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

Charlie Strauzer - CJS Securities Richard Close - Avondale Partners David Styblo - Jefferies Stephen Lynch - Wells Fargo Allen Klee - Sidoti and Company Frank Sparacino - First Analysis Brian Kinstlinger - Maxim Group.

Greetings and welcome to the MAXIMUS Fiscal 2015 Second 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.

It is now my pleasure to introduce your host Lisa Miles, Senior Vice President of Investor Relations for MAXIMUS. Thank you, Ms. Miles, you may now begin..

Good morning. Thank you for joining us on today’s conference call. I would like to point out that we’ve posted a presentation on our Web site under the Investor Relations page to assist you in following along with today’s call. With me today is Chief Executive Officer, Rich Montoni; President, Bruce Caswell; and Chief Financial Officer, Rick Nadeau.

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 discussed 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 may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period to period comparisons.

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

One, the increase in DSOs and two, CapEx investments. As expected, DSOs increased in the quarter mostly due to the new contracts in United Kingdom the Health Assessment Advisory Service and Fit for Work contracts. At March 31st, DSOs were 70 days which is well within our stated range on 65 days to 80 days.

Approximately 5 of these DSOs were related to the new contracts in the UK. These contracts in the UK were also the primary reason for the increase in deferred revenue in the second quarter. We should expect to see improvement in DSOs towards the end of the year.

Also during the second quarter, we made some sizable investments in infrastructure modernization in support of our ongoing growth in the United States and United Kingdom. These types of capital investments typically occur in five year to seven year cycles.

The investments include facilities, fixed assets and upgrades in our [telephony] and back-office datacenters. We believe these prudent investments will help drive efficiencies down the road. During the second quarter, we also amended our credit facility agreement.

The expanded credit facility gives us a revolving line of credit up to $400 million and an uncommitted increase option up to an additional $200 million. The facility is available for general corporate purposes including working capital, CapEx and selected acquisitions.

Subsequent to quarter close, we tapped into the new credit line to complete the acquisition of Acentia in April. As a reminder, this was an all-cash transaction with a total purchase price of approximately $300 million.

We funded the acquisition and related costs with domestic cash on hand and approximately $225 million borrowed under the amended credit facility. Acentia is expected to contribute approximately $110 million in revenue for the second half of fiscal 2015. Also after quarter closed, we completed the Remploy transaction.

We recommend that investor view this larger as an acquisition of a single contract and the incumbent workforce of approximately 850 experienced personnel. Remploy will contribute approximately $30 million to $35 million in revenue for the remainder of our fiscal 2015 and the vast majority relates to the work towards contract.

MAXIMUS has a 70% ownership in Remploy employees at a collective 30% stake in the business. Remploy has a long history of supporting people with complex barriers into employment and this will help MAXIMUS better support thousands more disable people into work in the years to come, Rich will talk about this in more detail later on.

From a capital allocation perspective, we will continue to focus on practical usage of cash to grow the business both organically and through acquisition. In addition to supporting the longer term growth objectives of MAXIMUS, other priority uses of cash include our quarterly cash dividend and our opportunistic share repurchase program.

And lastly, as noted in this morning’s press release, we are increasing our fiscal 2015 revenue guidance due to the expected revenue contributions from Acentia and Remploy. We now expect fiscal 2015 revenue to range between $2.05 billion and $2.08 billion. In addition, we are bringing up the bottom-end of our GAAP earnings range.

We now expect fiscal 2015 earnings in the range of $2.32 per diluted share to $2.40 per diluted share with a bias towards the upper end of the range.

This range considers the expected contributions from Acentia and Remploy which we are forecasting to range between $0.07 of earnings per diluted share and $0.09 of earnings per diluted share for the second half of fiscal 2015.

As expected the accretion from these acquisitions will be offset by the start-up losses of the new jobactive program in Australia of approximately $0.06 per diluted share to $0.09 per diluted share. As a reminder, we increased our market share through this successful rebid.

As a result, the anticipated start-up loss is higher and we forecasted in our initial guidance at the beginning of the year. The other consideration for fiscal 2015 guidance is currency impacts. As we discussed last quarter, we have been negatively impacted by currency exchange rates relative to when we issued guidance in November.

Since our last call in February, the currencies have stabilized, so the degradation has abated and there’s no material change to the information provided on our last call.

We still estimate an unfavorable currency impact to total company revenue of approximately $45 million and operating income of approximately $4.5 million or $0.05 per diluted share. This compared to the exchange rates that were assumed when we completed our forecasting in late October.

We also wanted to provide some quarterly flavor for the rest of fiscal 2015. First, as previously disclosed Q3 is still expected to be stronger than our Q2 primarily due to a full quarter’s contribution than the new Health Assessment Advisory Service contract that began contributing revenue and profit in March.

Right now, Q3 is shaping up to be the strongest quarter for fiscal 2015. And our fiscal fourth quarter will be lower on the top-line and bottom-line principally due to the start-up headwind and the new contract in Australia. We’re also maintaining our cash flow guidance for fiscal 2015.

We still expect cash provided from operating activities to be in the range of $165 million to $190 million and we expect free-cash-flow to be in the range of $100 million to $125 million, but toward the lower end of the range due to the capital investments we are making.

And lastly, while we think it’s too early to provide formal guidance for fiscal 2016, we thought it would be helpful to provide some direction for next fiscal year.

As you know, we’ve had a number of developments in fiscal 2015 that will have a positive impact to fiscal 2016, including full year contributions from Acentia and Remploy acquisitions and the ongoing growth from new work that is presently ramping up in fiscal 2015.

This includes the rebid win in Australia that also brings along increased market share. While these are all affirmative tailwinds, we do manage an entire portfolio of contracts and in any given year, we naturally expect to experience some headwinds. And this early look does contemplate some of those puts and takes in the overall model.

When we add this all up, we think fiscal 2016 is shaping up to be another strong growth year. Our estimates are predicated on what we know today and they assume no other dramatic headwinds other than normal course fluctuations that we see year-in and year-out.

As a result, our preliminary estimate of revenue for fiscal 2016 is in the range of $2.4 billion to $2.5 billion. We preliminarily expect earnings per diluted share to range between $2.85 and $3.05. There are obviously a number of variables that can affect our financial results.

This would include changes in volumes, outcomes on performance based contracts, fluctuations in currency and legislative changes. But overall, we remain on track for solid results in fiscal 2015 and more importantly the foundation is set to deliver another strong year of growth in fiscal 2016.

Thanks for joining us this morning and now I’ll turn the call over to Rich..

MAXIMUS posted sales at March 31st year-to-date signed contract awards $1.58 billion. At March 31st, we also had an additional $1.05 billion and new awarded unsigned contracts including the jobactive rebid contract in Australia. With these two larger wins now sign we are at a record level of annual sign contract amounts.

Our sales pipeline was strong at 2.6 billion at March 31st, this is an 18% increase over our pipeline for the same period last year.

On a sequential basis, the pipeline was lower compared to the first quarter of fiscal 2015; this is very much expected as we’ve had larger opportunities such as the Australian rebid with out of the pipeline to convert into new awards.

As a reminder, our reported pipeline only reflects opportunities where we believe in the RFP use expected to be release within the next six months. Overall, our pipeline calls a broad mix at rebids and new work representing multiple geographies in all segments.

In conclusion, we are pleased to have introduced several new initiatives and post of our existing platforms for long-term growth. We are equally excited about our preliminary guidance for fiscal 2016, which represents another year of expected solid revenue in earnings growth, much of which is organic.

But it’s important to recognize as our people with the hard of our ability to continue to deliver on our commitments to our clients. They are what drive our success on a daily basis. So let me take a moment to welcome our new colleagues from Acentia and Remploy.

On behalf of the management team, I thank our operations team and healthcare professionals in the United Kingdom. We did a tremendous job as we successfully launched the new Health Assessment Advisory Service.

And finally, I reiterate our appreciation for our Australian team whose consistently high performance play the key role in the latest rebid award. With that, let’s open it up for questions.

Operator?.

Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Charlie Strauzer with CJS Securities. Please go ahead with your question..

Two questions for you, the first one is solid the ACA revenue was up year-over-year with kind of unexpected and just wondering what your thoughts work onto fiscal ’16. And then also to if you can, that’s the second one, I have to know that..

This is Rich, thanks for the question. You’re asking what we’re expecting for ACA revenue in ’16. And I’m actually going to ask Rick Nadeau to fill that question..

Yes as Rich mentioned the ACA revenue is expected to be approximately 10% higher in this fiscal 2015. We think that the revenues from ACA have largely stabilized and more to study state run rate at this particular point.

Although it’s early, based on what we know today, our preliminary guidance assumes that the revenue from the ACA-related work will be relatively stable and at similar levels as compared to FY15, I mean there will be some puts and takes within the portfolio but we’re projecting stable..

And then just an answer your question Rich just any update on the Texas rebid..

On the Texas rebid Charlie the bid has been submitted. And as you know we think past performance is a number one drive on any rebid type situation and we’re really proud of the job that the team has done historically. So we think we’re well positioned. However, it is competitive environment and we’re anxious to hear.

I think it’s going to be, probably a late summer time announcement and as you know this – current contract runs through December 31st, 2015..

Next question please..

Our next question comes from the line of Richard Close with Avondale Partners. Please go ahead with your question..

Yes, thanks. Thanks Lisa for putting good presentation together for us. I’m just curious with respect to Acentia that transaction. Can you talk a little bit more about the opportunities that you guy see ahead for that.

And how big of an impact has been on the pipeline so far?.

Good question Richard, I’ll talk about opportunities. I think the opportunities with the Acentia and we touched upon this in the call now. I really do think their long-term in nature and I think that because two reasons.

One I think the nature of the business with government inherently take has a long sales cycle one to two years for this larger jobs to Germany and then ultimately be awarded and that’s true the U.S. Federal Government. And two, I believe there is long-term opportunities as governments look to providers, who can provide a more holistic solution.

We are saying a bit of consolidation in the industry globally as governments are stretched to it would many, many, many vendors in some programs there has been hundreds of vendors.

There tends to be the trend here to consolidate vendors, meaning the awards would be larger per vendor and also I think the nature of the scope would be increased, not just traditional labor-based BPO but with the technology playing a larger role in those solutions.

So I think Acentia combing with MAXIMUS puts us in a position, where not only do we have that historic BPO capability, but more IPO capability which will further enhance our holistic offering in those agencies which side of our key along with the vehicles that with Acentia combination.

And there is a second part of your question, I think you’re asking what’s the impact on the pipeline? And the answer is the information which I shared with you about pipeline in March 31st excludes Acentia. So as you would expect when we pull together that data for June 30th, we will add the Acentia information on top..

I had a follow-up on the ACA revenue, if you could.

How do you guys actually accomplish this in fiscal ’15 considering you thought that was going to be 50 million to 100 million headwinds?.

I’m going to ask Bruce Caswell who is here with us today to answer that. And then I may be provide some info as well..

Sure. The reality of course, we operate more than just customer call centers related specifically to ACA-related call. So, with a fairly diverse portfolio services that we provide our clients, it’s not uncommon in some of our contracts to provide additional functions that can see increases in volumes overtime.

We do think like training and certification of community assisters and brokers, we handle the premium and cost sharing collections for some of our clients, we handle in fact eligibility appeals as to do that at the federal level, but we also do it in some of our state contracts.

Also, this year was a bit different than last year, you may recall we had for the first time people coming back and reenrolling and renewing and just prior to the open enrollment period opening there was a concerted effort to encourage individuals to come back to the exchanges and see how the premiums in the exchanges may have changed and not just auto reenrolled and then as we reached the end up the open enrollment period, we have transactions related to the 1095-A forms, the tax form with IRS is putting out in the first time.

And always you’ll see some special enrollment period activities as the open enrollment period closes. And then the last component I would add is that in many of our health insurance exchange contracts, we do work related to supporting the Medicaid requirements under the affordable care act for those populations.

And many of you households have complex family situations where certain individuals might follow-up for Medicaid and exchange policy. So we support our clients and things like eligibility application, screening and eligibility support services related to that.

So it’s really just a collection of those additional call it, non-traditional call center activities that comprised the growth there..

Thanks Richard. Next question please..

Our next question comes from the line of David Styblo with Jefferies. Please go ahead with your question..

I did want to stay on Acentia for another minute here.

And Rich, I was just hoping you would give us perhaps some more color about, sort of the shots on goal that you're going to be able to take now with this deal, essentially it sounds like the nugget here is that you get a seat at the table where you didn't previously have a seat for somebody who's RFPs were out there.

So if that is the case and I am understanding it right, then what do those contracts look like? Are they much larger, similar size to the ones that you are going after given that you are now having access to a variety of different departments? And then also what would the expected margin profile be on those types of future wins?.

Good series of questions David. In terms of the shots on goal and I guess that’s very appropriate today. I think very meaningful increase on our opportunities. As many of folks know dealing with U.S. Federal Government, the majority of working our believe is awarded through these contract vehicles.

So if you are not one of the limited companies initially awarded a seat on that vehicle, you are not able to beat. And we not had these vehicles in our portfolio up through this acquisition of Acentia, the acquisition of Acentia add some very meaningful vehicles and good customer relationships with the exact agencies that are interest of MAXIMUS.

So that would be civilian and health agencies. So I think the shots on goal I can’t quantify and I can’t give you a preliminary indication of how much is going to add to our pipeline this year and next year. I think it is quite meaningful, that was really one of the principle drivers behind the strategic driver, behind the combination.

In terms of margin as we know U.S. Federal Government is often time cause plus a good portion of the work for Acentia is caused plus. So in operates in a lower margin environment I’ve put it in the category. We expect the portfolio to perform in the 10% to 15% range, I expect the contracts it take up from Acentia will be at the lower and of that range.

Rick?.

And also you have to remember than when you doing acquisition, you have intangible assets that are recorded as part of the purchase account. So, you will see amortization of intangibles on a going forward basis that will tend to reduce the -- will reduce the operating income.

As you see, we booked that out on the face of the income statement this time and we plan to continue to do that for you. So, if you want to do with M&A type of calculation rarely off the face of the income statement. .

Okay, that is helpful. And my follow up is on Australia.

So can you maybe walk us through a little bit more about why the startup losses for the expansion? Is it you are gaining -- do you have to put up new facilities, expanding into new territories? Is that part of the reason and then more importantly, my understanding of sort of the contract is that it is going to be a little bit more performance-based.

And so that would suggest to me that perhaps the margins would be at least the same if not higher than what you were earning before.

Am I thinking about that correctly? And then if I could kind of tag on -- as we think about an earnings slingshot from 2016, I know you don't want to go into 2017 too much, but I suspect that contract would have a higher earnings than 2016 since there is still some losses..

Let me take the margin expectation given the fact that there is a more performance based element to it and then I’m going to hand off first part of your question to Rick Nadeau because it is principally accounting we’re going to kind of principle that answers the first part of your question in terms of why we have this start up loss.

You are right, there is one key aspect of new contract there with the old contract that makes it more performance base and in particular a significant point is when we not only fund somebody’s job but they’re in that job for old contract 13 mix. The government on the new contract is 26 weeks.

So, that is more paid for performance and yes you’re right, as a result we do think that our margin should be improved versus the old contract or minimum maintain and that’s our expectation as we move forward and you’re also right that we don’t want to get into fiscal 2017 speculation at this point, David.

So, with that back to Rick Nadeau as it relates to why we have these start up losses. .

In both the job services contract, the current contract, jobactive contract, there are service fee revenues in the old contract, the job services contract those are over three month period with the contract the government pushed that back and you now earn those service fees over a six months period, so actually our differed revenue will grow as a result of that.

So, we’re still getting services revenues, we’re just starting over a longer period of time will ultimately get the whole amount but we’ll have to record the revenue on them slower than we have in the past and thus spec is that 7 and 9 set whole that we talked about in that fourth quarter..

Thanks David, next question please..

Our next question comes from the line of Stephen Lynch with Wells Fargo. Please go ahead with your question. .

I wanted to see if I could get some more clarity around which contract amendments drove the upside in Health Services in the quarter.

Was that principally related to ACA work coming in higher than expected?.

That was a variety of or couple of different contract amendments and I want just address that briefly, that’s an accounting thing as well as the negotiation item. We can’t record revenue on change orders until or actually signed and so you can’t windup with the situation we have cost in one period and the revenue in another.

And so that’s really that cost effect as you seen as time progresses you learn more about the amendments and you actually have some negotiation around them when you learn more about them. So, that’s really the what happens here. .

Okay. And then, if I could get any thoughts you have on the future of the Medicare right program and your expectations for when the program going again and then when it does how you expect the appeals processor evolve given the efforts to increase clarity to providers the midnight rule ends like that. .

Lets ask Bruce Caswell to share his thoughts in that regard..

Sure, I guess I would say that I feel like we’ve seen a bit of the new normal as relates to RAC program and while there is still working through the contract awards under the new program and I guess there is some consolidation occurring within the industry.

We wouldn’t expect the volumes return to the level that we saw obviously in 2013 where things really, and in fact there has been quite a discussion about that recently because that’s now led to fairly significant backlog above our level at the administrative large level. So, I would say, we’ll continue to watch the space.

We also noted that we had lost two small contracts related to Medicare appeal so we operate and that was like a smaller domain presently and I’m thinking that as rule around the two midnight so forth becomes more final and these new contracts are awarded again we’ll probably see appeals volumes where we’re presently seeing them without substantial new growth.

.

Yes. I would answer that, I agree with Bruce as it relates to I think from the a RAC program per say which is one program in the whole universal appeals that we maybe a new normal and I also add to it that we experienced and believe will continue to experience an increase in the demand for appeals outside of that RAC program.

So, it’s just seems to be inherent in running the entire ship through this programs as governments move forward and this is not just in the U.S. that we’re seeing increasing demand for quality independent appeals which firms like Maximus offers.

So, we’re very excited about the appeal space and I’m pleased to see that one more portfolio situation with appeal than years back where kind of standalone with just in the Medicare appeals. .

Thanks Steven. Next question please. .

Our next question comes from the line of Allen Klee with Sidoti and Company. Please go ahead with your question. .

Yes. Hi.

Within Australia, how do you think about the incremental revenue associated with what you mentioned the national rollout of the work for the Dole program?.

When I think about the Australia, new or my key thoughts are one that this is another case in point where performance is most important where governments, large governments are building partnerships with the key suppliers, I talked earlier about the trends towards consolidating suppliers that certainly in the case in Australia and in this case and MAXIMUS has worked really hard, our teams work really hard to achieve that performance and the confidence of this client.

I think it’s also very rewarding that they’ve chosen to roll into the scope of the old JSA program and now the jobactive program this additional work for the Dole feature, it’s almost like two contracts being awarded in one and again I think it’s a an affirmation of the government’s confidence, emphasis on the performance by larger vendors and in particular MAXIMUS I think picked up more than its fair share as it relates to work for Dole.

It maybe a small piece but we think it’s very-very strategic.

Many governments who have welfare programs are very much focused, and other folks looking for ways to get then employed and work for the Dole feature that is being rolled out large scale nationally in Australia but other countries are also talking some of our features in their welfare program. .

[Operator Instructions] Our next question comes from the line of Frank Sparacino with First Analysis. Please go ahead with your question. .

Hi, guys. Rich, I was hoping to go back to Remploy. It seems like a bit of an unusual transaction for you guys and just wanted to understand, sort of the attraction there, what the business looks like from probably the standpoint and as well as synergies with all the other work that you guys are doing in the UK right now..

Great question Frank and we are very excited about the Remploy combination and it does have some unusual features and I actually think it’s usual features that make it really a fit for MAXIMUS and for Remploy, as I talked about on the call notes this is a function that heretofore has been owned by the UK government it was formed World War II to focus delivering work opportunities to disable their trends returning war then expanded to stop to include minors and originally they actually had factories that have been open to employ these individuals and produce goods that were then resold they closed the factory sometime ago but Remploy has continued to be very dedicated in his elevated itself to be highly regarded as very-very good at helping disabled individuals find good productive work and we think that’s a capability is it’s quarter what we do and we’d like to get better at it.

We think that Remploy after some model features that we’d like learn from and extend not only in UK but in other countries as well.

We also think it’s advantages from the governments prospective and from Remploy’s perspective is means by way the government can affectively spinoff for mutual function that’s important but not inherently governmental which is the trend in the UK but to do in so responsible fashion are combining with firm like MAXIMUS and we committed should not only to continue that the dedicated mission or focused mission Remploy but to enhance it.

So, I think in closer I’d say it represents a great opportunity to roughly 850 employees of Remploy who might believe we’re very excited about this combination. So, all in all I think it’s a very unique one but very exciting one. So, I’d say stay tuned as we move forward with our employee combination. .

Our next question comes from the line of Brian Kinstlinger with Maxim Group. Please go ahead with your question. .

Can you give us quantitative details in the pipeline such as how much represents new business versus recomplete to obviously we have Texas and then what are the geographical rating look like?.

Well, we typically stick to the quantification that we’ve shared with you but I will add to it. And I think from the geographic perspective I’m pleased it really is spread across all of our existing markets. So, I don’t see any particular concentration and our teams have been working really hard to focus on growing all aspects of the business.

So, demand is pretty much universal. As it relates to new business versus rebid business, again while we don’t quantify that, we continue to be in a position where the majority i.e. north of 50% of that sales pipeline is new work. .

Okay. And maybe you can tell us because it’s already how précised with [indiscernible] as you’ve done some large deals in the past but in addition and expense they do a lot of IT services which isn’t your primary focus.

So, I’m curious as you use those [indiscernible] for the federal government is the plan to use those to cross sell BPO services to them or with the focus also be a little bit more on IT services in your business. .

Well, I think we would encourage essentially continue to look forward with its existing line of business and retail it’s work and grow its work but a key element of the strategic combination of the two firms is to cross for lives of these capabilities and where there are opportunities to sell BPO into agencies rest assured the team is very much focused on identifying those opportunities and moving forward and rolling with those margins orders as we speak.

.

Thanks Brian, next question please. .

[Operator Instructions] Our next question comes from the line a follow up Frank Sparacino with First Analysis. Please go ahead with your follow up. .

Just real quick, and I want to make sure I am looking at 2016, when I'm doing the math. So it looks like on an organic basis we are looking for roughly kind of 10% to 13% growth in fiscal 2016.

Is that right, Rich?.

Rick Nadeau, does feel about right. .

Yes, that’s feels about right and we go through when we look it obviously we gave you range. So, yes you’re within the right striking distance when you think about adding essential employee which is not organic and then adding in organic piece, that’s a hard thing to say. When you [indiscernible]. .

Yes. Roughly I think we’re in the vicinity of top line total fiscal 2016 over 2015 of say 20% of that approximately 12% is organic. .

Perfect, thank you guys..

Thank you. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..