Maximus, Inc. (MMS) Q3 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the MAXIMUS Fiscal 2016 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lisa Miles, Senior Vice President of Investor Relations. Thank you. You may begin.

Good morning and thank you for joining us. With me today is Rich Montoni, CEO; Bruce Caswell, President; and Rick Nadeau, CFO. 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 and 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. Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analysis of results and believes this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results and providing meaningful period to period comparisons. For a reconciliation of the non-GAAP measures presented in this document, please view the company's most recent quarterly earnings press release. And with that, I'll hand the call over to Rick.

Thanks, Lisa This morning, MAXIMUS reported financial results for the third quarter of fiscal year 2016. All things considered, MAXIMUS delivered a solid quarter of financial results led by our Health Services segment. At first, I want to review two unusual items that occurred in the third quarter. During the third quarter the company sold its K-12 education practice. This software oriented non-core business was part of the Human Services segment. As a result, MAXIMUS recorded a pretax gain on the sale of $6.5 million which after-tax computes to $0.06 of diluted earnings per share. On the expense side, we recorded legal expense of $2.1 million or $0.02 of legal cost in the third quarter of fiscal year 2016 that related to matter that occurred in fiscal year 2014. In addition to the unusual items the better than expected earnings delivery in the third quarter was due to the timing of revenue and profit from the start-up of a large expansion to an existing contract that was accelerated into the third quarter. We previously expected the start up revenue in the fourth quarter. Now I will cover the total company financial results. For the third quarter of fiscal year 2016, total company revenue grew 8% to $617.1 million compared to the same period last year. This was comprised of organic revenue growth of 8% which was driven by the Health Services segment, acquired revenue growth of 2% from the Ascend and Assessments Australia acquisitions and a 2% decline or $9.9 million from the effect of foreign currency translation. On a constant currency basis total company revenue would have grown 10%. Operating margin for the third quarter of fiscal year 2016 was 13.7% compared to 12.4% in the prior year. For the third quarter, net income attributable to MAXIMUS was $52.2 million and diluted earnings per share totaled $0.79. Let's turn our attention to segment results starting with Health Services. Overall the Health Services segment delivered a good quarter with strong results in our core business. Segment revenue increased 12% over last year driven by growth on existing contracts including the U.K. HAAS contract. Nearly all growth in the quarter was organic. Revenue in the quarter was also impacted by unfavorable foreign currency translation of 2%. On a constant currency basis, revenue growth for the segment would have been 14%. As you may have already seen in the media, we also have an expansion underway for a new location in New York State that accounts for a good portion of the growth in the third quarter. The revenue and profit from the start up of this expansion through an existing contract was accelerated into the third quarter. We previously expected the start up revenue in the fourth quarter. With a handful of large contracts overachieving, the operating margin for the Health Services segment came in strong at 15.1% and was relatively consistent with the prior year. Looking out to the fourth quarter, we currently expect a large impact to our revenues from unfavorable currency translation due to the weakening of the British pound following the Brexit vote. We expect the segment to deliver fourth quarter financial results that are largely consistent with the third quarter. I will now speak to the U.S. Federal Services segment. Revenue in the third quarter of fiscal year 2016 increased 6% compared to the prior year and all growth in the quarter was organic. Top line growth was driven principally by the ongoing ramp of two contracts. The Department of Education contract and a large health contract where MAXIMUS is performing as a subcontractor. The third quarter operating margin for the Federal segment came in as expected and was 12.8%. This was bolstered by approximately $3.5 million of one-time revenue and profit from a handful of contracts, much of which is not expected to repeat in the fourth quarter. On a normalized basis operating margin would have been 10.7% which is more in line with where our Federal segment margins are presently running. I'll wrap up our segment discussions with the financial results for the Human Services segment. For the third quarter of fiscal 2016 revenue grew 1% compared to the same period in the prior year. Organic revenue growth in the quarter was 1% much of which was driven by the jobactive contract in Australia. This organic growth was offset by the anticipated declines in the U.K. work program contract due to lower volumes. The Human Services segment also had acquired growth of 3% which was offset entirely by a 3% decline from foreign currency translation. On a constant currency basis, revenue would have grown 4%. As expected the Human Services segment operating margin in the third quarter of fiscal 2016 was 10.7% and lower compared to the prior year. The expected reduction in margin was a result of the ongoing startup of the new jobactive contract in Australia which is currently less profitable than its predecessor contract. Let me move on to discuss cash flow and balance sheet items, as expected days sales outstanding improved on a sequential basis and were 67 days at June 30.This remains in line with our targeted range of 65 to 80 days. For the third quarter of fiscal 2016, cash provided by operating activities totaled $86.3 million with free cash flow of $72.0 million. For the remainder of the year, we expect continued solid net income, good collections and benefits from the timing of tax and other disbursements to drive an increase in cash from operating activities. At June 30, we had cash and cash equivalents totaling $50.6 million with most of our cash held outside of the United States. During the third quarter, we purchased 43,794 shares for $2.2 million. At June 30, we had an estimated $137.5 million remaining under our Board authorized share repurchase program. In terms of capital deployment, we maintain an active M&A program and we’ve seen increasing number of quality companies coming to market. Our available line of credit allows us to be nimble and flexible. During the quarter, we pay down our debt by approximately $75 million net of additional borrowing. Our total debt at June 30 including the credit facility was $211 million. Above all management remains focused on the most practical uses of cash in an effort to strengthen our growth platform and deliver long-term shareholder value. And lastly guidance, as noted in this morning's press release we are lowering our revenue guidance and now expect revenue for the full year of fiscal 2016 to range between $2.375 billion and $2.4 billion. This is due in large part to unfavorable foreign currency translation of approximately $20 million to $25 million for the full fiscal year with the greatest impact occurring in the fourth quarter with the weakening of the British pound. The revised revenue guidance also reflects the previously disclosed changes to three of our programs in startup which are the HAAS and Fit for Work contracts in the U.K. and the jobactive contract in Australia. This compares to our view when we first established guidance in November of 2015. On the bottom line, MAXIMUS is tightening our earnings guidance for fiscal 2016 and now expects GAAP basis diluted earnings per share to range between $2.60 and $2.70.There are a couple of puts and takes in the earnings range, so let me recap. This range includes the $0.06 gain on sale of our K-12 education business, year-to-date legal costs of $0.03, this includes the $0.02 of cost from this quarter and a penny that was incurred in the first quarter and we also expect diluted earnings per share to be unfavorably impacted by foreign currency translation by about a penny for fiscal 2016. For the full year of fiscal 2016, we continue to anticipate operating cash flows in a range of $200 million to $230 million but at the lower end of that range. However even a brief delay in payment from one of our large customers at the end of September could result in us falling short of this target. We still anticipate free cash flow in the range of $130 million to $160 million for the full fiscal year. In addition, I'd like to provide some commentary on a few specific items from the income statement that have generated some questions. The first is our expectations for weighted average shares outstanding. For the third quarter this was approximately 66.2 million shares. In the absence of any share buybacks we should expect our total share count to increase by approximately 400,000 shares per year for the effect of outstanding restricted stock unit grants. The second is the interest expense line. This is related to the interest on our borrowings which is approximately 1.6%. The third is the other income line which recently had a one-time short-term benefit that will not recur. Looking forward we generally expect that our other income will be less than $300,000 annually. A final item is the income attributable to non-controlling interests. This relates to the portion of net income from certain foreign entities that is tied to the equity interests held by employees or partners. A good example would be the Remploy employees who hold a 30% ownership while the Remploy results are included in our financial statements, a 30% portion of earnings related to the minority ownership is a reduction to net income. Nevertheless we still control the strategic direction and management of the entities. We expect the amount of income attributable to non-controlling interest in future periods to be consistent with recent periods. We hope that you find these additional details helpful. Thanks for your continued interest and now I will turn the call over to Rich.

Thank you, Rick and good morning everyone. As we move into the home stretch of fiscal 2016 I will focus my comments today on two topics. The first is new work where we are creating value for existing clients and the second is industry trends that complement our core capabilities and serve as markers for long-term growth opportunities. Let's start with a couple of key contract wins and expansions that have transpired since the last quarter. In the category of good news, the centers for Medicare and Medicaid services recently awarded MAXIMUS the Part A West Medicare Appeals Work. The $42 million contract covers a one year base and three one-year option periods. MAXIMUS previously held this contract but lost it in the competitive bid in 2014 and our contract ended in 2015. Winning back this work demonstrates the quality, efficiency and value we bring to our government clients. As the Part A West Qualified Independent Contractor or what's referred to as QIC MAXIMUS is responsible for all reconsiderations of Part A related claims that originate in 24 western states and three territories. Recall that MAXIMUS has provided independent determinations for the Medicare program for more than 25 years with the addition of this latest contract MAXIMUS now holds four of the Medicare QIC contracts serving Part A East and West Part C and Part D. Over the years, our work for Medicare program has served as a springboard for our growing global appeals and assessments business. In the U.S. this includes eligibility appeals for the federal marketplace, independent medical and billing reviews for California's workers compensation program and appeals for state Medicaid programs. With our recent acquisition of Ascend we have extended our assessment capabilities into a new set of services this includes preadmission screening and resident review services known as PASRR. MAXIMUS now conducts Level 2 PASRR evaluations for individuals with mental health conditions, developmental disabilities or other related conditions. The evaluations help ensure appropriate placements in a nursing facility or community based setting. They also help ensure individuals receive the required services regardless of placement. In June MAXIMUS won a key rebid contract to provide PASRR services for the state of Tennessee. This contract was the largest from the acquired Ascend portfolio and runs for three years with the total contract value of $28 million. We also brought our assessment capabilities into states where we first established a foothold as the Medicaid enrollment broker. You may recall that MAXIMUS operates New York's conflict free assessment center. The center helps the state to determine eligibility for adults who are seeking home and community based long-term services and support, as well as enrolment into a managed long-term care plan. Since we started this project, we’ve worked closely with our client to achieve the goal timely, professional and independent assessments conducted by skilled nurses in a home based setting. As the needs of the state have increased we’ve grown our scope of work to include additional populations. And as populations continue to age and their healthcare needs become more complicated coupled with a growing complexity of government programs demand for our services increases. States are always looking for ways to Medicaid cost curve while also ensuring high quality services. This is particularly true for certain high needs, high cost populations who may need to be assessed in order to be placed in the appropriate setting, receive the correct level of services or more from fee per service models into managed care. Like most markets such future opportunities will take time to fully materialize but MAXIMUS is well positioned to provide independent conflict free assessment services and a cost effective model for our clients. As part of expansion of our work in New York, MAXIMUS recently launched hiring efforts for new customer contact center Rochester. The expansion is tied to an increased level of administrative and contact centre services for several different health programs that we support through other state. We are on the process of hiring approximately 2,000 new staff position. We expect it will take several months to achieve full ramp. MAXIMUS has a long history of operating both state and federal government program out of New York. Since 1998 MAXIMUS provided administrative support services for a variety of programs. These include Medicaid, CHIP, the physician profile program and state’s health insurance exchange. We also provide services for several other state and federal health program out of New York including appeals and adjudication services for Medicare. With an excellent talent pool New York servers as an important for MAXIMUS operations and we’re pleased to be expanding our footprint. Moving on to our U.K. operations, with a brief update on the Health Assessment Advisory Services contract. We still expect the HAAS contract to be a mid single-digit margin contributor for fiscal 2016. Today I can report that the carried it weight in the third quarter. We’re pleased with the important improvements we’ve brought to the customer experience while our U.K. team continues to work diligently to meet our targets, at the end of the day it’s a tough contract and a high profile program and may have additional progress to achieve. Following the Brexit referendum many wondered how the U.K.'s departure from the European Union will impact MAXIMUS. From an operative perspective this is a neutral event because none of our existing contracts are tied to any European social funds. For now it’s steady as she goes for our current operations. From a political perspective the new Prime Minister has introduced a new ministerial team at the Department for Work and Pensions. DWT is one of our largest clients so as the new team ramps up we are working to inform them about the work we do and the value we add to their programs. From an economic perspective it’s difficult for us to speculate on how Brexit will ultimately impact the U.K. economy. As Rick mentioned the effect of the Brexit vote and value of the British pound is expected to impact our foreign currency translation in the fourth quarter. In summary, the U.K. remains an important market for MAXIMUS. We remain committed to supporting the government in achieving its goals. Moving on to our new awards in the pipeline. Year-to-date signed contracts at June 30 totaled $1.3 billion. We also had an additional $421 million in awarded unsigned contracts. As expected year-to-date awards are lower when compared to the prior year. As a reminder this is principally due to the lower rebids in fiscal 2016 compared to 2015. In fact, the total contract value of rebids in fiscal 2015 was approximately $1 billion higher than in 2016. Our sales pipeline at June 30 was hearty at $4.2 billion. Of the $4.2 billion approximately $1 billion is related to extensions and option periods. In addition about half of the $4.2 billion is associated with new work across multiple business lines. This compares to a pipeline of $2.8 billion for the same period last year. On sequential basis the pipeline is up from $3.2 billion reported in the second quarter of fiscal 2016. The pipeline contains new opportunities across segments and in all of our existing geographies. Looking ahead to rebids in fiscal year 2017, we have some contract extensions that we’re working on. If executed we expect that we’ll just under $1 billion in contract value up for rebid in fiscal 2017. There are two contracts that are the biggest drivers and account for more than half of the work that is currently expected to come to rebid next year. It’s important also to point out that the rebid process for these will take place in fiscal 2017 but we won’t see the financial impacts from the new contracts until fiscal 2018. We will provide the details for fiscal 2017 rebids on our November call. As a reminder we monitor a much broader pipeline as part of our long-term growth strategy. It includes emerging opportunities that we expect to develop over the next three to five years and that will drive revenue in fiscal 2018 and beyond. In closing we remain keenly focused on helping our government clients run effective and efficient programs. Our number one goal is high quality service delivery to ensure the satisfaction of our clients. As part of our quality in this management strategy MAXIMUS conducts an annual client satisfaction survey. This allows our customers to rank us in areas such as competency of our project staff, how accessible and responsive we are to our client’s needs and our ability to provide value to public programs by delivering outcomes that matter. This year’s survey result showed strong performance across the entire company with an average score that above our goal. In fact, more than 50 projects received a perfect score. Congratulations to the team on another successful year as we remain a trusted partner to governments around the world. We’re pleased with the results of this quarter and expected results for the remainder of fiscal 2016. We believe the long-term growth drivers for future years remain in place and are strong. Yet, as Rick noted we have lots of irons in the fire so it’s still too early to speak to fiscal 2017. As is our standard practice we will issue formal guidance on our year end call in November. And with that let's opening it up for questions. Operator?

[Operator Instructions] Our first question is from Dave Styblo from Jefferies. Please go ahead.

Hi, good morning. So let’s start on the New York details that you guys brought up to speed. So part of I guess in the third quarter here you have some benefit pull forward from the fourth quarter. Can you just help us understand a little bit about the magnitude of that and if that’s sort of continues in the fourth quarter and then more broadly on New York you've got a sizable hire of ramping up a couple of thousand employees that's pretty large on your relative base. So is that just to support New York or is it for activities outside of this state and can you just give us a better sense of how much revenue that you see in the pipeline coming from this, is it in the pipeline now or is this sort of expansion work that wouldn't necessarily flow through the pipeline.

Okay, let's take the second half of that question first and Bruce and I will tag team it but I think there is a couple of parts to it. How much of this work relates to other states and is this work that was in the pipeline not in the pipeline, Bruce, you are quarterbacking this with your team, how would you answer that question.

Well all of this work really relates to our work in New York State. We've been working in New York since 1998 and we support multiple benefit programs for the state across the board, Medicaid and CHIP and health insurance exchange programs. So it really is just a growth in our relationship with the state of New York.

Okay. And do think this went through the pipeline in a normal course. So it’s reflected in the pipeline and when we look at pipeline dynamics, you actually see this move through opportunities tracking et cetera through the pipeline. Okay. Rick Nadeau as it relates to the details on the quarter.

Yes, Dave some of the over delivery that we had in this quarter was related to the accelerated timing of the startup of the project that Bruce just talked about. And really specifically the infrastructure built of that expansion project. We actually got started earlier and captured the revenues earlier than we had initially forecasted. So as you look forward I think you really ought to think about or I guess my suggestion would be that you think about moving $0.03 from Q4 to Q3 from the fact that we did capture that revenue earlier on that infrastructure build-out.

And one last one I'd emphasize Dave is that it relates to multiple projects in New York.

Okay. Can you guys sort of size the total revenue opportunity that is going to be sort of progressing across the state from this and the 2000 [employees] [ph] that need a support I mean I think that’s like a 11% increase to your employee base so sounds like this is quite large?

Yes, we can't at this point in time because of client restrictions on disclosures give you those details. But I think you can use the number of employees which we estimate when this thing ramps up to be an additional 2000 employees. I think you can use that as a reasonable proxy for revenue implications.

Okay.

Thanks, Dave. Next question please.

Our next question is from Richard Close from Canaccord Genuity.

Great. Thank you for taking the questions. With respect to the HAAS contract and just going digging in a little bit deeper there I appreciate you're saying mid-single digit margin contributor for the entire fiscal '16, maybe if you could provide us a little bit more detail in terms of where you expect to be as you exit fiscal '16 in terms of sort of a run rate margin there first of all? And then I guess a follow-up question on a different subject on the health assessments and the Ascend acquisition. I was wondering if you could sort of give us a total addressable market maybe for some of the services that Ascend is providing on assessments?

Okay. Two questions, we’re going to ask Rick Nadeau to address the HAAS question in particular I think you're asking where do we think we will exit fiscal '16 as it relates to an operating margin for the HAAS contract.

Richard, I look at it as we look at FY '17 we believe this program will during FY '17 come into our normal range of operating income as we’ve told everyone previously that's in our 10% and 15% range. And we do believe that that is where we will perform in FY '17 for HAAS.

Okay. On help assessments addressable market, my reaction to it and Bruce Caswell feel free to chime in here. I don't have a specific number I’m going to share with you Richard but I do think as I think the demand for conflict free assessments and appeals is quite substantial. We’re actually pleasantly surprised and pleased as it relates to how we're seeing those come out us in the marketplace. We're seeing it directly through channels but we’re also seeing it start to elevate and become part of our normal service offerings as well. I would tell you that I think the market for appeals and assessments is hundreds of millions of dollars but I'm going stop there and not provide more detail. Bruce Caswell?

I would agree completely because there really are a number of different assessments out there that we're now performing beyond just those that are part of the Ascend portfolio. And Rich mentioned in his remarks that as our assessments there are supports intensity scale assessments, there are assessments that we perform separate from what we combine with Ascend in terms of capabilities. That relate to as Rich said conflict free assessments to help individuals qualify for long-term services and supports and managed long-term care in a number of states. So looking at a high-level there are 46 million seniors in America and most of them have covered obviously through Medicaid. Many of them I read recently at Keiser report that rejects 50% of them need some form of long-term services and supports and it’s often an assessment that is done that's part of the gateway to that process and access to those services. And that was emphasized a bit as part of the Medicaid rates that came out about a quarter ago that we spoke to on the last call. So I think Rich is correct in saying it's a robust and broad market for us.

Thanks, Richard. Next question please.

Our next question is from Charlie Strauzer from CJS Securities.

Hi, good morning. I'm just picking up on those previous questions, if you look at the total pipeline overall you had a pretty nice -- it's a pretty nice healthy amount of new work that you’re tracking there and as it relates to Ascend you’re starting to see some of the fruits of their contract, your ability I should say, in that pipeline?

In fact we are my thoughts on Ascend at this point in time include the fact that I think it's a great complementary expansionary addition to what we do and expansion of our core. I think the integration is going quite well. We’re really pleased with the team that's joining us the employees from Ascend. I think most importantly and this acquisition was really about revenue synergies not cost synergies. I think the revenue synergies are starting to take hold I think our team and their teams are very much engaged in addressing the market. We're really pleased with that this most -- the largest contract of Ascend was up for rebid this past quarter and the teams did a great job to win that rebids. So we're really pleased about that. So it's a factor Charlie in the growth in our pipeline. So I think that's a hallmark of the good acquisition. Bruce…

Excellent. A – Bruce Caswell: Yes. We're seeing it now shortening the pipeline in a very positive fashion. A – Rich Montoni: Absolutely.

Excellent. And then just my follow-up is just on the U.K. and the new DWP team and the new government there, what do you-- Rich if you could maybe expand a little bit more your thoughts on how they approach to privatization and in the contracts like you're performing there? A – Rich Montoni: Yes my view is I don't think there is much of the changes relates to that government's inclination to partner with firms like MAXIMUS. Every indication I receive is that they fully appreciate the work we do, the partnership and one good thing about our hard work over the last several years in the U.K. as I really do think that we have the on the ground teams that work very, very well in a positive fashion. And every indication I have Charlie is that that continues today.

Great. Thank you.

Thank you, Charlie. Next question please.

Our next question is from Shane Svenpladsen from Avondale Partners.

Good morning. With respect to recent rebids and new opportunities and your eligibility in enrollment business, are there any notable changes in bidding behavior in the part of your competitors that are worth calling out or any new entrant into that space? A – Rich Montoni: Changes in new entrants in terms of changes I would say no, I don't notice any meaningful change in behavior. It's a somewhat open-market meaning that it’s not a duopoly or a monopoly, on the other hand there are meaningful barriers to entry. Our customers do place a very significant waiting on any bidders past performance and ability to deliver quality service. That being said there are half a dozen of competitors we do see some ebb-and-flow particularly at the smaller level or the lower level. But I wouldn't consider to be sea change of any sort. You do have some larger competitors historically that have gone through some very significant business combinations and now we’re going through some business disaggregation. So we should all watch in terms of what's that mean in the marketplace. I think there’s a little bit of to be determined especially with those larger players. That would be my commentary in terms of pricing behavior, it means competitive so we're always compelled to look for a new ways to deliver more efficient services, that's very, very important in this industry.

I appreciate that. And then just as a follow-up, how would you characterize the near and medium-term procurement environment in each of the U.S., U.K. and Australia? A – Rich Montoni: I would characterize the overall environment as it relates to procurement as steady as she goes. Most of this work is in place and is required and rebids are normally required. I think we're in an environment where there's a tendency of our clientele to certainly to exercise option periods. In fact I think we're betting 100 this year in terms of option periods I think we embedded a 100% last year and on top of that there is a tendency in the marketplace for clients to extend sometimes beyond option periods to avoid what otherwise would be a costly rebid situation. And I think that perhaps is even heightened given the changes in the leadership in the elections that we have in hand. So if anything I think so what is going be that we’re going to see more extensions and option periods elected. And in addition we do and I think evidence what we’re seeing in our health business in the US what's behind that what I think is very respectable growth is additional work that we're doing for our clients. That's I think a very significant long-term growth driver. I’m pleased we are seeing it today and I think we’ll continue to see it as these governments continue to ratchet down eligibility qualifications it seems to be a heightened interest in demand for the integrity of the program. So we work very closely with our clients to ensure that. And as we shared with you in my notes, we continue to see increased focus on long-term support services the elderly and the disabled. And those are areas where we’re quite accomplished. Is that helpful Shane?

Yes, thank you. A – Lisa Miles: Thanks for your questions, Shane. Next question please.

Our next question is from Brian Kinstlinger from Maxim Group.

Great, thanks so much. Hi, guys. The first question I have was just a numbers question, can you quantify the rebids in fiscal '15 that you won versus year-to-date in '16, I know you mentioned the difference is $1 billion but maybe you can give us some numbers? A – Rich Montoni: Well, if Lisa can look at up quickly we can give you some numbers. But I will give you some thoughts. When I think about rebid situations '15 versus '16, '15 was a very, very or '16 is a very, very lean year as it relates to rebid situations. And we've done very well from a win percentage whereas the prior year '15 seem to be more normal with a much, much higher rebid amount up for rebid. I think from a win perspective in both situations it seems as if we're running 90% plus in terms of winning our rebid. So I think that's pretty reflective of industry-standard as our clients are not inclined to change frequently they tend to stick with the incumbent, we know there’s a huge home-code advantage in this situation. And I think MAXIMUS enjoys that due to our solid performance. So when I think about the situation year-over-year last year was normal but much heavier than '16 this year is a lighter year. And '17 we expect there’s going to be more towards normal. But ultimately '17 will depend upon extensions and option activity between now and November when we give you a final number. A – Lisa Miles: And Brian relative to 2015 we had about $1.2 billion up for rebid last year and we closed out the year with winning all of that but $9 million.

And this year - just to finish the first question, you had 200 million so far is that right? A – Lisa Miles: So for the fiscal 2016 170 million up for rebid. A – Rich Montoni: And so far we won 115 of – and that represents four - six of the 10 contracts that were up this year. So that leaves about 55 million remaining and we haven't lost anything thus far Brian.

Great. That helps to explain the bookings for sure. My second question is in the past you’ve provided on some of these large contracts a boomerang effect I think you guys have had that name. So maybe if we look to fiscal '17 talk about the boomerang effect for high may be in terms of earnings-per-share if it's a – it seems like a large range of 10 to 15% but maybe you can help us understand that? A – Rich Montoni: I think we’re going to help you in assuming qualitatively we're not today going to get into boomerang effect because and it's -- the reason we don't want to get into fiscal '17 guidance even as it relates to certain data points of which HAAS is one data point. It's not fair to fiscal '17 unless we holistically talk about it. But HAAS is one data point as it is fit for work another data point as is Australia. So as we have a number of startups fiscal '16 has been a year of extraordinary more than normal startups and that does set the table for a boomerang effect in fiscal '17, we’re going to have to take that holistically when we talk about fiscal '17 guidance Brian.

Okay. Thank you.

Thanks Brian. Next question please.

Our next question comes from Allen Klee from Sidoti and Company.

Yes, hi, any update on the U.K. Fit for Work contract?

Yes, we can give you a little bit of an update. Bruce I know you’ve been working with the team over there, as we all have been working with the team and before Bruce jumps into it as you would expect the changeover in the leadership and is probably the headline as it relates to all of our business over there but most notably our intent to restructure the Fit for Work contract.

Yes, that’s really. Allen the fact it and you can certainly appreciate the Brexit vote, really it caused a lot of changes in the leadership at the top level and into the department and administers and so forth that are responsible for the various portfolios including the Fit for Work contract. So a bit of a pause but now that things are settling in and we’re getting to know the new ministers and leaders we’re continuing to work actively with our client and really considering all the available options for the Fit for Work program. So not much to report at this point but active discussions remain in progress with our new client.

Thank you.

Next question please.

Our next question is from Stephen Lynch from Wells Fargo.

Hi, thanks for taking the question. Just looking at the change in revenue guidance at the mid-point, it’s coming by $62.5 million. Can you help us understand which contracts are driving the difference that is not accounted for in the $20 million to $25 million that you talked about from Brexit currency headwind.

Yes, I think we did talk on the script about $22 million on the currency related to Brexit. I think you also have a reduction in the expectations of the revenue that we would be getting off of our start up contracts and I think you ought to think of that number probably around $50 million or so.

Okay, thanks and do I also have a follow-up. I know we’re not getting into preliminary fiscal ’17 guidance but is there any way you could help us understand the potential impact of currency headwind from Brexit if the exchange rates hold where they are right now, maybe how many percentage points of growth should we be assuming that it will take away from the top line next year?

Yes, it’s a great question and we’ve done some preliminary modeling and we’ve looked at it as compared to the prior year but I do think that you should think that we’ll be maybe a 1% down on the EPS as a result of that maybe $0.03 or $0.04.

Thanks Stephen. Next question please.

[Operator Instructions] Our next question is from Frank Sparacino from First Analysis.

Hi guys, just one from me. Going back to the pipeline in terms of new opportunities particularly on the federal side and maybe even Human Services. Are there any sort of new areas emerging that maybe outside of the core work that you are doing today that you would call out potentially exciting new opportunities?

The answer is yes. I am going to give you a little bit of a backdrop explanation here and Bruce and his team have been working really hard to expand our telescope as it relates to what we call Tier 3 opportunities, and as you would expect our business development folks in all of our segments have been working really hard to identify those opportunities and develop those opportunities. And I think in federal there are several areas that represent adjacencies for us. We certainly would like to take our capability as it relates to citizen service centers, and deliver that to the amazing amount of such services that the U.S. federal government procures. We’d certainly like to our skill sets as it relates to Acentia and couple of those and embed them in our business for outsourcing services in the federal government and as you will recall from that pinwale slide, there are a number of agencies with whom we’ve historically not done business and we did it would take some time to really penetrate those opportunities but I think that the federal team has done a very good job to do that. On the Human Services side, I think there are growth opportunities as we move forward. Most notably we’re aware of a lot of I’ll call it academic and high level legislative discussions about how do we better engineer some of the large federal programs that are out there relative to human services type entitlement programs including the [TNF] [ph] et cetera. So, it is possible that over the next couple of years and I don’t think it’s happen until the federal election is behind us but it is possible that we see new legislation that calls for a reengineering of those programs and at the heart of the debate is, a welfare program. So are we going to have a welfare program where it’s again a deject or is it going to be guaranteed job or something in between. There are lots of discussions occurring as they say on the hill on this point in time at the governor association levels, we’re well plugged into it. So that’s an area where we may see additional growth opportunities down the road. Is it helpful Frank.

Thanks Frank. Next question.

Yes, thank you.

Our next question is a follow-up from Richard Close of Canaccord Genuity.

Yes, thanks. Can you go over maybe into a little bit more detail the two contracts that are coming up for bid next year, I think you said that’s more than half of what's up for rebid. So if you could just go into that in terms of maybe where they are and maybe the length your tenure with those contracts historical tenure.

Richard unfortunately we’re going to decline that opportunity because what happens is and principally for competitive reasons and the fact that as I said earlier all of our contracts or many of our contracts that are scheduled for rebid there are discussions about perhaps extension of those contracts. So that may change so for competitive reasons we won’t get into those details. By November when we announce fiscal '17 I think most of that dust will have settled and we’ll give you details at that point in time.

Okay, can I try another one then.

Sure.

Okay. I believe you were in contention for a federal contract on the census. If you can go into that provide us some background in terms of that opportunity and where it stands?

I am glad to do that and Bruce and I will talk about this but I’d give you some commentary on that would be, that’s an example of an agency with whom we have not worked in the past given our organic growth and inorganic growth we built qualifications to the point where we felt that we could cement a very credible bid and hats off to our team which did submit a very credible bid. As you may know we were not successful in that bid and we stand at this point in time where that award is not been formalized and Bruce your commentary would be.

And so certainly as you can appreciate since the award has not been formalized we can’t comment on any protest that’s in process but to give you a little more color on the nature of the work and how it was reflected in our pipeline. At a very high level it was principally for an inbound and outbound centralized contact center and the real thrust of the census and the strategy of the census for 2020 is a web first strategy. They want - most respondents if possible to complete the census through the web but if necessary to be able to call into the contact center and handled where you’d have handling of general questions and if necessary assisting those respondents in completing the census. Interestingly the enumerators, the folks in the field that actually would go door to door and collect information would be kind of the last level of data collection as part of the new census. In terms of how we carry that into pipeline as kind of appreciate we carry just the base contract value and in this case it was one year base with less than $50 million of revenue. The contract had a sizable ramp up so that year one was much smaller than subsequent years. Does that help.

Yes, thank you.

Thanks Richard. Next question please, and I believe is our last question.

Our last question is follow-up from Shane Svenpladsen from Avondale Partners.

Just a quick housekeeping item. What was the annual revenue contribution for the divested K-12 biz?

Yes. It was running around $4 million of revenue on an annual basis. Last year in FY ’15 it contributed a little bit less than 1 penny and this year it was running pretty flat at about 0.

Okay, thanks very much.

Thanks Shane. And with that I think that wraps our question-and-answer period for this earnings call. Thank you very much for joining us and have a good day.

Thank you. This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.