Greetings and welcome to the MAXIMUS Fiscal 2012 Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Lisa Miles, Vice President of Investor Relations from MAXIMUS. Thank you Ms. Miles, you may begin.

Good morning. Thank you for joining us 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 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.

Thanks, Lisa. Good morning everyone. Once again MAXIMUS reported another solid quarter of financial results with revenue increasing 7% to $243.5 million compared to last year. Growth in the quarter was driven by the Health Services segment. This was offset by the anticipated lower revenue in the Human Services segment that resulted from the revenue ramp-up on the Work Programme in the U.K. Operating income, excluding net legal recoveries, totaled $26.8 million in the second fiscal quarter with associated operating margins of 11%. As noted in this morning’s press release, we are revising our tax rates upward to account for a greater mix of business and higher tax rate jurisdictions. As part of this adjustment, second quarter results included discrete tax charge of $3 million or $0.09 per diluted share related to higher state taxes incurred in prior periods. In addition to this tax true up, we increased our tax rate for the year to 38%. As a result, second quarter GAAP income from continuing operations, net of taxes, totaled $14.2 million or $0.41 per diluted share. The $0.41 of earnings also includes a $0.01 benefit related to a legal insurance recovery. Excluding this $0.01 benefit and the $0.09 tax charge in the quarter, adjusted diluted earnings per share from continuing operations were $0.49. And as always, we’ve included a supplemental table in the PowerPoint Presentation to help investors understand the quarter’s highlights. The same table can also be found on the last page of this morning’s press release. Subsequent to quarter close, we completed the acquisition of PSI, an all-cash transaction, which Rich will cover in his prepared remarks. Let’s turn our attention to results by segment. The Health Services segment delivered another good quarter with revenue growing 17% to $161.2 million compared to the same period last year…

Thanks, David, and good morning everyone. We’re pleased to report another solid quarter, which keeps us on track to achieve our full year guidance. On Tuesday, MAXIMUS completed the purchase of PSI, so I’d like to begin with the specifics surrounding the acquisition. One of the ways that MAXIMUS drives long-term shareholder value is to use our excess cash in a variety of ways, including strategic acquisitions. At the end of last fiscal year, we stated that one of our short-term goals was to make qualified acquisitions. We’ve been deliberately selective with our acquisition activity, seeking opportunities that complement and fit well within our current business portfolio. We are seeking close-fitting companies that we understand well and that we view as low risk with attractive upside. The completion of the PSI acquisition on April 30 fits this model perfectly and is an important step towards achieving our short-term goals. Like MAXIMUS, PSI has a core focus on the administration of government health and human services programs. The PSI portfolio includes Medicaid and CHIP administration, child support enforcement and welfare-to-work contracts as well as specialized consulting services. Many of these contracts allow us to grow our market share and cultivate new client relationships. As we blend the PSI contracts into our business, it’s important to note that these contracts currently run below our 10% to 15% operating margin range. This is due in part to several key projects that are in start up phase. Our long-term goal is to institute many of the same business optimization strategies that we put into place 6 years ago at MAXIMUS. We are confident that we can bring these margins up to at least 10% over the next several years. A full integration effort is underway and our goal is to achieve a swift but…

[Operator Instructions] Our first question comes from Charlie Strauzer of CJS Securities.

Rich, if you could give us a little bit more color on the PSI acquisition and how you expect the year to kind of unfold with the addition of that from a revenue and earnings perspective?

I’d be pleased to do that. Let me take it this way. We put some data out there as it relates to PSI. We expect that this year it’s going to contribute I think the midpoint is $57 million in revenue. And keep in mind that’s for 5 months. The acquisition was completed on May 1. So when we take PSI and consider the fact that it has lower margins, it’s about 60% into our Human Services segment, 40% into our Health segment, the way we see the rest of the year unfolding is as follows: On a consolidated basis from a top line perspective, we expect that our Health Services segment, we expect the full year revenue growth will be driven principally in the entire corporation by Health Services plus PSI. And as we discussed I think last quarter, the Health Services, its organic revenue is expected to be stronger in the first half of the year and this is due to a spike that we’re getting from the expansion in Texas. Organically for Health Services segment, we expect that’s going to come down in the back half of the year. But when you put PSI into the mix that will bolster Q4 by an anticipated $8 million, so we see overall, with PSI, the Health segment being relatively consistent in Q3 with a bolster in Q4. That Q4 relates to the change order we anticipate to receive. That’s order of magnitude of $8 million. So that’s the story with the Health Service segment with PSI. As it relates to the Human Services side, organically excluding PSI, that segment’s revenue for fiscal ‘12 is expected to be relatively flat compared to ‘11 with quarterly revenue lower in the first half of the year and that’s really a result of the startup in the U.K. and we expect that, that’s going to ramp back up in the second half of the year. When we put PSI into the mix of the Human Services side, we see a significant increase in Q3 and Q4 for its revenue. And again to emphasize, that change order we expect in the fourth quarter, when we add that all together, we end up with our guidance range to be $2.20 to $2.30, which is the same as the prior EPS adjusted earnings per share.

Excellent. And just one quick follow-up, Richard, because when you talk about ACA, and the Supreme Court is obviously reviewing that, remind us again let’s say ACA is repealed or done away with and has to kind of go back to the drawing board. I know there is a lot of states are saying that the health exchanges are still going to move forward. What is the states’ kind of thinking there that – why would they move forward with those if the market is not in place, just remind us again there?

Charlie, that’s a great question. And as you can imagine, we are day in and day out very, very much involved in the details at the state level as it relates to it. I’m going to make a fundamental commentary and then I’m going to ask Bruce Caswell who is in charge of this line of business for us and is very much involved in it. But fundamentally, what I think is going on is the Supreme Court, they will go through their deliberations from a legal perspective but it’s very important to remind ourselves that what we’re trying to deal with here is a very, very large social challenge. There are millions of people out there who otherwise don’t have health care, need health care. And there is another interesting trend that’s very much playing into it and that’s the number of employers who -- the decreasing number of employers who are offer -- not offering -- I’m sorry a decreasing number of employers offering health care to their employees. So there are more individuals, even employed individuals who are not receiving health care from their employer. That adds an additional pressure to these government health plans. So we got a very large social problem, the states have to tackle it regardless of the Supreme Court deliberations. And Bruce, why don’t you talk a little bit about what you’re seeing at the state level on the marketplace here.

Sure Rich. As Rich mentioned, the dynamics have been in place for some time and really in a sense have not changed the underlying social drivers. And many states, as you’re well aware, had started to address this issue even prior to the creation of the act and if I’m looking at their insurance markets, addressing potential reforms and looking at ways to increase and broaden coverage for their populations. It’s important to note that there are a total of 24 states that have either signed legislation, have a work around in place through executive order or similar or have a live bill for exchanges. So that really is nearly 50% of the country where there is broad, I call, legislative support in order to enact these types of reforms around an exchange concept and the fundamental principle of a more transparent market and efficient market and consumer choice-driven market is sustained. That’s bolstered by the availability of several money that is flowing into these states that they don’t need to give back through the establishment grant process. So there’s an infrastructure being built and there is some political will and legislative progress that I think is sustainable going forward.

Our next question comes from Constantine Davides of JMP Securities

I guess first just on the U.K., can you talk a little bit more about what the process modifications are there in terms of the outcomes verification? Why is this sort of a depressing effect on revenue, but yet you call out that it’s going to be a positive driver of outcomes going forward?

We’d be pleased to answer your question. And as we get into the U.K. discussion, I think it’s important to understand the basis for the revision. And I’ll get to your detailed question in a moment, Constantine, but what’s happening here is, for this relatively new program, every quarter we have more experience, we become more confident in our model. We refine the model based on real experience to date, real data. I am pleased to say that the front-end drivers are proving out, actually a bit more favorable. We talk about them being volumes more favorable, the mix shift I think last time we talked we were seeing a mixed shift towards the easier population to serve. That seems to be righting itself and coming back to what we had initially expected. Placements are on track. It’s the outcomes that have been a bit softer and in part that has been a function of the verification process. And as we go through this, in order to be entitled to an outcome payment, we have to verify that we in fact place that individual, and that individual reached the outcome payment point, which depending upon the type of individual might be 13 weeks or 26 weeks. The process that the government has had in place basically hung up some of these individuals in the verification process and it’s a meaningful number. And the government has since remedied that situation to facilitate clearing the backlog in the short term and then remedying the process on a go-forward basis. In particular, the prior model had called for a government verification of the ongoing employment achieving the employment hurdle. They’ve modified that to allow -- and previously they also required us to verify with the employee, now they’re allowing us to verify with the employer, which as you can imagine is easier to do than contacting the employee in some cases.

Okay, that’s helpful. And maybe just piggybacking on the U.K., the DWP posted some award on the health assessment side and wondering if, I don’t want to jump the gun here, but wondering if you can talk a little bit about the opportunity there because it looks like you guys picked up a few lots.

Which specific -- this is Bruce Caswell. Which specific awards are you referencing?

The health and disability framework.

Indeed. And again, like the Work Programme, this was just a framework award. So this gives you the ability to then compete for the specific regions in which you’ve earned that privilege. So we’re excited about that having passed through that qualification process and we’re evaluating that opportunity and the potential to partner in that area going forward. So it’s an important first step and I think it’s a good validation of the capabilities of the firm in that adjacent market.

But to be clear, it’s a framework award as opposed to a specific award or contract award. So there’s really no revenue associated with it at this point in time.

Got it. And then lastly, just one for Dave, on the tax issue, can you just tell us when that came to your attention and should we be modeling, I guess should we be modeling 38% as kind of the 3Q, 4Q tax rate?

Yes a good question. It just relates to state taxes and we recently, this quarter, completed our corporate tax return. So a normal part of the process is to review the prior year estimates related to taxes. So the largest portion of this $0.09 relates to fiscal ‘11 and it’s a true up that’s done when the tax return gets completed, which again happened this quarter. We treat it as a discrete charge and to accountants that means we’re booking it so it doesn’t confuse what is a normalized provision. So the normalized provision, which shows the higher impact for fiscal ‘12 of the state rate is 38%. So the full year actually retroactive and going forward is 38% and this $0.09 is a one-time charge, which kind of takes the difference in the expenses this quarter. And if you kind of look to your remodeling out past fiscal ‘12, it’s important to point out that the U.K., which had a loss this year, and has a lower tax rate, actually hurts us because you have a loss, so you get less tax benefit. So if you were thinking about beyond ‘12, 37% is a more appropriate rate.

And Constantine to answer your question, I think Dave may have answered it, but this came to our attention this quarter.

Our next question comes from Brian Kinstlinger of Sidoti & Company

The first question I had and I joined late so sorry if you mentioned it, but just heard the answer how the outcomes, basically some of them may have been missed because of verification. Are you able to recoup that once they realize and you are able to give them verification of when the payments were due?

Brian, indeed we are. We have a number that are in the queue subject to verification. Realistically, I think a good percentage of them will be deemed to be verified and naturally we would get the benefit of that.

And then on the discussion on the U.K. shakeout of vendors, how do you -- in light of how the original competition went based on pricing, how do you think that the DWP weighs price versus market share going forward?

Well that’s a great question. I think it’s a question that many governments will be facing in the future, how they balance the right point on curve in terms of the benefits and costs and I think many are going to find that the benefit to the government is not maximized when they choose the lowest price. They will receive fewer placements. They will receive service that will not be as efficient or that will not be as effective as the government would like. So I think clearly, I would expect that the U.K. government is taking a hard look at that and perhaps they will adjust their weightings as we go forward.

If I can ask one more question. The -- seeing how the outcome-based contract has been working out and in light of the pipeline of several countries looking at changing their welfare-to-work program that you discussed in the past, are you prepared to take on more outcomes-based pricing right now? Is that how you think the market is going to go forward on new contracts?

I think it’s going to be a blend. We will entertain on a -- an opportunity-by-opportunity basis new work. I expect there’ll be some that will -- we will feel comfortable moving forward. I expect there’ll be some where we will not move forward. So we’ll be selective. It’s -- if we think it’s an opportunity that we feel comfortable, we can deliver the results based upon the terms and conditions, we would move forward. But it’s not a categorical yes to all opportunities. It would have to depend upon the facts and circumstances.

Our next question comes from Frank Sparacino of First Analysis

I just want to be clear on the U.K., the revision for 2012. I mean I understand the comments made around the outcome as being temporary. So there obviously had to be something from a permanent standpoint that forced the reduction, it’s just not clear to me what that exactly is.

Frank, let me try to talk about this. Again when we first estimated the revenue and cost and operating income, this program was yet to be launched. And as it launches, we go through and collect actual data and when you study this program, you’re going to find that the drivers to revenue and to ultimate operating income are the volumes that we receive, the mix of the cases that we receive, the percentage of those cases that we actually place, the percentage of those placements that actually get to the initial outcome payment. It’s either 13 weeks or 26 weeks. And then the percentage of those individuals, once they’re placed in a job what percentage remain in that job by week for up to a number of months. So the formula is fairly complex. It’s based upon a number of interrelated variables. So every month as we’ve progressed and we learn actual experience, we’ve changed the model accordingly. So the primary answer is that we simply received direct data to modify the model. And as a result, when we study those individual variables, we have favorable variances on the volume side, on the mix side, on the placement side. It’s the outcomes that we’ve modified or we’ve taken down our assumption as it relates to what percentage of those individuals will actually hit the outcome phase. So it’s a minor tweak. What that does, Frank, it actually just takes some revenue and pushes it to the right and it brings revenue a little bit down in each of the periods that we’ve been forecasting.

Okay. And then just a follow-up. Obviously there was quite a bit of news in the first quarter as it relates to the Work Programme and I’m curious if there is -- if you’ve seen any impact or a flaw in terms of closer scrutiny of the program or any potential hurdles or roadblocks as a result of that?

Yes I think that there has been a fair amount of press in the United Kingdom and there’s been one firm in particular that’s received an awful lot of negative attention. I do think categorically that programs like this will always be under the watch eye. Government programs do get an incredible amount of scrutiny, in part because we’re spending public funds and also in part because oftentimes it’s in the intersection of political differences. So it’s history that these programs do get a lot of attention. And as a result, it’s very important for anybody operating in this space to pay attention to their billing integrity, to put forth really best efforts, best practices in terms of the integrity of the bills that are submitted to the government. And whenever a firm slips up and it’s inevitable there will be isolated instances so it’s a matter of having good solid billing integrity program, which MAXIMUS does. But those that don’t are subject to criticism and it’s important to the industry as a whole that it’s isolated and it doesn’t become an industry problem. At that point, it could jeopardize an entire program. But I don’t think we’re there. I think in this particular case, the department is very comfortable with the performance of certain vendors including MAXIMUS and I think the department as well as MAXIMUS remains very, very much committed to the success of the program. It’s really intended to address head on a very important social issue and fiscal issue that they’re trying to deal with.

[Operator Instructions] Our next question is a follow-up from Constantine Davides.

One quick one on PSI, you called out $4 million of, I guess, integration expenses. Is that contemplated in the $2.20 to $2.30 EPS guidance or is it excluded and I guess is that a 3Q event or is it spread evenly across the next couple of quarters?

It’s excluded and it’ll largely be in Q3, a little bit coming into Q4.

[Operator Instructions] Our next question is another follow-up from Brian Kinstlinger of Sidoti & Company.

Just one question. In the first half of the year, we’ve seen the shift in -- towards managed care with Texas help pull [ph] your earnings and revenue. I’m curious, is there any particular state right now out there that is about to go through a similar process that will help drive incremental revenue and earnings to that? Maybe not to that degree, given the state of them but are going through something that’s going to temporarily spike your earnings?

Bruce Caswell, would you respond to that please?

Happy to. Yes we continue to see this trend in the marketplace, as we’ve indicated that we expect to continue really through 2013. The states are moving populations that historically you might not have considered eligible for managed care into these programs. Without mentioning any specific states, there are activities really across the country, including some states where MAXIMUS is not a current provider that are seeking to ship populations, for example from primary care case management models into full capitated risk based managed-care models. So we see it as creating strong market opportunity, not just within our current client base but beyond.

Our next question is another follow-up from Frank Sparacino.

Just wanted to follow up on the Australia rebid. I’m curious, as it relates to pricing on that contract relative to what you experienced the prior time around. And then also just from a competitive standpoint, what the process was like.

Very, very pleased to answer that question because it’s a very significant highlight to not only the quarter but to the year. This is our largest contract I believe. And this one, Frank, the Australian government is very interesting in terms of how they go to market here and it speaks to the earlier question about governments’ bidding price and whether or not we would move forward. This particular government I think has a great model. They don’t bid price. They simply say to the vendors, this is the price that we will pay, they have determined what’s the optimal price for them to maximize their situation. So you don’t bid price, you’ve got qualifications and they hold your feet to the fire in terms of getting the results done. This particular case was not a rebid, they basically went and extended the contract of current providers who were performing at a 3-star or a better rating. They have a 4-star rating, I’m sorry a 5-star rating process that rates the performance of the individual vendors. So, they just automatically extended those who are 3 stars or better, which is even better than a rebid situation. Next question.

It appears you have no further questions at this time. This concludes today’s teleconference. You may now disconnect your lines at this time. And thank you for your participation.

Thank you.