MAXIMUS Reports First Quarter Results

Texas Project Impacts Results


MAXIMUS (NYSE: MMS), a leading provider of government services, today reported results for its fiscal 2007 first quarter ended December 31, 2006. Revenue for the fiscal 2007 first quarter was $161.1 million compared to $162.7 million in the prior-year period. Net loss was $10.4 million, or $0.48 per diluted share, compared to net income of $8.9 million, or $0.41 per diluted share, in last year's first quarter.

The Texas Integrated Eligibility project adversely impacted first quarter results by $27.0 million, or $0.80 per diluted share. This consists of three main elements: a pre-tax operating loss of $11.9 million, or $0.35 per diluted share (compared to the Company's previous guidance of a $10.0 million pre-tax loss); a provision of $12.1 million, or $0.36 per diluted share, for outstanding receivables; and a provision of $3.0 million, or $0.09 per diluted share, for future legal expenses related to the ongoing arbitration process with Accenture.

MAXIMUS has filed an arbitration claim against Accenture to resolve disputes related to its subcontract on the Texas Integrated Eligibility project, and Accenture has filed a counterclaim. MAXIMUS and Accenture are each alleging the other has defaulted on the subcontract. As a result of entering into the arbitration process, the Company recorded provisions for the Texas project in its first fiscal quarter for outstanding accounts receivable and future legal expense. On January 24, 2007, MAXIMUS notified Accenture of its intention to pursue termination of the subcontract if Accenture's defaults are not cured by February 16, 2007. Failing a cure by Accenture, MAXIMUS will begin transitioning the Integrated Eligibility operations to Accenture on February 16, 2007. MAXIMUS transitioned the majority of its Children's Health Insurance Program (CHIP) operations to Accenture earlier this week.

Richard Montoni, Chief Executive Officer of MAXIMUS, commented, "With the actions outlined above, we're taking important steps to mitigate future recurring losses in Texas. While we expect this project will generate losses in the second quarter as we complete the transition of certain project elements, we hope to see reduced losses in the second half of the year. That said, our dispute with Accenture has serious financial implications. We are confident in the merits of our case and we will continue to aggressively pursue our rights and remedies. However, we cannot predict the outcome of the arbitration proceedings or the impact they may have on our operating results or financial condition."

The Company also provides financial information on its Base Operations which it defines as operations excluding the Texas project and legal expenses. For the first fiscal quarter, Base Operations delivered $0.32 per diluted share. Results for Base Operations were impacted by $4.0 million, or $0.12 per diluted share, which was attributable to a contract dispute on a Child Support systems implementation in Ontario, Canada.

Mr. Montoni continued, "The Company continues to actively pursue its objective of resolving legacy overhang matters, such as the Ontario project. Our portfolio contains some legacy projects with terms that are no longer acceptable under new protocols we instituted in fiscal 2006. These projects will be completed under aggressive management. Since my return to the Company as CEO, we have been building a more accountable organization that is reliant upon more stringent procedures."

Consulting Segment

Consulting Segment revenue represented 15% of total Company revenue for the first fiscal quarter and increased 4% to $24.7 million compared to the same period last year. For the three months ended December 31, 2006, operating income for the Consulting Segment increased to $2.8 million compared to $2.5 million reported for the first fiscal quarter last year. As a result, operating margin improved to 11.4% for the first fiscal quarter of 2007 compared to 10.7% reported for the first quarter of 2006.

Systems Segment

Systems Segment revenue represented 21% of total Company revenue for the first quarter of fiscal 2007. Systems Segment revenue for the first quarter was $34.5 million compared to $36.3 million the same period last year. The Systems Segment operating loss for the first quarter was $1.6 million, driven principally by the Educational Systems division, compared to income of $3.9 million reported for the same period last year. On a sequential basis, however, first quarter results improved when compared to the $2.0 million loss recorded in the fourth fiscal quarter of 2006, driven by improvements in the ERP division.

Operations Segment

Operations Segment revenue represented 64% of total Company revenue for the first quarter of fiscal 2007. Operations Segment revenue for the first quarter was $101.9 million compared to $102.8 million the same period last year. Revenue was reduced in the quarter by approximately $16.0 million as a result of the provisions recorded on the Texas and Ontario projects. The first quarter operating loss for the Operations Segment was $16.0 million compared to income of $6.1 million reported for the same period last year. The first quarter operating loss reflects the impact from the Texas and Ontario projects during the quarter.

Sales, Pipeline, and Backlog

Year-to-date signed contract wins at February 5, 2007, totaled $80 million, compared to $130 million reported at February 1, 2006. New contracts pending at February 5, 2007, (awarded but unsigned) totaled $142 million compared to $161 million reported last year. Sales opportunities at February 6, 2007, totaled $1.3 billion (consisting of $294.0 million in proposals pending, $363 million in proposals in preparation, and $663 million in proposals tracking) compared to $1.3 billion the prior year. The change in new contract wins reflects the Company's shift away from volume-driven sales and an emphasis on optimizing its current business.

Balance Sheet and Cash Flows

At December 31, 2006, cash, cash equivalents, and marketable securities totaled $163.8 million. As expected, Days Sales Outstanding (DSO) improved to 96 days at December 31, 2006, driven by strong collections during the quarter. The Company's DSO includes $2.2 million of net long-term accounts receivable included in other assets. For the first fiscal quarter, the Company generated net cash from operating activities of $7.6 million and paid a quarterly cash dividend of $0.10 per share on November 30, 2006.


For fiscal 2007, the Company expects diluted earnings per share of $0.40 to $0.80, which consists of earnings of $2.00 to $2.10 from its recurring base business and an estimated pre-tax loss on the Texas project of approximately $45 million to $55 million, which includes the $3.0 million legal provision recorded in the first quarter. Revenue for fiscal 2007 is now estimated to be in the range of $710.0 million to $730.0 million, which reflects the impact of the Texas project.

Conference Call and Webcast Information

The Company has posted a presentation on its website, under the Investor Relations page, for analysts to follow along with during the conference call. The Company will host a conference call at 8:30 a.m. (EST) this morning. The call is open to the public and can be accessed under the Investor Relations page of the Company's website at or by calling:

         800.552.8050(Domestic)/206.902.3258 (International)

For those unable to listen to the live call, a replay will be available through Friday, February 16, 2007. Callers can access the replay by dialing:

                 Replay: 800.207.7077 or 314.255.1301
                              PIN: 5269

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 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.
                        (Dollars in thousands)

                                           September 30, December 31,
                                               2006           2006
                                           ------------- -------------
Current assets:
  Cash and cash equivalents                $     39,545  $     21,964
  Marketable securities                         117,315       141,811
  Restricted cash                                 1,512           312
  Accounts receivable - billed, net of
   reserves of $5,830 and $16,816               153,399       126,912
  Accounts receivable - unbilled                 47,728        39,949
  Income taxes receivable                         9,003        11,018
  Deferred income taxes                           6,844        10,690
  Prepaid expenses and other current
   assets                                         8,334         8,498
                                           ------------- -------------
    Total current assets                        383,680       361,154
Property and equipment, at cost                  71,078        72,558
  Less accumulated depreciation and
   amortization                                 (37,649)      (39,631)
                                            ------------  ------------
    Property and equipment, net                  33,429        32,927
Capitalized software                             57,260        57,351
Less accumulated amortization                   (23,335)      (25,655)
                                            ------------  ------------
Capitalized software, net                        33,925        31,696
Deferred contract costs, net                     11,165         9,758
Goodwill                                         86,688        86,019
Intangible assets, net                            5,720         4,892
Other assets, net                                 3,894         2,967
                                           ------------- -------------
    Total assets                           $    558,501  $    529,413
                                           ============= =============
Current liabilities:
  Accounts payable                         $     54,484  $     44,350
  Accrued compensation and benefits              24,426        22,172
  Deferred revenue                               54,414        48,264
  Current portion of capital lease
   obligations                                    1,690         1,707
  Other accrued liabilities                       1,600         1,122
                                           ------------- -------------
    Total current liabilities                   136,614       117,615
Capital lease obligations, less current
 portion                                          2,044         1,643
Deferred income taxes                            14,944        13,692
                                           ------------- -------------
    Total liabilities                           153,602       132,950
Shareholders' equity:
  Common stock, no par value; 60,000,000
   shares authorized; 21,544,964 and
   21,652,730 shares issued and
   outstanding at September 30, 2006 and
   December 31, 2006, at stated amount,
   respectively                                 156,349       159,250
  Accumulated other comprehensive income
   (loss)                                          (916)          300
  Retained earnings                             249,466       236,913
                                           ------------- -------------
    Total shareholders' equity                  404,899       396,463
                                           ------------- -------------
    Total liabilities and shareholders'
     equity                                $    558,501  $    529,413
                                           ============= =============
                            MAXIMUS, Inc.
            (Dollars in thousands, except per share data)

                                                      Three Months
                                                   Ended December 31,
                                                     2005      2006
                                                   --------- ---------
Revenue                                            $162,726  $161,138
Cost of revenue                                     117,980   140,860
                                                   --------- ---------
  Gross profit                                       44,746    20,278
Selling, general and administrative expenses         31,564    34,653
Legal expense                                           500     3,000
                                                   --------- ---------
  Income (loss) from operations                      12,682   (17,375)
Interest and other income, net                        2,038       477
Gain on sale of business                                  -       684
                                                   --------- ---------
  Income (loss) before income taxes                  14,720   (16,214)
Provision (benefit) for income taxes                  5,814    (5,819)
                                                   --------- ---------
  Net income (loss)                                $  8,906  $(10,395)
                                                   ========= =========

Earnings (loss) per share:
  Basic                                            $   0.42  $  (0.48)
                                                   ========= =========
  Diluted                                          $   0.41  $  (0.48)
                                                   ========= =========

Dividends per share                                $   0.10  $   0.10
                                                   ========= =========

Weighted average shares outstanding:
  Basic                                              21,432    21,590
                                                   ========= =========
  Diluted                                            21,908    21,590
                                                   ========= =========
                            MAXIMUS, Inc.
                        (Dollars in thousands)

                                                      Three Months
                                                   Ended December 31,
                                                     2005      2006
                                                   --------- ---------
Cash flows from operating activities:
  Net income (loss)                                $  8,906  $(10,395)
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation                                      2,202     2,284
    Amortization                                      1,942     2,769
    Deferred income taxes                              (130)   (5,098)
    Non-cash equity based compensation                1,333     1,020
    Gain on sale of business                              -      (684)
  Change in assets and liabilities, net of effects
   from divestiture:
    Accounts receivable - billed                        897    26,486
    Accounts receivable - unbilled                   (3,421)    6,734
    Prepaid expenses and other current assets          (192)     (151)
    Deferred contract costs                          (7,073)    1,407
    Other assets                                       (707)    2,065
    Accounts payable                                  2,548    (9,641)
    Accrued compensation and benefits                (5,457)   (2,254)
    Deferred revenue                                  5,417    (5,745)
    Income taxes                                        (62)   (2,015)
    Other liabilities                                (1,127)      844
                                                   --------- ---------
  Net cash provided by operating activities           5,076     7,626
Cash flows from investing activities:
    Proceeds from sale of business, net of
     transaction costs                                    -     2,171
    Purchases of property and equipment              (3,651)   (1,918)
    Capitalized software costs                       (1,880)     (304)
    Increase in marketable securities               (16,525)   24,496)
                                                   --------- ---------
  Net cash used in investing activities             (22,056)  (24,547)
Cash flows from financing activities:
    Employee stock transactions                       1,532     1,526
    Repurchases of common stock                      (4,315)        -
    Payments on capital lease obligations              (370)     (384)
    Tax benefit due to option exercises and
     restricted stock units vesting                     (87)      357
    Cash dividends paid                              (2,146)   (2,159)
                                                   --------- ---------
  Net cash used in financing activities              (5,386)     (660)
                                                   --------- ---------
  Net decrease in cash and cash equivalents         (22,366)  (17,581)
Cash and cash equivalents, beginning of period       59,073    39,545
                                                   --------- ---------
Cash and cash equivalents, end of period           $ 36,707  $ 21,964
                                                   ========= =========
                            MAXIMUS, Inc.
                         Segment Information

                                                      Three Months
                                                     Ended Dec. 31,
                                                     2005      2006
                                                   --------- ---------
  Consulting                                       $ 23,635  $ 24,656
  Systems                                            36,290    34,541
  Operations                                        102,801   101,941
                                                   --------- ---------
    Total                                          $162,726  $161,138
                                                   ========= =========

Gross Profit:
  Consulting                                       $ 10,196  $ 10,907
  Systems                                            13,870     8,551
  Operations                                         20,680       820
                                                   --------- ---------
    Total                                          $ 44,746  $ 20,278
                                                   ========= =========

Selling, General, and Administrative expense:
  Consulting                                       $  7,660  $  8,093
  Systems                                             9,983    10,148
  Operations                                         14,612    16,863
  Corporate/Other                                      (691)     (451)
                                                   --------- ---------
    Total                                          $ 31,564  $ 34,653
                                                   ========= =========

Income (Loss) from Operations:
  Consulting                                       $  2,536  $  2,815
  Systems                                             3,887    (1,597)
  Operations                                          6,068   (16,044)
  Consolidating adjustments                             691       451
  Legal expense                                        (500)   (3,000)
                                                   --------- ---------
    Total                                          $ 12,682  $(17,375)
                                                   ========= =========

Net Income (Loss)                                  $  8,906  $(10,395)
                                                   ========= =========

Earnings (Loss) per share
  Basic                                            $   0.42  $  (0.48)
                                                   ========= =========
  Diluted                                          $   0.41  $  (0.48)
                                                   ========= =========
                            MAXIMUS, Inc.
                  Supplemental Pro Forma Information
          For the three month period ended December 31, 2006
             (Dollar in millions, except per share data)

                                                    Three Months Ended
                                                       Dec 31, 2005

Income before income taxes (before Texas and
 Ontario project losses)                            $            14.8
  Ontario loss                                                   (4.0)
  Texas project operating loss                                  (11.9)
  Texas project provision for receivables                       (12.1)
  Texas project provision for legal expense                      (3.0)
(Loss) before income taxes per GAAP                 $           (16.2)

Earnings per diluted share (before Texas and
 Ontario project losses)                            $            0.44
  Ontario loss                                                  (0.12)
  Texas project operating loss                                  (0.35)
  Texas project provision for receivables                       (0.36)
  Texas project provision for legal expense                     (0.09)
(Loss) per diluted share per GAAP                   $           (0.48)