MAXIMUS, Inc. (MMS)
F2Q09 (Qtr End 03/31/09) Earnings Call
May 7, 2009 ET
Rich Montoni - Chief Executive Officer
David Walker - Chief Financial Officer
Adam Winn - KeyBanc Capital Markets
Charles Strauzer - CJS Securities
Jason Kupferberg - UBS
George Price - Stifel Nicolaus
Adam Peck - Heartland Funds
Previous Statements by MMS
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Good morning, thank you for joining us today on today's conference call. I would like to point out that we posted a presentation to our website under the Investor Relations page to assist you in following along with today's call. With me is Rich Montoni, Chief Executive Officer; and David Walker, Chief Financial Officer. Following Richard’s prepared comments we will 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 under 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 obligations revised or update these forward-looking statements to reflect subsequent events or circumstance.
With that, I will turn the call over to Dave.
Good morning, and thanks for joining us. This morning MAXIMUS reported revenue for the quarter totaling $184.2 million up 1% on a constant currency basis compared to the same period last year. Second quarter net income from continuing operations, totaled $11.4 million with diluted earnings per share of $0.64. That are in line with our expectations and slightly ahead of consensus estimates. On a pro forma basis, diluted earnings per share from continuing operations were $0.66, which excludes legal and settlement expense.
We also incurred $0.02 per share of residual cost associated with discontinued operations in the quarter. We achieved a total company operating margin of 10.2%, which is consistent with our stated goal of an operating margin at or above 10% over the long term. All in all, it was another clean, solid quarter that was in line with our expectation. Let's turn our attention to segment level results.
For our fiscal second quarter, the operations segment posted revenue of $155.6 million. In the second quarter of last year, the segment arrive an unusual benefit of approximately $6.9 million related to hardware and software purchases on a large health managed services program. After normalizing for this infrequent revenue, the operations segment revenue grew 5.6%, compared to the same quarter last year on a constant currency basis.
The operations segment delivered operating income of $19.9 million and an operating margin of 12.8%, well within the target margin for the segment of 10 to 15%. As a reminder, at the beginning of the second quarter we commenced a project we successfully rebid last year. We expected the margin to be lower as a result of the transition of this new contract and the associated investment in the technology refresh. Our operations segment has a business model, which provides visibility into future periods. What we sell this year typically translates into revenue next year.
Rich will talk in greater detail about the new contract wins, the large award such as our recently announced contract in Australia will help fuel next year's growth. These large operations contracts often involve start up costs that cannot always be capitalized and therefore, reduce current earnings. In addition, certain contracts such as the Australian contract have outcome-based targets, which result in a lag of revenue recognition. We expect the combined earnings impact of the revenue lag and the projected start up expenses on current wins not considered in our previous guidance to be approximately $0.20 per diluted share for fiscal 2009.
As a result of these investments associated with recent awards we now expect profit margin for the operations segment to be in a lower end of our target range of 10% to 15% for the second half of fiscal 2009. These large contract wins also can use considerable amounts of working capital. For example, with the recent win in Australia, we anticipate capital expenditures in excess of $7 million associated with the net increase of 36 new operational sites. This will be discussed shortly in terms of guidance for the balance sheet and cash flow.
Moving on to the Consulting segment. For the second quarter, consulting segment revenue totaled $28.6 million. Performance in the quarter was driven principally by the revenue contribution on the New York City education project, which included approximately $4.8 million in pass through revenue in the quarter. While this segment continues to underperform from our expectations, the segment showed sequential improvement of approximately $1 million in operating income.
We continue to focus on fundamentals on the consulting segment, such as [lab] utilization, winding down certain practice areas, improving and underperforming legacy fixed price contract and cost management. Moving on to balance sheet and cash flow items, MAXIMUS continues to maintain healthy liquidity levels and no outstanding debt. For the second quarter, MAXIMUS generated cash from operating activities related to continuing operations of $40 million, and free cash flow from continuing operations of $34.5 million.