Lisa Miles - Senior Vice President, Investor Relations Rich Montoni - Chief Executive Officer Bruce Caswell - President Rick Nadeau - Chief Financial Officer.

Charlie Strauzer - CJS Securities Dave Styblo - Jefferies Richard Close - Avondale Partners Brian Gesuale - Raymond James Carl McDonald - Citigroup Frank Sparacino - First Analysis Brian Kinstlinger - Maxim Group Dave Styblo - Jefferies Richard Close - Avondale Partners.

Greetings and welcome to the MAXIMUS Fiscal 2014 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Lisa Miles, Senior Vice President of Investor Relations. Thank you. You may now begin..

Good morning and thanks for joining us on today’s call. I would like to remind everyone that we have posted a presentation on our website on the Investor Relations page to assist you in following along with the call. With me today is Rich Montoni, Chief Executive Officer; Bruce Caswell, President; and Rick Nadeau, our new Chief Financial Officer.

Rick comes to MAXIMUS from SRA International. He brings more than 10 years of public company experience. Previously, Rick spent more than 30 years in public accounting and was previously a partner with KPMG, where he was a lean engagement and audit partner for several large government and commercial firms.

Before we begin, I would 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 and results may differ materially as a result of risks we face, including those disclosed in Exhibit 99.1 of our SEC filings.

We encourage you to review the summary of these risks in our most recent 10-K 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. Today’s presentation may contain non-GAAP financial information.

Management uses this information in its internal analysis of results and believes that this information maybe informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period-to-period comparisons.

For a reconciliation of non-GAAP measures presented in this document, please see the company’s most recent quarterly earnings press release. And with that, I will turn the call over to Rick..

Thanks, Lisa and good morning, everyone. It is a pleasure to join you for today’s earnings call. MAXIMUS has a talented and dedicated team and I am really happy to be a part of it. I look forward to getting to know our analysts and shareholders, which includes reconnecting with some familiar faces who I know from my previous companies.

Let’s dive into the results for the quarter. Compared to last year third quarter revenue increased 26% to $419.9 million driven by the Health Services segment. Consolidated operating income for the third quarter was strong and totaled $55.3 million. And the company delivered an operating margin of 13.2%, which was largely in line with our expectations.

For the third quarter, income from continuing operations, net of taxes, increased 21% to $34 million compared to $28 million reported last year. And adjusted diluted earnings per share for the third quarter also increased 20% to $0.49 compared to $0.41 reported in the prior year period. Let’s jump into results by segment starting with Health Services.

As we expected, the Health Services segment delivered another solid quarter of financial results. Revenue for the third quarter increased 40% to $305.6 million compared to the same period last year.

Top line increases were driven by new work and expansion on existing contracts, including those contracts related to the ongoing support of the Affordable Care Act and the Health Management Limited acquisition, which closed on July 1, 2013.

Segment operating income in the third quarter of fiscal 2014 increased 23% compared to the same period last year and totaled $42.2 million, with an operating margin of 13.8%.

As expected, operating margins for the Health Services segment were lower compared to the same period last year due in part to an increase in lower margin cost reimbursable work with the U.S. federal government.

Looking ahead to Q4, we are presently forecasting a favorable impact from a couple of contract amendments that are expected to be signed in August. However, we expect that these will be partially offset by the startup impact of new work as well as ongoing softness in our Medicare appeals business related to the RAC program changes.

Let’s now turn our attention to financial results for human services. For the third fiscal quarter revenue for the human services segment totaled $114.3 million, which was slightly lower compared to the prior year principally due to adverse currency impacts.

Third quarter operating income for the human services segment totaled $13 million, which compares favorably to $11 million reported last year. The human services segment operating margin improved to 11.4% for the third quarter, up from 9.5% a year ago.

In the third quarter of fiscal 2014 the segment’s margin was bolstered by a couple of short-term consulting engagements that were completed during the quarter In addition to this uplift not recurring in the fourth quarter, Q4 margins are also expected to be tempered principally due to the startup of 18 new sites in Australia.

As a reminder we are very pleased we have recently won a sizeable reallocation of work in Australia as a result of our continued solid performance. Let’s move on to cash flow and balance sheet items. Cash flow in the quarter benefited from strong earnings delivery as well as solid collections that led to lower DSOs of 63 days.

While we are pleased with this very solid delivery, we presently anticipate that DSOs will likely rise in the fourth quarter to within the company’s previously stated range of 65 to 80 days due to normal working capital fluctuations.

For the third quarter of fiscal 2014 cash provided by operating activities from continuing operations totaled $88.7 million and free cash flow was $78.0 million. As a remainder free cash flow is defined as cash provided by operating activities from continuing operations less propriety and equipment purchases and expenditures for capitalized software.

During the third quarter we purchased 599,529 shares of MAXIMUS common stock for approximately $25.5 million under our Board authorized program. In June MAXMIUS announced $150 million increase to our share repurchase program. As a result, we had approximately $187.3 million available for future repurchases at June 30.

Subsequent to quarter close and through July 31, we continued the execution of our opportunistic share buybacks. We are purchasing another 403,433 shares for a total of approximately $17.0 million. The increase in the buyback authorization is evidence of our ongoing commitment to deploy capital in a sensible fashion.

We actively review and prioritize our capital needs on an ongoing basis. The bottom line is that our number one priority is to drive long-term growth across the business both organically and through acquisition.

As the company has discussed in prior quarters we do maintain am active M&A program that has a pipeline of domestic and international targets. At June 30, we had $182.9 million in cash and cash equivalents of which approximately 55% were held outside the Untied States.

And lastly our full year guidance for the fiscal year ending September 30, 2014 remains unchanged. We continue to expect revenue in fiscal 2014 to range between $1.68 billion and $1.73 billion. And we expect earnings per diluted share from continuing operations to range between $2 and $2.10.

We expect a bias towards the top end of both our revenue and earnings guidance. We are also reiterating our cash flow guidance for fiscal 2014. Thanks for joining us this morning and now I will turn call over to Rich..

Good morning and thank you Rick. Welcome to your first earnings call as Chief Financial Officer and Treasurer of MAXIMUS Inc. It’s great to have you on board. Just last week, we announced the appointment of Bruce Caswell as the company’s President effective at the start of the new fiscal year on October 1.

In effect, we are splitting the role of CEO and President. In his new role, Bruce will be responsible for the operational execution and organic growth of the company across both segments. Bruce will also continue to lead our global health operations as the President of the Health Services segment.

This well-deserved appointment recognizes Bruce’s accomplishments during his 10 years with MAXIMUS. His stewardship of the health segment has been a key element to the overall strategy and extraordinary growth that we have experienced.

Going forward, I will continue in my role as CEO with the primary focus on the company’s strategic vision and long-term growth objectives. Much of my time will be spent directing our acquisition program and continuing to interface with shareholders.

It’s been a pleasure teaming with Bruce, Rick and all the members of the management team and I am excited to work with them as we go forward. With another solid quarter under our belt, I would like to start out this morning with an update on our global operations, where we have several new contracts in implementation mode.

Last Friday, we successfully launched operations on schedule for our new debt management contract with the U.S. Department of Education. MAXIMUS is helping administer a portfolio of approximately 5 million borrowers whose student loans are in default status.

Our operations include an inbound customer contact center and correspondence unit, a financial transaction processing center, and a mail fulfillment center. We executed a seamless transition and are now focused on providing high-quality service to this new federal client.

Also last week, we began implementation on the new Health and Work Service contract in the United Kingdom. To recap, the Department for Work and Pension selected our Health Management subsidiary to operate the new Health and Work Service program. The 63-month contract is expected to have a total contract value of up to approximately $226 million.

While we have anticipated an initial startup loss due to the nature of the contract, the overall program economics are favorable. Once ramped, the contract is in line with our targeted range of portfolio operating margin performance.

The goal of the Health and Work Service program is to get employees of small and midsized businesses with extended absences due to illness on a path back to employment. Our team of clinicians will help employees manage their medical conditions more effectively.

They will do this by providing timely access to clinical service for non-emergency care identifying the factors preventing the employee from returning to work and then recommending a return to work plan. This strategic win further validates the Health Management acquisition last year as we continue to grow in this important market.

The strong brand and financial position of MAXIMUS coupled with a highly regarded clinical expertise of Health Management really helps solidify our position in this bid.

The activities are right in the sweet spot of Health Management’s offerings and a tremendous opportunity to demonstrate our expertise in the occupational health market for a large government program. The team is hard at work on mobilization. We are pleased to expand our relationship with DWP by providing services in this new area.

And finally as we mentioned last quarter, we are expanding our Australia operations with a reallocated work under the Job Services Australia program, known as JSA. As a result of our strong performance under the star rating program, we have picked up 18 new sites.

This increases our caseload by approximately 15% to more than 100,000 job seekers and provides approximately $15 million in new annual revenue. This expanded scope of work is a reflection of our continued solid performance under the government’s star rating program. This is important as we prepare for the upcoming rebid of the JSA contract.

As I have discussed in the past, this client places a great reliance on performance. The Australian model is very much a pay-for-performance program, where the government pays for the outcomes that matter to them. In this case, it’s helping people transition off benefits and into employment.

As a reminder, the rebid is not expected to be a winner-take-all type of award. Based on past procurements, the awards are done on a location by location basis. We are tracking the rebid closely and it’s expected to be released in the next few months. Looking to the future, we have continued optimism for the remainder of fiscal 2014 and beyond.

We see opportunities internationally as well as in the United States. We anticipate that future international growth may come from new countries that are increasing their propensity to outsource as well as current geographies with expanded needs.

For example, in Australia, we see substantive opportunities for growth, but the exact timing is not precisely known at this time. It’s important to recognize that we remain a top performer in our performance-based markets, which is a key differentiator as we see more privatization efforts underway in the new and existing markets.

In the United States, we believe future opportunities will continue to come from supporting our clients with the ongoing implementation and stabilization of the Affordable Care Act.

Our work covers our customer contact centers for the exchanges, our eligibility appeals operations for the federal marketplace and our support for our state Medicaid clients as they adapt their programs to meet the new requirements.

Starting with our state and federal customer contact centers, we are gearing up for the next open enrollment period, which is currently scheduled to run from November 15, 2014 to February 15, 2015. Our operations will adapt to a dynamic environment as states and the federal governments supply the lessons learned from the first open enrollment.

You may recall that MAXIMUS benefited from additional ACA and Medicaid related work that help bolster fiscal 2014. Based on our experience with operating other health programs, we believe that while some of this additional work will abate, most of it will continue into fiscal 2015 and beyond.

In addition, we have identified and are pursuing new ACA-related opportunities. As a reminder, enrollments through the health insurance exchanges, is not expected to reach a steady state until 2017 or even 2018. In the meantime, our flexible, scalable resourcing models allow us to meet the current demand for consumer assistance.

In addition, we also continue to manage the eligibility appeals process for the federal marketplace. And finally, I have also spoken previously about how we benefited from new work as our state Medicaid clients adapt their program operations to meet the requirements of the Affordable Care Act.

These include new rules for determining eligibility based on modified adjusted gross income.

This is also known as MAGI dealing with the no-wrongdoer provisions of ACA that require states to seamlessly pass applications among multiple entities addressing inconsistencies and backlogs in applications and implementing variations on Medicaid expansion based on waivers received.

Our work this summer has remained robust as we help our clients prepare for the next enrollment period and in some cases launched these new initiatives. We are actively engaged in new service opportunities and still developing others.

As the leading operator of contact centers for state-based exchanges, we remain well-positioned for when some states decide to transition from the federal marketplace and establish their own exchanges.

Moving now on to rebids, of the 15 contracts with a total contract value of $225 million up for rebid in fiscal 2014, we have won or received extensions on 11, with a total contract value of $150 million. Year-to-date, we have lost two small rebids with a combined total contract value of about $20 million.

That leaves only two rebids left with a total contract value of about $55 million. As we have mentioned on previous calls, fiscal 2014 was a light year for rebids. Looking ahead, we expect fiscal 2015 to be much heavier with the bulk coming from the JSA rebid in Australia, which is presently estimated to be approximately $625 million over five years.

Wrapping up with our new sales awards in the pipeline, we are pleased with our year-to-date sales. For the third quarter of fiscal 2014, year-to-date signed awards were $1.1 billion. And at June 30, 2014, we had an additional $428 million in new contracts pending where we’ve been notified of award and are in contract negotiations.

This compares to $1.3 billion in signed awards and $413 million in contracts pending at the same time last year. We are also excited about our sales pipeline, which reached $3 billion at June 30, 2014.

The increase in the pipeline was driven in part by the contract re-bid in Australia as well as new opportunities across multiple geographies in both segments including several key opportunities that have the potential to boost growth in fiscal 2015.

I am very pleased with the composition of the pipeline and in fact more than half of the $3 billion is tied to new opportunities. We see this robust pipeline as conformation of ongoing demand for business process outsourcing services for government programs.

To conclude, we are pleased with our progress in fiscal ‘14, pleased with our expectations for the remainder of the year and pleased with our prospects for fiscal ‘15 and beyond. While it’s premature to provide a more detailed outlook into next year, let me provide some color on how fiscal ‘15 is shaping up.

Coming into any fiscal year, we always have headwinds and tailwinds to consider. This is true today as we are in the process of planning fiscal ‘15 in fact we have many dynamics and have communicated what we believe to be the major headwinds next year.

These include reduced revenue from the Affordable Care Act in our appeals work for the Medicare program. While the lion’s share of the ACA work is recurring, we do have some work that as expected came to an end. In addition, it’s hard to predict our volumes will shape up in year two of ACA, but our current expectation is that volumes maybe lower.

Also, we have start up losses on several new contracts where we will reap the benefits of the slingshot effect in fiscal 2016.

And while startups may generate initial losses, our historical experience is that in subsequent years, the project is accretive and in line or even better compared to our overall portfolio margin, targeted range of 10% to 15%.

Over the length of the contract period, we expect every contract to generate solid economic returns that contribute to meaningful long-term shareholder returns. We also have a number of tailwinds in the portfolio that will provide benefits to next year and we have a couple of important bids that are still outstanding.

The outcome in final contract structure of these bids could have a meaningful impact on where we ultimately land for our fiscal 2015 guidance. So based on what we know today, we are confident that fiscal 2015 is shaping up to be a growth year both on the top and bottom lines.

We are currently conducting our annual planning process and we will provide formal guidance in November. Be assured that as we have accomplished in the past, the management team remains focused on the dynamics that best position MAXIMUS for future multi-year growth.

As I mentioned last quarter, we consistently said that over the long-term, we believe we can grow revenue and earnings by 10%, year in and year out. We have recognized that there will be years of accelerated growth and years where overall growth may be tempered by timing of startups, re-bids, or government procurement cycles.

Across our current geographies, we see more privatization efforts and expanded outsourcing markets. Global governments continue to advance reform efforts to manage complex social benefit programs.

We see common themes emerging that include a focus on eligibility validation and verification as well as a trend to help individuals move away from welfare dependency, to get back to work and to contribute to the local economy.

As a trusted partner, MAXIMUS looks forward to continuing to provide clients with innovative, flexible and scalable ways to reform their social programs and achieve the outcomes that matter. In summary, we still see confirming data points for increasing demand for our services over the long-term.

These demand trends tend to be decades long in nature and what we sell this year becomes the growth drivers for years to come. Now, let’s open it up for questions.

Operator?.

Thank you. (Operator Instructions) Our first question comes from Charlie Strauzer with CJS Securities. Please proceed..

Hi, good morning..

Good morning, Charlie..

Rick, welcome on board..

Thank you..

Two questions for you, if I could. First is, I know you kind of touched upon the non-recurring nature of some of the ACA work next year and I am just wondering if you can maybe expand or maybe help quantify what you think the range might be in terms of the revenue impact from that.

And then, secondly, can you also give us a sense of when you look at the pipeline and the start up expenses related to potentially winning some of these large new contracts, help us frame a little bit more about the potential impact from those start up costs a little bit more there too? Thanks..

Okay. Charlie, let me give it a go. As it relates to your first question regarding the impact of the Affordable Care Act and the non-recurring aspects of it, certainly, we are all focused on the Affordable Care Act and certainly that act has been and continues to be an excellent long-term growth driver for MAXIMUS.

And we are all anxious to talk specific as to the impact in fiscal ‘15. However, just given where we are at this time, it’s not appropriate for us to quantify the details. But let me share some thoughts with you to frame it.

First off we do expect that most underlying most of the Affordable Care Act we have performed in year one, we expect most of it will recur. We expect a portion, a smaller portion, will abate.

How much abate really depends on several factors as you know, it will depend upon the volumes, it will depend upon technology readiness on the state and federal health insurance exchanges, it will depend upon churn, it will depend upon how life events impact the process and so on.

We are working with our clients to prepare and finalize individual service plans. And we will know much more in the coming months. But at the same, we are also pursuing new Affordable Care Act opportunities that might very well meaningful offset – meaningfully offset the abatement.

So we have considered a factor, an ACA abatement factor when we state that we think fiscal ‘15 will be a growth year, perhaps even a double-digit growth year. And we will look forward to sharing our specific thoughts on this and the other drivers for our fiscal ‘15 drivers – fiscal ‘15 guidance when we get together in November.

On second point in the startups in the pipeline, certainly the startups will have an impact. And I would say this, I think it’s best to first set aside the startups. And as I said in my remarks, the economics on the startups are much different. They are multi-year nature.

I think it’s best to consider not only the loss year, the first year of the startup, but the subsequent years are what we refer to as the slingshot effect. And in all startups, we expect to have solid multi-year economics. So I think it’s a bit helpful to set those aside. It really is a different dynamic and a very positive dynamic.

I think net startup losses were actually a very good thing because long-term economics are excellent for our shareholders. So we are not able to quantify the startups at this point, because we do have a number still in motion.

We are waiting to here on some, what I think are meaningful proposals pending and depending upon those results the quantification of the startups in fiscal ‘15 will start to solidify. But that being said we do think that depending upon those factors and the startups a big driver. We do think that we will still be in a growth mode situation..

Great, thank you very much..

You’re welcome, Charlie..

Stacy, next question please..

Dave Styblo with Jefferies, please proceed..

Sure. Thanks for taking my questions and congrats on the management team on all the moves, promotions, and hires there. Maybe starting out on that topic, Rich now that you are – you have moved to a more defined role, I suspect you might be able to look at some of the – some things that perhaps you didn’t have quite as much time for.

So I am wondering, with a little bit extra bandwidth, now in your hands what are some of the key priorities and things that you are looking at, is that a little bit more on the M&A side and I know you had also mentioned strategic priorities, I was just hoping you could elaborate on those items?.

Glad to do that. I will say that I think the promotion is effective October 1, so that bandwidth will start in October, but the reality is Bruce’s promotion, I don’t think it’s a radical redirection in terms of assignments. Bruce has been an important part of the management team along with a number of other key contributors.

So, we very much operate in a team-type fashion. So I think what’s going to happen here is we will continue to team and that will be our primary mantra in terms of how we go forward and how we operate. I don’t think we are just – I don’t think we are going to create a big divide here and we are going to be exclusive in any particular swim lane.

That being said, we are focused on mergers and acquisition. We think there are opportunities out there. We don’t think we are compelled given our growth opportunities to rush out and do acquisitions to grow, but we do think M&A is a very helpful way for us to grow, enhance our capabilities, where we see growth opportunities.

And so we have a very active program I think that will continue and I think from a strategic perspective, I think in addition to M&A we will look at new markets and expanding those new markets as well as strategic partnerships..

Okay, that’s helpful.

And just as a follow-up to talk your comments about Charlie’s question, you do see 2015 as a growth year, perhaps double-digit, I want to clarify if you were referring to EPS, revenue, on that front?.

Yes. I think I am referring to both top line and bottom line..

Okay.

And so it sounds like the way to characterize and not being too short termed about this is that EPS could very well grow slower next year than the top line, but then that would reverse and EPS accelerates growth much faster than the top line as we move into ‘16, is that kind of the way to think about it as we stand right now?.

I think that’s a great way to think about it, it’s quite interesting because the more startups we have that have losses on the front end.

In fiscal ‘15, what that will tend to do is to increase the rate of growth in revenue, but decrease the rate of growth in earnings per share, but all of that turns around, especially the earnings per share growth rate because we get what’s referred to as a slingshot effect much like we experienced with the work program in the United Kingdom for those of you who recall that a couple of years ago.

And then it was quite meaningful. So again that’s why I say you really need to take the startup losses and look at them differently because I think they are very much a precursor to substantial long-term shareholder appreciation..

Thanks for the color..

You bet..

Stacy, next question please..

(Operator Instructions) Our next question comes from Richard Close with Avondale Partners. Please proceed..

Yes, Richard Close from Avondale. Thanks for taking the questions, congratulations as well.

With respect to the $428 million pending, do you think that’s likely to get done here near-term and actually starting to contribute for fiscal ‘15?.

Good morning, Richard. I think it this very much short-term and I do think that it could be a known and move out of that category to be a meaningful contributor in fiscal ‘15..

And with respect to your bullet on new opportunities across multiple geographies in both segments, wonder if you could go into a little bit more detail with respect to the several with potential to boost the ‘15 growth, what exactly maybe is that and possibly the timing?.

Richard, I can’t drill down too far for competitive reasons as I am sure you can appreciate, but I think we have touched upon some of those markets that I think are behind, why we are excited.

It would include certainly Australia dynamics in the United Kingdom some additional work, that’s different than year one work and the Affordable Care Act in the states. Those would be the three that I would point to..

And then, the one half of the pipeline that’s new opportunities, how does that compare to historical levels?.

That’s a great question. I think in comparison to historical levels I think it’s elevated I think it’s been in the 50% territory for the last few quarters running. So we are pleased that of late.

And I think that’s a quantification that it just reflects what’s happening in the marketplace that we’re seeing some substantial new opportunities as these governments reengineer. And I do think there is an increasing propensity to outsource in many of these large central governments. So, I think that metric correlates quite well with that dynamic..

Okay, thank you..

Sure, thank you, Richard..

Thank you. Our next question comes from Brian Gesuale with Raymond James..

Yes, good morning, guys. Wanted to drill into margins and start-up costs again, I believe the new UK contract as well as the Department of Education contract are both going to reside in the health segment and I think you’ve talked generally about a 12% to 15% margin range.

Do the start-up costs potentially take you out of that range temporarily?.

Good morning, Brian. On that question, you’re right. Both the UK contract and the Department of Education contract sit in the health segment and we do expect that each will generate start-up losses in fiscal ’15 and I think we’re still in our health segment in the 10% to 15% range.

I don’t think those are so monumental that they’re going to pull us out of their range..

Great. That’s very helpful. And then, just a follow-up on the appeals business, you guys have built up a really nice portfolio of appeals across several different programs. Can you maybe size some of the ebbs and flows, it seems like some of those are growing, some of them are maybe contracting a little bit and maybe just put more color around that..

Yes, glad to give you some color on it. And I think you hit the nail on the head when you said a portfolio.

Our – one of our gross strategies is premised upon the fact that as governments are forced because there are more folks applying for these entitlement benefits and governments have tighter budgets that they are going to have to have more stringent entitlement rules and regulations and processes.

In that intern, we’ll require and we’ll increase the number of appeals that happen and it’s something that we see daily, if you look at the Wall Street Journal today and you’ll see something that touches upon at right front on the front of the journal.

So, it’s no surprise to was, that we’ve seen additional significant opportunities grow, we’ve talked about the additional work we’re doing for the workers’ comp program in California. You know that we had a great year in fiscal ’14, the appeals we do for Medicare and we said that we do think it’s starting to abate a bit because of the RAC dynamics.

But all said we think what we do in the appeal spaces, a great space to be in and I expect that we’re going to see increasing demand on global basis for qualified independent appeals and assessments..

Great. Thanks for taking my questions..

Okay, Brian. Thank you..

Next question please..

Carl McDonald with Citigroup. Please proceed..

Great, thanks. So, as we think about 2015, it sounds like right now single-digit growth, revenue and earnings, but still some moving pieces.

In terms of the bids that are still outstanding, is it right to think about that if you were to win some of those bids, it potentially gets you to a 10% plus revenue growth next year, but potentially puts more pressure on margins because of the start-up costs or would these bids that you’re looking at not necessarily have a meaningful start-up cost?.

Carl, I think that where we land in 2015 guidance while the start-up cost on existing work and more so on work to be determined pending bids is perhaps the biggest driver, there are other drivers that could – if it goes in our direction could help us get us to double-digit growth. So, I don’t think the start-ups are the only driver there, Carl.

And then as it relates to the start-ups we have some new work to be determined, some bids pending that we’ll generate – we expect would generate start-up losses. We also have some that would generate – not generate start-up losses and quite frankly be profitable in year one.

So, it’s a little more complicated than all the start-ups are generating losses.

Is that helped?.

Yes, that’s helpful.

And then, the second question is just on the increase in the pipeline, as you said, you’ve put the Australia contract in there, what’s the value of the Australia contract that goes in? Do you put your $625 million in, or is it the total value of the entire Australia contract that goes in that?.

That’s a great question. We put the total contract value in the pipeline. So in this case, for Australia, it would be – I believe the $625 million over five years..

Great, okay, thank you..

Okay, Carl. Thank you..

(Operator Instructions) Our next question comes from Frank Sparacino, First Analysis. Please proceed..

Hi, guys.

Rich, you talked earlier just about the transition from the federal to the state marketplaces and I’m curious given all the recent activities around the subsidies from a legal standpoint, if that in fact is driving a lot more state activity discussions in your part or just any thoughts around when does that transition start to happen?.

Frank, that’s a great topic to talk about and you can rest assure, there has been and continues to be a lot of discussion with our state clients, but I’m going to ask Bruce Caswell to respond to that question.

Bruce?.

Sure, happy to. Good morning, Frank, and a great question, you’re right, it’s caused a lot of states now to start thinking about what their plans might be for few years out. I think the first important note here is that nothing is going to happen immediately as a result of these cases. It’s not affecting individual subsidies this upcoming plan year.

This still has to play out in the courts and we really shouldn’t speculate on any legal outcome. A number of court watchers would suggest it’s headed to the Supreme Court; others might suggest that an on-bank ruling at the district level in D.C. would align the rulings and keep it from going to Supreme Court.

So we’ll let that kind of play out as it will no real immediate impact. The interesting thing on the horizon for states is both the outcome of this base, but also the fact that by 2017, there is a provision in the act that allows states to exercise waiver authority and apply to CMS for broad waivers to implement state-based exchanges.

So when you really look at the dynamics out there, the technology issues firming up states through this next plan year determining whether they can be comfortable with transfer systems such as the Connecticut system coming to Maryland, new systems coming online, my understanding our view is that Idaho in this next plan year is actually the only state that’s going to make the transition from a federal marketplace to a state-based exchange, but then you play it forward into 2016 and 2017 and those factors we’d discussed in terms of the result of the subsidy ruling and also the waver authority could create environment where more states want to move off of the federal marketplace.

And we’ve said for many quarters now that our view and I think it’s substantiated that the federal government are never intended to be in the exchange business permanently and we believe it’s likely that will be incentives created in terms of technology, transfer opportunities and so forth to help states facilitate that movement in the coming years.

Is that helped?.

Yes, it does. Thank you, guys..

Great..

Thank you..

Next question please..

Brian Kinstlinger with Maxim Group. Please proceed..

Hi, good morning. Rick, nice to work with you again..

Yes, good to see you again..

Back when you guys won the UK welfare-to-work program, you’ve highlighted some specifics on the economics.

I’m wondering if you combined the two largest contracts, the DOE debt, the new ones and the UK Health Work, can you highlight what the fiscal ‘15 loss will look like, just for those two, because that’s a known factor and then, maybe talk about in ‘16, are they combined at mature profitability, are they still at marginal profitability? That would be helpful, thank you..

Brian, this is Rich and a great question. What we’re not going to do is jump into a piecemeal analysis of the many moving parts that we have at this time.

I think you’re right and I think you are wise to recall the situation with the launch of the welfare work program where we had, I think a meaningful loss in year one that was recovered and then matched in year two.

I would expect that the dynamics of these two programs and start-up losses, I kind of think that’s the general template for start-up type losses. I am not able quantify the two that we have into this particular point in time, but I do think the situation is analogous in terms of model and trend, I put at that way..

So without numbers, do they turn profitable at the beginning of fiscal ‘16 jointly, in the middle of fiscal ‘16? I’m just curious when that slingshot effect maybe starts..

I think we expect to achieve breakeven in 2016, our fiscal 2016 as to which quarter that will breakeven in, we’ll have to hold that discussion for future point in time..

Great.

One last question, on the new UK work program you have got, work program, is it structured similar to the older work program where you have a couple of regions and there us opportunity down the road to get more, are there other contractors doing similar work?.

This is on the work program that we have in the United Kingdom. And….

The new ones is the one, yes..

Yes. And there is one region that’s up for reallocation and the government reallocate themselves that they will reallocate work, it hasn’t been a material driver. There is one potential to pick up some reallocated work, but I think it’s the annual run rate on that as well less than $10 million a year.

So, we will see on that, but I don’t hold that out as a material new work growth driver, although we would hope to pick up some additional there. Australia would be probably the better example of where we have and can continue to pick up material amounts of new work..

Great. Thank you..

You bet, Brian. Thank you..

Next question, please..

(Operator Instructions) Next question comes from Dave Styblo with Jefferies. Please proceed..

Sure.

I just had a follow-up for you guys on the re-bids that are often – the two re-bids that are over $55 million, curious if you can provide any sort of color on your confidence in maintaining these or where you are at in the process with those two?.

Sure. Glad to provide some color. I view them as normal course. And I think that one should never be too confident that you are going to win every bid, but the nature of the industry and our experience and even our year-to-date experience, Dave is that we are tracking to what would round to 90% win rate.

So all things held equal, I kind of hold that out as a 90% probability that will be successful for re-bid situation..

Okay. And then, just touching base on the pipeline, it seems like even excluding Australia, the core was up $250 million or so.

Obviously, your pipeline only goes out to six months and I am just trying to reconcile that with some of the comments that you made about international and I suspect some of that might be even beyond six months, can you talk a little bit more about – I just I am sensing that there might be something new emerging in Australia that is on your radar, can you elaborate a little bit more on why it seems a little bit more excited about specifically that country is it kind of leveraging business in the sister segment or more in the welfare-to-work side program?.

Well as you know one of our strategies is to grow our health business in Australia and the United Kingdom. And we are very pleased to have our first data point that help and work win. And we have been working very hard to identify and pursue additional opportunities in that space. So I think that’s one of the drivers.

Australia, I do have to point to Australia that Australia has been kind of leader of the parade in terms of achieving world class public, private partnerships and continues to look at taking some work that heretofore has been done on a sovereign basis by government workers and entering into public, private partnerships as is the UK.

So if I would pick out what’s the biggest – the two biggest drivers behind your question and the dynamic you pointed to would be the UK Health and Human Services as well as the Australian dynamic..

Great, thanks..

You bet..

Next question, please..

Richard Close with Avondale Partners, please proceed..

Thanks for taking the follow-up. I Just wanted to ask a little bit more about the Medicare appeals and the comments on the recovery audit contractors there, it was my understanding there was a pretty significant backlog of claims and I thought your comments were interesting.

So if you can just give us an update there, it would be great, your thoughts on the RAC appeals?.

Richard, glad to do it, Bruce Caswell what do you think about that?.

I think Richard you are right, I think what you are probably referring to is the moratorium on inpatient stay auditing by the recovery audit contractors on inpatient stay claims. That moratorium, you may recall was extended by CMS to March of 2015.

And at the time we indicated that we continue to work through the backlog of claims related to that because the wraps are really prohibited from introducing new claims I think in the period of October 1, 2013, now through March of 2015.

So as we work to that backlog we found that we expect the declines in those Medicare appeals to be occurring as we anticipated as we wind out this fiscal year, but it’s important to note that we continue to operate as Rich has said previously a portfolio of appeals and assessments contracts and some of those declines we have seen obviously offset by other programs in our portfolio.

So, I think the latest news from the CMS on the August 5 as it relates to the limited recovery audit contractors beginning to restart and look at claims, that’s interesting but at the same time as you are well aware, that’s pretty small volume.

Those are reviews of things like spinal fusions in outpatient therapy services and DME, prosthetics, orthotics, things like that. So, the majority of the claims though and I think the volume and quite frankly the volume that’s generated about $4 billion in recovery for the Medicare program has come from those inpatient state claims.

So, I will be curious to see right how long that moratorium lasts, whether it goes anywhere beyond March of next year. I think the fiscal pressures obviously and the need for Medicare to get back to collecting that $4 billion will pressurize that environment a bit..

So, does the working off of the backlog, does that business go from like $100 million annual revenue business down to $50 million or just what kind of headwind is that?.

So, Rich, we don’t get into project specific or P&Ls, but I think – I think of that business as the appeals business and that is one project, where we think we have a headwind. On the other hand, we have an offsetting project that should neuter. So, I really look at that book of business as being pretty much steady at a year-to-year.

Okay, great. Thank you..

You bet, Richard. Thank you..

There are no further questions. This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation..