net income (loss)                       $ 36,069 $  2,460 $ (8,255)
                                           ======== ======== ========

Earnings (loss) per share:
  Basic                                    $   1.69 $   0.11 $  (0.38)
                                           ======== ======== ========
  Diluted                                  $   1.67 $   0.11 $  (0.38)
                                           ======== ======== ========

Cash dividends per share                   $   0.30 $   0.40 $   0.40
                                           ======== ======== ========

Weighted average shares outstanding:
  Basic                                      21,331   21,465   21,870
  Diluted                                    21,653   21,821   21,870
                            MAXIMUS, Inc.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (Dollars in thousands)
                             (Unaudited)

                                            Year ended September 30,
                                           --------------------------
                                             2005     2006     2007
                                           -------- -------- --------

Cash flows from operating activities:
  Net income (loss)                        $ 36,069 $  2,460 $ (8,255)
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
  Depreciation                                7,874    9,195   10,648
  Amortization                                7,271    8,450   10,322
  Deferred income taxes                       4,806   (9,402) (12,598)
  Non-cash equity based compensation          1,372    6,577    3,829
  Gain on sale of Corrections division           --       --     (451)
  Write-off of deferred contract costs           --   17,109       --
  Tax benefit due to option exercises and
   restricted stock units vesting             2,955       --       --
  Changes in assets and liabilities, net
   of effects from acquisitions:
   Accounts receivable - billed             (12,643) (28,922)  20,438
   Accounts receivable - unbilled            (1,494)  (3,954)   4,483
   Prepaid expenses and other current
    assets                                    1,961   (1,064)    (813)
   Deferred contract costs                   (4,954)  (7,845)   3,049
   Other assets                                (828)   2,489    4,144
   Accounts payable                          10,675   16,332      434
   Accrued compensation and benefits          5,604   (2,401)   5,023
   Deferred revenue                          11,703   21,516   (5,321)
   Income taxes                               4,695  (13,699)  14,490
   Other liabilities                            761   (1,145)   1,768
                                           -------- -------- --------
     Net cash provided by operating
      activities                             75,827   15,696   51,190
                                           -------- -------- --------
Cash flows from investing activities:
  Acquisition of businesses, net of cash
   acquired                                  (1,946)      --       --
  Proceeds from sale of Corrections
   division                                      --       --    1,871
  Purchases of property and equipment       (13,337) (11,467) (13,418)
  Capitalized software development costs    (12,655) (14,654)  (4,412)
  (Increase) decrease in marketable
   securities                               (71,649)   1,825   (8,895)
  Other                                         442      144       --
                                           -------- -------- --------
     Net cash used in investing activities  (99,145) (24,152) (24,854)
                                           -------- -------- --------
Cash flows from financing activities:
  Employee stock transactions                14,645    7,697   12,953
  Repurchases of common stock               (16,056) (10,139)      --
  Payments on capital lease obligations      (1,649)  (1,374)  (1,690)
  Tax benefit due to option exercises and
   restricted stock units vesting                --    1,331    2,078
  Cash dividends paid                        (6,403)  (8,587)  (8,750)
                                           -------- -------- --------
     Net cash provided by (used in)
      financing activities                   (9,463) (11,072)   4,591
                                           -------- -------- --------
     Net increase (decrease) in cash and
      cash equivalents                      (32,781) (19,528)  30,927
Cash and cash equivalents, beginning of
 period                                      91,854   59,073   39,545
                                           -------- -------- --------
Cash and cash equivalents, end of period   $ 59,073 $ 39,545 $ 70,472
                                           ======== ======== ========
                            MAXIMUS, Inc.
                         Segment Information
                 (In thousands except per share data)
                             (Unaudited)

                                 Three Months            Year
                              Ended September 30, Ended September 30,
                                2006      2007      2006      2007
                              --------- --------- --------- ---------
Revenue:
 Consulting                   $  26,125 $  22,542 $ 102,842 $  93,707
 Systems                         29,984    37,425   127,189   141,335
 Operations                     115,690   141,907   470,863   503,604
                              --------- --------- --------- ---------
   Total                      $ 171,799 $ 201,874 $ 700,894 $ 738,646
                              ========= ========= ========= =========

Gross profit:
 Consulting                   $  12,615 $   7,199 $  44,127 $  37,296
 Systems                          8,258    10,920    38,769    37,678
 Operations                      14,753    37,380    53,350   102,109
                              --------- --------- --------- ---------
   Total                      $  35,626 $  55,499 $ 136,246 $ 177,083
                              ========= ========= ========= =========

Selling, general, and
 administrative expense:
 Consulting                   $   7,446 $   6,645 $  29,628 $  30,875
 Systems                         10,266    10,454    39,622    42,333
 Operations                      17,697    13,832    62,803    62,977
 Corporate/other                   (456)      196    (2,375)     (604)
                              --------- --------- --------- ---------
   Total                      $  34,953 $  31,127 $ 129,678 $ 135,581
                              ========= ========= ========= =========

Income (loss) from
 operations:
 Consulting                   $   5,169 $     554 $  14,499 $   6,421
 Systems                         (2,008)      466      (853)   (4,655)
 Operations                      (2,944)   23,548    (9,453)   39,132
 Consolidating adjustments          456      (196)    2,375       604
 Legal and settlement expense       909    (2,524)   (9,394)  (44,638)
                              --------- --------- --------- ---------
   Total                      $   1,582 $  21,848 $  (2,826)$  (3,136)
                              ========= ========= ========= =========

Net income (loss)             $   1,993 $  14,169 $   2,460 $  (8,255)
                              ========= ========= ========= =========

Earnings (loss) per share
   Basic                      $    0.09 $    0.64 $    0.11 $   (0.38)
                              ========= ========= ========= =========
   Diluted                    $    0.09 $    0.63 $    0.11 $   (0.38)
                              ========= ========= ========= =========
                            MAXIMUS, Inc.
                  Supplemental Pro Forma Information
             (Dollars in millions, except per share data)
                             (unaudited)

                               Three Months Ended      Year Ended
                               ------------------- -------------------
                               September September September September
                                  30,       30,       30,       30,
                                 2006      2007      2006      2007
                               --------- --------- --------- ---------

Revenue, as reported (GAAP)    $  171.8  $  201.9   $  700.9 $  738.6


Income (loss) before taxes, as
 reported (GAAP)               $    3.3  $   24.4   $    4.0 $    3.1
  Add back Texas subcontract
   (1)                             12.7      (0.2)      49.4     25.2
  Add back Ontario project
   loss                               -         -          -      4.2
  Add back legal and
   settlement expense              (0.9)      2.5        9.4     44.6
                               --------- --------- --------- ---------

Pro forma income before taxes,
 (non-GAAP)                    $   15.1  $   26.7   $   62.8 $   77.1
                               ========= ========= ========= =========


Diluted earnings (loss) per
 share, as reported (GAAP)     $   0.09  $   0.63   $   0.11 $  (0.38)
  Add back Texas subcontract
   contract (1)                    0.36     (0.01)      1.38     0.67
  Add back Ontario project
   loss                               -         -          -     0.11
  Add back legal and
   settlement expense             (0.03)     0.06       0.27     1.61
                               --------- --------- --------- ---------

Pro forma diluted earnings per
 share (non-GAAP)              $   0.42  $   0.68   $   1.76 $   2.01
                               ========= ========= ========= =========
(1) Only reflects results from the now-terminated Accenture
 subcontract.

Source: MAXIMUS