Maximus, Inc. (MMS)

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Start Time: 09:00

End Time: 09:46


Q2 2013 Earnings Conference Call

May 09, 2013, 09:00 AM ET


Richard A. Montoni - CEO

David N. Walker - CFO

Bruce L. Caswell - President and General Manager of the Health Services Segment

Lisa Miles - SVP of IR


Charlie Strauzer - CJS Securities

James Naklicki - Citigroup

Richard Close - Avondale Partners

Brian Kinstlinger – Sidoti & Company

Frank Sparacino - First Analysis



Greetings, and welcome to the MAXIMUS Fiscal 2013 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 begin.

Lisa Miles

Good morning. Thank you for joining us on today's conference call. I would like to point out that we've 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'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 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.

And with that, I'll turn the call over to Dave.

David N. Walker

Thanks, Lisa. Good morning. We are pleased to report another solid quarter of financial results. As noted in today's press release, second quarter results included $16 million of nonrecurring revenue in the Human Services Segment and pre-tax income of $10.9 million, which on a tax effective basis is $6.5 million or $0.19 per diluted share.

As a reminder, we filed an 8-K on February 26 disclosing the termination of a contract as part of a broad statewide initiative to focus resources on a smaller number of programs. The recognized revenue and profit relate to deferred revenue associated with the PSI acquisition. We recommend that investors exclude this one-time, non-cash revenue and profit as it is not indicative of current and ongoing operations.

As I walk through the financial results, I will provide both reported GAAP number as well as the normalized results that exclude this nonrecurring item. So let's get started. This morning, MAXIMUS reported total company revenue for the fiscal second quarter of $326.4 million, excluding the $16 million of revenue from the terminated contract, fiscal second quarter revenue grew 27% to $310.3 million compared to the same period last year, driven by the PSI acquisition and organic growth.

As expected, organic revenue growth in the quarter accelerated. Organic revenue grew 15% over the prior year period due to solid expansion across both segments and in our international operations.

Moving on to operating margin, total company operating income, excluding legal, settlement and acquisition expense totaled $50.7 million in the second fiscal quarter. Excluding the $10.9 million in pre-tax profit from the discontinued contract, segment operating income totaled $39.8 million which reflects a 12.8% total company operating margin for our fiscal second quarter of 2013.

On the bottom line, earnings were in line with our expectations. For the second quarter, income from continuing operations net of taxes totaled $31.7 million or $0.91 per diluted share. This includes the one-time benefit of $6.5 million net of taxes or $0.19 per diluted share related to the contract termination. Excluding the $0.19, adjusted diluted earnings per share in the second fiscal quarter of 2013 increased 47% to $0.72 compared to $0.49 reported last year.

Let's jump into results by segment, starting with Health Services. For the second quarter, Health Services revenue increased 23% to $197.9 million compared to the same period last year, driven by the PSI acquisition, expansion on existing programs and new work that is starting to ramp up nicely. And as we mentioned last quarter, we also continued to experience healthy volumes in our Federal Medicare appeals business.

Operating income for the Health Services segment increased 59% to $28.9 million compared to $18.2 million reported for the same period last year. And operating margin improved to 14.6% in the second quarter of fiscal '13, driven by accretive growth. This compares to 11.3% reported in the prior year period.

And lastly, the Health Services segment continues to benefit from strong demand in our core service areas, as demonstrated by the new win to support General Dynamics as a subcontractor under the federal Customer Contact Center Operations contract. This work includes customer service activities for the federally facilitated health insurance marketplace.

Since this cost reimbursable program is expected to provide only a few months of lower margin revenue in fiscal '13 and because we factor identified new contracts in our forecast, our full year outlook remains unchanged. The team's currently in contract negotiations, so at this time we are unable to disclose additional contractual details, including contract size and length.

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