Richard Montoni - Chief Executive Officer Bruce Caswell - President Rick Nadeau - Chief Financial Officer Lisa Miles - Senior Vice President, Investor Relations

Tom Carroll - Stifel Richard Close - Canaccord Genuity Brian Kinstlinger - Maxim Group Charlie Strauzer - CJS Securities Frank Sparacino - First Analysis Shane Svenpladsen - Avondale Partners Allen Klee - Sidoti

Greetings and welcome to the Maximus Fiscal 2017 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. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. 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 thanks for joining us. With me today is Rich Montoni, Chief Executive Officer; Bruce Caswell, President; and Rick Nadeau, Chief Financial Officer. 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 the 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 these documents, please see the company’s most recent quarterly earnings press release. With that, I’ll hand the call over to Rick.

Thanks, Lisa. This morning, Maximus reported financial results for the first quarter of fiscal year 2017. As noted in the press release, results for the quarter were solid and with some areas delivering better than expected performance. For the first quarter of fiscal year 2017, total company revenue grew 9% to $607.6 million compared to the same period last year. Most of the growth in the quarter was organic. This was offset by unfavorable effects of foreign currency translation. On a constant currency basis, total company revenue would have grown 12% compared to the same period last year. Total company operating margin for the first quarter of fiscal year 2017 was solid at 12.1%. For the first quarter of fiscal year, 2017, net income attributable to Maximus was $46.7 million, and GAAP diluted earnings per share totaled $0.71. GAAP EPS was better than expected. Much of the over-delivery was tied to solid performance across the portfolio, most notably the U.S. federal services segment was better by approximately $0.04 per share. In addition, restructuring costs in the U.K. were less than previously forecasted, and as a result we picked up an additional $0.02 per share. When comparing to the prior year period, it is important to remember that results in the health segment were negatively impacted by the timing of a change order that was pushed into the second quarter of last year. As a reminder, we recognized the costs in the first quarter but did not record the associated revenue of approximately $8.6 million and earnings of approximately $0.08 per share until the change order was signed in the second quarter of fiscal year 2016. As mentioned in this morning’s press release, we reaffirmed our EPS guidance for fiscal year 2017 of $2.90 to $3.10. We reaffirmed our cash flow guidance and we updated our fiscal year 2017 revenue guidance to range between $2.425 billion and $2.475 billion. The main driver to our lower revenue outlook is a recently cancelled contract in the U.S. federal services segment where we are a subcontractor. I will provide additional guidance details later in my remarks. Now I will speak to segment results starting with health services. First quarter revenue for the health services segment increased 17% compared to the same period last year. Most of the growth in the health services segment was organic. This was primarily due to the expansion on existing contracts, including our increased scope of work in New York State. The decrease in the value of the British pound tempered top line growth. On a constant currency basis, growth would have been 21%. As expected, the health services segment operating margin for the first quarter of fiscal year 2017 increased to 14.7% compared to 9.2% reported for the same period last year. The margin expansion is attributable to two main factors: first, margins were tempered in the same period last year due to the aforementioned delayed contract amendment; second, we realized forecasted improvements from programs that were ramping up in the last fiscal year, including the U.K. Health Assessment Advisory Service contract. We are pleased that the HAAS contract continues to make solid progress and is still on track to deliver operating margins in our targeted range. We have made significant process improvements, improved stakeholder relations, and are pleased that our customer satisfaction now stands at 93%. I will now address the U.S. federal services segment. First quarter revenue for the federal segment decreased 3% compared to the prior year. As we discussed last quarter, the lower revenue was largely driven by significantly lower volumes on a large healthcare contract. This work is for the Department of Veterans Affairs and Maximus is a subcontractor on that contract. As noted in this morning’s press release, we were recently notified that the contract is being cancelled due to insufficient volumes, and it will now end in April 2017. As I said, this is the main driver to our revised revenue guidance for fiscal year 2017. On the bottom line, U.S. federal services segment was better than expected in the first quarter by approximately $0.04 of diluted earnings per share. This was due to better than projected volumes on a couple of transaction-based contracts, and to a lesser extent we also realized some savings that were tied to automation initiatives. As a result, operating margin for the first quarter of fiscal year 2017 was 12.7% compared to 7.4% reported for the same period last year. I will now turn to the financial results for the human services segment. For the first quarter, revenue increased 5% compared to last year. Most of the growth in the quarter was organic. This was driven by increased revenue from our Australian operations, which offset expected decreases in the United Kingdom as the work program contract begins to wind down. As expected, unfavorable currency rates negatively affected top line growth. On a constant currency basis, growth would have been 7%. Human services segment operating margin in the first quarter of fiscal year 2017 was 9.4% compared to 7.6% reported for the same period last year. The operating margin improvement was principally due to the expected improvement in the Australia Job Active contract that is now fully ramped. It is important to note that segment operating margin excludes the $2.2 million restructuring charge in the U.K. As a reminder, the restructuring is related to the ongoing consolidation and integration of our human services operations in the United Kingdom. We believe it is more useful for investors to see a separate line on the face of the financial statements rather that including it as a part of the SG&A line within the segment results. I will now briefly discuss cash flow and balance sheet items. In the first quarter, Maximum delivered strong cash flows with cash flow from operations of $71.1 million and free cash flow of $63.4 million. Days sales outstanding were in line with our expectations and totaled 70 days at December 31. During the three months ended December 31, we used cash of approximately $15 million to pay down our long-term debt, and ended the quarter with a remaining long-term debt obligation of $150.5 million. We also repurchased approximately 559,000 shares of Maximus common stock for $28.8 million. The weighted average price was $51.68 per share. We presently have an estimated $109 million remaining under the board-authorized program. We continue to maintain a healthy balance sheet that offers us flexibility for capital deployment and investments. At December 31, we had cash and cash equivalents totaling $69.8 million, most of which was held outside the United States. Our capital allocation priorities remain unchanged. First, we will pursue selected acquisitions in an effort to enhance our position for new market opportunities. Second, we will continue with our quarterly cash dividend and will execute our opportunistic share buyback program. Lastly, we will continue to use excess cash to pay down the debt. Above all, we remain committed to sensible and practical uses of cash as we aim to create long-term shareholder value. Lastly, I will close my prepared remarks with guidance. We note that our first quarter performance was strong with constant currency revenue growth of 12% and an operating income margin of 12.1%. While we are maintaining our full-year earnings guidance and still expect GAAP diluted earnings per share to range between $2.90 and $3.10, we are lowering our revenue range. A revised range of $2.425 billion to $2.475 billion is principally due to the aforementioned contract cancellation in the U.S. federal services segment. While we already forecasted lower volumes on this contract, the cancellation now means that revenue in fiscal 2017 compared to last year will be $65 million to $70 million lower. However, it is important to note that we operate a portfolio of contracts and there were other puts and takes in the model that contributed to this decision, including currency impacts and a rebid loss. Unfavorable foreign currency is now expected to further impact us another $10 million or $20 million on the full year, if you include what we said on our last call. We were recently notified that we lost our Medicare Part A East appeals work, which will also impact the revenue for the year by $10 million. Our technical solutions scored high, our prior performance on this contract had been graded as excellent, and we recently won back the western region for Medicare Part A appeals last quarter. Accordingly, we felt we had a very strong position going into the Part A East rebid, but we lost to what we view as an overly aggressive price. We are also maintaining our cash flow guidance but with a bias towards the top end of the range. We still expect cash flow from operations to be in the range of $230 million to $280 million, and free cash flow to range between $170 million and $220 million for fiscal year 2017. You may recall that the company is adopting a new accounting standard for stock compensation in fiscal year 2017. The standard requires companies to record the income tax benefit or expense as a reduction to the income tax provision as a result of the exercising of stock options or vesting of restricted stock units. With the retirement of two of our directors effective January 1, 2017, we will recognize a benefit tied to the new accounting standard in the second quarter of fiscal year 2017. As a result, we are estimating that our effective income tax rate in the second quarter of fiscal year 2017 will be approximately 34%. For the full year, our tax rate estimate is unchanged, and we still expect it to range between 36% and 37% with a bias towards 36%. Thanks for your continued interest, and now I will turn the call over to Rich.

Thank you, Rick, and good morning everyone. Overall, we are pleased with the solid results in the quarter and our full-year outlook for earnings for share despite certain setbacks that led us to trim our revenue outlook for the remainder of the year. With $4 billion of opportunities in our reported pipeline, we see continuing demand for our services and are keenly focused on capturing new organic growth while protecting our base business. Most importantly, the long-term macroeconomic drivers are rising caseloads and increasing demand for effective government programs remain unchanged. Common themes have emerged across all of our markets as governments tackle changing demographics, decentralization initiatives, and the need to get value for government spend. First, as demographics shift, the fundamental need for a wide range of government program administration, including critical solution services, has not changed. People are living longer and have more complex healthcare needs. Many face financial hardships and other barriers that require a combination of social safety net programs and welfare to work. At the same time, we are seeing in some markets an increased focus on citizen responsibility and engagement as a condition of receiving benefits. Government programs that focus on measurable outcomes can cost effectively address this need. Second, we are seeing a shift towards the decentralization of some public programs. We see this in the U.S. with a proposal of block grant funding for Medicaid and the potential removal of certain federal mandates. We also see it in the United Kingdom with the devolution of procurement program management to local authorities. This potential change to funding and governance mechanics enhances the overall flexibility that state and local authorities can use to shape their benefit programs. Third, outsourcing and public-private partnerships continue to serve as a vehicle for cost-effective solutions. Governments must ensure programs that address the silo needs are a good use of taxpayer dollars and achieve their intended outcomes. By laying out the performance expectations, rewarding the partners who deliver, governments and citizens benefit from this increased accountability. We believe this environment particularly favors companies like Maximus, who can deliver highly complex government programs in a transparent and independent fashion. Moving on to our U.S. operations, we are just starting to see how these macro drivers intersect with the priorities of the new presidential administration, demographics in the U.S. and increased demand for public benefit programs. Governments at all levels are looking for solutions across a range of social programs: Medicaid, Medicare, long-term care programs, Social Security, welfare to work, nutrition assistance programs, and more. Transition periods are often the right to propose new ideas that can help governments at all levels achieve their goals. In many of the President’s proposed directions, we are seeing common areas where Maximus provides value, such as: creating efficiencies to manage the cost of government services, increasing accountability to demonstrate the programs are achieving their desired outcomes, promoting individual responsibility such as co-pays and work requirements of beneficiaries of health and human services programs, and ensuring the integrity of public programs by better addressing fraud, waste and abuse. While it is still very early in the transition, we anticipate that some of these priorities will become legislation and regulations and will then be translated into actions at the program level. Front and center is the Affordable Care Act, where the discussion has moved from repeal to repeal and repair. Congressional leadership has said they are committed to not pull the rug out from citizens who are being covered by ACA today, but they have not yet come to consensus on a tactical plan. For Medicaid, flexibility appears to be the common denominator. The new administration reiterated its support for block grants in January and state leaders are calling for things such as reciprocity on waivers where states can leverage the preapproved waiver of another state, less proscriptive regulation so states can better shape their own programs based on their demographics and values, and an adequate level of federal funding to achieve their desired outcomes. It is important to note that these will take time, particularly if legislative changes are required or there are changes to funding mechanisms. Depending on the pace of change, this may impact our growth over the short term, but this doesn’t change the long-term underpinnings of the macro demand trends that remain favorable. Turning now to our operations outside the U.S., where we have seen some movement in the disability services market as governments seek to improve ways for engaging and serving these populations. We recently launched a handful of small but strategic employment program contracts in the United Kingdom where we will be serving people with disabilities and the long-term unemployed. On the health side of our U.K. business, we recently won a contract to deliver mental health and wellbeing support to the Ministry of Defense Joint Forces Command. While the contract is small, it does expand our presence into a new department. Under the three-year contract, our health management subsidiary will deliver an online-based solution providing a variety of services to Joint Forces Command personnel. These services include wellbeing advice and guidance, clinically validated mental health support, and interactive tools that enable employees to monitor their own health and wellbeing. We also continue to pursue the available opportunities for the new U.K. Work and Health program. We are working hard on our pursuit for new work in Wales, London, and Manchester. Moving on to new awards, pipeline and rebids, our signed contracts for the first quarter of fiscal 2017 totaled $462 million. We also had an additional $150 million in awarded unsigned contracts at December 31, 2016. Our pipeline of opportunities at December 31, 2016 was $4 billion, sequentially down from the $4.3 billion last quarter. This decline was due in part to contracts converting to new awards and, as happens in the normal course, a handful of losses. We’ve also experienced some procurement delays. During the quarter, we had several opportunities delayed that in aggregate totaled approximately $250 million. This means that the $250 million has fallen out of our reported pipeline numbers because they no longer meet the six-month parameter of our reported pipeline; however, we expect that most of these opportunities will come back into our pipeline over the next 12 months. Delays are quite normal during any transition. Of the $4 billion pipeline, just under 60% is new work and reflects opportunities across all three segments and our current geographies. Bear in mind that the conversion of sales pipeline into future revenue growth will ultimately depend upon win rates, the timing of awards, how they ramp up, and the rate of recurring revenue. In summary, we are in a very dynamic environment with emerging political and economic changes. We firmly believe that the challenges that arise during periods of change often mean future opportunities for Maximus. The macro trends for our business remain favorable and we remain positive about our long-term outlook. We believe Maximus will continue to play a key role in helping governments around the world address changing demographics and rising caseloads with more effective and efficient programs that make the best use of taxpayer spend. With that, we’ll now move on to Q&A. Operator?

Before we begin the Q&A session, I’ve been informed by management that they have a clarification.

We have an incorrect number in our materials. In today’s presentation and in my prepared remarks, we said that the foreign currency was an incremental $10 million unfavorable impact. While the incremental impact of $10 million is correct, the number of $20 million for the full year is not correct. For the full year, the unfavorable foreign currency impact is expected to be $60 million, not $20 million. We will update the materials when we file our materials in the 8-K with the Securities and Exchange Commission next week. We will now begin the Q&A session. Operator?

Good morning everybody. Yes, so I have a point of clarification, a question on seasonality. First, the tax item that you called out in today’s release, I’m pretty sure that was already captured in your guidance, but I think we had modeled it for fourth quarter. Could you confirm this, especially in light of guidance that didn’t change or go up commensurate with the tax benefit?

We will do that, Tom, and good morning to you. This is Rich. I’m going to ask Rick Nadeau to field that one.

Hello Tom. Yes, what we were referring to is we had two directors that retired, and in the second quarter of fiscal year 2017, the quarter that began January 1, 2017, their restricted stock units that they had deferred became vested, so we did pick up approximately $0.03 that will be recorded in the second quarter. So if you use an effective rate of 34% for the second quarter, I think that will give you want you that period. We are indicating that we think the effective tax rate, income tax rate for the full year will still be between 36 and 37%. It will be closer to 36% - that’s why I said with a bias toward the lower end. So that $0.03 was really incremental.

Okay, and this was captured in the initial guidance that you provided to us?

Not the guidance from last quarter, but it is in the guidance today.

Okay, and then I have a question on seasonality. Your first quarter margins, I think are seasonally the lowest and they expand sequentially through the year after that. Has anything changed with that this year? Your margins are pretty strong this quarter, so would you expect them to grow from here into the subsequent quarters?

Yes Tom, I think if you look at the history, we do have that--the margins do tend to get a little better as we go through our fiscal year, so I wouldn’t think that that’s going to be overly dramatic, but yes, that has been the general pattern that we have seen over the years.

Thanks, Tom. Next question, please?

Our next question comes from Richard Close of Canaccord Genuity. Please proceed with your question.

Yes, just wanted to hit on the current environment. Rich, you talk about seeing an increase in personal responsibility for benefits, I think copayments around there, and shift towards decentralized programs. You also made a comment in terms of the pace of change may impact growth over the short term. Really, just trying to flush that out here for the domestic market, whether you think you’re going to see more opportunities over the course of the next one or two years, or is that more offset in terms of program changes that may negatively impacted your business?

Richard, I think those are great questions, and I think in all fairness to the situation, not just Maximus but I think almost every company that’s doing business here in the U.S. recognizes that with the new administration and their sense of urgency and initiatives, there remains a number of questions and things to be determined. That being said, what we are seeing and what we are pulsing is we’re hearing a lot of common themes or common areas where we believe Maximus provides some pretty significant value. You touched upon a few of them. In my mind, we’re hearing things such as we need to move forward and create efficiencies to better manage the cost of government services. We need to increase accountability to demonstrate the programs are achieving their desired outcomes, and you know for years we’ve encouraged governments to go towards outcomes-based relationships. We’re also hearing - and you mentioned these - promotion of individual responsibility, such as copays and work requirements for the beneficiaries of health and human services programs, and lastly I’d mention there’s serious discussion about the integrity of public programs by better addressing fraud, waste and abuse. So while it’s very early in the transition, we do in fact anticipate that some of these priorities will become legislation and regulation, and that eventually they will be translated into program-level actions and requirements, and I think Maximus is very, very well positioned in that context. So I think it means that while the new administration is finding their way and moving forward there will be a short-term pause, but I would expect that very soon--in the short term, we will start to see these things translate into opportunities.

Okay. As a follow-up on that, with respect to the pipeline, have you seen any new services in terms of maybe new agencies that you potentially contract, any type of new initiatives that maybe were not there a year ago that offer up an opportunity?

I don’t think new agencies--I’m not aware of new agencies per se that we would pursue. It’s the typical agencies with whom we operate and we relate, so I expect it will be the same agencies; however, I think the way it will play out is we’re starting to hear specific initiatives as they move forward, and they’re not solidified yet, but I’d go back to my original answer, where we expect that those ideas will translate into action and program requirements. Bruce, would you agree with that? Bruce Caswell is here, and Bruce also operates in this space.

I would absolutely agree. I think we’re--for competitive reasons, we shouldn’t name specific opportunities in specific agencies, but we are starting to see interest expressed by those agencies for information from the vendor community to support plans and programs that were part of the general policies articulated by the administration as they were on the campaign trail and now as they’ve entered office. So we’re starting to see those interests begin to be expressed in the form of procurement activity.

Richard, thanks for the question. Next question, please?

Our next question comes from Brian Kinstlinger of Maxim Group. Please proceed with your question.

Great, thank you. So in terms of federal, maybe Rich, can you talk about the pipeline and growth opportunity outside; and then outside of the contract cancellation, maybe how you see the progress versus where you thought you would be in your positioning pipeline and growth after acquiring Acentia? I know it was going to be a long-term game, not a short-term game.

I’d be glad to do that, Brian. Good question. It’s been, I think, two years since we acquired Acentia, and when we acquired Acentia, we knew that it would take time to gain traction with new opportunities resulting from that acquisition. At this point in time, I would say it may take a little bit--it make take more time than we originally expected, particularly given the impacts of the new administration. However, we do have our business teams fully integrated, they’re actively pursuing many new opportunities, so I would classify that as we’ve really got good traction where we need it. Our federal pipeline is in fact strong. We have new BPO business opportunities where we can leverage the Maximus core capabilities with the Acentia delivered strategic IT services opportunities, and most importantly, we’re using Acentia quals to strengthen our bids. We are finding that technology continues to play a very important role in our solutions, and Acentia’s strong suit is technology, so I find it very comforting when we go to market with a BPO bid that we’ve got a strong element of IT capability that’s brought to the table by Acentia. So I think we’re still on target, it may take a little more time, Brian.

And then a follow-up I have, and then I’ll get back in the queue, related - can you talk about the profitability of that VA contract? I may have missed it, if you did say that, and is that loss the offsetting factor of your tax benefit?

Glad to answer that, and Rick Nadeau is anxious to do that.

Yes, hi Brian. That contract was in the normal range that we have of 10 to 15%, which started a little slower in the first year, but it was in that normal 10 to 15% range.

Next question, please?

I think Brian, you had a second part of that question. I’m not sure I followed it. Could you ask me that again? He’s gone? Okay, sorry.

Next question, please?

Our next question comes from Charlie Strauzer with CJS Securities. Please proceed with your question.

Hi, good morning. Just picking up on Richard and Brian’s discussion with you about the pipeline, and given how President Trump has basically been acting with swift urgency in terms of putting out new mandates, have you seen--I know you’ve said there’s some delays in the pipeline for about $250 million, but have you seen a pick-up in pace in terms of the urgency from some of the agencies you’re talking to, and have you had conversations with the administration as well in terms of potential opportunities down the road?

Well, there’s two answers--you’ve got two questions in there, Charlie - have we seen any specific actions by these agencies, and then two, what are we pulsing out there with the agencies with whom we deal? I would say as it relates to the first part of your question, no, we really haven’t seen any specific impact or action at the program level for the programs that we operate, so nothing to the extent of the executive order, any immediate impact it had as it relates to the seven countries where there is immigration action. We haven’t seen anything such as that. As you would expect, we have a very active program to interface with the new administration, all the way up to the secretary level, and we’re very engaged, I think we’ve got a very good pulse in terms of what’s being discussed and where we’re headed. I’m going to ask Bruce to chime in here and share with you a little bit more color in terms of what we see happening in that space. Bruce?

I think that’s right. I think we are finding, obviously, that a number of the cabinet secretaries still need to be confirmed and go through that process. In fact, with Tom Price kind of next up at HHS, there’s been some speculation that we’ll get a bit more clarity on the Trump administration’s plans for ACA repeal-replace once Secretary Price is in place. So I think part of it is just gated by getting those executives in place and their deputy secretaries and assistant secretaries and the programmatic staff before we’ll start to get a bit more clarity. You know, I think it was Tennessee Senator Bob Corker who said just in the last couple of days as it relates to the Affordable Care Act, there is really no consensus from my vantage point, there is not a consolidation around a particular thought yet. So you know there’s a lot yet to be determined and we’re monitoring it closely and staying engaged, and on occasion we may see things that are in early stages, like a request for information to industry, but nothing, as I said previously, in the form of formal procurements that reflect the implementation of the policy at this point.

Thank you very much.

Thanks Charlie. Next question, please?

Our next question comes from Frank Sparacino of First Analysis. Please proceed with your question.

Hi guys. I know we’ve kind of talked around this, but I just want to go back to the pipeline and I guess more on sort of visibility, given the transition that’s going on. How do you get confidence in your ability this year to convert some of these contracts?

Frank, this is Rich. I think that’s a great question. When we think about [indiscernible] and we think about the pipeline, it’s related but the pipeline discussion is shorter term in nature, and I’m going to talk about the longer term thought process we have as it relates to growth. I think this is most apropos for Maximus’ model, and when we think about long-term growth, we’ve always said that there will be years where we have super growth and we’ll have years where there is less than average growth. In recent years, as you know, we’ve had very, very favorable legislation, reform efforts, new programs in the U.S. and other countries which in the long term, it’s really--those are short-term variables that tend to fluctuate year to year, and I think that’s sort of where we are, and I’m going to come back to that as it relates to pipeline. But when we consider long-term growth, we go back to the long-term growth drivers, and you know them well - it’s the demographics and the intersection with government fiscal situations. We think those are inevitable, irreplaceable drivers that are going to be here for a very, very long time. How it plays out in the pipeline, which is a shorter term look at things, when we look at the pipe, we look at the aggregate amount of the pipe, and $4.3 billion going to $4 billion sequentially, while it’s down, we do have some wins that naturally that’s a good reason why pipeline goes down. We did have some losses, and losses occur in the normal course, and I do think we had roughly $250 million of impacts where things went out of the pipeline, moved to the right. I expect that they will come back. So I think the pipeline is steady state for the most part. Naturally, management will continue to refresh the pipeline with best efforts. I think ultimately how much of that translates into revenue depends upon four things: it depends upon our win rate, it depends upon the timing of awards and naturally how they ramp, and in addition the rate of recurring revenue. If we’ve got some revenue that is not recurring, such as this VA contract, it has a bit of an impact into how much of the pipeline translates into organic growth. So when I think about it, I think the pipeline is at a good level. I think it positions us to do well as we move forward. It’s not a foregone conclusion, because we do have to focus on winning our fair share and then ramping those projects up. I hope you find that helpful, Frank.

Thanks Frank. Next question?

Our next question comes from Shane Svenpladsen of Avondale Partners. Please proceed with your question.

Good morning. It looks like there’s been a handful of preadmission screening and resident review bids out lately, and just curious as to how your Ascend business is doing there. Any updates on new wins since acquiring that business?

Well, I’m going to ask Bruce to answer that in a minute, but I would say that the dynamics we see in that space, I see as a subset of appeals and assessments, and we’ve been, I think, a major player for close to a decade in that space. I think our independence is insurmountable and is very, very formidable, and I think the PASRR space is very exciting in general in terms of short-term dynamics. Bruce, anything you’d like to add to that?

Sure. Shane, good morning, thanks for the question. I would say, first of all, we agree with you - yes, there’s been a number of good PASRR opportunities out in the market, and we were very pleased that the Ascend business won their single largest customer, the Tennessee customer, won that rebid, and in winning that rebid expanded the types of reviews they’re doing from Level 1 to also include Level 2. So what we’re pleased to see is there is also, as these bids come out, additional assessment programs being added to make these contracts much more comprehensive, and that plays to an organization like Maximus with Ascend as our partner, that can handle larger, more complicated multi-program assessments. So we’re really pleased with the performance to date, and we’re very pleased with what we’re seeing in the pipeline.

That’s good to hear. Then just as a follow-up, with respect to the umbrella agreement under which the Work and Health program is being bid, it appeared that both Maximus and the Remploy subsidiary put in bids in each of the six regions, but Maximus didn’t win any and Remploy only won one. Is there anything that’s changed there in terms of either what the government is looking for or competitive bidding behaviors on the part of your competitors kind of explains that?

I think that’s a great question, Shane. We’re going to ask Bruce to field that one.

Sure, Shane. As it relates to the Work and Health program, you’re correct. You know, an interesting point that came out, I think it was in an article written by The Guardian, was that the past performance component as it weighed into the evaluation was only 4.8%, so that really opened up the market for vendors that had not been previously performing, or maybe not performing at a high level on the work program or the work choice program to become entrants into the market. As we indicated on that specific program, we were disappointed clearly with the outcome and felt that our bid fell short of our expectations in that area, but at the same time when you look at the total expected spend, and don’t forget this is a framework off of which there will be call-off opportunities in the future, the £69 million in contract value compares to what historically through the work choice and the work program at its peak was about £500 million, so we’ve said for some time that the program will be shrinking and we factored that into our guidance and so forth. Also quite importantly, outside of this program, the two largest areas, London and Manchester will be procured separately by those local authorities, and when you look at that £69 million total value, those being the largest areas, you could imagine the largest component annual contract values will be for those areas. That will be a separate competition, and as Rich mentioned in his remarks, we’re very focused not just on London and Manchester but on the Wales opportunity that we have in front of us off of the framework. I hope that provides some context.

Thanks Shane. Next question, please?

Our next question comes from Allen Klee of Sidoti. Please proceed with your question.

Yes, hello. For your U.S. federal segment, you’ve commented that your operating margins were mostly benefited from some transaction-based contracts. I’m just wondering if you can give us a sense of the duration of those contracts, whether we think of this as kind of a longer term recurring type of thing. Second, for your Affordable Care business, can you just give us a sense of how it’s trended in the quarter? Thank you.

We’re glad to do that. I think Rick Nadeau can answer both of those. To be clear, your first question is a little more color on the margin for our federal business in the quarter and the sustainability, the root cause of it, and then what we’re seeing from the Affordable Care Act type business.

Yes, you’re right - we did receive a benefit from a couple of volume-based contracts in our federal segment, and we had in that particular case very good volume. As we’ve tried to explain in the past, volumes do matter significantly to some contracts, and sometimes it’s positive to a specific contract and sometimes negative. In this particular case, those are two contracts that we have within the federal government, U.S. federal government segment, and we had good volumes on it. Those are long-term contracts, but the volumes do not necessarily--the volumes will fluctuate somewhat from quarter to quarter, so we just happened to have very good volumes on both of those contracts this quarter. But I think the margin this quarter is a little higher than what you’ll see on a going forward basis. With respect to the second part of your question, we did not see a substantial change in the revenue that we tag as being attributable to the Affordable Care Act this quarter.

Thanks Allen. Next question, please?

Our next question is a follow-up from Brian Kinstlinger of Maxim Group. Please proceed with your question.

Great, thanks. As you look at the bookings trends on a trailing 12-month basis, or on a quarterly basis, it’s down 30%, and that’s been going on for a few quarters. But I want to do, if we could, is maybe exclude the re-competes in there, maybe talk about what the trend looks like year-over-year if we did adjust for that.

Okay. Well Brian, I think as you know, we don’t disclose the two separately, but I would say as it relates to rebids and rebids in particular, we--actually, there wasn’t much up for rebid in this particular quarter. I think we had one situation up for rebid, and we’ve mentioned that we were not successful in that particular situation. It was a situation where frankly we had someone who bid what we think was a very, very low price. I think it’s an isolated situation, but in general I think we’re in a good situation in that what we do look at and what do disclose is how much of that pipeline is new work versus recurring work, and I believe at this point in time we’re over 50% of the pipeline represents new work from a total contract value perspective. That’s historically what we’ve disclosed, Brian, and I think it puts us in a good position in terms of delivering some organic growth as we move forward.

Just as a follow-up, if I looked at the trailing 12 months versus the previous 12 months, since the awards are down so much, was that previous 12 months a significant rebid year? For example, looking at fiscal ’15, which would be the majority of that trailing 12 months, was that a very large year in terms of re-competes when you did $3.4 billion of bookings?

Yes, I think ’15 was a very significant year in terms of rebids. ’16, I think was a relatively light year. In fact, ’15 I believe had Texas in there, which as you know is a very large contract. ’16 was relatively light, and certainly year-to-date ’17 is very, very light. Overall, I think ’17 is going to be a light year of rebid work as well.

Thanks Brian. Next question, please?

Before we move to the next question, I would like to remind all participants that if they would like to ask a question, please press star, one on your telephone keypad. Our next question is a follow-up from Tom Carroll of Stifel. Please proceed with your question.

Hey there, thanks for the follow-up. A high-level question - if we think back to the healthcare reform debate before the Affordable Care Act that basically led to increased contract opportunity for Maximus, if we apply that timeline to today, when would you expect to start seeing increased RFP activity that you guys are alluding to?

Well, Bruce and I will tag team on this. It’s a very interesting high level question. To recap the question, you’re curious to know if we map over before the Affordable Care Act, what sort of discussions and activities, and there certainly was. It’s an important thing to remember, there was a lot of discussion about healthcare reform before the Affordable Care Act came into being. Bruce, what’s your recollection in terms of timing on that?

Well, I think it was probably from when the legislation passed to when we really started seeing RFP activities, about a year, maybe between 12 and 18 months, because of course we had to get into the regulatory stage and get regulations established, and then a lot of protocols established with the states in terms of how they would interact with the federal government. And don’t forget, the first set of opportunities there or the first real RFPs were related much more toward planning and the planning grants and so forth that the states got, so it’s not a perfect analog to where we find ourselves right now, because obviously with any activities around repairing and then potentially replacing elements of the Affordable Care Act, things could move on different timelines. A case in point would be, and actually there have been a number of fascinating articles out there - I’m sure you’ve read some, about what can be accomplished with 51 votes versus what would take 60 or more votes. There is some thinking that elements of the repair could be accomplished as part of a reconciliation process, requiring only 51 votes, and if it’s possible to move in an expeditious fashion forward with some of the revisions to Medicaid, and there’s been a lot of talk about block grants - Rich has mentioned that, our view and our perspective would be that that would devolve authority to the states and give states the ability to function in a way where they’re not dependent on a protracted waiver process. So you could see state-level RFP activity on a faster time frame than you would have under the Affordable Care Act, just given that we’re really modifying something that’s already in place. When we’ve talked to our clients, our clients have said, you know, the thing about block granting though is that nobody can really agree on how to establish the baseline and whether it’s done on just a snapshot of prior spend or whether it really becomes a per capita model. The per capital model kind of sets more of a ceiling than a block grant, so I think as our clients handicap it, they will be inclined to move forward with waivers and seek broader waiver authority, knowing that block granting could be kind of the second phase of that. So I guess my overall view would be there is some likelihood that we would see RFP activity sooner than we did under the Affordable Care Act, because quite frankly we’re modifying existing structures and existing programs rather than having to go through a formal design-development process as we did under ACA. Does that help?

Yes, very helpful. That’s a very good response, thank you.

Any other questions, Tom?

No, that’s it.

Okay, great. Next question, please?

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

Yes, I’d like to jump off on the last discussion, Bruce. In talking about state-level Medicaid, obviously you guys benefit from Medicaid expansion in certain states, obviously did not necessarily benefit in certain states where you had contracts in terms of--that decided not to expand. In talking--obviously those states are at a disadvantage. What are your thoughts in terms of how they get made whole, maybe, on Medicaid as opposed to states that did expand? Thoughts on that and whether that could be an opportunity, sort of a back door expansion in states like Georgia or Texas, Florida, Tennessee even?

It’s a great question, thanks Richard. So some thoughts on that - number one, I think that you’re seeing there are certain Republican governors out there that have gone through expansion, that are advocating pretty strongly that expansion be sustained in whatever form the repair or replacement legislation takes. Most recently, as an interesting data point, Governor Kasich in Ohio has included Medicaid expansion, the ongoing sustainment of it in his 2017 - 2018 budget. So for those states that have it, I think their view would be if we’re going to ultimately move to block grants, that’s a good thing, and there’s a debate raging right now as to whether, for example, the baseline would include the expansion population or not. So if you did it, you’re probably in a better position to argue for a higher funding level in your block grant than if you didn’t. Then comes the question about states that haven’t done it and how would they go about addressing it. I guess our view would be while expansion itself has not been obviously wildly popular among the Republican party and the Republican governors, there is a point on Page 3 of the Paul Ryan summary plan that speaks to this, about bringing Medicaid into the 21st century. It says, instead of shackling states with more mandates, our plan in power states is to design Medicaid programs that best meet their needs. So I think that’s another way of saying block granting and devolving authority to states and giving them the ability to design Medicaid programs that meet the unique demographic requirements and market requirements of their populations is kind of what we would see on the horizon. In that context, I think it’s kind of expansion by another name. If you’re giving governors--it begins with the funding, but then if you’re giving the governors broad authority to design how those programs will function and incorporate components like the personal responsibility elements, maybe some of the health savings account like things that we’ve seen in Indiana and Michigan, where parenthetically Maximus has a great deal of experience operating those programs for those governors, then I think you could see a broad array of population above the standard 100% of the federal poverty level being served. It will come down to what the governors then try to put into the programs. For example, I think it’s the Healthy Indiana Plan 2.0 anticipates a $20 payment for any individual in the expansion population, so that would be up to 138% of the federal poverty level. That itself is anticipated to generate $200 million in savings for the states. So as the governors are thinking about all this, they’re trying to balance the pot of money they’ll get, the fact that it’s going to be capped from a federal perspective, and then if a gap opens up between their needs, how do they close the financial impact of that gap, and they’ll have to balance that with those types of performance. So I think the answer to the back door expansion which you mentioned is probably block granting.

Just a follow-up to that, can you remind us how many states that you guys are helping with Medicaid in some fashion, and how many of those expanded or did not expand?

Well, the answer to your first question is we serve as the Medicaid managed care enrollment broker in 22 states, so that’s kind of the broad array where we help enrol individuals into managed care plans, and that has grown, as you are well aware, to incorporate other individuals - the developmentally disabled population, the intellectually disabled population, aged, blind or disabled populations, and so forth. In a subset of those states, we also provide eligibility support services to the Medicaid programs, and we’ll have to get back to you with the exact number of expansion states, but the largest ones from a volume perspective that have expanded would be New York and California, and then certainly Michigan as we’ve supported their program, and Pennsylvania. Those are probably the top four, although of course we support Vermont and other states like that, smaller ones. Of the states, you probably would ask the other side of the coin question, which is where do you operate Medicaid programs that haven’t expanded, that could present upside, and that would include places like Texas and Illinois.

Thanks Richard.

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