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Citi Global Healthcare Conference Call

February 26, 2013 3:00 pm ET


Richard A. Montoni – President and Chief Executive Officer

Bruce L. Caswell – President and General Manager of the Health Services Segment


James Naklicki – Citigroup

Richard A. Montoni

James, thank you for the invitation to present at this conference. It truly is one of our favorites, so thank you very much. I appreciate the opportunity. Thanks folks for joining us today.

I think we have a mix of individuals in the audience, some of whom are probably very familiar with MAXIMUS and some of whom I think are relatively new to MAXIMUS. So the approach we’re going to take here is, I’ll go through these slides. It will give you a high level overview of MAXIMUS, who we are and what we do, task performance, and I hope if we’re successful in this presentation, still to give you an understanding of why we’ve managed to grow quite handsomely in our recent past. Why we think the rest of our fiscal 2013 which end September 30, 2013, should be a very solid year for growth top line and bottom line. But also why we think our future has a lot of great growth potential above and beyond fiscal 2013?

And my associate here Bruce Caswell, he and I are going to take team through this presentation and then afterwards, we’re going to try to wrap and leave sufficient time for Q&A. Okay. So MAXIMUS hold this so far to be a leading provider, operator. I think you better have to think of operator of Government Health and Human Services programs, and we do this on a worldwide basis.

We think we are very well positioned, first, I point to the economics and demographic factors that we see driving social reform, not only here in the United States and we think we’re a very formidable player in Healthcare reform in the U.S. but in many, many governments around the globe.

In particular, we would point to the fact that many governments are suffering through some pretty significant fiscal challenges. And in addition, we are seeing very significant demographic factors as there are not only more people on this planet, but more of them are in need of healthcare. More of them are elderly, and that’s what government has to step up, and that’s how we help government serve the people.

We have an excellent – we have two external segments; one is our Health segment the other one is our Human segment, within which we have our Welfare Reform Work. We think we are very well positioned to take advantage of these demographic drivers. From a balance sheet perspective, we have $167 million in cash that was at 12/31/2012. We have a quarterly cash dividend of which we are very proud, opportunistic shift buyback program, and we have no long-term debt.

From a fiscal 2013 perspective here is what we are looking at. We are expecting our top line to grow in the vicinity of 19% to 24% and we are expecting our earnings per share to grow 27% to 33%. I do want to emphasize when we say earnings per share here, this is our adjusted earnings per share. What we routinely do every quarter is that, we have an item, we had a debit or credit favorable or unfavorable if we see it as non-recurring in nature and not reflective of future operations we will adjust it out and present adjusted earnings per share.

So how we’ve done in the last five years and where do we think we’re going to be in fiscal 2013. From the top line perspective, our compound annual growth rate has been 12.4%. We are looking currently for fiscal 2013 to come in at $1.250 billion to $1.3 billion, and we’re looking for our adjusted diluted earnings per share to range from $3 to $3.15 added all up, we will be looking at a five-year compound annual growth rate of 17.8%.

And with this, Bruce and I’m going to impose upon you to talk about our two segments, and I will see back at a few.

Bruce L. Caswell

Great. Thank you, Rich, and good afternoon. As Rich mentioned, we have two business segments that we report externally, the Heath Services business, which I run and the Human Services business, but I just take a moment and talk a little bit about the work that we do and how we’re paid in those segments.

On the Health Services business, you can maybe grossly simplify by saying the work that we do help individuals and apply for we determine eligible for enrolled in public health benefit programs. So with the nations leading provider of Medicaid and CHIP, enrollment services, we serve 23 states nationally, and do that actually the enrollment broker in 19 states and in addition to that provide support for the health insurance exchanges now in the State of Minnesota, where we’re building to help insurance exchange.

And then we have recently you may have noticed in the announcement from the company yesterday, where we were selected to provide the service center operations for the State of Connecticut. So that’s a growing market where our core competencies service very well to serve, clients that are undertaking state-based exchanges; and as I’ll talk about in just a couple of minutes, we’re also very optimistic about the opportunities of the federal level at the federal exchanges.

So how are we paid? Our Health Services business and our Human Services business really we get paid to achieve specific outcomes for our clients. And so, it’s not uncommon in our contract to have a combination of fixed and variable payments. We try to structure our payments such that the fixed components cover the fixed cost of operations on a monthly basis. The variable payment is tied to variable activities that are again, tied to specific outcomes. In the Health business that might be completing the enrollment of a beneficiary into a Medicaid managed care health plan.

In the Human Services business, that maybe a payment associated with placing an individual in employment or a payment associated with that individual sustaining their employment over time. So its performance-based contracting and its performance-based payments tied to specific outcomes.

In Human Services, as you can see, the majority of the business that we perform is focused on helping job seekers find employment. We provide those services in the number countries, in the United States, and in Canada, in Australia, in the United Kingdom, and most recently, through a pilot program that we’re running in Australia for the kingdom – I’m sorry, in the Kingdom of Saudi Arabia. So we’re a very strong provider globally of Human Services work and welfare-to-work case management.

We also have a service line related to child support enforcement here in the United States and also in Canada and British Columbia, where we help our clients with the establishment of child support enforcement orders and ultimately follow through with the non-custodial parents to secure the payments they’re due for child support.

What’s nice about both of these business segments is, they’re characterized by long-term contracts. We work hard to build decades long relationships with our clients. The standard – the average rate of contract price is about four years. But there can be option years that can extend that well beyond those base four years to four years and we enjoy typically contract margins in the 10% to 15% range. So this provides for a highly predictable revenue source for our business line.

I’d like to dive a little bit more into what is we really do in the Medicaid and CHIP program. And this slide, we called a supply chain slide. So if you endorse me for a moment, we have taken the liberty of kind of bifurcating if you will the supply chain into two simple components.

One is, those activities focused on serving beneficiaries and the other is, those activities related to managing the delivery system. So typically, you’d think of the managed care organizations of the MCO community on the right hand side of the slide. They’re contracting with the state Medicaid agency. They’re the ones involved and signing up the providers in the hospitals, managing the network of our providers. We are involved prior to that, we’re more of the first mile with the process.

So our clients too are the state Medicaid agencies, but our work begins when we reach out to and help with the client intake into the Medicaid eligibility process. We, in a number of states, specifically Texas and Colorado, and New York, or the [two steps] to the eligibility process. And so, we can’t by law determine eligibility, but we can prepare a case in a phrase we use as we prefect the case to the point, where it’s ready for a merit-based employee to make that determination of eligibility.

We’ll then take the next step and that’s called the engagements step, where we reach out to those newly determined eligibles, and we send them informing materials. We help them navigate that selection of health plan and make that informed choice that ultimately leads to an enrollment. So we’re handling an individual off to the health plans through a transfer of file and also in some of our contracts we actually collect health risk assessment information. So the health plan has an early understanding coming into that program of the characteristics to that household and some of the health challenges they might have, which is an important step in their process.

So we have a shared objective with health plans to reduce churn, help people re-enroll on a timely basis and ensure that they’re getting the services they need. I’ll also note that a big part of what we do is working with community-based organization. So when you think about health insurance exchanges and you’ve heard about the term navigator or assistors, right here in New York alone, where we are the enrollment broker for the New York Medicaid choice program.

We work with over 400 such organizations to provide that last mile connectivity if you will for the beneficiary. And when you again think forward in terms of health insurance exchange and how important sustainability is, a lot of that relies on getting people into the exchanges to begin with. And so we have a feel of experience managing that important network. So let’s go into healthcare reform for just a moment.

Certainly, the Affordable Care Act presented a number of important opportunities for the company. And we spend a great deal of time dissecting the legislation in great detail and forming business plans around certain areas. And certainly, there are some smaller areas related to long-term care and the balance incentive payment program and dual eligibles and so forth that we’d love to speak to. The two main areas of opportunity, however, relate to the Medicaid expansion and the creation of the individual health insurance exchanges.

So the company has gone through and done a very detailed analysis and build up of the total addressable market for those opportunities. And we came out it and I will say from a very much bottoms up perspective, we look at the core functions that need to be performed in order to effectively administer an exchange from an operations perspective, we look at how we perform those similar functions today. And interestingly, those functions are more analogous to a CHIP program if you will than a Medicaid program, because in a CHIP program, you can have the third-party administrator go all the way through the eligibility process.

In a CHIP program, you also often have a premium or copay – initial copay collection. So I’m very much analogous to exchange. We looked at the cost structures and the revenue associated with that and we developed a total addressable market value of about $500 million in annual revenue potential.

Now, people have asked us, does that include the federal exchanges or the state exchanges, the answer is, it includes both, it’s all in. So for the total population population, which according to the latest CBL estimate by 2019 will be about 27 million Americans served through the individual exchange, it’s about a $500 million opportunity, annually. Now, we did revise our map to the Supreme Court decision last summer, our total addressable market for the Medicaid expansion to accommodate the fact that, Medicaid expansion is down option for state.

So as many of you are probably well aware, more and more states are starting to come into the fold that if you will on Medicaid expansion, most recently happening right now Governor Christie of New Jersey well part of his announcement of his budget indicates the states and we move forward to Medicaid expansion that will make, I think the eighth Republican Governor to go in that direction.

So as we look to that opportunity, we similarly have sizes on the basis of how we’re currently paid for in our enrollment broker work, how functionally it’s quite similar fills on in installed infrastructure that we already have and we believe that’s a $130 million to $200 million in total revenue potential.

The Medicaid expansion population according to most recent CBL estimate is about 11 million individual. So if you’re in the far right hand side of that graph and I know it’s a little hard to read. By 2019, that’s the growth of about 38 million individuals between the exchanges and Medicaid expansion.

It’s also worth noting and it’s not part of the graph that there is a woodwork effect for medicaid as well. Some call it to welcome that effect. There is an estimated additional 5.7 million individuals who are currently eligible that are enrolled who because of the provisions of asset that include streamlining of applications, simplification of the eligibility of determination process will become eligible for Medicaid and enrolling the program. So it’s an important few metrics there.

And finally, I would like to just speak for a moment about the various options for exchanges. So for those I have said, I have followed this very closely and I would think that many of you as well. February 15 was a critical day. February 15 was when the states have declared whether they are going to go with the state partnership exchange, which is the middle panel, or if they didn’t make that declaration, the assumption is, they are part of the federally facilitated exchange. So here’s the tale of the tape. State-based exchanges right now as of February 15, dead line, 18 states will be state-based exchanges. 7 have declared and intend to do a state partnership exchange, and I’ll come back to that in a moment, and 26 will be on the federally facilitated exchange.

The state-based exchange is obviously are an area where MAXIMUS is quite well positioned. Of those 18 states, eight of them are current MAXIMUS clients. We’ve already reported some good news as it relates to our ability to support their needs for the health insurance exchange service centers. So we are very well positioned there. And as the bottom of the chart indicates, we think that over time, many states that begin on the federally facilitated exchange will migrate back to a state-based exchange.

And in fact, some such as Illinois have already stated that intention. They got into the procurement process, but got into it a bit too late to get everything built and deployed to do a state-based exchange in year one. So they will come back in a subsequent year. Another point I’d make here is that, MAXIMUS is also very well-positioned to support the federally facilitated exchange. And there are three very significant active procurements in the marketplace right now related to the federal exchange, which we watch with great interest. And our all pending award, that would provide call center services, that would provide eligibility support services, and that would provide the services related to handling eligibility appeal.

The final point I would make is that, when you are a state and you’ve opted for the federally facilitated exchange, your work isn’t done. You can’t just wash your hand and say, fine. Federal government is going to take care of it all. I’ll just go on my normal business. The fact of the matter is, the law has some provisions including the no-wrong-door provision, which requires that applicants need to be able to come in through existing portals, so if you will, a county welfare office, a states portal that may already exist to take CHIP applications.

They will also be coming through the exchange portal as well. So there is actually a complex choreography that have to exit between the federal entity within the data services hub and so forth that’s been created and the state infrastructure in order to appropriately identify individuals, determine their eligibility, and get them to the right destination.

So where you go to continue to work with our clients that may start out on the federal exchange to satisfy the process and technology needs they have in the interim and in doing so, provide a bit of an infrastructure if you will that they can leverage when they later move to a state-based exchange.

So with that, I’ll turn it back to Rich.

Richard A. Montoni

Thanks, Bruce for that complex choreography. Let me talk a little bit about what we see happening from a global perspective. In 2006, 14% of our revenue was derived from international operations and that increased in 2012 to 26%. That’s a pretty dramatic increase, and I would expect that, but we’d like to hold it as a horse-race that international may have the advantage, not perhaps of next couple of years Bruce, because of what’s happening here in the U.S. in healthcare reform.

But I think just long-term social trends as we see them occurring, it really gets back to what I said in the front-end in terms of these macro [horses] compelling governments to change the social program. So we’re very excited about our opportunities.

I want to spend a little bit of time and talk about what we have seen of late where we have international opportunities. I do want to share with you, I think one is, our textbook best example of what happened in Australia and then I want to share with you why I think we’re well positioned about future international opportunities.

Today, we have operations in the United States, Australia, United Kingdom, Canada, and a pilot program in the Saudi Arabia. Typical pilot programs would be the tenant program, timely assistance for needy families, the U.S. ticket to work program. In Australia, we run a job services or Australia program, our JSA, as well as a disability employment services program. In the United Kingdom, we operate a work program. We also have a second award, and I don’t think this is extremely well-known, but a second award in the United Kingdom is called Day One Support for young people.

In Canada, we have an employment program on BC. And in Saudi Arabia, a target program called Ta’qat pilot program. This one in Saudi Arabia, I think it’s pretty interesting. For those of you who have some opportunity, I think you can Google Saudi Arabia in the Ta’qat program. But this is a country that normally or historically, we have seen demand for our services with big sophisticated welfare programs. Our solution tends to play, that’s going to add most value with Tier 1 big governments that have very complex populations, diverse populations, need to operate in over dozens of languages, intercity, urban type situations, as well as rural type situations.

And oftentimes, it was driven by the economics of the welfare program, where the government simply pull budgetary purposes, could not afford that entitlement program and hence they attacked the welfare program cut benefits and need assistance to qualify people and make sure that folks who in fact, who are receiving welfare or entitled to welfare and especially help people who are in welfare to find jobs who otherwise couldn’t find work by their own accord.

I think Saudi Arabia is pretty interesting, because that’s really not the case at all. Here is a government that very much realizes that the long-term success of that government will rest with moving national studies on to the employment roles. And it’s more of a social unrest type situation that it is a welfare control budgetary type situation. So the members in Saudi Arabia, there are about 6 million folks who are not Saudi nationals, and this is the program run by the King of Saudi Arabia who is very anxious to move about 1.5 million of those jobs to national Saudis, and we are running a pilot program there, and our goal is to make that pilot program successful and pickup additional opportunity in Saudi Arabia.

Now, Australia; we bought a small business in 2002, had a run rate at the time of about $15 million. In summary, this is a country that very much believes in partnering with firms like MAXIMUS, it very much has a propensity to outsource as we say and they don’t bid price, they really bid performance, and they will reallocate work to the various performers based upon the various providers based upon their relative performance, they have a five star rating system, and if you perform in three stars or better, then you stay in a good position to receive additional work.

So our strategy to grow that business was to deliver the performance that mattered or the outcomes that mattered to this government. And hence as a result, you can see this business grew from $15 million in 2002 to approximately $165 million in 2012. I think that’s a great testimony to not only that project, but that’s really our model to land and expand.

So when we look at MAXIMUS in our future opportunities and we provide a several bullet points I think in the summary that represent where we add value and rather than go through them each in detail, I’m going to share with you a short story that I think makes the point and fulfill altogether.

One example was when Texas was challenged in the last year to move a number of people from the fee-for-service roles to managed care and concurrently, they reconfigured the areas of Texas, so that all of the plans had to effectively reorganize their regions. We had to reenroll or enroll a little bit over 2 million citizens in Texas into the Medicaid program.

So to do that in a very short period of time with several months, we least up, built out, and staffed up to about 700 FTEs to do that, and I think that’s a great testimony to our capability, I think it’s quite unique.

Long-term where we see opportunity, I’m going to touch upon this in general, because I’m hoping we’ve got some questions that drill down into our growth opportunities, not only of 2013, but beyond. And Bruce’s World Health Services certainly growth in health insurance exchanges. By the way we’ve got some interesting math as it relates to score cards and health insurance exchanges if you’re interested.

We will continue to see the shift from fee for service to managed care, not only as we did in 2012, but expect it’s going to happen in 2013, 2014. And then Medicaid expansion, we think we’ll kick in, in the second half of 2013 and run through 2014 and 2015.

In our Human Services, we’re very excited that this UK program turn the corner pursuant to our plans is now profitable. We expect it will continue to be profitable. And then on the line with Health Services and Human Services, I think other international opportunities, we’re very anxious to develop health opportunities in those geographies, those countries, where we have standalone welfare-to-work programs, so that would mean, we’re looking for health opportunities not only in Australia, but the United Kingdom as well.

I think we’re very well positioned to execute, and I think it has become a game of execution. I think we’re very well positioned to execute on the growth opportunities that are quite significant in front of us. I hope you get to learn more about our, not only about our segments, but also our management team, because it’s heart of the day, at the end of the day, that’s at the heart of our ability to execute and that’s our goal, and we’re very excited about our future.

That completes the official presentation. and at this point, we would like to open it up for questions. James?

Question-and-Answer Session

James Naklicki – Citigroup

Yeah. My first question is your recent success in signing the new state-based health exchanges. particularly Connecticut, if I think people understand New York was market that you guys were already in, so you had sort of an advantage there. but Connecticut, you didn’t have any presence there. There was a pretty good – ACS was operating already, which is a formidable competitor you guys were able to win the business? So tell me a little about that?

Richard A. Montoni

Sure, we’re happy to. I think one of the things that the state, really highlighted in making the word was first of all, their comfort level goes up when they know that we’re working with other states already. We’re working through the process is setting up there, very significant service centers are going to be required. So they referenced specifically the work that we’re doing with New York State.

And as we spoke about on our last call, we’re in discussions with – we’ve had two states at the timing I know one of them, but this is an area where we’ve been very focused and an intense dialogue with states about how they can leverage existing infrastructures and how they can ensure that they bring a very beneficiary-centric focus to the separate, that was the second thing to client.

They said, this is a company that gets it when it comes to dealing with the diverse needs of the population and the individuals that are going to be really coming to the front door of its exchange. and at the end of the day, unless there is really adequate and sufficient uptake and the products are appealing and people have a good consumer experience, they can go in a different direction. So those are two discriminators for us in the Connecticut selection.

James Naklicki – Citigroup

And how do you think about growth in that market? So I assume there will be a lot of work that needs to be done in 2013. But we expect significant growth in 2014 as of annual raise and…?

Richard A. Montoni

I think as we had on the last chart, the Health Insurance exchange opportunity really goes on into 2014 and 2015 and I would consider it in a couple of ways. There are certainly the 18 states that are in state-based exchange and we certainly have an opportunity to continue to work with a few of our clients in that regard. But then there will be the support related to the federal exchange and then there will be another wave of states as they transition from the federal exchange back to state-based exchanges.

Some could do it as early as January 2015 depending on if they meet the filing requirement of November 2013 to do that. So I think that you see multiple waves of opportunities to support our clients as they move through that exchange process and ultimately set a lot on the model that works best for them.

James Naklicki – Citigroup

And then when thinking about New York, its exchange there, much bigger opportunity than Connecticut, just the sheer number of people that are uninsured there. How big could New York get?

Bruce L. Caswell

I don’t think we’ve put a specific size on it really. So it’s difficult to put a number on it for you. I’ll just say that as we go back a point Rich made, our solutions really serve the large complex states very well. In our Medicaid space, the average number of beneficiaries’ first aid is about 1.2 million for MAXIMUS enrollment type of work. And then all other competitors average about half of that. So it drops off precipitously when you get to these less complex environments.

So in New York, I think what really differentiates and discriminates that work is that, we have the ability to handle a multilingual call center, just in lower Manhattan in our offices at 30, Brown Street, we answer the phone in over a dozen languages. We can deal with the cultural and linguistic needs of the population. We can help with the management of navigators or assisters. So really our work is to help ensure that the state has a very effective and viable operational model for all the citizens that may want to entry.

I might also note that because as we noted on the call, this is the evolution of the enrollment center for New York’s Medicaid expansion, which I think is still in the likely, but not fully committed category and also for those individuals that are presently eligible, but not enrolled. That represents opportunity for us to serve them in terms of applications processing and enrollment as well, through that enrollment center contract.

James Naklicki – Citigroup

And then on the FFE opportunities, which I think are probably the biggest opportunities for the company over the next six months or so. Can you give us an update there to review the appeals contract with sort of delayed when is that sort of going to be do and so if could you just suggest that. And my second question is on margin expectations, is that particular business under cost plus arrangement?

Bruce L. Caswell

I will answer the first part and then maybe ask Rich to rest of the second. Pretty straight forward, the three major procurements are the CCO or Contact Center Operations procurement. The bids have been in for some time and I think the general consensus in the industries that we will see an award some time in the March, April timeframe.

In order to quite frankly meet the bill requirements to have an operation late by October to take call. Similarly, the eligibility support contracts, those bids are in as well and being worked through by the evaluators. I would anticipate also a March, April award timeframe for that, simply because of the start-up period required in order to be ready to take paper-based applications coming in to a service center some time in October.

And I think the thinking as it relates at least in RP is that the preponderance of the applications initially will be paper-based. And then as people over time become more comfortable using the portal, you’ll see that mix shift, but the level of applications remain relatively consistent over the years of that contract.

Eligibility appeal was extended, so the due dates for proposals now are, I believe March 28, and with extended as a consequence of some prioritization going on as it relates to the system functionality for the federal exchange. Specifically, the vendors now are asked to provide their own case management solution, as that functionality won’t be available on day one through the federal exchange platform that’s been going. So you see, as we get closer to the deadline some prioritization needs to be made and as a consequence that will be part of that solution and hence the additional month delay.

And as it relates to margin expectations, I would just front ended by saying, you’re right, because these are costs reimbursable contract. You would typically tend to see things in the mid to high single-digit range for contract with that as opposed to the typical margins that you see in the traditional contract that we have in the state marketplace, which are more in the low double-digit range. Is that fair Rich?

Richard A. Montoni

That’s very fair, Bruce.

Bruce L. Caswell


James Naklicki – Citigroup

And then there is a lot of talk about delays either for the states or potentially for the federal government or the exchanges. Are you going to factor if there is a delay, because you have to be comparing for his months ahead of time and there will be revenues coming in before January 1?

Richard A. Montoni

I think that’s right. In our business perhaps one of the riskiest parts of the business is startups. I mean startups are new. Startups take a lot of attention. Once we approve up a project and you normalize the project just maintaining it as much less of the challenge. So we spend a lot of time on making sure we’re very equipped to startup these new situations, some things we control. So especially those things as you would expect within our control, we’re very much focus on. We have specialized teams that focus on startup. We have a startup project manual. We have startup project special training for those folks involve. We really bring all of the resources with the corporation to the startup type situations just because of the inherent risk with the startup.

That being said, there is dependency on other party software and there is dependency often times with biggest challenge with the startup situation is the customers running asset. We interface with big state systems, and these states have to be ready and have to be capable of pulling their end in order for the situation to be ready to go live.

The good news is all of this is usually contemplated in our contracts of this delays that are beyond our control. We have financial adjustments that can be made. But oftentimes the revenue may get delayed because of startup delays, that’s always the risk of the nature of the business. Yes, Mark?

Unidentified Analyst

What do you view as your market share opportunities and some of the health reform initiatives and what would be some of the impediments that you’re getting? What you believe to be your share?

Richard A. Montoni

Which health reform initiatives just expansion or…?

Unidentified Analyst

Your partner will be exchanged…

Richard A. Montoni

Let me talk a little bit about that, because I think it’s different. When we look at the Medicaid expansion total addressable market, which I think Bruce, layout and articulated why we think it’s a new vicinity of $130 million to $200 million. I think because of our existing market position, we’re likely to pickup a very significant share of that.

So, for example, we have 60% market share of those individuals in the U.S. who are on the Medicaid program in managed care, we handled 58%, call it 60% of that population. Most of that expansion, if not all of that expansion, we expect would occur as simply additional volume to existing contracts; so no new contracts, no competition, so it stands to reason to us if we have 60% market share. And this will depend upon the mix of those states that choose to move forward. So it could flux one way or another. But I do think we’re in a very good position to pick up more market share than anybody. Let me put it that way.

As it relates to Health Insurance exchanges, I think the marketplace is different. We view the Health Insurance exchanges to be much akin to new contracts. There are new bids; there are some new entrants as it relates to that. We’ve got some folks who are at classic call center, folks who have submitted some bids and they will win some mark. There are some folks who come at it from, this is a Travelocity and we have technology that could help you do that and knowing some assignments.

I do think that it will reflect, our win rate will be in the vicinity of 20% to 25%, which is very comparable to our win rate in other open bid type situations. So I think that win rate will apply to the $500 million total addressable market as we see it today.

Unidentified Analyst

Just on the slide that outlined the timing of some of your initiatives, just from the shading, it looked like the Medicaid expansion opportunity doesn’t start until sort of midway or late through 2014. Is that just [coming] into the shading or it’s just that the timing of the expansion? So I think that…

Richard A. Montoni

Yeah, let me just take that.

Bruce L. Caswell

Yeah, just one here.

Richard A. Montoni

So the Medicaid expansion actually starts at the end of FY 2013 concurrent with the health care exchanges, right. So the idea of being that – and that’s based on…

Bruce L. Caswell

It’s build over time.

Richard A. Montoni

It’s build over time. As you know, states can opt-in whenever they want, but 100% federal money and at a point certain, so [who then] opt-in sooner rather than later.

Unidentified Analyst

Yeah. The other question I had is that pushback I get from investors all the time in the stock is that, I love the company. I understand the business – it’s a great business, but I’m waiting for a pullback in the stock. What do you say to that investment?

Richard A. Montoni

That’s something I don’t control first and foremost, it’s really not our position as the management team to prognosticate on the stock prices in which way they go. Frankly, what we do is, we look to – the way we run the company is with high degree of visibility. So investors understand as best we can articulate the opportunities in front of us, the challenges that we face, we very much proud ourselves in our openness from a reporting perspective, not only in terms of compliance with generally accepted accounting principles are working public accounting for just about 20 years. So I have a higher regard for all of those internal controls and the segregation of duties and public reporting responsibilities.

What we do is, we look to give our investors open visibility in terms of what’s happening in the business. And the business will go through periods of time where things change, and we just look to position the investors to make an intelligent call based upon their investment position.

So I do think from an investor position, I think MAXIMUS is best suited for those who are best able to understand the long-term growth drives that we have. We are here today and we reported really good results for fiscal 2012 and really good results for fiscal 2013, and we’re very anxious about fiscal 2013 and beyond, not because of something that happened in one quarter overnight, but things that I think are really going to be around for a very, very long time.

So much of the growth that I think is going to basically happen. Why is in the underlying macroeconomics, and I do find that some investors tend to focus on the weekly macroeconomics or data points that was in the headline. To me that’s confirmatory of our long-term macroeconomic growth drivers. And I think the investors that we’ve had, who have really focused on the macros have done quite well and I think they should be excited about our future.

James Naklicki – Citigroup

And just one question, and then I will ask.

Unidentified Analyst

Hi, can you just spend a second talking about your value proposition from your clients’ perspective? And with the thought in mind for your contracts get that, is there a point where their own budget pressures force them away from the cost plus to a more of a fixed price model that sort of thing?

Richard A. Montoni

Yeah, I think let me break it into two questions. One is, when should a client go to cost plus versus a pay for performance or fixed price type situation whether it’s fixed price for the contract and its entirety or whether it’s just a fixed price per unit. And then I’ll come back to our value-add situation, because I think we’re going to separate.

I think that really depends upon the client. We have some clients and we’ve openly said, the State of Texas, our contract there is cost plus. That works really well for a client that is, places a very significant way on minimizing the cost of the administration.

And secondly, is very willing to step up and provide the management that’s necessary in a client side to manage the risk from their perspective, because they will have like our other state plans a lot of variability in volumes and fluctuation of volumes. In order to basically manage the cost, we’re going to have to work with them and I’m going to say, well, this is what we see coming, so we have to ramp up the FTEs or ramp down the FTEs or add a new facility. They have to be actively engaged in that process. Other clients don’t want to get involved in it. They just want to say, listen, it’s just for budgetary purposes.

I just know that it’s going to cost me a $180 per whatever to get this done, that’s the type of situation I would like. I prefer that you factor that and give me one price. So I think it’s a client’s decision. In terms of value add, I really believe that our value-add and I think in the long-term this place to our advantage. Our value-add I believe is maximum with Tier 1 governments.

And by that I mean, Tier 1 governments are big governments, millions of citizens, millions of people are eligible for these programs, a very significant diversified population, old folks, poor folks, different languages, rural, urban, and when you have that type of program, and you are the Commissioner of Health and you’re responsible for delivering reliable accurate services and determination for every citizens, you need a big system to do it. You need really complex technology. Leading edge work management and process management, as well as leading edge people management, and that’s what we play the best.

James Naklicki – Citigroup

Thank you very much.

Richard A. Montoni

You bet. Thank you, James.

Bruce L. Caswell

Thank you, James.

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