Exhibit
99.2
MMS
- Q3 2007 MAXIMUS, Inc. Earnings Conference Call
August
07, 2007, 9:00AM ET
CORPORATE
PARTICIPANTS
Lisa
Miles
MAXIMUS,
Inc. - Director of IR
David
Walker
MAXIMUS,
Inc. - CFO
Rich
Montoni
MAXIMUS,
Inc. - President, CEO
CONFERENCE
CALL PARTICIPANTS
George
Price
Stifel
Nicolaus - Analyst
Matthew
Mckay
Jefferies
- Analyst
Charles
Strauzer
CJS
Securities - Analyst
Allison
Hiken
UBS
-
Analyst
Steve
Balog
Cedar
Creek Management - Analyst
PRESENTATION
Operator
Ladies
and gentlemen, welcome to the Maximus third quarter earnings call. During this
session, all lines will be muted until the question-and-answer portion the
call.
If you need audio assistance please press star zero and an operator will assist
you. At this time I'd like to turn the call over to Lisa Miles, Director of
Investor Relations.
Lisa
Miles - MAXIMUS, Inc. - Director of IR
Good
morning and thank you for joining us for our third quarter earnings conference
call. If you wish to follow along, we've posted a presentation on our website
under the Investor Relations page. On the call today is Rich Montoni, Chief
Executive Officer; and David Walker, Chief Financial Officer. Following our
prepared comments we will open the call up to Q-and-A. Before we begin, I'd
like
to remind everyone that a number of statements being made today will be
forward-looking in nature. Please remember that such statements are only
predictions and actual events or results may differ materially as a result
of
risks we face including those discussed in exhibit 99.1 of our SEC filing.
We
encourage you to review the summary of these risks and our most recent 10-Q
filed with the SEC. The Company does not assume any obligation to revise or
update these forward-looking statements to reflect subsequent events or
circumstances. And with that, I will turn the call over to Dave.
David
Walker - MAXIMUS, Inc. - CFO
Thanks,
Lisa, good morning. This morning the Company reported third quarter revenue
totaling $196.6 million and a net loss of $14.4 million or a loss of $0.65
per
share. The loss was a result of a previously announced settlement and legal
charge which generated an after-tax charge of $1.30 per share in the quarter.
Excluding this charge, earnings per share in the third quarter was $0.65 per
share, demonstrating our continued efforts to optimize the business. The Company
achieved many firsts this quarter. The revenue of $196.6 million is the highest
posted in a quarter. Cash and marketable securities of $214.8 million is a
new
Maximus high water mark and DSOs, our key metric for receivables management,
was
at 75 days, the best level ever obtained by the Company. The legal and
settlement charge of $33 million principally related to the previously disclosed
settlement for an investigation on a contract in Washington, D.C. The $33
million includes three components: $30.5 million of settlement expense, $1.2
million of legal costs associated with the D.C. matter, and a reserve of
approximately $1.3 million for future legal expenses related to the on-going
arbitration with Accenture. A large portion of the legal and settlement expense
of $33 million is not tax deductible. This expense, net of the associated tax
benefit of $4.5 million, results in an after-tax charge of is $1.30 per share.
Overall, the results of our operations were consistent with our plans for the
quarter. Our strong performance from the operation segment offset the
anticipated charges in the systems segment which relate to our on-going to
efforts to resolve legacy contract terms.
Let's
jump
into the details by segment. Let's start with the operation segment, which
had a
very strong quarter. The operations segment benefited from the new Texas
contract to replace the legacy subcontract with Accenture. In addition to the
good news from Texas, we enjoyed strong organic growth and margin expansion.
Last quarter, Rich talked about several of our new wins in health and work
force
services that are now fully contributing and driving profitable growth in the
segment. Revenue for the operations segment totaled $139.3 million for the
third
quarter compared to revenue of $131.2 million for the same period last year.
The
prior year revenue for the quarter included approximately $17 million from
a
non-recurring voting hardware sale and a divested business. If we normalize
for
these items, the operating segment grew a healthy 22%. Half of this normalized
growth came from the Texas project with the balance coming from organic growth.
The operations segment posted an operating income of $24.6 million in the
quarter compared to a loss of $23.1 million reported for the same period last
year. Texas was the largest driver of this $47.7 million improvement in
operating income as it generated $34.3 million of a loss in the third quarter
of
last year. As we previously mentioned, the new Texas contracts are profitable
and also benefiting the current quarter with the collection of $3.2 million
in
previously reserved receivables related to the Texas subcontract. The balance
of
the income growth is attributed to organic growth, margin expansion, timing
on
revenue recognition and change orders.
Consulting
segment revenue was $23.3 million for the third quarter and as expected
operating income improved sequentially to $2 million, or an operating margin
of
8.7%. The consulting segment performed largely as expected during the quarter.
Operating income and margin were lower compared to last year. This is primarily
attributable to fluctuations as a result of the timing of work. We also
experienced some softness which will continue for the near term as we transition
the segment away from some of the contingent fee work we have traditionally
performed in the Medicaid claiming area. We are working with our clients to
help
them understand how a more traditional fixed fee or hourly rate contract would
be mutually beneficial. In addition, the consulting team continues to focus
on
expansion into new markets which Rich will talk about in greater detail
later.
Moving
onto the systems segment. Systems revenue in the third fiscal quarter grew
to
$34 million compared to $28.7 million reported for the same period last year.
Revenue growth compared to last year was fueled by new contracts in the ERP
division and steady growth in asset solutions. Despite this revenue growth,
the
segment lost $3.6 million in the third quarter compared to a loss of $3 million
in the same period last year. This quarterly loss in the systems segments was
primarily caused by charges in our justice division as we continue to resolve
legacy contract contracts where the development scope was not clearly defined.
The largest charge in justice relates to a reserve of receivables in a project
in Connecticut. As we stated in last quarter's call, 2007 remains a transition
year for the systems segment. We continue to deploy both technical and sales
resources into our education systems division which launched an early version
of
its SchoolMAX student information system at the end of the last fiscal year.
This softness in education is offset by the solid rebound of the ERP division
with a refreshed backlog of profitable contracts relative to last
year.
As
I said
earlier, our strong performance from the operations segment offset the
anticipated charges in the systems segment which relate to our on-going efforts
to resolve legacy contract terms. We continue to aggressively manage legacy
contracts and leverage processes to ensure new contracts are awarded with
equitable terms. Overall, excluding legal charges, we delivered an operating
margin of 11.7%. We continue to believe that long-term Maximus can consistently
deliver an operating margin in excess of 10%.
Moving
on
to balance sheet and cash flow items. We ended the third fiscal quarter with
cash, cash equivalents and marketable securities of $214.8 million, which is
before the outlay of cash for the D.C. settlement which was paid out in July.
Our accounts receivable for the quarter totaled $160.7 million. We also have
$1.9 million in long-term accounts receivables which are classified within
our
other assets on the balance sheet. Our receivables decreased $5.1 million over
last quarter while revenue sequentially increased $17.5 million. This drove
our
DSOs in the quarter down to 75 days. The improvement in DSOs is one of the
indicators that we are focused on equitable business terms. We are resolving
legacy contracts, with back-ended contract retentions and are focused on
business discipline and teamwork. We are very pleased with this record DSO
level. As a result of this improvement, we now expect normalized DSOs in the
long-term to be in the range of 75 to 85 days. As you know, cash flow in the
quarter was very strong. Cash provided from operating activities totaled $34.3
million in the quarter with free cash flow of $29.7 million. Because of the
D.C.
settlement, cash flow in the fourth quarter is expected to be negative. And
with
that, I'll turn it the call over to Rich.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Thanks,
David, and good morning, everyone. Overall, as David noted, it was a strong
quarter that reflects the solid operational progress we've made over the last
year. We've made strides in shifting the overall quality of the Company's
business portfolio with better project management, increased oversight, and
more
favorable terms. We continue to gain more traction from the many actions we've
taken over the last year to improve and optimize operations and it's reflected
in our financial results. Moving into the results for quarter, excluding the
impact from the previously disclosed settlement and legal expenses we met
earnings expectations for the period. While the magnitude of the settlement
in
D.C. was greater then expected, I'm pleased to put this matter behind us. This
settlement, along with our announcement to retain UBS to help explore strategic
alternatives reflects our overriding strategic focus on maximizing shareholder
value by optimizing the business, including our product offerings, cleaning
up
legacy issues, improving oversight and risk management and better positioning
Maximus for the long-term -- for long-term profitable growth.
Since
these announcements two weeks ago, the Company's done aggressive outreach to
its
clients and employees. Our extensive outreach efforts reinforced our commitment
to provide superior solutions and further enhance our capabilities as part
of
our strategic review. Clients understand our interest in exploring alternatives
at this stage in our development and favorably view our interest in broadening
our core capabilities and service offerings. Technology is driving the
convergence of services in the market. Increasing our IT capability to
complement our programmatic expertise is essential. This will enhance the
solutions we're able to provide our clients so that we remain competitive for
the long haul, particularly as a prime contractor. The path of exploring
strategic alternatives is driven principally by our interest to broaden our
capabilities and enhance service delivery to our clients.
On
the
D.C. settlement, we took a direct and thorough approach to resolving the matter
and to communicating with our clients. We've taken full responsibility for
the
actions of our former employees and have implemented several remedial steps
in
addition to entering into a corporate integrity agreement with the U.S.
Department of Health and Human Services.
Along
with
client communications, we also conducted extensive outreach to our employees
on
the recent developments. I believe our employees are our greatest asset,
providing clients with subject matter expertise that distinguishes the Company
in the government services sector. Additionally, their support throughout the
strategic review process is essential to the long-term success of Maximus and
we've been very pleased with their commitment to excellence since we've
announced our intentions. We want to personally thank them for their support
and
continued client service. Our main priority remains squarely focused on
providing our government clients with a level of service that has defined the
Company over the last 32 years.
So
let's
talk about our business in more detail starting with the operations segment.
Our
operations segment had a very solid quarter across the board. We were very
pleased with the contribution that our Texas operations made during the period.
This it is the results of four interim agreements we reached directly with
the
state earlier in the year. We are working to finalize the details of longer
term
contracts which we hope to have in place by September 1st. We expect three
of
these contracts to run for another 16 months and the fourth is expected to
run
through June of 2010. We've made significant operational progress in Texas
over
the last six months and we have no new updates regarding the on-going
arbitration with Accenture, which remains on-going.
Needless
to say I'm very pleased with the operational turnaround in Texas and I'm also
pleased to note that we continue to expand our leading market presence in the
health services and human services markets. On the call last quarter, I talked
about some new wins in our domestic work force services business but we
continued to also expand our footprint in Australia where Maximus is one of
the
highest performing providers in finding employment as part of the Australian
government's welfare to work initiative. In addition to our current work,
Maximus just secured another 11 sites for the Australian work force services
program; it's called the Job Network. We expect this new work alone will
contribute $25 to $30 million in revenue beginning this mid-August and will
run
through June of 2009. The term on this new contract is shorter then what we
typically see in this business because the entire program will go back out
for
competitive rebid in the next 18 to 24 months. We feel very good about our
market position there and we're excited about expanding our welfare to work
opportunities both domestically as well as abroad.
In
the
consulting segment, we continue to make inroads into new areas. Over the last
year we've reduced the overall percentage of consulting business coming from
contingent-fee contracts going from about 30% in fiscal '06 to roughly 20%
for
fiscal '07. This reflects the changing revenue mix as we successfully go after
new lines of work on a fee for service basis. We expect some near-term
transitional softness as we cycle through projects under old contingent fee
terms but at the same time, we've started to refresh the overall backlog of
work
with new contracts such as one in Oklahoma under fixed fee terms. We are also
identified other new areas of interest including the fraud, waste and abuse
market which I've talked about last quarter. But we're also seeing increasing
demand in the area of IV&V consulting, which is independent verification and
validation and quality assurance work for the implementation of new state
systems. We've been successfully doing IV&V work for years. In fact, part of
our strategy in the consulting segment has been to utilize our subject matter
expertise and take advantage of our historical strength in providing IV&V
quality assurance and program management support services. In this area alone
we've seen increased demand for assistance and support for personnel systems
as
a result of the upcoming retirement wave expected in the government
market.
While
we've certainly made great operational progress overall, we still have certain
challenges, particularly in the systems segment. As David noted, excluding
the
charges related to a few contracts for the systems segment, it was essentially
running break even, similar to last quarter. Our efforts remain focused in
managing and resolving these older contracts that have terms and statements
of
work that are not well defined. This includes our work on the Connecticut
Collect project where we continue to work on a resolution plan with the
client.
Switching
gears to our new sales awards and pipeline, I'm pleased with the progress we've
made again this quarter. As noted in the press release, year-to-date new signed
awards totaled $423 million, of which, over 60% of new signed awards are coming
from work in the operations segment. Additionally, well over 50% of the new
signed awards carry total contract values between $5 million and $45 million.
This is an on going reflection of our efforts of securing new work that is
less
volume-driven and falls well within our core competencies in the health and
human services arena. We also reported contracts that have been awarded but
are
unsigned as of August 1st that totaled $339 million. Our total sales pipeline
remains robust at $1.3 billion, which reflects total opportunities we are
tracking across all segments of our business.
So
let's
wrap up with guidance. As disclosed in this morning's press release, the Company
expects total revenue for fiscal 2007 to be in the range of $740 million to
$750
million. We've tightened the range because we now expect revenue from the Texas
project to be running slightly lower than previously anticipated. The current
run rate in Texas is approximately $7 to $8 million per month. The lower
contribution is partly due to the timing of program expansion. For
fiscal 2007, which includes Texas project losses as well as legal and settlement
expense through the third quarter, we expect a GAAP loss of $0.35 to $0.45
per
share for the full fiscal year. Now excluding these charges, non-GAAP pro forma
EPS for the full year 2007 is expected to be in the range of $2.00 to $2.10
per
share. You may want to reference the last table in the press release for
year-to-date support on these metrics. Last quarter, we also established
preliminary fiscal 2008 guidance which remains largely unchanged with the
revenue growth we expect to be north of 10%. Based on some of the broad demand
and strength in organic growth we're also slightly increasing our diluted
earnings per share estimates for fiscal 2008. We now expect diluted earnings
per
share to be in the range of $2.35 to $2.65 per share for fiscal 2008. And with
that let's open up the call for questions.
QUESTION
AND ANSWER
Operator
(OPERATOR
INSTRUCTIONS) Our first question is from the line of George Price with Stifel
Nicolaus. Please go ahead.
George
Price - Stifel Nicolaus - Analyst
Hi,
nice quarter guys, thanks very much for taking my questions. First just want
to
confirm the $3.2 million in receivables that was collected but previously
reserved so that there was a reversal in the quarter, right?
David
Walker - MAXIMUS, Inc. - CFO
That's
correct.
George
Price - Stifel Nicolaus - Analyst
Okay.
And I guess how much is -- are there other accrued reserves, anything else
with
regard to Texas that if you collect on or other milestones or events that we
could see reversals?
David
Walker - MAXIMUS, Inc. - CFO
There
are some that are tied up in the arbitration, but we're not currently
forecasting that you'll see any of that this year.
George
Price - Stifel Nicolaus - Analyst
Okay.
And then last thing and then I'll turn over. With regard to the fiscal '08
guidance, can you give us some assumptions behind that in terms of margin,
operating margin, tax rate, share count assumption, anything like
that?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
George,
this is Rich. Good morning.
George
Price - Stifel Nicolaus - Analyst
How
you doing?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I'm
doing fine, thank you. Here are my comments on the fiscal '08 guidance at this
point and time. First off, our general practice is to provide detailed color
when we wrap of our planning process and we're doing that this month. It'll
continue partly into September and generally we give detailed commentary when
we
release the Q4 results. But the overall considerations that are reflected or
behind our new guidance, one, first off, it's important to look at '07, a base
of '07 and that's in the range of $2.00 to $2.10 for base operations if you
will, sort of a normalized number, and we expect that will grow into $2.35
to
$2.65 in fiscal '08. So it gives you a perspective. From a top line perspective,
we expect growth north of 10%. The key drivers in that, the biggest contributor
to that growth will be our operations segment and behind that, will be we'll
have Texas for a full year. As we've talked about, we've continued to see some
very successful wins in our work force services business. So that will be a
major factor in our growth in '08.
We
expect
and also and I just talked about it, Max network has some real growth from
a
revenue perspective that will be a distinguishing contributor in '08. From
an
operating income perspective, the key drivers will again be the operations
segment, number one, and really the same three items that I mentioned,. the
Texas project, work force services and Max network. We also expect that the
systems segment will be a differentiator and that we expect it to be profitable
in FY '08 versus FY '07. Generally, we expect to see fewer and lesser project
losses as we benefit from the improving caliber of our project portfolio. And
I
think it reflects our continued efforts to optimize our operations as we've
been
talking about for the last 12 months. From a margin perspective, I do think
the
overall margin will end up north of 10% for fiscal '08 but I'll defer any
detailed discussion until we get into results for the fourth
quarter.
George
Price - Stifel Nicolaus - Analyst
Should
we just assume the tax rate stays at about what, 40% generally been your
guidance?
David
Walker - MAXIMUS, Inc. - CFO
Is
generally what we're using. We're actually using 42% exclusive of these one-time
charges related to D.C. for the bulk of this year. But 40% for '08 and beyond
is
very reasonable.
George
Price - Stifel Nicolaus - Analyst
Great.
Thank you.
Our
next question is from the line of Matthew Mckay with Jefferies. Please go
ahead.
Matthew
Mckay - Jefferies - Analyst
Great,
good morning, guys. First question, on the $2.00 to $2.10 base pro forma EPS,
does that include the $0.12 for the Ontario loss provision in Q1.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
It
excludes all of the -- that's right, it does include the loss,
Matt.
Matthew
Mckay - Jefferies - Analyst
Just
curious why you'd include that in that base EPS?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I
think you have to go to that exhibit, which is page ten of the press release.
The supplemental pro forma. And we've chosen, and again it's pro forma
information but to give you a base, arguably you could adjust it further so
you'd have north of $2.00 to $2.10. But we've chosen to adjust those that are
truly extraordinary and that was Texas and the legal and settlement expenses.
That's what's excluded to get to the $2.00 to 2.10.
Matthew
Mckay - Jefferies - Analyst
Okay.
Fair enough. And DSO should -- is that going to continue to trend down do you
think?
David
Walker - MAXIMUS, Inc. - CFO
What
we're essentially saying and it depends on working capital usage. We think
between 75 and 85 days is a pretty good range that we think the DSOs will move
between.
Matthew
Mckay - Jefferies - Analyst
Okay.
And then just a -- what do you expect for capitalized software and CapEx per
quarter going forward?
David
Walker - MAXIMUS, Inc. - CFO
It
tends if you look at the total CapEx, cap software sand stuff, tends to run
about 2.5% of revenue and generally speaking our use of capital's pretty
consistent historically.
Matthew
Mckay - Jefferies - Analyst
Okay,
thanks a lot guys.
(OPERATOR
INSTRUCTIONS) Our next question is from the line of Charles Strauzer with
CJS. Please go ahead.
Charles
Strauzer - CJS Securities - Analyst
Good
morning,.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Good
morning, Charlie.
Charles
Strauzer - CJS Securities - Analyst
Rich,
if you can expand on the Q4 guidance that's inherent for the rest of the year,
can you just give us a better sense of the segment margin
expectations?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Yes,
be glad to do that. I think the fourth quarter we expect to be relatively
consistent with the third quarter. I would tell you that we expect to see some
shifts between the segments, I think you should expect that the operations
segment won't perform to the stellar level, because as David talked about,
you
had a one-time recovery which we're not forecasting anything of that nature
in
the fourth quarter related to the Texas contract, and we expect that the systems
segment will perform better than it did in the third quarter. So I would say
those are the macro shifts from a segment perspective.
Charles
Strauzer - CJS Securities - Analyst
So
Xing out the one-time charge a little bit better then break even, maybe slightly
profitable?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
The
systems piece?
Charles
Strauzer - CJS Securities - Analyst
Yes.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Correct.
Charles
Strauzer - CJS Securities - Analyst
And
what was the FAS 123R expense in the quarter?
David
Walker - MAXIMUS, Inc. - CFO
Do
you have that handy? We’ll get it in a minute.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
We'll
research that for you. Do you have any other questions in the interim,
Charles?
Charles
Strauzer - CJS Securities - Analyst
Yes,
Rich, just for you. You mentioned, maybe David mentioned that the education
market was a little bit soft on the systems side as well. Is there something,
kind of a broader macro theme, that you're seeing there or is it just specific
to certain clients? Can you expand on that a little bit?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
My
sense on the education market is it's a fairly large market, robust market.
I do
think the industry needs new technology. Maximus has made some investments
in
technology and we're early stages and I think that's probably driving our
financial performance as opposed to any commentary on the market as a whole.
So
it's basically our stage and it's an early stage in operation for us and we're
in the process of building out that technology, new releases. We've got three
or
four clients that's were in the process of implementing that and we've made
some
investments in sales and marketing so that's having an impact. Things should
improve as we move forward towards a more mature model.
Charles
Strauzer - CJS Securities - Analyst
Got
it. And just staying in the system's segment for one more second. If you look
at
where you are from a legacy contracts versus some of the new contracts coming
into the portfolio, where do you think you are in kind of working out some
of
the more problematic legacy contracts? .
Rich
Montoni - MAXIMUS, Inc. - President, CEO
My
belief is that we've turned the corner from a total Company perspective and
from
a systems perspective as it relates to getting our arms around problem contracts
and there's an inflection point that you reach where you feel that you've got
a
normalized portfolio and it's reasonable. I think we've reached that from a
total Company perspective. Overall, I would say operations did the best job
to
get their first, Charlie, and I would also say the system's segment probably
had
the biggest challenges and remains to the biggest challenges but from a total
portfolio perspective I think we've turned that corner.
Charles
Strauzer - CJS Securities - Analyst
Great.
Thank you very much.
David
Walker - MAXIMUS, Inc. - CFO
Charlie,
Dave Walker. The FAS 123R was $800,000 in the quarter.
Charles
Strauzer - CJS Securities - Analyst
Is
that a good number to use in Q4?
David
Walker - MAXIMUS, Inc. - CFO
Yes,
I think so.
Charles
Strauzer - CJS Securities - Analyst
Okay.
Great, thank you, Dave, thanks, Rich.
Operator
Our
next question is from the line of Jason Kupferberg with UBS. Please go
ahead.
Allison
Hiken - UBS - Analyst
Hi,
this is Allison Hiken in for Jason. Was wondering, because Maximus is in the
midst of reviewing your strategic alternatives, have you seen any tangible
impact on the pipeline, bookings over employee turnover? We've seen that in
the
past with other companies after they announced something like this. I was just
wondering if you were worried about that. Wondering if you're worried about
that.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I
heard the first part of the question have we seen any impact on the pipeline.
The second part what where you broke up.
Allison
Hiken - UBS - Analyst
The
bookings or employee turnover.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
That's
a great question and that's something we've given a lot of thought to and spent
a lot of time with a very detailed program, outreach program, as I talked about
in the call notes, directed at our clients and also directed at our employees.
As it relates to clients it's very interesting, clients remain very concerned,
but their number one concern is that they continue to receive the high level
of
service that they've contracted to receive, they've received in the past and
quite frankly they believe Maximus is distinguished in many, many regards so
they want to see that preserved. They also are very appreciative of, I'll say
the foresight to think about the next decade and what their services might
be so
they encourage open thought, i.e. our strategic process, to bring to bear
leading edge technologies and capabilities over the next decade, but again,
subject to them not missing a beat as it relates to their on-going service.
That's very, very important and obviously as a management team, we will remain
intensely focused on that which leads us to our employees and we've had an
extensive outreach program, communications program with our employees and as
you
might expect there's a number of employees that initially are very concerned
about what's it means to them,. what's it means to their position. I will tell
that you our belief, and I think our employees acknowledge this, is that at
the
project level there's very, very little risk. The heart of our business is
our
employees. It is what distinguishes Maximus in the marketplace, our subject
matter expertise. So we need to continue that and nobody will invest in this
Company without a program to preserve that subject matter expertise. So our
belief is that it offers more opportunity in the long term to our clients and
our employees. There's some individuals that could theoretically be impacted
and
we've got special programs to make sure that they're taken care of and retained
as appropriate. So good question, very much in the forefront of our mind and
I
think we're doing the right things to make sure we continue to and we don't
lose
this ground and continue to gain ground.
Allison
Hiken - UBS - Analyst
Okay.
Great. And then just one other question on Texas, can you kind of give us a
rough sense of how much, like the magnitude of revenues from Texas that you're
expecting for in your fiscal '08 guidance contribution?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I
think we've pretty much taken a steady state approach to that. I said it's
running $7- $8 million a month. I think in our FY '08 guidance, we've assumed
pretty much that steady state.
Allison
Hiken - UBS - Analyst
Okay.
So this is not dependent on Accenture's final negotiation results?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
That's
correct. We do not have anything in our fiscal '08 forecast for a settlement
positive or negative with Accenture.
Allison
Hiken - UBS - Analyst
Okay.
Great. Thanks guys.
Our
next question is from the line of Steve Balog with Cedar Creek Management.
Please go ahead.
Steve
Balog - Cedar Creek Management - Analyst
Thanks.
Margins in the operations segment. They're really good if you take out the
accounts receivable reversal, they're still good. Well, well above 10% and
I'm
just wondering if that's sustainable? There's another company in the government
services area, smaller and to a layman like myself, I think it's similar. They
claim you just shouldn't go over 10% or the customers kind of get mad at you.
They don't like to see you making that much money off the government. Is there
something different about your business or that makes this okay to be that
profitable in this area?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I
think there's a little bit of seasonality in the June quarter that reverses
in
subsequent quarters and certainly isn't there in the December and March
quarters. And that's our tax claiming business so that will temper it done
a
little bit. I do think conceptually you're right. There's a watchful eye on
margins that are egregious. I don't think that our portfolio is such that we're
egregious. I think we're fair with our customers. You may want to temper that
a
little bit, certainly for the reversal of the reserve, as you mentioned, and
a
bit of the seasonality and then I think we end up in that normalized range.
As
you know we've challenged ourselves to get our business north of 10%. We're
pleased to get there this year. We think it's sustainable. I don't want to
raise
the bar at this point in time and say, especially the operations segment, is
a
consistent north of 10 to 12% deliver. I think it's fair and I think it's north
of 10%.
Steve
Balog - Cedar Creek Management - Analyst
Great,
thanks.
Our
last question is a follow-up question from the line of George Price with Stifel
Nicolaus. Please go ahead.
George
Price - Stifel Nicolaus - Analyst
Thanks
very much. In terms of the fiscal '07 revenue guidance, down $20 million at
the
top end the range. How much of that, obviously some of that is Texas, how much
of that is sort of lost or should we assume that it's all shifted into fiscal
'08 or can you give us a little color on that?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Go
ahead, David.
David
Walker - MAXIMUS, Inc. - CFO
Yes,
George it's largely Texas and I think it's a new program. We're trying to get
a
good read on it and that's all. That's largely what it is.
George
Price - Stifel Nicolaus - Analyst
Okay.
So is it shifted or lost? I guess --
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I
think it's more lost and we're not going to forecast any shift until we see
the
indication from the client that the increase in monthly revenue is there. I
think initially when we forecasted the new operations for Texas, we were
thinking a monthly run rate in the vicinity of $10 million and it’s proven to be
slightly less then that in the $8 million range and that's really based upon
the
client's ramp plan. So that's what we've continued out. I wouldn't say that
it's
shifted into '08, George.
George
Price - Stifel Nicolaus - Analyst
Okay.
All right, I just wanted to be clear on that. And then, in terms of the
Australian work force program, you said $25 to $30 million through '09. Was
that
over that period. So is that over two fiscal years then?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
I
think it's slightly less than that. I think it’s 22 months starting in
August.
George
Price - Stifel Nicolaus - Analyst
Okay.
And is this work similar to the stuff that you did in Israel?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
It's
similar to the work that we are doing in Israel and it's very similar, it's
actually and expansion of the work that we're already doing in Australia. In
fact, the award comes to us by a reallocation based upon performance of the
existing providers and our team out there has done just a phenomenal job and
distinguishes itself as one of the top providers in of welfare work services
in
Australia. That's at driver behind the award.
George
Price - Stifel Nicolaus - Analyst
Is
all that $25 to $30 million, is that all incremental?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Yes.
George
Price - Stifel Nicolaus - Analyst
Okay.
Great, thank you.
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Okay.
Thank you.
George
Price - Stifel Nicolaus - Analyst
Actually
one other thing. How is Israel going by way?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
Israel
has gone fine. It's up for rebid at this point in time. So, it's performed
according to plan and we are anxious to proceed to the next
chapter.
George
Price - Stifel Nicolaus - Analyst
How
much is up for rebid on an annual basis and when's the decision
point?
Rich
Montoni - MAXIMUS, Inc. - President, CEO
The
decision point is current and on an annualized basis, the revenue is, it's
about
a 6 to $8 million run rate.
David
Walker - MAXIMUS, Inc. - CFO
Yes,
but we, just a reminder, we own 55% of that, so then we have to eliminate any
profits, that or a minority interest in the bottom line. Got you. Okay, thank
you.
Ladies
and
gentlemen a replay of this call will be available to you. The replay information
can be found on the press release. The direct link is
reg.linkconferencecall.com/digitalplayback/digitalplaybackregistration.aspx?recid=5661.
Ladies and gentlemen this includes today's presentation. Thank you for your
participation. You may now disconnect.
Slide:1
David N. Walker Chief Financial Officer and Treasurer 3rd Quarter Fiscal
2007
August 7, 2007
Slide:
2 Title: Third Quarter FY2007 Results Body: Revenue totaling $196.6 million
Net
loss of $14.4M or a loss of $0.65 per share Loss was a result of previously
announced settlement and legal charge; generated an after-tax charge of $1.30
per share Excluding legal charge, 3rd Quarter EPS was $0.65 Q3
Achievements Record revenue of $196.6M Cash and marketable securities
$214.8M DSO's at 75 days; best level ever attained Legal and
settlement charge of $33 million $30.5M of settlement expense $1.2M
of legal costs $1.3M reserve for future legal expenses
Slide: 3
Title: Results by Business Segment Body: Operations Segment benefited
from the new Texas contract, strong organic growth and margin expansion Revenue
totaled $139.9M for Q3'07 compared to $131.2M Q3'06 Normalized for large
hardware sale and divested business, reflects a 22% growth increase; 57% was
from sources outside the Texas contract Operating income of $24.6M in Q3'07
compared to a loss of $23.1 for Q3'06 Texas contract lost $34.3M in Q3'06 $3.2
million collection in reserved receivables Consulting Segment performed as
expected for Q3 Revenue $23.3M; operating income improved sequentially to $2.0M,
operating margin of 8.7% Systems Segment Revenue grew to $34.0M Q3'07
compared to $28.7M Q3'06 Loss of $3.6M Q3'07 compared to a loss of $3.0M Q3'06
2007 is a transition year for this segment Overall, excluding legal charges,
delivered an operating margin of 11.7%
Slide:
4 Title: Balance Sheet and Cash Flow Items Body: Cash, Cash equivalents, and
marketable securities of $214.8 million Accounts Receivables totaled $160.7
million; $1.9 million in long-term accounts receivables Relative to
Q2'07 receivables decreased $4.7M; revenue increased $17.5M DSOs improved to
75
days Improvement is an indicator of focus on equitable business terms, resolving
legacy contracts with back-ended contract retentions and focus on business
discipline and teamwork Cash provided from operating activities totaling $34.3
million, free cash flow of $29.7 million
Slide:
5 Richard A. Montoni President and Chief Executive Officer 3rd Quarter Fiscal
2007 August 7, 2007
Slide: 6
Title: Third Quarter Results Body: Met expectation for the period, excluding
legal impacts Shift in quality of business portfolio reflected in financial
results Better project management Increased oversight Improved
terms Retained UBS to help explore strategic alternatives and
maximize shareholder value Optimize the business Clear out legacy issues
Improve
risk management Position MAXIMUS for long term profitable
growth
Slide:
7 Title: Client and Employee Outreach Body: Reinforced our commitment
to providing superior solutions Technology driving convergence of services
Increase IT capabilities to complement our programmatic expertise Employees
are
our greatest asset, distinguishing the Company in the government services sector
Priority remains focused on providing our government clients with a level of
service that has defined MAXIMUS for the past 32 years
Slide:
8 Title: Segment Results Body: Operations Segment: solid quarter across the
board Texas made a strong contribution; result of four interim agreements
reached with the State Finalizing details of longer-term contracts Expect to
have in place by September 1, 2007 Three contracts to run for another 16 months,
fourth to run through June 2010 Secured another 11 sites for the Australian
Job
Network Contributing $25 - $30 million in revenue mid-August through June
2009 Consulting Segment Contingent fee revenue reduction from 30% in
FY06 to 20% in FY07 New areas of interest including increased demand in IV&V
Consulting Systems Segment Excluding charges, running break-even
Focused on managing and resolving older contracts
Slide:
9 Title: New Sales Awards and Pipeline Body: $423 million
new awards signed 60% of new signed awards from Operations Segment
Over 50% of new signed contracts carry total values between $5M and $45M
Reflects new, less volume-driven work in core business of health and human
services $339 million awarded but unsigned $1.3 billion in
overall sales pipeline $414M in proposals pending $61M in proposals in
preparation $851M in opportunities tracking
Slide: 10
Title: Conclusion and Guidance Body: Fiscal 2007 now
expecting total revenue of $740 million to $750 million; GAAP loss of $0.35
to
$0.45 Excluding Texas project losses as well as legal and
settlement expense, non-GAAP pro forma EPS for FY 2007 expected to be in
the
range of $2.00 to $2.10 (reference last table in press release for YTD support)
Refining fiscal 2008 preliminarily guidance: revenue growth expected to be
north
of10%; diluted EPS of $2.35 to $2.65
