Maximus Inc (MMS) 2002 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the MAXIMUS second quarter conference call. During the presentation all participants will be in a listen-only mode. Afterwards, you'll be invited to participate in a question and answer session. At that time, if you have a question you'll press a one on your touchtone phone to register for a question. As a reminder, this conference call is being recorded on Thursday May 2, 2002. I'll turn the program over to your host, Russ Beliveau, from MAXIMUS. Go ahead please.

Good morning and welcome to the MAXIMUS second quarter 2002 conference call. Participating in the call today is David Mastram, our CEO; and Richard Montoni, our Chief Financial Officer. I would like to add statements that are not historical facts, including statements about the company's expectations about revenue, results of operations, profitability, future contracts, market opportunities, market demand or acceptance of the company's products are forward-looking statements and involve risks and uncertainties. These uncertainties could cause the company's actual results to differ materially from those indicated in such forward-looking statements detailed in exhibit 99.1 of the company's most recent quarterly or annual report filed with the Securities and Exchange Commission, file number 001-12997.

The company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect the events of circumstances after the date hereof, or to reflect the occurrence of unanticipated events. The inclusion of any statement in this release does not constitute an admission by MAXIMUS or any other person that the events or circumstances described in such statement are material.

Thank you for joining us this morning. As we foreshadowed in our last call, this quarter turned out to be one of the more difficult ones we've encountered since going public. Despite that, the company remained profitable and generated a significant amount of cash. More importantly, the future looks bright and we continue to see substantial sequential improvement coming in the last two quarters of this fiscal year.

I'll provide more detail on the business outlook in a moment. But, first let's turn to Rich Montoni for a more detailed discussion of our financial performance. Rich?

Thank you, David, and welcome to those joining us on the call today. I will review the results of this March 2002 quarter. I will comment upon certain key metrics and address certain other financial matters that I believe are of interest to you. And, that will include our view on the June 2002 and September 2002 quarters. Overall, the results of this March 2002 quarter that we reported to you this morning are t expectations as Davis just shared with you. At expectation in both top line and bottom-line with what we advised you on April 2, 2002.

The key driver behind the results in this March quarter is a loss incurred on a certain East coast project. The actual loss for the quarter related to this project was application 3.5 million, and that had a 9-cent per share negative impact. To reiterate, we don't expect this loss to recur. And, another way to look at this is that if we did not have this loss EPS would have been approximately 39 cents per share. Let me address our revenue for the March quarter. It was at $122 million, which is up 1.4 percent when we compare it to the prior-year quarter. And, it was down sequentially 5.9 percent. The year-to-date revenue was 229.5 million, and this up 8.7 percent year-over-year. The sequential change in our quarterly revenue is due to several factors. They are an increase in our consulting group, and this reflects increases in both our revenue services and child welfare divisions and we do see some strong pipeline in this group. We experienced a decrease within our health management services group. And, this is due principally to a pilot project that ended in our December quarter. The decrease related to that in this March quarter was approximately $2.8 million. And there's less revenue in certain -- on the certain East coast project as well.

In addition, there was a decrease in our human services group, due to a large project ending. The impact of that in our March quarter was about 1.9 million less revenues. And, although the BPO, or Business Process Outsourcing process portion of this business remains slow, we see a lot of RFP activity. But, we do see lesser large opportunities. Lastly, a decrease in our systems group, due to a large pass-through in the December quarter that was non-recurring, order of magnitude, $2 million, this was offset by higher license revenue in the March quarter for this systems group. Within that group, we see strong proposal activity and expect good performance the remainder of the year. Let me spend a little bit of time on margins, and our gross margin was down sequentially 260 basis points to 28.9 percent. This was due largely to the loss on the certain East coast project. You will see that there was a large decrease in the gross margin percentage of our health management services group within which this certain east coast project is housed. And that group's gross margin decreased from 21.1 percent to 7.7 percent. The remaining segments range from slightly up to relatively flat from a gross margin perspective. On SG&A our percentage is up, but because of the lower revenue base, I think it's best to look at the absolute amount of SG&A dollars. We did have a sequential increase in the quarter of approximately $1 million additional SG&A, and clearly we need to focus on maintaining our SG&A costs and driving savings where possible. However, I would add the kind of balances continuing to invest in those areas that will continue to strengthen MAXIMUS for positioning in future growth. Operating cash flows, our operating cash flow for the March quarter was $5.6 million. And, this is an improvement over the prior quarter, but it is less than that generated by operations in the comparable prior year quarter. I view the fact that we generate positive cash flow as very favorable. But, I also believe we have room for improvement, including the improvement that we expect to result from improving our DSO situation, which I will address shortly. Our cash positions remains strong. We have $114 million in cash at March 31. This leaves us well-positioned to pursue acquisitions opportunities and to allow us to execute our stock buyback program. As you would expect we do invest essentially all of this cash in short-term investment vehicles.

Our receivables year-over-year total receivables, including our unbilled increased 8.1 percent. Interesting to look and see that the unbilled actually decreased, which is good. Sequentially we saw a flat receivable billed and a decline in the unbilled portion. The decline in the unbilled portion, again, is good. However, clearly, the DSO situation needs improvement and I will speak to that now. During the quarter we saw an increase in DSO's of five days to 106 days. This increase was due to an increase in billed receivables, as unbilled, as I mentioned remained stable at 18 days. I would note that in prior periods, such as the March 2000 quarter, the company also experienced similar high levels of DSO and was able to improve to as low s 99 DSO's with simply added focus. Nevertheless we view this level too high, the 106, and this is a point of focus.

I think I told you on April 2 that this is a top priority. It is a top priority. We have actions in place to improve our DSO's. We will do this, but it will take some time. In the short time that I've been here I've had an opportunity to review the drivers behind the DSO level and here are my observations. First off, high DSO's can be driven by any and are often driven by several points along what I'll refer to as the revenue cycle. I think all of those steps the company performs to -- think of all of those steps that a company performs to advance a market lead to a sale, then to a project, then to an invoice and ultimately to a cash receipt. For MAXIMUS we have identified 10 steps along the revenue cycle. And, for each of these steps we've identified best practices that have a meaningful impact on the DSO situation. And, each division within MAXIMUS is in the process of implementing those improvements that should help drive their individuals DSO situation. From MAXIMUS's perspectives as a whole, I believe there are several areas that offer us opportunity to improve DSO. And, this would include establishing tighter turns on the front end when we propose, when we contract, billing faster and more often, and, lastly, pursuing slow payers sooner.

On to goodwill impairment, during the March quarter the company completed its review of goodwill and we have goodwill on our books of approximately $53 million at March 31. This review, as you're all very well aware, is required by the financial accountings standards board, number 142. We implemented FAS 142 October 1, 2001. And, based upon our review, there is no impairment and we, therefore, have not recorded a charge for impairment. We view this as positive.

We know there's many companies that have reported significant write-downs and although there is no assurance as to future developments, we view this as supportive of the value of the business combinations that we have completed in the past.

On stock repurchases during the March quarter we repurchased 163,000 shares of our common stock, which were held in our treasury at the end of the quarter. This leaves us with approximately 25 million of the initial $30 million buyback that was authorized by our board. And, we intend to remain active in the repurchase of our stock and what I would describe as an opportunistic way. This means that we have not set any repurchase schedule. And, I will say, based upon legal advice and regulation FD concerns, we'll not be apprising of intra-quarter activity. But, each quarter we will report to you the results of the repurchase activity. On forecasting the future level of weighted average shares outstanding, or what we call WASO's, we did benefit from a lower stock price this quarter, which is reflected in the WASO number of 29.3 million for the March quarter. And, obviously, for forecasting purposes future quarter WASO levels will be higher in the event of a higher stock price. So, I'd asked that you consider that in your modeling. An interesting point from a stock repurchase perspective is what is our breakeven price for purposes of buying back the stock i.e. accretive to earnings per share. And, as surprising as it may seem, do to the low [technical difficulty] that we receive on the idle funds and assuming an annual EPS of $1.80, the breakeven purchase price was $90 per share.

Let me spend a little bit of time on guidance. We remain confident that the earnings per share estimates we've previously provided to you are reasonable expectations. That is approximately 48 cents for the June 2002 and approximately 55 cents for the September 2002 quarter. This would result in EPS for fiscal 2002 of $1.80 per share. And, all of this is fully diluted EPS. Our basis for this is our review of pipeline and backlog data and our plan to focus on our cost.

Since our call on April 2, we have continued to keep our eye on forecasted revenues. We have a new Vice President of Finance in the Health and Consulting SBU, who is continuing to focus on forecasted performance of that SBU and our business units have again submitted their forecast, which cooperate our expectations.

From a top line perspective we estimate that June 2002 revenues will be in a range of 130 to $135 million and for the September 2002 quarter we estimate that our revenues will be in the range of 140 to $150 million.

The last point I'll make on guidance here is that in terms of major reconciling items, sequentially from March to June, there's two things. One is the certain east coast projects that we have discussed. Again, which is non-recurring, which helps us in the June quarter. And, in addition, there is a small acquisition that should help us starting in the June quarter.

That concludes my prepared remarks and I'll now turn the call back to David. Thanks.

As I stated earlier, this has been a tough quarter for MAXIMUS, but we firmly believe the worse is behind us. Before discussing our marketing pipeline statistics, however, I'd like to make a few comments about the economy and the business environment in general.

We continue to receive questions about decreased state and local government revenues and its impact on our business. And, we continue to respond that these revenue and related budget issues have created a minor impact on our overall business. The impacts that we have seen are solid. First, we have experienced extraordinary procurement delays in the wake of the September 11 attack. We believe these delays are only temporary and they appear to be waning. Second, state revenue shortfalls have slowed new program initiatives and the intent of large outsourcing contract opportunities. This has been the primarily impact on MAXIMUS, but we believe it will pass. Third, we are seeing an increased interest in state and local government business by other companies. As a result, we're seeing more competition in some business areas, such as revenue maximization. There's a perception among some financial analysts that state and local government business is weak. Our market remains strong and attractive, however. Consider the following business combinations that show interest in our market.

Last fall ACS paid a very attractive price for Lockheed Martin State and Local Government Practice. A group stood up from [indiscernible] recently bought GovConnect, $45 million human services consulting company with whom we compete. Fleet Bank of Boston is selling a subsidiary, ASSA [phonetic] that owns two companies we compete with, Geneva [phonetic] and Dean Curtis and Associates, in order to concentrate on its core business. Fleet acknowledges the good growth rates of ASSA. Adventure Capital Group recently purchased a 25 percent share of one of our consulting competitors in the child support business. There's continues to be regular sales of companies doing business exclusively with the government with good growth prospects. The point is, there is solid evidence of increased interest in government services companies and that the state and local government market remains vibrant with plenty of opportunities.

In terms of our pipeline statistics, MAXIMUS continues to move forward winning new work. As our statistic showed in the press release we have been awarded more contract dollars in the first half of fiscal 2002 than in any other year of our history. In fact, our wins are up 41 percent over last year, 346 million versus 196 million in the comparable period. Total sales opportunities, as measured by proposals pending, proposals in process and RFP's tracking, is down to 649 million this quarter from 721 million in the same quarter last year. While the dollar value of the new sales opportunities is down 10 percent, the number of RFP's received is up. We've received 144 RFP's in March and a 152 RFP's in April, about 10 percent more than last year. The decrease in dollar value is directly related to the decline in large outsourcing opportunities that we discussed earlier.

We believe this is a temporary situation, as Rich talked about, which should rebound next year. In terms of other highlights, our systems group is going strong. They've reported 60 million in sales this year, which is more than all of last year combined. We have big wins in ERP contracts in North Dakota and Oklahoma. Our asset solutions and [indiscernible] solutions divisions are also very active and doing well.

Our big healthcare renewals in the big states we operate in are well on their way to be finalized. We will remain the incumbents for those contracts. We've had recent RevMAX's wins in Maine, New Jersey and Nevada and there are other opportunities out there that we're pursing. Our child welfare add-ons in Pennsylvania continue, it's a major growth area for MAXIMUS. And, the signs are very encouraging. Our student information system, SchoolMAX, was selected for certain counties in California and in Georgia. And, our new proposal center is focusing on more strategic contract wins and we're very busy. In terms of issues [technical difficulty] that the large east coast contract that Rich has talked about, that had performance problems. These problems are being resolved. The contract is being renegotiated and the issue of past payments is being addressed. Barring unforeseen circumstances, we believe this contract will be back on track. The important point is that we believe the losses are behind us. In Baltimore, the legislation enabling the continued privatization of child support enforcement was passed overwhelmingly by the Maryland legislature. The authorizing legislation is on the Governor's desk with a deadline for signature of May 16. The performance compliant audit of our contract has started and Maryland authorities have requested all key documents by May 24. Our internal audit shows MAXIMUS in full compliance with the contract standards being reviewed. We welcome this external review and foresee no problems with the subsequent findings. In terms of acquisitions, MAXIMUS expects to close an acquisition in Australia very shortly. The target company has 400 staff and 77 locations throughout the country. The products and services of this company exactly mirror our capabilities in the welfare to work area. We want to use this company as a base for expansion in the Pacific Basis by adding healthcare and child support to the services the company offers. Australia is favorable to U.S. companies and interested in outsourcing human services.

In terms of our organization, at the board level, I want to publicly thank Jesse Brown for his years of service as a MAXIMUS board members. Regretfully Jesse resigned from the board last month due to health reasons. He will be missed greatly by all of us. At the same time, we're pleased to announce the additional of Marilyn Sieman [phonetic] as a new outside director and as a member of our audit committee. Marilyn is the President and CEO of M-1 a management and information technology consulting firm. She has extensive business background and currently serves on numerous corporate, as well as civic boards.

I'd also like to restate my welcome to Rich Montoni. In the few short weeks since his arrival, he has already proven himself to be a valuable addition to the MAXIMUS team. Our management team is getting stronger and stronger and more experienced. We are very optimistic about the future and eagerly await the challenges ahead.

At this point, I'd like to turn it over to take questions.

We'll take our first question from Bill Loomis [phonetic] with Legg Mason. Go ahead please.

Hi, thank you. Rich, can you clarify one thing, I thought you said in your commentary that guidance for the quarter was 48 cents to total 180 for the year. And, the press release says 45 cents. Which one is it?

Hold on a second, Bill, before we get into that, I want to clarify one point here on the WASO's. I may have said 29.3 the WASO's is 23.9.

Okay.

Okay?

Yes.

And, we'll go back approximately 45 per share. Our guidance has been 48 cents per share, Bill.

Okay, so the press release is correct?

What's that?

So, the press release is correct at 45 cents?

No. Our guidance is 48 cents per share. We'll have to find out whether or not we've got a typo or an error in this press release, Bill. But, our guidance is 48 cents per share, which should get you to the--.

We'll have to issue a correction.

We'll issue a correction.

Okay, the second question, the Australia, what made you look in Australia? That's new information and I don't follow it, but I know Tier [phonetic] was selling their Australian business, is this related to that company?

It's not related to Tier. We found a company there that, as I said, exactly mirrored our capabilities and is the largest in fact, for-profit, company delivering services to the -- in this area. And, we felt that, not only could they provide some added qualifications to us here in this country, but we could use them as a conduit for other business for them. So, it looked very attractive to us.

And where do you stand there, as far as closing it?

It should be imminent. It's imminent.

And, any revenue size that you could share?

Yes. We'll have this business combination for roughly two-thirds of this quarter. Its annual run rate, quarterly run rate, Bill, is order of magnitude $4 million per quarter. And, it should produce operating margins low 20's, high teens.

Okay, again, on Australia, I'm not familiar with that country or how its welfare programs, how is it from a government -- from a political standpoint, how is it similar to the U.S. states?

It's very similar to the U.S. We've been over there and, you know, we've got notation agreements from the government. It's surprisingly similar except it seems that they're a little more favorable toward outsourcing there, on a broader basis. And, we think that trend will continue.

Okay. Okay. Thank you.

Technical difficulties].

Hi. I guess I'm a little confused by some of the comments you're making in your call today. You highlighted the dramatic under valuation of your stock versus public transactions that have occurred. And, if I understood your right, you also highlighted the dramatic accretion to earnings per share if you were to buy back shares, but it also seems to me you're not taking steps to realize either one of these, would you care to comment?

I think, the Ernie--.

Ernie, the answer is is that the alternative use of our funds were to simply invest in money market. We look at buying other companies, the rate of return is obviously higher and the breakeven point would be much lower. So, we're looking at both of those.

What would preclude you from doing both? Why wouldn't you be able to buy shares, as well as pursue alternatives?

We are doing them.

Okay. Second question would be, again, going back to systems and other issues. I know Rich has been in there a relatively short time, I guess I'm a little surprised you're considering alternatives in Australia when the opportunities in the U.S. seem so abundant. And, it's abundantly clear all your systems are in place.

The Australian acquisition is self-sufficient in terms of systems and financial management. It represented an extraordinary opportunity to us, and we wanted to seize it. I think we got a good price on it. And, the prospects look very promising.

Can you give us a sense of how accretive it would be if you're successful buying it at your expected price?

It depends on the growth rates of it, but reasonably conservative rates just a couple of cents accretive.

Okay. Thank you.

We'll take our next question from Cynthia Holton with RBC Capital Markets. Go ahead please.

I just took a couple questions on the Australian combination that is in the guidance for the June quarter or is not in quarter guidance. You said two-thirds business combinations should be two-thirds of the quarter, so is the 48 cents and 130 to 135 include this Australian combination?

Yes, it does, Cynthia. When we talked on April 2 we noted that that was an item in our guidance at that point in time. And it is included in the guidance today.

Okay. In terms of -- then the next question, just on the human services margin change year-over-year, I know that you commented a little bit on a contract that you're no longer involved in, but can you talk about what happened on the margin side in the human services?

Let me get to the metrics. Our human services growth profit margin, Cynthia?

I'm sorry, operating margin?

You're interested in operating margin, okay. Let me break it down into two pieces. And, you're interested year-over-year or sequential, Cynthia?

More sequential I believe.

Okay. In our human services the gross margin sequential was 20.2 percent in this March quarter, which compares to 20.3 percent in the December quarter. So, the gross margin was flat sequentially, whereas, we had an increase in SG&A for that division from 11.2 to 13.4 or 220 basis points. It's really in SG&A dollars in the human services group. And, I think they're making -- and it's roughing order of magnitude of $400,000 in absolute SG&A expenses. I think that group is making some investments in people and infrastructure and planning for growth.

Okay, but in terms of normalizing for the rest of year, do you think that that should go back to kind of a historical range?

I wouldn't anticipate large -- I think what we should expect in increases in the revenue base and I wouldn't expect continued increases in SG&A. So, I would expect the net operating margin would normalize.

Okay. All right. Thank you.

Sure.

We'll take our next question from Tom Meeger [phonetic] with BBNT Capital Markets. Go ahead.

Thanks. Just a quick couple of housekeeping items, on the tax rate going forward, it looks like it's a little higher than it had been traditionally. Should we be modeling that a higher rate, or is that 40.5 or so what we should be looking for?

I think 40.5 is our targeting reasonable effective rate for the year.

Okay. And, then, in terms of the margin, obviously, the SG&A was high this quarter relative to what you've done historically. How do you see that coming down? What kind of magnitude and what do you have to do to get there?

Boy, that really is -- we're pulled in two directions. Obviously, we need to be very, very efficient and we need to watch the dollars that we spend and that's just a day in and day out battle and rationalizing what we spend. And, going in the other direction is really incurring costs to position the company for growth. So, I don't look for a huge rationalization from a SG&A perspective. And, it really is going to be, to the extent we achieve our revenue growth goals we'll have additional SG&A dollars to spend. So, we're going to try to maintain the SG&A as a percentage of revenues where we've been historical. And, I would not use this March quarter as any benchmark.

Okay. Now, would that imply some reduction in the overhead structure, then, to gentleman there, or is it other things you've got to tighten?

I would go actually, just getting revenues back on track and where they should be as opposed to reducing SG&A costs significantly.

Okay. And, then one final question, David, you mentioned some of the increased competition you're seeing.

Well, we're seeing all kind of firms we're seeing on a -- particularly in California like Oracle and Microsoft, believe it or not. We're also seeing more activity from firms like KPMG and Coopers, and there's more traditional firms that working this area, Jonas's Public Consulting Group [phonetic] and Health Management Systems.

Okay. Great. Thanks very much, I appreciate it.

We have a question from Christian Lindbergh with Lehman Brothers. Go ahead.

I was just wondering if you could tell us what the RFP's for the quarter where? You mentioned what they were in March and April; do you have the quarter numbers?

For the entire quarter?

Yes.

Let's see, I can just amount remember 147, I think for January, 202 for February and what was it, 144 for March.

Great. Thank you.

493.

493. Thanks for doing that addition for me.

Excuse me?

My second question is--.

Okay.

do you give us the total home offers in corporate staff headcounts for quarter end?

Total.

We ended the quarter with 4,876 employees, of which 195 are home officer personnel.

Great, that's all I had. Thanks so much.

We'll take our next question from Charles Trufton [phonetic] with Adams, Harkness and Hill [phonetic]. Go ahead please.

Thanks. The contract opportunities number that you all quoted was 649?

Yes.

Down from 933 a year ago. Does that compare to 729 in the December quarter-- I mean 721 in the December quarter?

Yes.

Okay. And, the contract signings of 247, that compares against 269 a year ago, is that right, and, 196 in December?

Let's see. Contracts signed, we have 221-- you're saying total contracts signed and awarded and unsigned?

Well, you had a 247 number there. I don't have the press release in front of me.

Right.

This 247, what does that compare with in the December quarter and a year ago?

It was 189 in Q1, in Q2 from last year, [indiscernible] 245 [indiscernible].

Was that your question?

Okay. Got it. So, the 247 is the year to date?

Yes.

And, it was what, 196 in the December quarter?

Yes.

Okay.

189. Okay.

Well, I would be remiss if I didn't say congratulations on a great on a great WASO. I just like to say WASO. Thanks.

Okay. We'll take our next question from Ted Jannus [phonetic] with Pollo Alto Investors [phonetic]. Go ahead, please.

I just wanted a definition on contract opportunities. David, I think that contract opportunities are probably just RFP's, is that correct?

Well, we break it into three parts. First is proposals pending, okay, and those are proposals we've already written and are in the government for evaluation. We add to that the proposals we're currently writing, which we obviously can value. And, then we add to that the proposals we're going to write, which we call RFP's tracking.

So, if you take what's already been submitted but hasn't been decided, what's in the process of being prepared and what we're about to do, we call that the opportunities.

Okay. And, then there was a little bit of confusion over that 933 million.

Right.

They originally said it was 721?

Well, that 721 is the first quarter of this year.

Okay.

That 933 is the comparable quarter last year.

Okay. And, my final question here is you have fiscal year-to-date contract wins totally 346 million, when are those revenues likely to be realized over how long of a time period?

Well, these contracts are -- we have contracts of varying lengths. You know, in the government ops area they tend to be three to five-year contracts. In the systems area they could be a one-year contracts and consulting a year to two years. So, it's -- we don't actually break that out. But, it's not all this fiscal year, that's for sure. It'll probably be spread out over a couple of years.

Over a couple of years?

Yes.

That is it for me. Thank you.

Okay. Next?

We have a question from Mike Marianosi [phonetic] with Massifs Capital [phonetic]. Go ahead, please.

Yes, hi, Rich. Do you have the capitalized software in the quarter?

You, too, Mike. We capitalized 1 million 754 is the gross number, Mike, net of amortization 1 million 090.

Okay. Can you just refresh my memory what exactly software are you capitalizing?

It's enhancement being added to some proprietary software and our assets solutions and justice groups.

Some case management.

And, some case management.

Sounds great. What were the deferred revenues at the end of March?

Deferred revenue at the end of March is $5,731,000.

Okay. So, that's a giant sequential decrease again and it's about half of where it was a year ago? What's going on with that particular line item?

At September 30, 2001 it was 10 million each.

Right. A year ago it was 10 million 7, down 3 million sequentially.

Deferred revenue is decreasing. And it's just based upon the status of contracts and the lifecycle of a contract. There's so many factors that can go into it. I don't know that there's any particular answer that gets you in terms of the decrease. It's just the status of what revenue the company's deferred based upon its estimates to complete the status of the contract, the length of the contracts, et cetera.

Okay. So, there's some change in the business because the number has never been anything remotely like this going back as far as I can.

Nothing stands out, but we'll look at it more carefully.

And, one thought comes to mind and I've got to tell you I haven't gone back years to study this, but as the mix of the nature of the projects change, for example consulting work generally, you don't have a whole lot of deferred revenue with consulting type contracts. I think it's more akin to large-scale, multiple-year type contracts. So, that in the consulting world, as we do more and more of that work, you would expect less deferred revenue related to that. The other driver I'm curious about, but I can't give you the definitive answer is just the nature of the terms of the contracts. And it's the inner play between the terms you strike as it relates to when you can bill and collect. And, basically how you recognize the revenue on the contracts.

Okay. Again, getting back to Cynthia's question regarding the operating margins and the human services, since it looks like year-over-year revenues are going to be flat, how exactly are the margins there going to be getting back with the levels they were in the December quarter?

You're asking this for the company as a whole, or--?

No, the human services, operating margins, which were down, you know, 225 basis points sequentially.

I think, again, I think the key is getting the revenues in that group back to the higher level, maintaining reasonable control and limiting the growth and absolute SG&A dollars. I don't see it as a gross margin issue like I think it's just maintaining the right balance between SG&A and getting the revenues to increase. And, I think the margins will get back to normalized percentage.

Okay. Do you happen the have the breakdown between health management and human services for the June quarter last year handy?

For the June quarter, I have six months. I have three months. I don't know -- hold on a second, I might be able to get that for you. And are you looking for gross profit percentage or SG&A percentage?

I'm just actually -- I was first looking for the -- we can do this offline. I'm looking for the whole shooting match, the revenues for both, the gross margins for both and the operating margins for both.

We have all that data.

All right. I'll give you a holler after.

Okay.

Thanks a lot.

We'll take our next question from Collin Gillis with RBC Capital Markets. Go ahead.

Yes, good morning. I just have a follow up on Cynthia's earlier question. Could you discuss a little bit about RevMAX and give us some percentage, perhaps, of revenue or consulting?

Lynn, would you want to take that?

Sure. As of the total consulting revenues let's see, looking at this, RevMAX is probably about, for 25 and 30 percent total of consulting revenues right now.

Okay. And, has that changed at all? I mean I think it's been around that number for the last couple quarters is that correct?

That's about where it's been, yes.

And, then how about -- could we discuss any trends about the differences in the state versus the local or the country market in terms of government?

I don't think there is any differentiation of -- there's -- nothing has changed really.

So, you mean the outlook for both markets are similar?

Yes.

Okay. Thanks. And, then, finally, any effective SAB 101 this quarter that we should be aware of?

I don't know. I don't think there's any impact of SAB 101 except that the company continues to adhere to the more stringent accounting that it had to adopt with SAB 101. Previously it had used false percentage completion and now it had -- it's adopted a policy which is driven by SAB 101 and that you book the revenue when the amount of the revenue is fixed and determinable, which brings it down the chain as it relates to at what point in time the company is able to bill and recognize its revenues.

Okay. That's great. Thank you very much.

We'll take our next question from Mike Lagg with Jeffries. Go ahead.

Thanks. Could you comment a little bit about the acquisition? You mentioned in stepping from March to June quarter there was a small acquisition is that the Australian acquisition you're talking about, or is there a different acquisition also?

That is the Australian acquisition.

Okay. Then, when you take your June quarter guidance and go to your September quarter guidance, what are the step-up's there, the reconciliations to go from -- if you take the mid-point 132.5 up to 145 in revenues?

I think we get a little extra bump from that particular acquisition because in the June quarter we'll only have owned it for roughly two-thirds of the quarter. And, in the September quarter we will have owned it for the entire quarter. So, we get a bit of a bump there and the remainder of the difference is really driven by pipeline analysis, opportunities and all of the data that David shared with you earlier as it relates to opportunities, new wins rolling onboard, et cetera.

Okay. Just one final question, David, I know you had been up on the east coast project trying to get that back into the shape. Are you still up there working on that?

I probably am going to go back in a couple of weeks. I think that it's focused in the right direction. The solutions are in the process of getting implemented. I'll simply go back to check on it. But, I'm pretty much out of there now.

Good. Okay. And, April, do you have any read on how April went?

In New Jersey?

No April, just overall for the whole business?

No, we don't, not at this point in time. We've been spending a lot of time getting ready for the call.

Okay. Thank you.

We have a question from Storus Stacco [phonetic] with Section Woods Advisors [phonetic]. Go ahead.

Hi, just going back to RevMAX is there risk to either the revenue side or the margins as new competitors come in?

Well, there hasn't been so far. As competitors have come in we've stepped up our activities also. We've won a number of jobs. We're in negotiations that we've been selected through contract processes and we're now finalizing contract negotiations. So, so far we have not [technical difficulty] real hard.

Okay. And, just to go back, I think earlier in the call someone said that business process outsourcing was soft or slow or something like that. Are there any signs of improvement and how are you doing against competitors in that area?

Basically, there have been some outsourcing in areas not traditionally in our prime core competencies. And we're going after a couple of those. But, it's just been quiet. We think it'll come back when there's money to initiate new programs. Because there's plenty of good ideas out there that states and local governments are going to want to implement.

Okay. Thanks a lot.

We have a follow-up from Tom Meeger with BBNT Capital Markets. Go ahead.

Yes, if I could just one other housekeeping item. You mentioned a pass-through in the systems group. I think it was in the year-ago quarter or was that the December quarter?

I think it was the December quarter.

Okay.

For about $2 million.

Okay, and was that an equipment pass-through?

Yes.

Okay. Great.

Related to an ERP project that we had signed up in that quarter and passed through that equipment.

Okay. And, passed through the equipment about 2 million. Okay. Thanks very much.

And, we have a follow-up from Charles Trufton, Adams Harkness and Hill. Go ahead.

I don't think you had any acquisitions in the last four quarters that contributed to revenue this quarter but not a year ago. So, is it safe to say that -- or is that true?

That's not true. We had a very small one I guess in February.

That's right. Actually there's two that you need to be aware of. One, in February, we had a small one, Collins Consulting Group. And, then we did have one May 11, `01, that, depending what you're looking at may have factored into your calculations, Charles.

So, the 1 percent year-over-year revenue growth it showed includes a couple of acquisitions. So, internal growth is probably about flat year-over-year?

I believe that's correct.

And, it sounds like about the same for the June, if you're counting in about 3 million for this acquisition?

I think that's fair.

Okay. Thanks.

We have no further questions at this time. I'll go ahead and turn it back to management.

Thank you for participating in the call. Please note that a replay of the call will begin today at noon and will be available until midnight on May the 9th. To get the replay please call 1-800-753-4601 in the United States, or 402-220-2092 internationally. It will rebroadcast on our website at www.maximus.com. Thank you very much.