Greetings, and welcome to the MAXIMUS Fiscal 2018 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Miles, Senior Vice President of Investor Relations for MAXIMUS. Thank you, Ms. Miles. You may begin.

Good morning and thank you for joining us. With me today is Bruce Caswell, President and CEO; and Rick Nadeau, CFO. 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. 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 information contained in our earnings release today and most recent Forms 10-Q and 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 except as required by law. Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analyses 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 see the company's Form 10-K that will be filed later today. And with that, I'll hand the call over to Rick.

Thanks, Lisa. Overall, fiscal year 2018 was characterized by solid execution, a healthy portfolio of contracts, strong cash generation, and a demonstration of our commitment to sensible capital allocation with this recent increase to our quarterly cash dividend and the completion of our largest acquisition today. Just last Friday, we completed the purchase of U.S. Federal Citizen Engagement Centers, which both Bruce and I will talk about in greater detail within our prepared remarks. As noted in our press release this morning, MAXIMUS reported total company revenue for fiscal year 2018 of $2.39 billion, which was slightly below our guidance range of $2.4 billion to $2.44 billion. This was a result of revenue in the fourth quarter, which was slightly below the company's expectations due to lower-than-anticipated contributions across a handful of contracts. Total company operating margin for fiscal year 2018 was 12.4%, which was largely as expected due to new programs in the startup phase in the Human Services Segment. This compares to 12.8% in fiscal year 2017. For fiscal 2018, diluted earnings per share increased 6% to $3.35, and benefited from U.S. tax reform. I will start my comments on segment results with the Health Services Segment. The Health Services Segment continues to consistently deliver strong operating and financial performance. Revenue for the Health Services Segment for fiscal year 2018 totaled $1.4 billion, compared to $1.38 billion last year. The segment delivered an operating margin of 16.8% for fiscal year 2018 as compared to 15.6% in fiscal year 2017. As mentioned on the call last quarter, revenue coming into the fourth quarter of fiscal year 2018 was tempered by forecasted changes on several sizable contracts that were rebid and won, extended, or option periods were exercised. For example, this includes the Health Assessment Advisory Service contract that reset…

Thank you, Rick, and good morning everyone. Since I became CEO in April, we have embarked upon a digital transformation, extended our reach into new markets and customer areas, and are working to offer more clinically related services on a global scale. During the year, we have made continued progress on multi fronts to position MAXIMUS for its next phase. Today, I want to focus my comments on our recent M&A activities and the acquisition. As we have noted in prior calls, we believe that federal market is a long-term growth area for us. It's one of the priority markets that we identified as part of our strategic market evaluation. We believe we can play a more meaningful role in the U.S. federal market, and with this acquisition, we have taken decisive action towards building scale, expanding our customer base, and improving our competitive position. In doing so, as Rick noted in his remarks, we've also made the total company more competitive in our markets. As Rick also noted, we closed the acquisition last Friday. These assets are a natural fit that align with our existing capabilities, bringing together extensive experience and knowledge in managing large citizen-centric government programs. These assets cover some of the largest Civilian Citizen Engagement Centers in the federal government and across the nation. The most well-known among the portfolio of new contracts is the Contact Center Operations for the Centers for Medicare and Medicaid Services. As a reminder, MAXIMUS has served as a subcontractor on this contract since 2014. You may be familiar with the programs that this contract supports, including the federal exchange under the Affordable Care Act, and the primary support Engagement Center for Medicare, also known as 1800 Medicare. The overall scope of the contract is focused on efficiently handling general inquiries…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Charlie Strauzer with CJS Securities. Please proceed with your question.

Hi, good morning.

Good morning, Charlie.

So I just wanted to talk a little bit more about the acquisition if we could, just in general, get your additional color and thoughts on the kind of longer term opportunities there, and also when you look at the $0.45 of accretion, it's a little bit more than we had modeled on the back of the envelope a year before getting your guidance, and that implies that the base is lower, maybe you can explain a little bit more on each metric there as to why that's occurring there? Thank you.

Absolutely, Charlie, it's Bruce, I'm going to start with just the strategic rationale a bit and address your question about the longer term opportunities this creates, and then ask Rick to address the question related to the accretive nature of the transaction, the $0.45. ,: As much as that's a great strategic rationale and it, I will say, addresses two of the important market priorities that we were looking at as part of our strategic review, the first being the importance of achieving critical mass in a key growth market as I've mentioned, and the second being bringing us new digital capabilities. I spoke a bit about that in my prepared remarks in terms of the contact center technologies that we gained. Equally important are the economies of scale that the acquisition brings to us. And Rick spoke at some length about that in terms of the benefits to our business and to our rate structure within the federal business that it also improves our competitive position across the Board in the company and makes us competitive in other segments as well. So with that, really the scale economies, the operational efficiencies, the technology gain that we get and the critical mass in federal all added up to make it a very attractive acquisition, but I'll turn it over to Rick for further commentary.

Sure. Thanks, Charlie. In my prepared remarks, I talked about five different areas of how we calculate the impact of the acquisition. First, you have the operating income that relates to the operations. We have synergistic benefits. We have interest amortization, and then of course, transaction costs. I think there are really two main drivers to our updated expectations. First, I think we're expecting to receive a bit more revenue and operating margin in '19 than we previously assumed providing a lift to the earnings. Secondly, as we've been able to study this transaction more, the two large cost-plus contracts we believe we will be able to realize more cost synergies than we previously expected. So while there are still some moving pieces and as we continue to study it, we do believe that $0.45 is a reasonable expectation for the total earnings contribution. I think the estimate that we have in there on valuation and amortization of the intangibles, we're still waiting for that appraisal, but we've worked with the appraiser. So that's really the one open item, but I think basically as we're able to study it more, we determined that it was a more positive benefit to us.

Excellent, thank you very much.

Okay. Next question -- oh, I'm sorry.

And then we've got total…

Anything further?

On the base operations.

Yes, Charlie, did you ask about the base operations?

Okay, all right. I didn't hear that part of the question, but I'll go ahead and answer that. I think Charlie wanted us also to talk about what are the factors that caused the base operations to be a little bit lighter than what we expected. And I think that we have two contracts. I talked about one when I said, for example, in the earnings in my prepared comments, and that is the HAAS contract. It was -- we began the option period in March 1, 2018. And we also have another contract in California, the Medicaid Enrollment Broker contract. Both of these contracts have been reset, if you will. We have more length on the contract, but as a result of getting additional length on the contract there is some giveback, if you will, or degradation of the operating income margin basically trading length for profitability in the early part. As you know and as we've talked about previously with contracts of this kind of length, we often are able to work it over time into an improving operating income margin. I think as we looked at those two contracts and thought about some of the other aspects, we really felt like the comparison of FY '19 to FY '18 would be a degradation of about $0.25 per share.

Thanks, Charlie. Next question, please.

Thank you. Our next question comes from the line of Dave Styblo with Jefferies. Please proceed with your question.

Hey there, good morning. I'm going to follow-up on Charlie's question a bit and ask about the accretion on the GDIT asset just to get a better perspective on how sustainable the accretion is and the revenue is on that. Obviously you'll be annualizing that as you move into fiscal year '20, with the extra month-and-a-half. But I think one thing maybe we don't have as much visibility on is sort of where are you maybe in the revenue ramp on some of those key contracts, in particular the Census? Does that continue to grow in 2020 and in 2021, or where are we in that stage, and if you could even talk about what the size of that revenue contribution is I think it would be helpful just to understand the visibility there.

Okay, Dave. Good morning, it's Bruce. I think we can answer a few of those questions, maybe not everyone, but I'll ask Rick to jump in. Okay, yes. There are two big cost-plus contracts, the one that is the CMS CCO contract, if you will, is rather stable. It has another four years to run until the end of the contract, at which point it'll go through a re-compete. You're right; the Census contract runs through June of 2021. Calendar year 2020 will be the bulk of the revenue, if you will. So yes, there will be some additional growth in revenue from our fiscal '19 to our fiscal '20 for the Census contract. And then after the calendar year of 2020 ends and while we're in our fiscal year 2021 we'll start to see the ramp down and the revenue will go away around the June 2021 period. But there will be, as I said, a ramp in that calendar year '20. Our fiscal year '20 will be stronger than FY'19. So we have some additional growth to go on that contract.

And will fiscal year '21 be larger than fiscal year '19 for revenue then?

Well, that'll depend on the success that we have with respect to new work awards. But yes, we will ramp from '19. We will grow in -- well, the Census contract will grow in '20. That Census contract will then be smaller in '21. When you compared '21 to '19, I think it'll depend on how successful we are with the growth aspects of the business.

Okay, that's helpful. And then I guess there's probably some additional synergies that you can expand beyond fiscal year '19. Is there any way to quantify how much the one-time costs are embedded in guidance for fiscal year '19, and if synergies can grow higher in fiscal year '20 versus '19?

Yes, that's a great question. FY'19 does have significant cost synergies. As the base gets bigger in FY'20, yes the cost synergies will be bigger. What really happens, as you know, in government contracting is the size of that base that you're spreading those indirect costs on can give you a tremendous lift. And so that base does grow in FY'20. And so the synergies we get this year will be bigger next year. And then we're going to have to work to grow FY'21, or else there's going to actually be less cost synergy, if you will, as compared to FY'20 and '21.

Okay. And then maybe just shifting gears real quick on the new FIN contract, can you tell us a little bit more about the opportunities? I guess these are all very large end markets, but can you give us a sense of maybe what your sweet spot is of contracts that you'd be able to target there, maybe the timing of when some of those RPs would come up or we might see some announcements of an opportunity for you guys to win? And also, obviously, the GDIT opens up more short-term goal there. So just broadly speaking, to increase opportunities from having more prime contracts?

Sure. Dave, probably a good way to think about it is to think about it would way we did with Alliant 2. Because Alliant 2 was a new GWAC or government-wide acquisition contract, and it takes some time for the schedule for procurements to get put in place by the agencies, and then to start seeing the deal flow through that. And the good news is we've now started to see deals flow through Alliant 2 and we've had some wins on that vehicle. And so that pipeline is starting to fill up. And it's important because on Alliant 2 there are a number of contracts that historically would've been bid under other vehicles, like TIPS or others that will out under Alliant 2. SO you want to have it for both offensive and defensive reasons. Pivoting to the Contact Center SIN, this vehicle is -- it's a new vehicle that's designed to replace an old one which was called the U.S.A Contact, it expired in August of 2018. And it had a relatively narrow set of solutions that it offered. And as we mentioned in the prepared remarks, this vehicle actually broadens the types of solutions that are available under the contract to really reflect many more of the technologies that are prevalent in call center operations these days compared to back when U.S.A Contact was acquired. So I think, number one, it makes this vehicle a much more attractive vehicle for any federal agency that's seeking not just to do kind of standard contact center operations, but to infuse some of these new digital technologies and capabilities into what they're doing. They'll be able to onboard those new technologies more quickly. And I think, frankly, will, I hope, see through this vehicle opportunities for agencies that historically haven't…

Thanks, Dave. Next question, please.

Thank you. Our next question comes from the line of Jamie Stockton with Wells Fargo. Please proceed with your question.

Good morning. Thanks for taking my questions. I guess maybe the first one, the revenue shortfall doing the quarter. I know you had a number of contributing factors versus kind of what you had guided for. Can you talk about whether it was just a timing issue or are these kind of ongoing volume issues related to specific contracts?

And Jamie, good morning, it's Bruce. And I'll ask Rick to address that.

Jamie, as you suspect, the answer is yes, a little bit of both. I think that what you had in the fourth quarter was the restart of the Disability Employment Services contract in Australia, option period -- sorry, and then we had contract extensions and we had option periods. I think all of those are ongoing types of things. But we also had some pending change orders that we thought could hit in the fourth quarter, they now are expected to come in the first-half of the fiscal year '19. So I would say that it's a little bit of both, as you might have suspected.

Okay. And then maybe just -- I know you guys are going to recast your segments and give us some new data on that in the not too distant future. But if we set aside the General Dynamics business that you acquired, and then just think about the three segments. Can you directionally talk about what growth should look like or what's in your guidance of FY'19?

Yes, you know Jamie, I think that we'll likely do that when we get into the details of the new segment, and we'll recast the '19 guidance in that way and we'll give you some color as well based on how those segments would've applied in the historical financial performance as well. So I think we'll be in a better position at that point. I think if I were to give you any initial sense of direction, as I said earlier, that we think that the U.S. Federal Government remains a very, very strong market area for us. It's the largest customer segment in the world. We're seeing very positive outcomes as a consequence of this transaction and these assets that we've acquired, strong reception in the marketplace and with our customers, new contract vehicles that we've now been able to achieve, the Alliant 2 as well as the Contact Center SIN. So my optimism as it relates to these new segments that would first relate to our growth potential in federal. We'll be happy to give you more color as we update the segments in the future.

Great. Thank you.

Thanks, Jamie. Next question, please.

Thank you. [Operator Instructions] Our next question comes from the line of Donald Hooker with KeyBanc Capital Markets. Please proceed with your question.

Hey, great. Good morning. A bunch of my questions have been asked, but maybe looking at that Human Services Segment or at least the old definition of that. In terms of the Australian Employment Services contract, I know that was a little bit of a drag, and I know there's some competition within that contract, as I understand. Can you talk about kind of any early signs of that getting back to profitability, when does that sort of hit breakeven as we look in to next year?

We have two contracts in Australia, and I want to make sure I'm clear with respect to the two of them. One is the Jobactive contract and that's bigger than the Disability Employment Services contract, we call DES. Yes, DES will hit -- it's going through startup losses at this particular point. And yes, it will turn on the curve, and it'll become profitable during FY'19. Jobactive is also a contract that has been ongoing, and that has been profitable. We are seeing, as we've said previously, in full employment economies around the world, the Welfare-to-Work business has been challenged. Volumes do matter in our business. And when the volumes are kind of low the profitability does suffer, but that contract is profitable, and the DES contract will become profitable in FY'19.

Got you, thank you, and then maybe just one last one from me in that same part of the world, I guess you guys had talked about some opportunities in some of the Asia-Pac countries, I think you talked about Singapore.

Yes, sure, Donald. It's Bruce. Yes, we've been operating actually in Singapore for just over a year now. And helping the government address an interesting population. These are professionals, managers, engineers, and technicians. The acronym is PMET, and that have been displaced through structural changes in the economy, and helping them get back to work. I've been very please with the team's performance and our performance with the client there. And as a consequence we're seeing some new opportunities open up in Singapore. I once had an individual say, don't consider it a government, think of it as a well-run corporation. And individuals that are in key ministerial posts within certain agencies in the government tend to rotate around, so if you do well for them in one function they're likely to recommend you in another, so on the one hand, very pleased with the Singapore team and the service that we're delivering for that very important client. Secondly, other countries in the region do look to Singapore as kind of a standard there or leader as it relates to some of these programs. So, as you can imagine, we're doing some active marketing in the region, looking at other opportunities to serve selected other clients in the region. So I would say stay tuned as it relates to the Asia-Pac region.

Thank you.

Sure.

Thanks, Don. Next question, please.

Thank you. Our next question comes from the line of Frank Sparacino with First Analysis. Please proceed with your question.

Hi, guys. My question relates to the CCO contract. Rick, I don't think you, and this may by intentionally, quantified how large that is and maybe how large the two cost-plus contracts are relative to the $600 million-plus in revenue. But secondly, on the CCO contract, can you just talk about sort of year-to-year historically. Has that been a relatively stable contract in terms of revenue and profitability? I assume it's largely driven by the traditional metrics in that business, but that's my question.

Yes, the CCO contract is the biggest contract in that portfolio, and pretty significant in that total $600 million-plus of revenue. Over time, as programs become more mature, you will see some reduction in volumes, but that contract has been relatively stable over the historical performance that we studied, and we're expecting it to be relatively stable in the next four years.

Any follow-up, Frank?

No, thank you.

Thanks, Frank. Next question, please.

Thank you. Our next question comes from the line of Richard Close with Canaccord Genuity. Please proceed with your question.

Great. Want to ask on the pipeline, and then I have a follow-up question if I could ask as well. With respect to the pipeline, the numbers that you provided here for the fourth quarter, I just want to be clear that that's under the old methodology and maybe you could provide what it would be under the new methodology?

Okay. Richard, it's Bruce, thank you. I can answer half the question. The numbers we provided are under the old methodology, absolutely. But we can't provide it under the new methodology. We're going to begin applying that new methodology October 1st of this year with the first quarter. So the next earnings call will be the firs time we'll be reporting under the new methodology.

Okay. And my follow-up question is regarding maybe the step down in revenue and the earnings of core and citing the PASS [ph] contract in California as well in the $0.25 there. As you think about those contracts going forward, Rick, maybe talk about the timing on when you would essentially get that $0.25 back?

Well, the California contract is a 10-year contract. It started on October 1, 2018. So we will be running that for the next 10 years, starting at that particular point. And we've also, as I've said previously, been running that contract for a long period, looking backwards. The HAAS contract, the next time it gets re-competed it would restart on March 1, 2020. So we'll be going through a re-compete on that contract, but what it was, was an original three-year base, and then we're in the first of two option years this year. And so the new contract, the fifth year of the contract will start on March 1, 2019, and it will end on February 29, 2020. We'll be going through re-procurement at that particular point. And hopefully our incumbency value will carry the day and we'll continue to serve that contract into the future.

And what is your thought process in terms of getting the timing of better margins. Does that come in the second-half of a contract or is it more the last quarter of a contract?

Well, continuously. I think you start at the beginning of the contract, and then as you come down the learning curve, as your people get more experienced with the new aspects of the program as you introduce and increase the robotics process automation and other innovations, you're going to see continued improvement over the life of a contract. So it's not -- I think you'll get some acceleration toward the end because of the cumulative effect of everything that you've done. But your synergistic benefits from operating, it should start day two.

Okay, thank you.

Thanks, Richard. Next question, please.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session, and are out of time for today's call. MAXIMUS thank you for your time and participation. You may disconnect your lines at this time.