Maximus, Inc. (MMS) Q4 2012 Earnings Report, Transcript and Summary

Greetings and welcome to the MAXIMUS Fiscal 2012 Fourth Quarter and Year-End Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Lisa Miles, Vice President of Investor Relations for 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 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.

Thanks, Lisa. We’re pleased to report another solid year of financial results which reflects the company’s healthy portfolio of projects. Fiscal 2012 was highlighted by strong growth in core markets, the acquisition and integration of PSI and a successful ramp-up on the work program contract in the UK which achieved break even in the fourth quarter. As we kick off fiscal ’13, we remain committed to winning our fair share of healthcare reform contracts securing new profitable work and strategically deploying cash to drive long term shareholder value so let’s move into the financial details for the quarter and the full year. For the fourth quarter total company revenue from continuing operations grew 20% to $300.7 million. For the full fiscal year revenue increased 13% to $1.05 billion. Growth for the full year was driven principally by new work, the expansion of existing contracts and the acquisition of PSI which offset the expected revenue decreases in our international human services operations. Full year revenue grew 7% organically compared to last year. Total company operating margins were strong and in-line with expectations at 13.9% for the fourth quarter and 12.4% for the full fiscal year. The tax rate in the fourth quarter was 42.1% and includes year-end tax true-up of approximately $1.2 million. As a result fourth quarter GAAP income from continuing operations net of taxes totaled $23.8 million or $0.68 per diluted share. This included cost of $0.06 per share related to the tax adjustment, legal and settlement expenses and recoveries and acquisition related expenditures. Excluding these costs fourth quarter adjusted diluted earnings per share from continuing operations totaled $0.74 a 16% increase compared to $0.64 reported for the same period last year. For the full year GAAP income from continuing operations net of taxes totaled $76.1 million or $2.19 per diluted share. This also included expenses of approximately $0.17 per diluted share related to the tax adjustment legal and settlement expenses and recoveries and acquisition related expenditures. Excluding these cost adjusted diluted earnings per share from continuing operations for the full year totaled $2.36 an increase of 5% compared to $2.25 in fiscal 2011. Since adjusted EPS is a non-GAAP view of our earnings as always we have included a normalization table providing details of our adjustments and the financial schedules of the press release. Let’s turn to results by segments starting with Health Services. The Health Services segment continues to deliver consistently solid results. For the fourth quarter revenue increased 16% to $181.6 million compared to the same period last year. The increase was driven by the PSI acquisition organic growth and a large low margin pass through related to startup operations on the new Minnesota health insurance exchange contract. For the full fiscal year, revenue grew 19% to $671.2 million due to new work in states like Louisiana and Minnesota as well as expansion on existing contracts such as in Texas where we experienced a temporary spike in revenue as we supported the states managed care expansion initiative. The segment also benefited from 5 months of revenue or about $21.8 million from the PSI acquisition. Excluding PSI revenue, year-over-year organic growth for the Health Services segment totaled 15%. For the fourth quarter of 2012 operating income for the Health Services segment totaled $20 million compared to $20.6 million for the same period last year. Fourth quarter operating margin was lower compared to the prior year due to pass through revenue in Minnesota and investments in business development. For the full fiscal year the Health Services segment achieved operating income of $80.6 million, an 8% increase over fiscal 2011 and provided a full year operating margin of 12%. The margin was slightly lower than last year due to the managed care expansion in Texas. The timing of work including rebids and startups as well as the large Minnesota pass through. All in all, another great year for the Health segment. Looking ahead at fiscal ’13, we see it as another overall solid growth year for the segment but it is important to keep in mind that the Health segment growth drivers will be somewhat tampered by factors that we discussed last quarter. First, the Texas expansion of managed care caused a temporary spike of approximately $22 million in revenue in fiscal 2012 which will not repeat in fiscal ’13. Second, California plans to terminate its Standalone Healthy Families Chip Program and move the CHIP kids into the state’s Medicaid program known as MediCal. The phased transition is still expected to begin in January and may last all of calendar year 2013. As we discussed last quarter MAXIMUS also supports for the state’s Medicaid program, the population shift from one program to another won't be a one-to-one revenue match for MAXIMUS. Healthy Families was also a mature program generating strong margins. We’re still working on the transition plan with the state and have not finalized our contractual scope of work but at this point in time we think that revenue for the work we do under CHIP will be approximately $20 million lower in fiscal ’13. So from a bottom line perspective we expect the decreases from the California and Texas programs will impact earnings per share by approximately $0.15 in fiscal ’13 compared to fiscal year ’12. We also expect that this will be more than offset by growth from new work. Nevertheless we feel it's important for investors to understand the puts and takes to the segments numbers. Let’s turn our attention to financial results for the Human Services segment. For the fourth quarter revenue for the Human Services segment grew 27% to $119.2 million compared to the fourth quarter of last year. For the full fiscal year revenue grew 4% to $379 million compared to fiscal 2011. Revenue growth was driven principally by the acquisition of PSI which offset expected revenue decreases from our international operations. International revenue was lower compared to last year due to the continued ramp up on the new work program contract in the United Kingdom as well as the completion of certain short term government program contracts and lower case loads in our largest job services contract in Australia. For the fourth quarter segment operating income increased 64% to $21.8 million delivering an operating margin of 18.3%. The quarter was exceptionally strong compared to last year due to the ongoing improvement in the U.K., and short term contract work in our U.S. operations that was quite accretive. This is partially offset by lower margin contributions from Australia. For the full year operating income for the Human Services segment increased 7% to $49.9 million resulting in a full year operating margin up 13.2% compared to 12.9% last year. We are very pleased that we achieved our goal of breaking even on the U.K. Work Program contract during the fourth quarter and we continue to see the contract progressing along the plan we laid out. Moving forward we will no longer breakout financial results for the standalone work program contract primarily for a competitive reasons. We will continue to provide investors with operational granularity when it is relevant and appropriate. Moving into fiscal 2013 the segment is in a very solid position but we have experienced changes in our Australian program that have caused us to invest more in resources and staffing. Over the last several months the Australian government has increased its regulatory oversight to support billings on outcomes and all vendors across the board. In response we have stepped up our efforts to ensure that we meet the new government requirements and maintain our top rated standing. Despite this increase contract support spending in Australia, this performance based contract still remains one of our most solid performers in the portfolio but the added resources will somewhat temper margins going forward. For fiscal 2013 this is expected to be offset by the margin expansion in the U.K. as that program continues to mature and ramp up its profitability in fiscal ’13. Moving on to cash flow and balance sheet items, another quarter a solid net income contributed to strong cash flows for the fiscal year. As a result of strong earnings and low day sales outstanding of 56 days cash flow for the year was at the high end of our expectations. For the full fiscal year cash provided by operating activities from continuing operations totaled $115.2 million with free cash flow of $92 million and for the quarter cash provided from operating activities from continuing operations totaled $30.1 million with free cash flow of $21.7 million. During the fourth quarter of fiscal 2012 MAXIMUS used $3.9 million to purchase 65,800 shares of MAXIMUS common stock under our share repurchase program. And for the full year we repurchased a total of 306,000 shares using cash of $13 million for buyback activity. At September 30, 2012 the company had $127.4 million available for future repurchases. Subsequent to quarter close through November 9th, we remained active under our share buyback program buying another 168,500 shares of common stock for $9.7 million. We will continue to balance our cash resources with the demands of growth. But our ongoing cash deployment activities will continue to include dividends, repurchases, and selected strategic acquisitions. Our balance sheet remains healthy and we exited the fiscal year with cash and cash equivalents totaling $189.3 million of which 66% is held overseas. Moving on to guidance, for fiscal 2013 we anticipate revenue to grow between 17% and 21% with an expected range of $1.225 billion to $1.275 billion driven by strong growth in both segments. In addition, approximately 90% of our forecasted fiscal year ’13 revenue is in the form of backlog or contract option periods. We enter fiscal 2013 with backlog at September 30, at $2.9 billion. On the bottom line we expect adjusted diluted EPS from continuing operations to grow between 21% and 29% with a range between $2.85 and $3.05 per diluted share for fiscal 2013. We have some dynamics that play into our guidance for fiscal ’13. First, in the normal course we do see margin fluctuations due to the normal contract life cycle as well as the mix of life cycle and contract type in any given year. For example, as I had mentioned earlier in the segment discussions we have some anticipated margin reductions coming from lower revenue in a couple of mature contracts in California and Texas. Second, we have an unprecedented amount of new programs in startup or in the early stages of contract cycles. These often carry lower margins in the early stages and there is always the risk that a contract start gets delayed. Third, our clients are evolving and the nature of the business is trending towards more performance based contracts. With these volume based contracts case loads and volumes can be more difficult to predict precisely, that been said our disciplined approach and focus on keeping our cost structure as variable as possible is beneficial to MAXIMUS over the long term. And lastly we also have some really promising tailwinds such as the swing to profitability in the United Kingdom as well as margin expansion on existing contracts which provide some uplift. We considered all these factors in the range in absolute numbers in our guidance. So when you add it all up we believe we have laid out a guidance range that is achievable and realistic. Our guidance also assumes that there will be buybacks in order to maintain our weighted average shares outstanding. It's early on and as things progress throughout the year, we will likely look to narrow the guidance range. On a sequential basis we expect that the first quarter of fiscal ’13 will be lower compared to the fourth quarter of fiscal ’12 on both the top line and bottom line. The top line is expected to be lower due to change orders and pass through revenue that occurred in the fourth quarter and will not repeat in Q1 of fiscal ’13. In addition, our fiscal first quarter has historically been our lowest due to seasonality in certain business and the holiday vacation cycles. So for the first quarter of fiscal 2013 we expect revenues to be in the range of $280 million to $290 million and adjusted diluted earnings per share in the range of $0.53 to $0.57. Moving on to cash flow guidance we expect cash provided by operating activities derive from continuing operations to be in the range of $115 million to $135 million for fiscal 2013. In fiscal 2013, we expect that our capital expenditures will nearly double compared to fiscal 2012 driven by the required investments in new contracts and related infrastructure. As a result we expect free cash flow from continuing operation to range between $70 million and $90 million. So all-in-all MAXIMUS wrapped up another year of great financial results. Thanks for your continued interest and now I will turn the call over to Rich.

Thanks, David, and good morning, everyone. We’re proud of our achievements in fiscal 2012 as we continue to grow the business and maximize shareholder value. We completed the acquisition of PSI, this expanded our domestic footprint. We achieved breakeven on our U.K. work program contract, this sets the table for continue growth in fiscal 2013. And most notably our fiscal year-to-date signed awards or exceptional and our pipeline of opportunities remains robust. As David mentioned many new contracts are just getting underway and they will add a recurring stream of long term revenue and deliver profitable growth as they mature. We are equally excited that our first health insurance exchange win is in the books and the implementation is progressing largely as expected. This is a major step in achieving our goal of securing our fair share of healthcare reform work here in the U.S.. As a result of the reelection of President Obama last week the implementation of the Affordable Care Act will likely continue as planned. Now that the election cycle is complete states can focus on meeting future implementation deadlines. Following this summer’s Supreme Court decision states continue to weigh their options and timelines for expanding their Medicaid programs. Although the U.S. Department of Health and Human Services has not set a deadline for these decisions, states can expand their Medicaid programs at any time. Organizations like the National Conference of State Legislatures are expecting state lawmakers to play a key role in deciding whether to expand Medicaid when they convene this winter and next spring. For our Medicaid expansion book of business our outlook remains the same. We still estimate an addressable market growth of $130 million to $200 million annually. Similarly our outlook for individual health insurance exchanges remains the same. We still estimate a $500 million annual addressable market growth for exchange business operations. At this juncture there are 3 possible paths that states can take in the setting up their exchanges. The first is a state based exchange where states operate nearly all exchange activities with minimal assistance from the federal government for certain task. These tasks include determining the premium tax credit and cost sharing as well as administering risk adjustment and reinsurance programs. The second model called the state partnership exchange offer states the opportunity to operate certain functions such as health plan management and in-person customer assistance while partnering with the federal government for all other required services. And the third option is simply to use the federally facilitated exchange also known as the FFE. Last week the U.S. Department of Health and Human Services gave states new deadlines to finish their exchange planning. States that plan to setup state based exchanges still have to notify HHS by tomorrow but their actual exchange blue prints are not due until December 14th. Those states that want to pursue a partnership exchange now have until February 15th, to submit their declaration of intent as well as their plans. There has been a lot of press coverage about the states plans and which path they might choose but groups like the Kaiser Family Foundation believe that many states may start with a federal exchange and then move to a partnership or state based model in later years. At the state level we are seeing active Hicks procurement among 2 groups of states. The first group of states includes those seeking customer contact services for their state based exchanges. The second group of states includes those planning ahead for their transition from the federal exchange following the completion of the one year requirement. Under either scenario we believe we remain uniquely suited to operate a state’s exchange. As we mentioned last quarter, the federal government is in the process of issuing procurements for the operations and other support functions of the federal exchange. CMS has estimated that 35 states will participate in the federal exchange during year one. And we expect to see some procurement movement on the FFE in the first half of calendar year 2013. We continue to believe MAXIMUS is well positioned to support federal exchange initiatives; it's an opportunity that we are monitoring closely. But it's still early days and we don’t typically speak to specific business development opportunities in process. Our bid decision will ultimately depend upon the scope of the work and the terms and conditions outlined in the request for proposal which is not yet been released. Regardless of the model or path states choose, it's important to remember that healthcare reform is a multi-year effort and that revenue from health insurance exchanges will not reach mature levels until fiscal 2015 or 2016. In the meantime we continue to develop relationships with new states as we expand our portfolio of health service offerings to new geographies. As most of you already know we have 2 new contract awards in Illinois. The first contract is referred to as enhanced eligibility verification or EEV. Under this program we help state case workers verify the continued eligibility of individuals from medical assistance programs. This program adds electronic data sources to assist state in ensuring that eligible individuals are not denied reenrollment and that individuals who do not meet eligibility requirements are not reenrolled. MAXIMUS partnered with HMS for data verification using HMS’s integramatch solution. The 2 year $77 million contract began in September and contains 2 additional one year option periods. The second contract in Illinois is for Medicaid enrollment services. MAXIMUS will educate Medicaid managed care participants on their choice of health plans and facilitate enrolments based on these choices. The contract is still pending final negotiations so we look forward to providing more details once the contract is full executed. During the quarter we also announced a new contract with the Oklahoma Healthcare Authority. We are operating a customer relationship management solution for the insure Oklahoma and SoonerCare, the state’s Medicaid program. The one year contract includes 5 one-year renewal periods for a total contract value of $23.5 million if all the renewal periods are exercised. As a result of these 2 new enrolment broker wins, MAXIMUS now operates 19 Medicaid managed care programs serving more than 22 million beneficiaries nationwide. Moving on to our federal operations, over the last few years we have taken steps to position our federal operations for new opportunities and growth. We have brought in new leadership and made investments in business development resources. As a result we have some exciting news to share today. MAXIMUS received notification of award for new independent medical review contract with the State of California. The contract is part of a comprehensive workers’ compensation reform effort. The state expects realize $100s of millions of dollars in cost savings, we look forward to providing additional details once negotiations are complete and the contract is signed. Under the contract MAXIMUS will provide independent medical reviews of denied authorization requests or payments for medical services. We will also provide review services for payment disputes between providers and claims administrators. This work is right in our wheel house and we’re pleased to see an expansion to our independent review book of business. We maintain our positive outlook for extending our core services to new programs and federal agencies. Moving now on to international operations as David mentioned our U.K. operations team deserves recognition for achieving breakeven on the work program contract during the fourth quarter. In addition, MAXIMUS also won a small but strategic new win in the U.K.. The program called Day One Support for young people trailblazer is a one year pilot program to secure work for youth between the ages of 18 and 24. This win is another example of our land-and-expand strategy and this confirmation that MAXIMUS is a go to partner for welfare reform efforts in the U.K.. We recently announced our expanded disability employment services known as DES contract in Australia. MAXIMUS will help individuals with permanent disabilities transition to sustainable employment and independence. The 5 year performance based contract could produce total revenue up to $150 million. This latest contract win is a result of our strong performance in the market. Our Australian team has already placed 5000 participants with disabilities in employment under a companion contract. The team has also achieved an average of more than 4 stars under the Australian government’s most recent DES star ratings. Last quarter we shared the exciting news that MAXIMUS expanded its global workforce services with a new pilot program in Saudi Arabia. I’m pleased to report that we are making good progress on this new contract, we have opened and fully staffed 6 sites, enrolled more than 8000 Saudis in the program and have already placed more than 500 job seekers into employment. Moving on to rebids, fiscal 2012 was a relatively light year for rebids. We had 14 contracts worth approximately $400 million up for rebid and we won or received extensions on 99% of the total value of those contracts. We’ve successfully secured all of our option years for fiscal ’12 for a total of approximately $100 million. Clearly, a very successful year in regards to rebids and option renewals. For fiscal 2013 we have 14 contracts up for rebid for a total value of approximately $475 million. This includes our Texas Medicaid enrollment and our mass health contracts where we received extensions in fiscal ’12. We have submitted our proposals for these 2 important contracts and remain cautiously optimist as to a positive outcome. The combined value of these 2 contracts is $320 million so it's the lion share of the total value up for bid this year. We expect to hear results for these 2 programs by the end of the calendar year. Turning now to new awards and sales pipeline. We had another strong year of contract awards. At September 30, we had $1.44 billion worth of new signed awards, this compares to last year where we signed awards totaling $1.6 billion but this included nearly a $1 billion of awards related to existing contracts. Further at September 30, we had awarded but unsigned contracts totaling approximately $128 million. These are contracts where we have received notification of award but have not yet signed the contract. At November 7, our total sales pipeline of opportunities remains robust at $2.6 billion, underscoring our confidence for continued growth in the fiscal 2013. As a reminder investor should expect routine fluctuations between the pipeline and new sales categories. These shifts are driven by different stages in the procurement process as well as the timing of when contracts are awarded and ultimately signed. Before I close today’s call I would like to recognize our more than 8000 employees around the globe for another great year of hard work, dedication to customer service and diligent focus all adding value to the public programs we operate. The high quality services they provide played an important role in helping us achieve our objectives of this fiscal year. Further, we established a solid foundation in winning our fair share of healthcare reform as well as other health and human services opportunities around the world. The need for high quality, efficient social services is a universal one and continues to drive growth for companies like MAXIMUS that can operate government programs and achieve those outcomes that matter. As we launched fiscal 2013 we are very excited and determined to deliver another year of strong growth. And we will continue to focus on our long term strategy to expand our global operations, continue to pursue and deliver new health opportunities in the U.S. and grow our federal book of business. With our fiscal 2013 guidance now in place, we look forward to driving results for our clients and our shareholders and with that let’s open it up for questions. Operator?

[Operator Instructions]. Our first question is from the line of Brian Kinstlinger with Sidoti & Company.

To the first question I wanted to talk about the exchanges of course, I want to understand the $500 million you talk about on the exchanges, that assumes if every state outsourced? Is that accurate? And then can you sort of talk about the small business exchanges that you haven’t touched on much and the market opportunity there.

I would like to say that Bruce Caswell who is the President and General Manager of our Health Segment and as you very well know Bruce has been very, very involved in the U.S. Health Business and very close to our pursuits in the health insurance exchange for marketplace. So we will ask Bruce to answer that question.

To answer your first question related to the $500 million and total addressable market opportunity that really incorporates the decision path that the states currently face whether it's to do a state based exchange or a state partnership exchange or federally facilitated exchange. So we developed the model to allow for those multiple paths, so it is an addressable market regardless of whether the state provides the service or they ultimately have this service provided by the federal government. So that’s the first question and then the second question, can you repeat the second question for me Brian just related to the small business?

The timing and maybe the market size of that opportunity.

We have not quantified the total addressable market for the small business exchange but the timing is such that as states look at the federally facilitated exchange option, the scope of the small business exchange will be incorporated in that, so as we look into the opportunities to support the federal government in that area that would be an element of the support we will be providing. So for the shop exchanges in those states and as Rich noted in his comments CMS estimates that as many as 35 states may take that federally facilitated exchange path. Separately it's going to be a state by state decision with some states procuring the shop exchanges separate from the individual exchanges.

Our next question is from the line of Charles Strauzer of CJS Securities.

Just hoping if you can share with us the organic or same store growth rates in Q4 and then maybe what kind of assumptions you have built at the ’13 and touching upon the workers’ comp contract, you want to - can you expand a little bit more on you know what kind of cause the states to kind of move that way and how you’re able to win that contract. Thanks.

Dave Walker, we are going to ask him to talk about organic growth, I think Charles was asking about Q4 organic growth dynamics as well as fiscal ’13 and then we will turn it over to Bruce on the California opportunity of which we’re very excited.

Sure I will start with ’13 to give perspective. Overall the PSI revenue the share is about $60 million in fiscal ’12 the majority of it happened in Q4, we will give you the breakout in a second and when we look at next year fiscal ’13, we expect PSI to be in the $120 million to $130 million range. So that’s down from the current run-rate and that was expected when we did the acquisition. So when you back up our overall growth rate is expected to be somewhere in the neighborhood of 17% to 21%. So that puts the, I guess, the organic growth rate between 11% and 17% for fiscal ’13. The fourth quarter of the year, we had a total growth rate of 20% and the organic growth rate was 5.5% with PSI contributing approximately $37 million in the top line.

Bruce? California contract?

Sure and to explain a little bit more about the services that we are providing there, there are 2 elements to it, there are the independent medical reviews and the independent billing reviews and I’ll just give you a little color on what that really covers. The independent billing reviews would be for example in situations where payment has been denied for out of network services or there is a billing dispute between a provider as it relates to services that have either already been provided or are been preauthorized. The payment for and often as you would expect the provider services are billed on a bundled basis, or unbundled basis and the payer seek to pay on a bundled basis. So those independent billing reviews are one element, the independent medical reviews and example for that might be an individual seeking preauthorization for services related to workers’ compensation claim or medical condition that they have, such as back surgery. So to go into the detail, the opportunity evolved really over the course of a number of years and really was called for state legislation. So there is a statutory requirement to implement the program by January of this coming year and it really is a new process for the state where the reviews that we will be providing will be a new review between the claimant and what historically has been the administrative law judge process or LJ process. So the state expects that the savings will accrue from the administrative savings in that process and the new review capabilities that we can providing. So the IMR and IBR - so fundamentally there will be fewer administrative law judge hearings as part of that process.

The other point that I want to add is this is very, very complimentary of what we already do in the federal appeals business. We really see it as an extension for the same offering just to a different geography. We also do the appeals work for a number of states. So it's essentially an offering to new client and we’re excited about it.

The next question is from the line of Scott Green of Bank of America Merrill Lynch.

First maybe for Dave on free cash flow guidance for next year, maybe you could just talk about elaborate a little more on the step up in CapEx, how you see that trending with revenue growth over the next few years or is there anything temporary what the step up in CapEx?

So the free cash flow is down because of CapEx, you’re quite right. So we gave an operating cash flow of the $115 to $135 range and by the way the biggest driver there is just DSO. So a growing company ties up money in receivable so that’s a factor there but the same factor, growth, which we think to be a good problem, ties up CapEx and the BBL, the IT when you win a lot of work you got to invest a lot in the front end for lease hold improvements for offices your equipping for this system install and so you typically capitalize them and amortize them over the life of the contract. So what you see is virtually a doubling of our CapEx and capital software spend from $23 million in fiscal ’12 to about $45 million. We have about 10 startups which is an unprecedented level and about 5 more in the pipe we think so. So the question is, do we foresee this as a trend? We do think in general we are at a growth rate of double digit, so the next year’s growth rate is much higher percentage than just 10% - 11%. So it would -- could modestly come down but on the other hand if this growth trajectory continues I actually think that’s a good thing.

Our next question is from the line of Brian Kinstlinger with Sidoti.

The follow-up on the RFPs for exchanges, maybe you can talk about the timing of when you think they will start coming out. I think a while back you thought awards would happen in sometime I think in this early calendar year coming in and then well the federal exchanges dominates your ability to maintain your market share given the estimation of so many starting in that?

First on the timing of these RFPs and then the federal exchange does it impact our ability to dominate the market as it relates to?

First of all in terms of the timing of the RFPs as Rich mentioned in his call notes, we’re already seeing for those states that are opting for the state based exchanges, a flow of RFPs related to the customer contact centers. So those timings, timing of those RFPs are really as expected but it is also important to note that states are going to also turn to existing contract vehicles to satisfy the demand for those services. So we would expect and have seen initial conversations with states around task orders add on to existing contracts to support those types of services, call center, customer contact center services. So that is as expected. As it relates to your second question with the federally facilitated exchange, many states and in fact in CMS, we will say that it's not their intent to stay on that exchange indefinitely. There is a one year requirement to remain on the federally facilitated exchange before you can then move to a state based exchange. So in our modeling and in our estimate many states will just because the lack of time right now to get a state based exchange completed, opt for the federal exchange to begin with but then get on a glide path where they can take over essential operations for those exchanges in the out years. So I think that’s consistent with the way we looked at the revenue ramp up in this business where you start to see some revenue in the FY ’13 and FY ’14 period but it really doesn’t reach maturity until the FY ’15, FY ’16 period.

And I would add to that that I do think underlying all of this in terms of where do these states end up vis-à-vis the federal exchange. I think it was just a long standing value that states very much want to control their own destiny, serve their people, handle all of the beneficiary one-on-one type communications. In this system it's really where the touch occurs and the federal government on the other hand fully recognizes that it's very difficult for them to provide that level of touch and sensitivity that really is critical in an effective program. So while I think for convenience and time purposes more states will go towards the federal exchange, our belief is that over the long run even though as they do we will look to more back to the state based model and hence to answer, to close out with your question in terms of our position with the states, I really don’t see it as a concern, as it relates to our position. In fact I think it's an interesting opportunity to help those states that first go with the federal exchange to then transition back to a state based model.

This concludes today’s teleconference. You may disconnect your lines at this time. We thank you for your participation.

Thank you very much folks.