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MAXIMUS QUARTERLY EARNINGS CALL
David N. Walker
Chief Financial Officer and Treasurer
2nd Quarter Fiscal 2006
May 4, 2006
Q2 FY06 Financial Highlights
Revenue was $179.8 million
An increase of 17% year-over-year
Driven principally by Operations Segment
Net income totaled $8.9 million or $0.41 per diluted share
Compares to $8.5 million or $0.39 a share in the same quarter last year, after adjusting for FAS 123R
Q2 EPS impacted by $0.02 for legal and settlement costs
Net cash provided by operating activities totaled $11.4 million with free cash flow of $6.5 million
Cash, cash equivalents, and marketable securities remained healthy at $175.1 million as of March 31, 2006
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Consulting Segment Results
Consulting Segment: 15% of total revenue
Consulting Segment revenue increased 12% over last year to $26.4 million
Operating income totaled $3.0 million with an operating margin of 11.3%
Revenue and margin growth over Q2 05 driven principally from the financial services division:
Rev Max claims and
A large child welfare compliance project.
NOTE:
FAS 123R was implemented on prospective basis at the beginning of FY06
FY 05 segment results exclude stock option expense; while FY 06 results include the impact of option expense
3
Systems Segment Results
Systems Segment: 18% of total revenue
Systems Segment revenue $32.2 million which is comparable to last year
Operating income just under $300,000
Decline of $1.7 million compared to Q2 05
Operating income decline largely the result of additional resources needed to fulfill contractual obligations on a large system implementation
Follow-on phase to contract should return the Division to profitability in the second half of FY 06
4
Operations Segment Results
Operations Segment: 67% of total revenue
Operations Segment grew 24% over Q2 05, revenue of $121.2 million
Growth driven principally by:
British Columbia health operations contract; launched in Q3 05
$4.1 million hardware delivery on voter contract
New work across the segment
Operating income totaled $10.5 million with an 8.7% operating margin
Operating margin declined compared to Q2 05 due to losses in B.C. and a $2.3 million loss in Texas
Operating margin expansion over Q1 05 was driven by reduced losses and improvements on the B.C. project
Expect B.C. project to turn the corner in FY07
Current view - project will begin sustained profitable operations FY 07
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Total Company - Expenses and Operating Margin
Operating margin for Q2 was 7.6%
Excluding legal and settlement; operating margin was 8%
Year-over-year SG&A and operating margins were impacted in FY06 by FAS 123 (R), as FY 05 does not include option expense
Total stock option expense in the Q2 06 of $1.3 million or $0.04 per diluted share
If we expense options in Q2 05, option expense would have been $1.6 million or $0.05 per diluted share
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Balance Sheet
|
|
Q205 |
|
Q305 |
|
YE & |
|
Q106 |
|
Q206 |
|
|||||
Billed A/R |
|
$ |
115.5 |
|
$ |
128.2 |
|
$ |
124.5 |
|
$ |
123.6 |
|
$ |
139.6 |
|
Unbilled A/R |
|
$ |
48.1 |
|
$ |
44.7 |
|
$ |
43.7 |
|
$ |
47.2 |
|
$ |
46.2 |
|
Total A/R |
|
$ |
163.6 |
|
$ |
172.9 |
|
$ |
168.3 |
|
$ |
170.8 |
|
$ |
185.8 |
|
A/R for Q2 totaled $185.8 million
DSOs totaled 97 days
NOTE: The 97 days includes $5.4 million in long term A/R; classified within other assets on balance sheet
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Cash
Balance, Stock Repurchase, and
Cash Flow from Operations
|
|
Q205 |
|
Q305 |
|
Q405 |
|
FY 06 |
|
Q106 |
|
Q206 |
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||||||
Cash from Ops |
|
$ |
27.1 |
|
$ |
11.9 |
|
$ |
25.0 |
|
$ |
74.1 |
|
$ |
5.1 |
|
$ |
11.4 |
|
FCF |
|
$ |
22.5 |
|
$ |
6.0 |
|
$ |
15.9 |
|
$ |
49.8 |
|
$ |
(0.5 |
) |
$ |
6.5 |
|
Cash from operations totaled $11.4 million with free cash flow of $6.5 million
Cash, cash equivalents, and marketable securities of $175.1 million at March 31, 2006
The company purchased 138,700 shares of common stock during Q2, with $24.4 million available under ongoing stock repurchase program
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MAXIMUS QUARTERLY EARNINGS CALL
Richard A. Montoni
President and Chief Executive Officer
2nd Quarter Fiscal 2006
May 4, 2006
Management Transition
MAXIMUS remains strong and stable
Above all a team-oriented company
Overwhelming support received from large customers
Change will not adversely impact project and field operations
Morale is high and employee base is energized
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Strategic Plan Remains on Course
Several initiatives already underway
Refocus some current efforts
Long-term, six-point plan laid out 18 months ago
Deeply involved in developing the strategic direction
Made real, tangible progress toward those objectives
Strengthened management team
Implemented cost reductions to better leverage resources
No immediate plans for additional major cost reductions
Significant progress made in turning around and combining unprofitable business units
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New Approach to Business
Committed to being the premier government services provider
Quality can and will be improved
Execute on current contracts and manage the risk in start-up implementations such as BC and TX
Redirect the organization on winning more profitable business and increasing overall margin
Not strictly emphasizing a volume-driven approach
More selective in determining the opportunities
Committed to margin expansion in current contracts and new business wins
Critical component - how operations going forward are managed
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MAXIMUS Leadership
Recruit industry-leading talent that hit the ground running
Taken ownership of long-term objectives
More can be accomplished by further empowering the team
Decision-making process and accountability must be driven downward
Segment leaders will have necessary resources and decision-making latitude to increase efficiency and accelerate growth
Need to be a more flexible, nimble organization
Managers to take on more day-to-day decision making
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Culture Shift Towards Greater Teamwork
Fostering a culture that requires management to maintain accountability and deliver on goals
Scalable to the growth level aspired; not dependent on any single person
Improving performance in British Columbia requires expertise across the Company
Headed in the right direction
Efforts in Texas require similar team work
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British Columbia
Significant progress made in turning around performance
Service levels among the best on record for the Ministry
Ministry quarterly report noted:
Maintaining a record low document inventory level
Processed public documents within required levels
Answered phones from the public, within three minute call window
Answered calls from doctors and pharmacists, within one-minute call window
Aligning staffing levels and managing service delivery closer to economic model
15
Texas Integrated Eligibility Project
Texas Health and Human Services Commission delayed integrated eligibility roll out
Delay is a result of needed technical and operational improvements
Systems development and interfacing
Start-up readiness
Financial implications not known today but dependent on finalization and agreement to revise scope and responsibilities
Finalize and quantify in the next 30 days
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Uses of Cash
M&A activity: smaller, tuck-in acquisitions
Divest certain businesses
Facilitate margin improvement
Business lines that no longer aligned with strategic objectives
Reinvest in the business to upgrade technological capabilities
More effectively scale service offerings
Improve ability to roll knowledge from one project to the next
Continue to pay a quarterly cash dividend of $0.10 per share
Maintain an active share repurchase program
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Re-bids
17 jobs up for re-bid in FY 06
Have won or received extensions on 13
Total value of $172 million
To date, won $114 million
FY 06 re-bid contract value totaled close to $32 million
Secured $29 million, to date
Largest re-bid decision expected end of FY 06
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Options
14 option exercises outstanding
Total contract value of $81 million
Won six with a contract value of $48 million
FY 06 impact totals $20 million and weve secured $17 million
Eight remaining options
Three totaling $21 million; awarded late 2006 with no impact to FY06
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Summary Awards & Pipeline
|
|
Q2 FY05 |
|
Q2 FY06 |
|
||
Signed |
|
$ |
628 |
|
$ |
292 |
|
Awarded but Not Signed |
|
452 |
|
135 |
|
||
Pipeline |
|
|
|
|
|
||
Proposals Submitted |
|
190 |
|
494 |
|
||
Proposals in Preparation |
|
310 |
|
144 |
|
||
Major Opportunities Tracking |
|
558 |
|
682 |
|
||
Total Pipeline |
|
$ |
1,058 |
|
$ |
1,321 |
|
All dollar values in millions
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Guidance
Expect revenue in the range of $710-$725
Revising full year EPS estimates
$1.87 still achievable; reducing to more conservative levels
Estimate diluted earning per share in the range of $1.80 - $1.87
Revised forecast with several items in mind
Texas
Continued improvement in British Columbia
License revenue and contingency-based work uncertainties
Several accretive events can get us to $1.87
Revised guidance is prudent and conservative
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Conclusion
Focused on key priorities
Preserve MAXIMUS heritage but make meaningful changes
Cultural shifts
Better leverage talent
More directed, focused, and accountable
Empower leadership
Re-evaluating uses of cash
Optimizing current business
Project and risk management
Pricing
Approach to business development
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