Welcome to the MAXIMUS Fiscal 2014 Fourth Quarter and Year-End Conference Call. (Operator Instructions). I would now like to turn the conference over to your host, Lisa Miles. Thank you. You may begin.

Good morning. Thank you for joining us on today's conference call. As a reminder, we've prepared a presentation to assist in your analysis of the company's 2014 financial results. You may find the presentation particularly useful in following along with Rich's prepared comments. This presentation can be found on our website under the Investor Relations page. With me today is Rich Montoni, Chief Executive Officer, Rick Nadeau, Chief Financial Officer and Bruce Caswell, President. Before we begin, I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions and actual events 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 and 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 that 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 reconciliation of non-GAAP measures presented in this document, please view the company's most recent quarterly earnings press release. With that, I'll turn the call over to Rick.

Thanks, Lisa. Fiscal 2014 was highlighted by strong growth built on solid execution. As a reminder, we entered Fiscal 2014 with an unprecedented number of startups. Not only did we deliver on these new programs, but we also offered increased support to clients during the first year of the Affordable Care Act or ACA. Clients continue to turn to MAXIMUS because of our proven ability to offer reliable solutions and scalability in order to meet programmatic objectives. As you know, this led to a great year for MAXIMUS. Some key highlights of Fiscal 2014 include unprecedented growth in our core markets and expansion into new adjacencies with important new wins both in the United States and the United Kingdom. Full year earnings toward the top end of our increased range and strong operating margins, even as we experienced an increase in cost reimbursable, lower margin work from certain new contracts. Let's get into the financial details, starting with the fourth quarter of Fiscal 2014 compared to last year, fourth quarter revenue increased 13% to $435.4 million driven by growth in the health services segment. Operating margin in the quarter was largely as expected at 11.9%. As a reminder, operating margins in the fourth quarter were impacted by program startup, including Fit for Work in the UK, the Department of Education contract and the new site reallocations in Australia. In addition, we had increased costs as we prepared for the rebid in Australia along with a contract change in the UK Work Programme that unfavorably impacted margin. Fiscal 2014 fourth quarter net income attributable to MAXIMUS totaled $36.2 million which computes to diluted earnings per share of $0.53. In the fourth quarter, MAXIMUS realized benefits that decreased the tax rate to 31.2%. This resulted from the reversal of a valuation allowance…

Good morning and thank you, Rick. MAXIMUS is coming off a great Fiscal 2014 and we're proud of our solid operational and financial results. We continue to make significant progress towards our long term strategic goals that are the underpinnings for consistent growth and creating shareholder value. These include growing our operations outside of the United States, expanding our U.S. Federal operations to serve new agencies and programs and continuing to grow our U.S. business. In my remarks today, I'll talk about how our achievements in the past continue to shape our expectations for the future. Over the past eight years, MAXIMUS has experienced a remarkable transformation. We've optimized our business, shed non-core business lines and launched a keenly focused growth platform that will benefit us for decades to come. One of the primary ways we grow our business is through our land and expand model. This includes new geographies, new adjacencies and new client agencies. Across our entire portfolio of contracts, we have pertinent examples of this successful strategy. We continue to demonstrate key strategic successes of special note over the past 18 months; successes include two new contracts in the United Kingdom, Fit for Work and health and disability assessments, the ongoing expansion in Australia where our top-rated performance has been critical to consistent expansion and the recently launched debt management contract with the U.S. Department of Education. So let's start today with our new work outside the U.S. where we see continued demand for our services driven principally by two factors. Reform efforts to address rising caseloads and improve the effectiveness of social benefit programs and a trend towards more outcomes based government programs. Our most recent contract award announcement was for the UK's health and disability assessment service under the Department of Work and Pensions which…

(Operator Instructions). Our first question comes from the line of Charlie Strauzer with CJS. Please proceed with your question.

Rich, if we could expand a little bit more on the pipeline. It's swelled significantly over the course of the year especially sequentially from last quarter and when you look at that $3.5 billion number and you look at the quote on that growth there, does that -- obviously includes some expectations like you said, from the new UK contract. Obviously that does not include -- no longer the Ireland contract, I think that was awarded to another party, is that correct?

That's correct, Charlie. On the Ireland contract, that was said and done by September 30th. The Department of Social Protection in Ireland did make a public announcement. They combined four of the regions in Ireland into two combined lots. MAXIMUS was not selected as a vendor for either combined lot. By the way, we were ranked highest from a technical score perspective, but price ended up being the deciding factor in the award.

Just a little bit more color if you can on the timing of the pipeline. You said RFPs will be let out in the next six months in that number. Just a general timeframe of when you think some of these awards could be made? Is it more the bulk in 2015 or slipping half and half into '15 and '16?

It really is across the board. I think the pipeline metrics -- and you’re right, we keep a short term look-see on it. We do not include items where we think it's going to take more than six months for the RFP to come out the door. So I think a lot of it is in fact, fiscal '15 new sales opportunities and it's across the board. Keep in mind; it also includes rebid situations as well. We have a couple of big rebids, we've mentioned Australia. We mentioned Texas which will be fiscal '15 event. There in that pipeline opportunity but I would also say that a lot of the pipeline is new work.

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

First one out, it was just on the bridge, if you could help me understand the revenue guidance because I just can't help it but feel like there was a healthy dose of conservatism in there or there's an element I'm missing. During the last earnings call, Management pointed to revenue growth of upwards of 10% plus. So the guidance now implies 15% at the midpoint, but it's only about mid-single digits when you exclude the UK health and disability award and partial Australia disability award. I know you obviously probability-weight your pipeline. It seems like we went for revenue growth of 10%ish plus to 5%, excluding those two announcements. Can you help me connect the dots there?

As I said on the call, at the beginning of the year we had 90% of our estimated revenue for 2015 sitting in the backlog and that meant that 10% was in that pipeline weighted. I think if you look at it, I wouldn't exclude the HDAS from that calculation. I think that is part of our organic growth. If you do put that HDAS contract into there, yes I think we're creeping up into the higher 90s. And so yes, I would feel like our revenue guidance is less risky than our earnings guidance on the other side. I’ve to caution you that we have a number of startups and in particular, that health and disability assessment services contract and I think that those startups are risky both from the timing of revenue and in the requirement that you have excellent execution on them. Yes, if you wanted to make an observation that our revenue guidance was less risky than our earnings guidance, I think I would agree with that, but I'll caution you that we do have to have excellent execution on the contract.

Dave, I would add it's great to have these new wins that put us into double-digit topline zone. We do have a nice slingshot impact into Fiscal 2016 from these two contracts as we mentioned on the call. But I think as part of any organization, you’ve some new work and we're very fortunate to have a lot of new work that we're winning. But, you also have some work that does roll off and you need to keep that in mind. As we go from 2014 to 2015, we do think there's some of the Affordable Care Act that's going to roll off. It goes in the other direction and you are right, we do take our sales pipeline and probability affected and that's what landed us in the guidance we have on the table today.

Okay. My follow-up is just on your strategy for delicately handling the UK health and disability award. Obviously it's been high profile in the news. You started to elaborate on this during your prepared remarks. What is it that you can do to mitigate the risk and what are some of the things that could go wrong either affect revenue, the penalties, the risk to earnings? Can you help just flesh those out on the downside that we would need be worried about?

I'm going to talk about, the first part of your question and Bruce Caswell is here as well. Bruce can talk about some of the penalties and the credits in the sense that it is a hybrid type contract, fundamentally cost plus. There are some adjustments to that. In terms of management, I just think that MAXIMUS has the right culture, the right history and the right attributes to do this type of work. It is one where it's received a lot of attention in the past. It is an area that impacts a lot of individuals. So we will take over the workforce from the current provider and we're going to work very hard to provide the best people that we have across all of MAXIMUS. We've already started that with the mobilization phase. We're going to work very hard to drive our culture and our values into this program and we'll be open about it. It's going to take a long time to make improvements and we're going to be receptive to suggestions, in terms of how you improve the process. Bruce?

Dave, some other factors you had asked, what are some of the key elements of the ramp up of the program? The biggest one is really the conversion of the existing staff over from Atos as the incumbent provider as we ramp up to the March launch. And then the hiring of additional staff, so that we can hit the peak requirement for healthcare professionals and related staff to meet the volume targets and objectives for the first year of the program. As you probably read, there is a meaningful backlog that we're seeking to reduce and I think we said presently in the press release that it could take about 18 months to reduce that backlog. The key driver is really the staffing plan and the conversion over from the prior contractor in terms of staff and facilities.

(Operator Instructions). And our next question comes from the line of Richard Close with Avondale Partners. Please proceed with your question.

Just really quick, I would like to hit on the onetime UK contract change, if you can go into that a little bit and then as a follow-up, the JSA startup losses that you discussed. If you potentially rewin that business, can you go through that?

On the first item you ask about is that UK, it's the work program contract. There was an amendment to the contract that affected all of the participants in the contract and it really related to technically how we were doing a calculation and the whole industry, was doing a calculation inside the contract. So what you have is the amendment caused us to have an adjustment to the cumulative profit. It has a high-weighted effect on that particular quarter.

Can you quantify that?

We don't quantify on individual contracts, but that would be a onetime adjustment to that profit. So we would think that we would go back to a normal profit level run on that contract on a going forward basis. The JSA contract -- the new contract is expected to start on July 1. As Rich said, that's not a winner take all type of arrangement. The new contract does have a feature in it where payments that we get are spread out over a longer period of time. So we will actually have some reduced cash flow in the early parts of the contract and the way we have to account for that, that will actually hurt our income statement in the fourth quarter. We have assumed a level area of our market share there. Obviously if we win more, then that will impact you proportionately or if we win less.

Thank you. And our next question comes from the line of Brian Kinstlinger with Maxim. Please proceed with your question.

You mentioned 90% of your revenue guidance in backlog or some form of. Is that the lower midpoint? Is that based on the quarter end backlog? Or the backlog you sit with today that includes your health and disability contract?

That was the year-end and so it did not include the health and disability assessment services contract that we won in October. It goes to the midpoint.

Okay. And then the follow-up that I've got is, the Human Services segment has really stalled, it seems like on the topline over the past four to six quarters for a variety of reasons. Are you expecting single-digit growth and maybe mid-single digit growth in 2015? In the past you said there is plenty of opportunity within that segment. I'm wondering if something changed in that market competitively? Is pricing the main culprit? Maybe go through what the pipeline looks for, the welfare to work type programs.

I think you've got a number of questions in that one question. So Health and Human Services has been at the lower end of the 10% to 50% targeted range for the portfolio. You will note that in the fourth quarter of this year it was 7.9% which is even below that 10% lower end. By the way, Rick talked about in his call notes the driver to that being that work program -- that was just discussed -- so some good news, new work, new sites in Australia which is new work, also we had some work pushed to the right. When you normalize that 7.9% for all of those three items to give you some quantification, Human Services would have been north of 10%, operating income. So we don't see the 7.9% as being a recurring operating income for Human Services. It's had some wins. It's done well, more notably internationally than U.S. domestic. I just think in the U.S., all eyes have been on the Affordable Care Act in healthcare. We shall see as we move forward. There are some early indications that some of the human services related programs we get more attention and may generate additional opportunities as we move down the road.

(Operator Instructions). Our next question comes from the line of Carl McDonald with Citigroup. Please proceed with your question.

So first question was on the JSA contract in Australia. What is your market share, now with the 18 sites? Basically, what I'm trying to get to is relative to your -- call it $700 million contract value, what is the total contract value in Australia?

Yes it's about 12.5%.

Now that the RFP has been released, anything in the RFP other than that fourth quarter issue you mentioned that changes your view of where the margin on that JSA contract will end up relative to what you've generated the last few years?

Not really. I think it'll have more variability than fixed pricing, but I think the margins we expect would be similar to where we're performing today.

If you could just remind us on the Texas eligibility support contract. I believe you've had that since the late 1990s. Just some general color on how long you've had that contract. How many rebids you've gone through over that period of time?

Bruce Caswell is with us here, and it ultimately reports to Bruce. I think we've won one rebid at least with that situation.

That's right, exactly. And we've held that contract since probably 2005 time range. I want to make the distinction that there are really three pieces of work we've historically done in Texas, the eligibility support services, the CHIP program operations and the Medicaid managed care enrollment broker work. This relating to eligibility support was from that 2005, 2006 timeframe and has been won once before.

Thank you. And our next question comes from the line of Richard Close with Avondale Partners. Please go ahead with your question.

So just a follow-up to make sure I understand the disability assessment contract and where it sits in your pipeline. If you can go over that, I know you had some bullets on your presentation. I think you said you had $150 million cap and walk us through those caps and when we get an 8-K or some sort of formal statement, on the total value of the contract at that point does it go in at a greater rate?

We do in our sales pipeline; we put a cap on what we refer to as new work. The reason we do that is because with new work, new contracts, it's very, very judgmental in terms of the amount of the ultimate contract. We may expect that government X is going to come out with a bid in six months and we think it may be a five-year contract and a run-rate of X. Ultimately; it ends up being a one-year contract and a run-rate of Y. So that we basically button up and firm up the credibility in the pipeline, we'll put a cap on such things. For existing work, we will put it in our existing run-rate. So rebid type situations like Australia like Texas we'll put that in the sales pipeline, generally at the current run-rate or if we've got some known increases we will put it in. Well often times it in fact does at September 30 exceed the $150 million amount cap that we otherwise put on new work. As it relates to HDAS we did have that in our sales pipeline. I believe we had it recorded as proposals pending at $150 million. Obviously, since we have won that at a much higher amount, we will report that as a sale not a sales pipeline, but as a win at the actual amount which is much greater than $150 million.

Okay. I guess a final question for me. You've had an incredible amount of success here on disability and assessment recently. I wonder if you could talk about the overall pipeline, how you see that breaking out in various products. Is there more disability in the assessment business to be won out there? How do you feel about that?

You know what, I'm not going to slice and dice the sales pipeline. I'll say this. I do think -- and this fits into something that we have said for a very, very long time, it really is a strategic underpinning and we do think that governments are pressured with more individuals and unfortunately more of them looking to their government either for financial help or health assistance or a combination of all of the above and oftentimes job assistance. Those pressures are really compelling governments to do a couple of things. They are looking to firms like MAXIMUS to bring world class capabilities to the table. They are also having to perform more assessments and there's more appeals that go along with that. So whether it's the United Kingdom or here in the U.S., you’ve similar pressures in the Veterans Administration, the Social Security Administration and I could go on and on. It even occurs in a state-by-state basis. I view all of this as confirming data points to that longer term strategy.

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

First, just wanted to start with -- can you give us a sense of how you are thinking about the exchange activity this year, in terms of some of your assumptions? Obviously we have seen some of the new enrollment projections but also I noticed New York, one of your clients was increasing their call center capacity. Just trying to understand some of the dynamics, sort of the baseline you're thinking going into the year.

You’re right, first of all, you have to keep in mind that this enrollment period is half the length of the prior one. It's a three month enrollment period versus a six-month enrollment period. So it's not uncommon across-the-board to see some clients increasing their call center staffing as we get into it. California similarly, has announced they're going to do that and there was an article in the New York Times yesterday that spoke to other states doing that. I would say there are puts and takes across the entire system that we've baked into our guidance. Staffing is one element and ultimately the call volumes that we're going to see are really a function of a number of factors. This is the first year when we're going to have renewals coming into the system. I think HHS' most recent number was somewhere in the range of $5.9 million. We're going to have folks that will be receiving in January, these tax forms related to their advanced premium tax credits and calling the customer contact centers to address with that questions related to that. We'll have new enrollees coming into the system and that's an interesting one because some statistics that I read recently would suggest that the majority of the remaining uninsured are actually unaware that open enrollment is beginning later this week. So the amount of money that the states and other entities will put into outreach is going to be a key determinant of call volumes as well. As we look at it across the board, it's really difficult to predict what the ultimate impact is going to be and we've tried to staff up following guidance from our clients accordingly and be prepared to see how it plays out.

Lastly a follow-up to Richard's question around health, obviously, you've had a ton of success in the UK. I don't know how much more room there is to run in the UK. When you look at other countries with significant opportunities like you've had in the UK, whether it's Australia -- can you just talk about maybe what you think are some ideal countries or new markets to enter on that side?

I'm not going to mention any specific countries for competitive reasons. My overall observation in handicapping how this all happens is that once a country decides to move aggressively towards partnerships like this and certainly the United Kingdom and Australia have headed in that direction and we are starting to see an increasing propensity to outsource as we refer to it, even here in the U.S. And then, I think it opens up the door for a significant amount of new work. We do as a matter of course, pulse other countries and I do think that there is a long term trend out there and as I've always said it's difficult to handicap which particular country at what point in time is likely to move from a low propensity to outsource to an increased propensity to outsource. I think it's likely we'll see additional countries as we move forward but I'm going to decline the opportunity to mention which ones.

Thank you. And our final question comes from the line of Brian Kinstlinger with Maxim. Please proceed with your question.

As it relates to health and disability, is there any reason to assume the average monthly revenue is not a proxy for future revenues? I guess what I'm asking is there any work that you are doing that won't repeat? Or is there any work that you're not doing yet and as you get more efficient you will be able to increase your volumes?

I think I said in my prepared comments that the mobilization of those payments we got for that gets spread over the entirety of the contract. Revenue that we quoted in there is really seven months' revenue, March 1, 2015 through September 30, 2015, that contract is in a ramp period during that and I would think that you would expect to see the full year Fiscal 2016 revenue be greater than 12 divided by 7 times the number that you see there. It will be a greater number in Fiscal 2016.

I want to make it clear we did provide some estimates as it relates to the estimated slingshot impact of the three contracts which includes the HDAS. I think we baked that element into it.

We haven't talked about Medicaid expansion in a while. I guess I'm wondering if the states that have elected to expand Medicaid where you're the enrollment broker, I'm curious under this first year that you’ve under your belt, how much of the incremental potential volume have you captured, do you think?

It's important to remember that we're actually not the determiner of eligibility for these state Medicaid programs. When we get new enrollments, we don't know whether that's somebody who's previously ineligible coming into the system like a woodwork effect person versus a Medicaid expansion effect person, it's difficult to break that out. I'll say that I think if you look at some of the Kaiser data, Medicaid rolls have grown through expansion nationally by about 8.3%. You can make some assumptions in there. Also I might also mention that -- I think you probably read this as well. The effect of the midterm elections on Medicaid expansion is probably not substantial, in that any incumbent Republican governors, who are against expansion previously, generally won office again. While there were two states that had committed to expansion and had Democratic governors and those have flipped to Republican governors. Our understanding is that both of them are going to continue with their expansion plans.

I think that concludes our call today. So thank you very much for joining us. We appreciate your ongoing support.

Thank you for joining us today. This concludes today's call. You may now disconnect your lines.