Maximus, Inc. (MMS)

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F4Q08 Earnings Call

November 13, 2008 8:30 am ET


Lisa Miles – Vice President, Investor Relations

David N. Walker - Chief Financial Officer

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


Anurag Rana - KeyBanc Capital Markets

Charles Strauzer - CJS Securities

George Price - Stifel Nicolaus & Company, Inc.

Jason Kupferberg - UBS

Richard Glass - Morgan Stanley



Ladies and gentlemen, welcome to MAXIMUS year end earnings call. (Operator Instructions)

At this time, I'd like to turn the call over to Lisa Miles, Vice President of Investor Relations. Thank you, Ms. Miles. You may begin.

Lisa Miles

Good morning and thank you for joining us on today's 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'll open the call up for Q&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 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'll turn the call over to Dave.

David N. Walker

Thank you, Lisa. Good morning and thanks for joining us.

This morning, MAXIMUS reported GAAP results that were in line with our guidance in September as well as consensus estimates. For the fourth quarter, MAXIMUS reported a GAAP loss of $0.09 per share and for the full fiscal year MAXIMUS reported GAAP earnings of $1.55 per diluted share.

The results for the quarter are highlighted by the divestiture of our Asset, Justice and Education Systems businesses. This divestiture further solidifies our presence as the leading government health and human service pure play.

You should direct your attention to the pro forma results from continuing operations. The key here is that pro forma diluted EPS from continuing operations was $0.71 for the fourth quarter and $2.83 for the full year. This is important as a benchmark going into fiscal 2009 and these results are well in line with our prior expectations that we shared with you.

The most significant item is the non-cash goodwill impairment charge to continuing operations of $7.6 million pre-tax or $0.25 per share in the fourth quarter. This charge is the end result of disposing of the Systems segment. Accounting rules require a portion of the former Systems segment excess goodwill to be included as continuing operations. It is simply income statement geography of what we previously estimated our loss on the disposal would be, but GAAP requires it to be reported within continuing operations.

For the fourth quarter, the loss from discontinued operations was $10.2 million or $0.54 per diluted share. This includes an after-tax loss on disposal of $7.4 million and an after-tax operating loss of $2.8 million.

Let's turn our attention to top line results from continuing operations and segment level data.

Revenue from continuing operations for the fourth quarter grew 9% to $189.1 million and for the full fiscal year grew 19% to $745.1 million compared to the same period a year ago. The growth was driven by new and expanding work in the Operations segment. With the divestitures now completed, the Operations segment comprises 84% of total company revenue. This provides additional visibility and predictability into the overall business, with Ops delivering a steady stream of long-term recurring revenue. The Operations segment had a great year, both operationally and financially.

Fourth quarter revenue for the Operations segment increased 14% to $163.5 million and for the full fiscal year revenue increased 24% to $629.2 million. As we've emphasized throughout the year, top line growth from the segment has been fueled by new and expanding work in our work force services and health operations. This includes both domestic and international businesses.

For the Operations segment, fourth quarter operating income totaled $22.2 million, with margins coming in at expected levels of 13.6%. During the fourth quarter, the Operations segment was active with proposals, which amounted to higher bidding costs of approximately $1 million or about $0.03 per share. For the full fiscal year, the Operations segment margins were 13.6% and in line with our overall expectations. Moving into 2009, we expect that operating margins will continue to trend in the higher end of our stated range of 10% to 15% for the Operations segment.

Moving on to the Consulting segment, this segment represented 16% of total company revenue. With the divestiture of the Systems business, we consolidated the ERP division into the Consulting segment. The Consulting segment had revenue of $25.5 million for the fourth quarter and $115.9 million for the full fiscal year. The segment posted an operating loss in the quarter of $2.1 million. The largest contributor was a year end adjustment in the quarter of approximately $2.7 million on a fixed-price contract. We do expect softness in the Consulting segment to continue into fiscal 2009 as we wind down nonperforming businesses and further streamline these operations.

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