Maximus Fiscal Q4 Profit Down on Revenue Shift

MAXIMUS, a leading provider of government services, today reported results for its fourth quarter and fiscal year ended September 30, 2006. In addition, the Company announced that after consultation with its auditors, it will defer revenue recognition on two software license sales that were signed during the fourth quarter. This deferral will shift revenue of $10.0 million, or $0.22 of diluted earnings per share, from the fourth quarter of fiscal 2006 into fiscal 2007 and 2008. The Company has also commenced negotiations with Accenture, related to its subcontract as part of the Texas Access Alliance, which may reduce its overall scope of work on the Texas Integrated Eligibility Project.

Revenue for the fourth quarter ended September 30, 2006 increased 2.7% to $171.8 million compared to the same period a year ago. Net income was $2.0 million, or $0.09 per diluted share, compared to $7.4 million, or $0.34 per diluted share, in last year’s fourth quarter. For the fourth quarter, the Texas Integrated Eligibility project incurred a pre-tax loss of $12.7 million, or $0.36 per diluted share, which was in line with the Company’s previous estimates. Fiscal 2006 fourth quarter results also include approximately $0.9 million, net of certain legal expenses, from a reimbursed insurance claim related to litigation that was settled in the third quarter.

Revenue for fiscal year 2006 increased to $700.9 million compared to $647.5 million reported for fiscal 2005. Net income for the year was $2.5 million, or $0.11 per diluted share, compared to $36.1 million or $1.67 per diluted share, in fiscal 2005. Results for fiscal 2006 were affected by the Texas Integrated Eligibility project, which accounted for a pre-tax loss of $49.4 million or $1.38 per diluted share, as well as legal settlement expense of $9.4 million or $0.27 per diluted share. Prior to the revenue shift from the license sales, the Company’s results were in line with its previous guidance for fiscal 2006 of $0.31 to $0.41 per diluted share.

Richard Montoni, Chief Executive Officer of MAXIMUS, commented, “Our reported diluted earnings per share for fiscal 2006 were adversely impacted by legal settlements and the loss on the Texas project. Excluding these impacts, our base business – or Base Operations – delivered pro forma earnings of $1.76 per diluted share. The Company also deferred $0.22 per diluted share mostly into fiscal 2007 and a portion into fiscal 2008.”

Mr. Montoni continued, “During the quarter, we worked to improve several key aspects of our business – from marketing to execution to the procurement of new work. We see ample opportunity to expand profitability in our current book of business, and this will remain the primary driver behind margin expansion in the near term. Demand remains strong across all segments, and we enter fiscal 2007 with a strong base business, solid backlog, and a healthy pipeline of new opportunities. Fiscal 2006 was a challenging year with management and operational changes. We are focused on fiscal 2007 as we eliminate legacy overhang matters and deliver much improved results from our solid base business. This will be the key to enabling our shareholders to realize the underlying value we firmly believe MAXIMUS represents.”

Consulting

Consulting Segment revenue represented 15% of total Company revenue for the full fiscal year. Consulting Segment revenue increased 2.7% to $26.1 million for the fourth quarter and 2.5% to $102.8 million for the full fiscal year, compared to the same periods in fiscal 2005.

Operating income for the Consulting segment increased 14.4% to $5.2 million for the fourth quarter and 10.2% to $14.5 million for fiscal 2006 compared to the same periods last year. The Consulting Segment’s operating margins were strong at 19.8% and 14.1% for the fourth quarter and full fiscal year, respectively. Margin expansion for the quarter and the year was driven by operational improvements in the Financial Services practice and solid contributions from several large claiming projects in fiscal 2006.

Systems

Systems Segment revenue represented 18% of total Company for fiscal 2006. Systems Segment revenue for the fourth quarter was $30.0 million compared to $33.9 million last year and for fiscal 2006 was $127.2 million versus $134.4 million reported last year. The Systems operating loss for the fourth quarter was $2.0 million compared to income of $1.4 million in the fourth quarter of last year. For the full year, the operating loss was $0.9 million in 2006 compared to operating income of $11.3 million in fiscal 2005.

Results for the Systems segment were affected by the deferral of license revenue on two Systems contracts totaling $10.0 million, or $0.22 of diluted earnings per share, from the fourth quarter of fiscal 2006, mostly into fiscal 2007 and a portion into 2008.

Beyond the impact of the shift in license revenue, the segment benefited from growth in the Asset Solutions division, which offset softness in the Company’s ERP business. The ERP division is expected to return to more normalized levels of profitability in the second half of fiscal 2007 driven principally by the completion of certain projects and new work already underway.

Operations

Revenue for the Operations Segment, which represented 67% of total Company revenue, increased 14.1% for fiscal 2006 to $470.9 million compared to $412.8 million recorded a year ago. Operations revenue for the fourth quarter increased 7.1% to $115.7 million versus $108.0 million last year. Revenue growth for the quarter and the year resulted primarily from growth in large health projects and new work in Federal services. Fiscal 2006 Operations Segment revenue also included approximately $21.8 million from voter hardware sales, which is not expected to repeat in fiscal 2007.

The Operations Segment operating loss was $2.9 million for the fourth quarter and $9.5 million for the fiscal year, driven principally by the Texas project. The pre-tax losses from the Texas project were $12.7 million for the fourth quarter and $49.4 million for fiscal 2006. The pre-tax loss on the Texas project for the second half of 2006 was $47.0 million and was in line with the Company’s previous forecast of $45 to $50 million for the six-month period.

Sales, Pipeline and Backlog

Year-to-date signed contract wins at September 30, 2006 totaled $717.0 million, compared to $1.4 billion reported for fiscal 2005, which included approximately $640 million from the Texas and British Columbia projects. New contracts pending at September 30, 2006 (awarded but unsigned) totaled $103.0 million compared to $177.0 million reported last year. Sales opportunities at November 10, 2006 totaled $1.1 billion (consisting of $349.0 million in proposals pending, $115.1 million in proposals in preparation, and $654.0 million in proposals tracking) compared to $1.1 billion the prior year.

Backlog at September 30, 2006, was $1.5 billion, compared to $1.7 billion at September 30, 2005. On an annualized basis, the Company estimates that approximately 76% of forecasted fiscal 2007 revenue is in the form of backlog.

Cash Flows and Balance Sheet

While net cash used by operations was $4.9 million in the fourth quarter, the Company generated net cash from operations of $15.7 million for the fiscal year. Days sales outstanding increased to 108 days at September 30, 2006, which included $2.7 million of net long-term accounts receivable included in other assets. The increase in DSOs relates to billed receivables and management is confident these are collectible. The increase is principally due to the license revenue deferral and the timing of Texas project cash receipts which flow through the prime contractor. While seasonality can be a factor, management expects DSOs should improve sequentially based upon strong collections in October 2006.

At September 30, 2006, cash, cash equivalents, and marketable securities totaled $156.9 million. On August 31, 2006, MAXIMUS paid a quarterly cash dividend of $0.10 per share. During the quarter, the Company did not complete any share repurchases under its Board-authorized program. MAXIMUS intends to maintain its cash reserves until further progress has been demonstrated under the Texas project.

Outlook

For fiscal 2007, the Company expects diluted earnings per share of $1.25 to $1.65, consisting of earnings of $2.10 to $2.20 from our recurring base business, offset by a wide range of an estimated pre-tax loss on the Texas project. Revenue for fiscal 2007 is estimated to increase from 5% to 10% or to $735 million to $770 million.