Greetings, and welcome to the MAXIMUS Fiscal 2019 First 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. This morning MAXIMUS reported revenue for the first quarter of fiscal 2019 of $664.6 million, an increase of 7% over the same period last year. Top line growth was driven by the expected increases in the U.S. Federal Services segment, due to revenue from the acquisition of the citizen engagement centers. This was partially offset by the adverse impact from foreign currency translation of $7.2 million. Total Company operating margin was 11.2% for the first quarter, which was above our expectations due to solid operational delivery in our U.S. Health and Human Services segment. As expected, our operating margin decreased due to the newly acquired citizen engagement center contracts that have cost plus terms and therefore generate operating margins in the mid single digits. As a reminder these cost plus contracts also have inherently lower financial risk. For the first quarter, GAAP diluted earnings per share were $0.86, which was also better than forecast and benefited from strong financial performance in our U.S. Health and Human Services segment. As we disclosed on the previous call, we reorganized our reporting segments on October 1, 2018 to be geographically based because this is the way we're managing performance, allocating resources and evaluating results. This shift is a response to changes in the markets we operate. With the increasing integration of Health and Human Services programs worldwide, as governments deliver services in a more holistic manner to their citizens. We filed a Form 8-K on December 14 to show our recasted financial results from fiscal years 2017 and 2018. I will now speak to our segment results in the first quarter. As expected first quarter revenue for the U.S. Health and Human Services segment decreased 3% to $294.2 million compared to the same period last year, principally due to the refresh…

Thanks Rick and thank you for joining us this morning. MAXIMUS delivered solid first quarter results with good performance in our U.S. Health and Human Services segment and as Rick noted, we remain on track to achieve our fiscal year 2019 guidance. We continue to make meaningful progress as we transform the customer experience with digital tools, expand our clinical related services and extend our reach into new markets and customer areas. Let's start off today with U.S. federal market, which continues to be a priority long-term growth area for us. First, as Rick noted, less than 1% of our federal business was affected by the partial shutdown. This illustrates the critical nature of our business and service offerings in support of essential citizen services and safety net programs. Part and parcel to this are the U.S. federal contracts we acquired in November. These contracts include the primary support vehicle for several of our nation's most critical programs, including the Federal Exchange and Medicare. We successfully transition these operations to MAXIMUS during the health plan open enrollment period, which is when the contract is running at peak capacity. I'm very proud to say that there were no disruptions to service and, in fact, customer satisfaction for this open enrollment period improved on these two programs over an already impressive score. Through the transition, I visited some of our newly acquired sites with Tom Romeo, General Manager of MAXIMUS Federal. I can attest to the incredible people we have welcomed to the MAXIMUS family and that culturally it is an excellent fit. They are passionate about serving our clients and beneficiaries to our citizen engagement centers and equally dedicated to supporting the communities in which they live and work. I've seen the resilience of our people in Lynn Haven, Florida following…

[Operator Instructions] Our first question comes from a line of David Styblo with Jefferies. Please proceed with your question.

Hi there, good morning, thanks for questions. First one, I just wanted to get a little bit more in the pipeline. I can appreciate you guys moving to the new method, I guess, for us on the outside, and probably easier to look at the old methodology to make some comparisons. So with that in mind, if I take this quarter's pipeline of $5 billion and we know how much of that is new work. It looks like about $3.8 billion of that is new work, that is quite a jump from the $2 billion from a quarter ago in the fiscal fourth quarter. I'm just trying to understand how much of that is from the GDIT acquisition assets, that's now in your numbers and on your pipeline versus how much of that increase was the core business. And if you could just describe you know the nature of what might be expanding in there?

Sure. Hey, good morning, it's Bruce. I'll start and then hand it up to Rick. To quickly answer your question about the GDIT pipeline, we did get some pipeline that came over with the acquisition of those contract, I would say at the de minimis amount of that total that you referenced. It is good pipeline and I'm pleased that we'll be bidding some of those opportunities. The key driver to the change to prior quarter would be in the federal area. I think we noted that you know of that kind of 78% that's been new work and of the total pipeline 60% is in the federal business. And so you know as we look across that portfolio, you can tell that with the new sales team we put in place in the business development efforts, we're starting to see some positive results there. I would characterize the kind of the content of the pipeline there as including both current agencies that we serve, but importantly new agencies and new departments. And also standing both BPO deals as you could imagine there would be large scale BPO deals in there, as well as, now a pipeline of opportunities that we're developing more in the IT space that we’d be bidding out under the Alliant 2 GWAC as an example or IT 70 or CIO-SP3 traditional GWACs that we’ve had. And I'll turn it over to Rick for any further comments.

No, I think that's it. You know, Dave on a going forward basis, we think that this reporting pipeline is really more meaningful. We’ve been using that old pipeline for a number of years, but I think as the business became more federally government oriented, we really thought this was about that way to report. We really haven't changed the way we managed pipeline internally. We're just giving you a little different slice and giving you a different view of it and one that is more meaningful I think that would be something that will help you in the future.

Okay. That's helpful. So, just to make sure I understand. It sounds like is it a characterization more along lines of you guys are finally starting to see an uptick in our key activity and things that you can bid on, whereas we've had a pause for such a long time because if GDIT doesn't contribute that much it seems like there's certain all of a sudden and kind of an influx of new opportunities that are before you. Or is it more along the lines of now that you have GDIT you guys have increased capabilities and you can bid on more. So, just trying to understand if it is more of an market supply uptick or is it more just you have increased capabilities that bet on these contracts.

Well, I’d like to say all of the above, but I think the market opportunities is really the bigger story and I think that Bruce made a great point on the last earnings call and that is that we have new federal sales team and we have new BD folks here. And I think that we're seeing the fruits of their work and a lot bigger risk [ph] aggregation of opportunities, if you will, for us to pursue. Yes, I think the federal government is getting its act together a little bit, better with having more positions filled and yes, we have these capabilities. But I think the real story here is that the market opportunities are there and as being mined by our BD folks. Bruce?

I would add only one thing. Rick’s absolutely right. I think Dave one way to think about it is we talked about how we did pick up some technology capabilities now as part of the GDIT acquisition. We call it the customer experience platform or CXP and it is a very robust telephony platform that we can then market into new accounts, as well as, the fact that we now have qualifications to go after much larger contact center deals, as well as, the fact that we have the GSA IT 70 contact center SIN. So, I think you have to put all that together and then you'll see the pipeline evolve overtime from that combination new capabilities but that's absolutely correct what you're seeing in the present is the fact that that new business development sales upper and abroad effort in the market as well going in the pipeline with new opportunities we're seeing across a number of government agencies.

Dave, its Rick. Do I understand that you have a question on federal margins for FY 2019, as you also noted to ask me to follow-up?

Yes, I guess, just as a housekeeping, when you guys made the disclosure in December in the 8-K under the new segmentation. I think you guys have talked about federal margins being in the 10% to 11% range and I thought maybe that had included the GDIT contribution. And then obviously, you guys are talking an 8% to 10% range. So, just want to make sure that, is there sort of a reset of margins or was there just some sort of maybe clarification item on that that we should be aware of?

Well, let me let me clarify and explain that. Yes, when we talked about it in that 8-K, we were including the acquisition in that. Since that time, we're getting a little more revenue out of the acquisition transaction then we had thought. There’s always refinements in the allocation around we’re disclosing operating income, which is below SG&A, which has certain allocations of home office SG&A. I think if you look at Q1, the number was 9.8% operating income. I think 8% when we said that in December, it was probably, I mean, when we said at this time it’s probably a pretty conservative number. I think 11% was probably a little bit overly optimistic. I mean, it’s a hindsight, I wish maybe it's at around 10% for the full year and that would have been a better estimate. So, I do think it's going to be around 10% for the full year. And our expectations I don't think has changed and our guidance certainly has not changed.

Thank you.

Thanks, Dave. Next question please.

Thank you. Our next question comes from the line of Charlie Strauzer with CJS Securities. Please proceed with your question.

Hi, good morning. So, Bruce, I have a segue from the last discussion, you know you talked about, I guess, bring about assessing your markets and you’re kind of reviewing those. Maybe you could give us an update, I know federal has been kind of big priority as you’ve have been kind of talking about just now. But maybe give us a little bit more of the kind of where you are in that review?

Absolutely, thanks, Charlie. Yes, as a reminder, the purpose of our review is really to take a fresh look at our current markets, emerging opportunities and overall strategy. It was an internal review that we did to really examine and turned out the best pads for the growth of the company in the long-term. We did it first by analyzing our current markets, where we think we should be playing a more meaningful role through greater scale, augmented service offerings and support. And I think we started to deliver on that in the federal segments with the engagement center acquisition. The second thing that we did was we took a fresh look at adjacent markets, and new growth platforms and those are particularly ones that are linked to and anchored by macro demographic economic and technology trends. And so while I can't provide specific details on our key priority markets that we've now refined and are executing on for competitive reasons. I do want to note that we concentrated on markets that are two agencies away from our core that needs strict criteria for addressable size, expected profitability and growth rate. And we believe that we can access some of these markets organically and others will be in acquisition. Importantly, the priority markets that we've identified cover all three of our segments of their domestic and international in nature. I think we’ve made meaningful progress on the evaluation, as I’ve said we’ve turned execution, with the completion of the acquisition and federal, we’re now focused on and I want to emphasize this driving organic growth in the markets adjacent to our core, that's the key. As we continue concurrently to focus the M&A lens on identified priority growth markets that require acquisition of new capabilities, that can themselves then lead to long-term growth platforms for the company. It’s important to remember that our execution will evolve over time, as we work on this plan and we want to remain flexible to meet with changing market demand and the availability of M&A targets that we identified. And overall I’ll wrap by saying I'm pleased that we're making solid headway on the plan. And as we’ve said previously, we’re taking measured improved steps toward executing the plan over the next 18 to 24 months.

Yes, it’s helpful. And just kind of more of a housekeeping question. Last month you’ve filed an 8-K with a you know quantifying the amortization from the acquisition of about $24 million for the next two years. If you could talk about you know how that [indiscernible] your guidance for not only for this year, but how you think about that on a quarterly basis as well? Thanks.

The amortization for the acquisition that was recorded in Q1 was about $3 million and $3 million incremental to what was there from prior acquisitions, I think for the full year you'll see our amortization from intangibles to be around $33 million. $24 million of that is from the transaction and $9 million of it that is from the legacy transactions prior to the GDIT and that is all built into the guidance.

Great. That's helpful. Thank you very much.

Next question please.

[Operator Instructions] Our next question comes from the line of Richard Close with Canaccord Genuity. Please proceed with your question.

Great. Thank you. I was wondering if you could go into a little bit more detail, in terms of the size and maybe, the size of the U.S. subcontracts, there was two of them that you mentioned. And any way you could give us what the agencies are? And just more specifics in and around that or those contracts?

Yes, well, hi Richard, its Bruce. So, first of all, I just want to emphasize that we’re in the early days and early stages of both of these contracts. I can give you a little bit more color. Without naming the agency specifically and actually without naming our prime contractors specifically, I do want to give you a little bit more flavor in the work. This is work that is assessment related work, I want to make sure I distinguish this type of work and work we do on the CHDA or HAAS program in United Kingdom. This is work that’s done by clinicians in addition to their normal, you know roles as clinicians seeing patients and so forth. They add this volume to their offices and they get reimbursed through the program at a fixed rate basis. They have to become certified in order to do these assessments and so there's a gating process for that. And like many of these several contracts, the process of getting people through that certification, you know follows from their initial identification and signing up to participate. So, we've got a very strong pool or network of physicians and clinicians that we've built. We're in the process of getting them certified. We're about 15% of the way through that certification process. And then they will start performing these assessments as – and I would say that our volume on that contract will grow as we have more certified clinicians capable of performing those assessments. The second project that we've begun work on is really to assist more with enabling our outreach to physicians and to participants in the supplemental program that's providing health care benefits to a certain agency. And also helping with medical record indexing to ensure that individuals are identified and qualified to get care from those physicians that we're reaching out to. So, it’s a little bit more color. I would say that you know, we anticipate these programs to contribute this year financially, obviously. And we’re cautiously optimistic that like I said as we address the capacity constraints that we've been working through we’ll be able to build revenue particularly on the first program of the two.

So, are those two contracts sort of included in signed contracts in terms of your pipeline and – ?

Not for the quarter just ended, this is activity that we’ve been building since the end of that quarter, so that will come into signed contracts, as part of our next report.

Okay, great. A question on U.S. Health, you called out the details or you called out some sizeable rebids on larger contracts that led to the revenue decline. Can you provide any more clarity with respect to those larger contracts?

Yes, the – I'll start and then turn it over to Rick for further clarity as needed. But really with the California Health Care Options contract, as we rebid it – as we rebid that. Very, very important contract to us and one that as wanted, we locked up a 10 year contract. So, we've been very, very focused on putting kind of the big granite boulders in place in our core business and that's a great example. So, we can focus on executing our growth strategy in the other parts of the business. The second contract is the HAAS contract, and as you're probably aware each year on the HAAS contract, we negotiate and then execute the options for that contract, as part of that process. Naturally, it's always negotiations with the client and that contract reset for this year and it will continue certainly through the end of February of 2019, when we’ll enter the next option year for that contract that will go until April 29 of 2020. So, it was really those two contracts that we were referencing. Anything further Rick that you would add?

Just HAAS is doing well. If you recall from prior calls, HAAS was a contract that started off slower and ramped over time and you had some very good operating income margins toward the end of that contract, we're doing very well with the HAAS contract.

Okay. Just to be clear on this, so there's really only one larger contract that’s impacting U.S. Health and Human Services, correct?

Yes. We had another one that was smaller, but we did not call that out, specifically.

Okay, thank you.

Okay, next question please.

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

Hi, good morning, thanks for taking my questions. I guess, maybe the first one, Bruce on the house flipping to the dims [ph]. If you could just give us your thoughts on how in the last few months it feels like that might be impacting the environment. I know some of like you know with the pipeline commentary earlier that that things are maybe slowing a little bit, but any color there would be great.

I don't know, if I would attribute this thought often how something [indiscernible] and I think the general consensus is it’s just leading to a lot more oversight and a lot more scrutiny of the current situation. If anything, what I've seen recently is that some of the, for example, I want to frame this appropriately the Medicaid work requirements that states put through for waivers have continued to kind of grind along. And we've seen states now move from their initial process of getting legislation in place, to seeking their waivers, to getting their waivers approved. And I'm pleased to see that we’ve started to now get requests for pricing proposals, put our bids in to help them, within as amendments to current contracts, which is great. And we've always said that that area of Medicaid work requirements will be kind of singles and doubles for us, but it's nice now to finally see you know actionable proposals going and that will lead to incremental growth on current based contracts. As I said we're very, very focused on driving growth in that core, and those core expansion areas. Separate from that you know, you can speculate certainly, if you like it's there’s good kind of power game on Medicare for all. And what role that might ultimately have, I think it's way early days and there's a lot of water to go over the damn between now and when, we’d ever see something like that. So, we're staying focused on execution in our current programs and priorities. And I would say just in summary that that flip hasn't really I think had a material impact on the pipeline. It's more just that as more and more agencies have gotten their budgets and have gotten their leadership in place and…

Okay, that’s helpful. And then yes, maybe just one other quick question. The example of it, I believe you gave in Virginia was the mobile and web enrollments. Can you just talk about a holistically, as your business transition is using more digital tools to enable kind of self service. Should we think about that as potentially improving the margin profile of business, but maybe creating a revenue headwind in some instances? Or is this a tool that you see as allowing you to go after some business historically that maybe you didn't have or you weren't able to get, but now you're going to be more competitive and so it could actually be a contributor from a revenue standpoint?

That's a great question and a multi-pronged question, let me kind of parse it a little bit. Number one, our perspective has always been that over time, the digital channels will become more and more important for our beneficiaries. And we want to run right asset and we want to be part of it and stay in it and we have and that's great. It’s making a big impact and I think our clients appreciate it. At the same time, our view is that the programs that we serve really are going to for a long, long time have a voice channel and voice support for the beneficiaries. And that can be because in our view would be that as digital channels allow more of the administrative type transactions to be taking over by mobile apps and web portals and so forth. We can raise the value of what we're doing by handling the more complicated calls. And there are a number of you know macro trends out there and a quick Google of – on the term social determinants of health would – as you're probably well familiar, it's about big buds in Medicaid these days and we’ve talked about, the integration of Health and Human Services programs. We feel there is a higher level role and we’ve said people we want to do more meaningful work for our customers each year. There's a higher level role we can play and help and connect beneficiaries with important social services in the community, follow-up on whether they're getting access to the plans, as have been promised, help plan oversights, and important thing is there's a lot of energy on that on Medicaid. So, I think the digital shipped enables and opens up new opportunities for us, as you’ve said. The…

Great. Thank you.

Thanks, Jamie. Next question please.

[Operator Instructions] Our next question comes from the line of Frank Sparacino with First Analysis. Please proceed with your question.

Bruce just on the last question from Jamie. A lot of the areas you talk about, you know like social determinants. There's obviously, a lot of technology in the marketplace and I don't know again, historically, most of the acquisitions you've done, have not impacted platforms. And I don't know if the mindset has changed going forward in terms of the appetite or biased to become a little bit more technology heavy, so to speak.

Well, Frank, it's a great question. You know I will say when Richard Montoni was in my seat, he always used to say, we can't keep our technology saw sharp enough, and I completely agree with that. And so, we have been investing in technology and technology capabilities, primarily to enable – to infuse into our BPO operations. We’ve talked on prior calls about the innovation in research and development team that we have here that has developed some very, very poor leading capabilities to do basically indexing and had indexing of complex unstructured data in a way that they can then be navigated with great facility by clinical reviewers. We were finding that in a number of our projects, the clinical reviewers, who you're paying a lot of money to are spending like 70% of their time just trying to get around the electronic boulder and find the information they need to render their decision. We've developed a capability present that information in a uniform fashion and then a viewing portal that uses machine learning technology to follow their navigation of that bolder, so that each time they review a case of a particular type. Say, for an example, an opioid prescription, was it warranted or not, the machine learns from that and the information is presented in a more actionable manner subsequently. So, that's a great example of technology investments that stuff that I just mentioned in fact, has been put forward for U.S. patent, which is something you wouldn’t historically have seen from MAXIMUS. Concurrently, we know that our partners – the ecosystem partners are going to be critical to our delivering better technology for our clients. So, I mentioned the new omnichannel customer contact center capability that we now have in Canada that was all done through a vendor partner. And we've had to step up our technology game in order to implement that technology. We are investing in a clinical platform in the United Kingdom through a partner as well, and if they [indiscernible] configurable, kind of off the shelf solution. So, I think that you're going to see a combination of technology led initiatives within MAXIMUS, as well as, an ecosystem of technology partners and probably the occasional tuck-in of technology capability as we did about a year ago with our Revitalised acquisition of a software platform to help in the well being area. So, I think if you get combination of all three, as we continue to evolve our offerings.

Thank you, Bruce that’s helpful. And Rick, maybe just one follow-up for you. On the assets acquired from GD. I'd be curious how that formed relative to expectations, particularly, the volumes in the federal change. But also just to get a better sense of the seasonality in that business as we look at the remaining three quarters of the fiscal year.

Okay. I'll handle the first part of that, the assets performed as expected, since the acquisition on November 16 and when we were going through and evaluating guidance and it was pretty spot on where we thought it was going to be based on the acquisition. I think Bruce you wanted to fill the other half of his question.

We’ll tag team this one. So, as it relates to the federal exchange and that contact, over 8.4 consumers said that rolled in through healthcare.gov in 2019, this year's enrollment was relatively stable, it was down by only about 4% relative to 2018. Anything further Frank?

Just the seasonality, as we’ve looked at the revenue and I know the partial quarter, this quarter, but I don't know what the flow looks like.

Yes, this quarter, we are in the open and we just finished the open enrollment period. So, yes, we're going to be a little bit more front-loaded into the first part of the year. I think that we believe the revenue in the totality, I think we will be – I disclosed in my script that as $101 million of acquired revenue. I think we're expecting about $650 million of revenue for the full year, from them. It should fall relatively stable from this point forward.

And of course, you may I just add very quickly that as you get through the summer, you're ramping up for the next open enrollment period. So, we do a lot of hiring and training during that last quarter.

Thanks Frank, next question please.

Thank you. Our next question is a follow-up from the line of Richard Close with Canaccord Genuity. Please proceed with your question.

Yes, a couple of questions here. First, Rick, with respect to calling out the $0.05 contribution from share repurchases. With that in mind, why didn't you change your annual EPS guidance for the year?

The guidance that we gave is a pretty wide range $3.55 to $3.75. Yes, that should help me to have more confidence that I'll be toward, that I can make it within that range and that I should probably be towards the upper end of that range. But I don't think we felt like we had acquired enough shares and we would move it at this particular point. It's still only – we only finished one quarter. So, I think it was more prudent to stay at $3.55 to $3.75.

Okay. And then Bruce maybe on the Medicaid work requirements, being a single and a double here and there. I was wondering, if you could talk a little bit – have you guys won any new business actually for Medicaid work requirements and if so, where? And then of the states that have talked about work requirements where is their overlap with your existing business?

Let's see. I don't want to specifically name the states for competitive reasons that we're submitting proposals as you could only imagine. But I will say it, we have submitted pricing to one of our clients as an amendment to occurring contract, in order to support their Medicaid work requirement. Their program won't be implemented formally until January of 2020. So, you’d see the impact of that revenue in our FY 2020 numbers. We had submitted another proposal to a state, where we do a little bit of work currently. And I think that one is more hung up with the legislature, not yet providing funding for that work requirement that that they want. But they – this is an early stage market because we don't yet have any type of enhanced federal funding available to states and to effect system changes that are required or further BPO services that are required. So, states are kind of trying to bootstrap their way through this. And if anything, that's been the constraints to the breadth of services that we're able to offer. We have tremendous capabilities, but based on affordability, they may only want us to handle the consumer engagement piece. And actually, more specifically the consumer attestation requirements. So, yes, as you're probably familiar, most state that seek these waivers have a requirement to consumers report within a certain amount of time each month. And evidence the fact that they’ve been either engaged in work or looking for work. That might be in some case the limit of what they're able to afford for us to do. In others, it could go so far as to doing case management and performance based employment services contracting. So, the model is still shaking out. And in some instances, states might turn to their workforce squads to handle the employment piece they may, in fact, even turn to their managed care partners. Because it's not unheard of for them to say, well, I'm already paying you capitation to handle kind of all aspects of this consumer’s experience, this is yet another I need you to handle. However, we feel that the MCOs are particular ill equipped to handle employment services. Or they may turn to MAXIMUS to help them with that. But it really comes down to bit of a wild west right now. Lack of federal regulations, lack of clear federal funding and states trying to figure it out. So, a couple of proposals submitted, I've feeling optimistic that we'll see an uptick in our FY 2020 numbers in the U.S. health business as a consequence.

Okay. Thank you.

Yes.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session, and thus ends our call. Thank you for your participation. You may now disconnect your lines and have a wonderful day.