Maximus, Inc. (MMS)

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Q1 2009 Earnings Call Transcript

February 05, 2009 at 9:00 am ET


Richard A. Montoni - Chief Executive Officer, President and Director

David N. Walker - Chief Financial Officer

Bruce Caswell - President, Health Services

Lisa Miles - Vice President, Investor Relations


Charles Strauzer - CJS Securities

Analyst for Anurag Rana - Keybanc Capital Markets

Analyst for Jason Kupferberg - UBS

George Price - Stifel, Nicolaus & Company, Inc.

Richard Glass - Morgan Stanley


Lisa Miles

Good morning. Thank you for joining us on Maximus first quarter earnings conference call. I would like to point out that we have posted a presentation to our website under the Investor Relations page to assist you in following along with today's call.

With me today is Rich Montoni, Chief Executive Officer, and David Walker, Chief Financial Officer. Following Rich's prepared comments, we will open the call up for Q&A.

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 or 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 10K 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 N. Walker

Thank you, Lisa. Good morning and thanks for joining us. This morning, MAXIMUS reported EPS results that were in line with our expectations and slightly ahead of consensus estimates. For the first quarter, MAXIMUS reported diluted earnings per share of $0.67 compared to $0.51 reported for the same period last year. Revenue for the period totaled $180.1 million. On a constant currency basis the top line grew 5% driven by the Operations Segment which grew by 11% and offset attrition from the consulting business.

Compared to the same period last year, net income grew 13% to $12 million and was driven by continued growth in the Operations Segment. The current economic environment has bolstered the US dollar which reduces the relative earnings of our international businesses when translated in the US dollars. As we discussed on our last earnings call, our ongoing share repurchase program helps to neutralize the impact of the strengthening dollar on our earnings, all in all it was a clean solid quarter that was inline with our expectations.

Let us turn our attention to segment level results. The Operation Segment now comprises 87% of total Company revenue and provides long-term visibility and predictability with a steady stream of recurring revenue. First quarter revenue for the operation segment increased 6% to $156.3 million compared to first quarter 2008 and 11% on a constant currency basis. As a reminder, all of our foreign operations are housed in the Operation Segment. As we have emphasized before, top line growth from the segment continues to be fueled by new and expanding work primarily in our health and federal business lines.

In the first quarter, growth in our domestic business helped balance the currency impacts from our international operations. The Operations Segment’s first quarter operating income grew 20% and totaled $21.3 million with margins coming in at expected levels of 13.7%. In the second quarter, we expect to experience a temporary dip in segment operating income in March with the return to higher margin levels in Q3. The dip in Q2 was principally related to project timing and refresh of a large contract, a project we successfully re-bid last year. January 1 marks start of this contract and the margin fluctuation is the result of the transition to the new contract and the associated investment in the technology refresh. The operation segment also experiences a seasonal up tick in the second half of the year, most notably in our tax credit business. Despite the fluctuation in Q2 on a full year basis, we continue to expect that the Operation Segment will still be able to deliver margins toward the higher end of our 10% to 15% range.

Moving on to the Consulting Segment, this segment represented 13% of total Company revenue with revenue totaling $23.8 million for the first quarter of 2009. The segment posted an operating loss in the quarter of $1.5 million. While this was a sequential improvement over the fourth quarter of fiscal year 2008, the loss in the quarter is principally due to a $2.5 million project charge due to cost growth on a legacy fixed price ERP contract.

Beginning in the second quarter, we do expect improvement in the Consulting Segment driven most notably from new work including a new contract award of the New York City Department of Education. We did have a delayed start on this project which shifted contribution to the right but the project is expected to provide a meaningful revenue and profit stream that will extend well beyond fiscal 2009. We will begin booking revenue on this new project in the second quarter and at that time, we also expect to record an additional $5 million in nonrecurring after revenue.

Let us turn our attention to total Company margins. For the first quarter, we achieved total Company operating margins of 11%. This was driven by the solid margin from our Operation Segment of 14% which was tampered by the loss in the Consulting Segment. While it is not unusual to see margin fluctuations quarter to quarter, we still maintain that the business can continue to run at or above a 10% operating margin over the long term.

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